{"id":49621,"date":"2020-02-13T10:07:51","date_gmt":"2020-02-13T15:07:51","guid":{"rendered":"https:\/\/www.smbtraining.com\/blog\/?p=49621"},"modified":"2020-02-13T10:07:51","modified_gmt":"2020-02-13T15:07:51","slug":"huge-options-trading-blunders-series-i-always-win-eventually-if-i-keep-rolling-my-short-puts-down-right-episode-5","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/huge-options-trading-blunders-series-i-always-win-eventually-if-i-keep-rolling-my-short-puts-down-right-episode-5","title":{"rendered":"Huge Options Trading Blunders Series: I always win eventually if I keep rolling my short puts down, right? (episode 5)"},"content":{"rendered":"

In this episode of our continuing series on huge options trading blunders, we discuss a completely insane idea that sounds totally reasonable on the surface to beginner options traders who don’t know better. We show a vivid example of how foolish this idea is.<\/p>\nView Video Transcript<\/strong><\/span>

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okay so today’s video is the fifth in<\/div>\n<\/div>\n<\/div>\n
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our series that we’ve entitled huge<\/div>\n<\/div>\n<\/div>\n
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options trading blunders we decided to<\/div>\n<\/div>\n<\/div>\n
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produce this series for traders who are<\/div>\n<\/div>\n<\/div>\n
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really serious about trading options for<\/div>\n<\/div>\n<\/div>\n
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a living and badly want to succeed but<\/div>\n<\/div>\n<\/div>\n
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they keep getting sidetracked by dopey<\/div>\n<\/div>\n<\/div>\n
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ideas with huge flaws in them instead of<\/div>\n<\/div>\n<\/div>\n
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taking the proper steps to excel as an<\/div>\n<\/div>\n<\/div>\n
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options trader<\/div>\n<\/div>\n<\/div>\n
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I’m the head trader of SMB capitals<\/div>\n<\/div>\n<\/div>\n
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options trading desk and I can tell you<\/div>\n<\/div>\n<\/div>\n
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from many years of experience that I’ve<\/div>\n<\/div>\n<\/div>\n
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seen that every one of the mistakes that<\/div>\n<\/div>\n<\/div>\n
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we’re going to be describing in these<\/div>\n<\/div>\n<\/div>\n
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videos they’re real and if you’re<\/div>\n<\/div>\n<\/div>\n
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serious about trading for a living you<\/div>\n<\/div>\n<\/div>\n
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really need to pay close attention to<\/div>\n<\/div>\n<\/div>\n
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these videos so that you can avoid<\/div>\n<\/div>\n<\/div>\n
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serious problems in your trading journey<\/div>\n<\/div>\n<\/div>\n
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so if you’re committed to trading<\/div>\n<\/div>\n<\/div>\n
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full-time as an options trader then I<\/div>\n<\/div>\n<\/div>\n
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urge you to watch this video and the<\/div>\n<\/div>\n<\/div>\n
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rest of the videos in this series so<\/div>\n<\/div>\n<\/div>\n
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that you don’t fall by the wayside like<\/div>\n<\/div>\n<\/div>\n
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so many aspiring traders who don’t want<\/div>\n<\/div>\n<\/div>\n
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to spend the time to learn the actual<\/div>\n<\/div>\n<\/div>\n
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truth about the rewards and challenges<\/div>\n<\/div>\n<\/div>\n
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of the options trading and the skills<\/div>\n<\/div>\n<\/div>\n
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you’ll need to truly succeed we want you<\/div>\n<\/div>\n<\/div>\n
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to take a realistic path to your trading<\/div>\n<\/div>\n<\/div>\n
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goals which are attainable if you’re<\/div>\n<\/div>\n<\/div>\n
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serious and willing to put the work in<\/div>\n<\/div>\n<\/div>\n
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to succeed<\/div>\n<\/div>\n<\/div>\n
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[Music]<\/div>\n<\/div>\n<\/div>\n
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hi I’m Seth Freuburg and I’m the head<\/div>\n<\/div>\n<\/div>\n
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trader of SMB capitalist options trading<\/div>\n<\/div>\n<\/div>\n
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desk SMB capital is a proprietary<\/div>\n<\/div>\n<\/div>\n
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trading firm located in midtown<\/div>\n<\/div>\n<\/div>\n
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Manhattan and we provide capital for<\/div>\n<\/div>\n<\/div>\n
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options and equity traders from all over<\/div>\n<\/div>\n<\/div>\n
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the world trading both remotely and in<\/div>\n<\/div>\n<\/div>\n
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our offices here in New York City now<\/div>\n<\/div>\n<\/div>\n
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I’d like to suggest that you click on<\/div>\n<\/div>\n<\/div>\n
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our subscribe button right now<\/div>\n<\/div>\n<\/div>\n
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so that you don’t miss any of our free<\/div>\n<\/div>\n<\/div>\n
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trading videos that we produce for<\/div>\n<\/div>\n<\/div>\n
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traders and investors all over the world<\/div>\n<\/div>\n<\/div>\n
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they’re really very valuable ok so today<\/div>\n<\/div>\n<\/div>\n
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we’re going to be looking at options<\/div>\n<\/div>\n<\/div>\n
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trading blunder number 5 in our series<\/div>\n<\/div>\n<\/div>\n
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on options misconceptions and huge<\/div>\n<\/div>\n<\/div>\n
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mistakes that you can make as an option<\/div>\n<\/div>\n<\/div>\n
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trader so blunder number 5 starts out as<\/div>\n<\/div>\n<\/div>\n
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most of these blunders do with a true<\/div>\n<\/div>\n<\/div>\n
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statement that unfortunately has a<\/div>\n<\/div>\n<\/div>\n
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hidden downside that you need to think<\/div>\n<\/div>\n<\/div>\n
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through but most people don’t and that<\/div>\n<\/div>\n<\/div>\n
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statement is this the market won’t go<\/div>\n<\/div>\n<\/div>\n
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down forever it will eventually bounce<\/div>\n<\/div>\n<\/div>\n
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no matter how bad things get and<\/div>\n<\/div>\n<\/div>\n
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historically that’s of course true even<\/div>\n<\/div>\n<\/div>\n
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in the depths of the Great Recession of<\/div>\n<\/div>\n<\/div>\n
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2008 and 2009 the market did eventually<\/div>\n<\/div>\n<\/div>\n
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bounce in fact it did so in March of<\/div>\n<\/div>\n<\/div>\n
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2009 and the current bull market has<\/div>\n<\/div>\n<\/div>\n
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pretty much remained intact ever since<\/div>\n<\/div>\n<\/div>\n
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with a few short-lived Corrections in<\/div>\n<\/div>\n<\/div>\n
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the mix now in order to explain how this<\/div>\n<\/div>\n<\/div>\n
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leads to an options trading blunder I<\/div>\n<\/div>\n<\/div>\n
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need to make sure you’re familiar with<\/div>\n<\/div>\n<\/div>\n
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the basics of how index options work if<\/div>\n<\/div>\n<\/div>\n
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you know something about options don’t<\/div>\n<\/div>\n<\/div>\n
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worry this will be quick and then we’ll<\/div>\n<\/div>\n<\/div>\n
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jump into the core of the lesson now<\/div>\n<\/div>\n<\/div>\n
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almost all of you are probably familiar<\/div>\n<\/div>\n<\/div>\n
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with equity options where call buys you<\/div>\n<\/div>\n<\/div>\n
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the right to buy 100 shares of a stock<\/div>\n<\/div>\n<\/div>\n
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at the strike price of that option any<\/div>\n<\/div>\n<\/div>\n
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time before the option expires and a put<\/div>\n<\/div>\n<\/div>\n
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option entitles you to sell 100 shares<\/div>\n<\/div>\n<\/div>\n
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at the strike price of the put before<\/div>\n<\/div>\n<\/div>\n
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that option expires but there are also<\/div>\n<\/div>\n<\/div>\n
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index options which works similarly to<\/div>\n<\/div>\n<\/div>\n
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equity options except there’s no such<\/div>\n<\/div>\n<\/div>\n
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thing as 100 shares of an index like the<\/div>\n<\/div>\n<\/div>\n
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S&P; 500 you can’t really buy or sell 100<\/div>\n<\/div>\n<\/div>\n
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shares of an index but what you can do<\/div>\n<\/div>\n<\/div>\n
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is get paid cash $100 per point if the<\/div>\n<\/div>\n<\/div>\n
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index expires before the strike price of<\/div>\n<\/div>\n<\/div>\n
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an index call that you buy or<\/div>\n<\/div>\n<\/div>\n
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alternatively you’d be paid $100 per<\/div>\n<\/div>\n<\/div>\n
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point for<\/div>\n<\/div>\n<\/div>\n
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point the index drops below the strike<\/div>\n<\/div>\n<\/div>\n
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price of your index foot so for example<\/div>\n<\/div>\n<\/div>\n
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if an index is trading at 1400 and you<\/div>\n<\/div>\n<\/div>\n
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buy the 1410 call if the index goes to<\/div>\n<\/div>\n<\/div>\n
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say 1415 you’d receive $500 in your<\/div>\n<\/div>\n<\/div>\n
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account if the index closes at 1410 or<\/div>\n<\/div>\n<\/div>\n
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lower your call expires worthless on the<\/div>\n<\/div>\n<\/div>\n
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other side of the ledger if you buy a<\/div>\n<\/div>\n<\/div>\n
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1385 put and the market sells off to<\/div>\n<\/div>\n<\/div>\n
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1375 you’d make $1,000 but if the market<\/div>\n<\/div>\n<\/div>\n
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just sold off to 13 85 or higher the put<\/div>\n<\/div>\n<\/div>\n
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would expire worthless so those are the<\/div>\n<\/div>\n<\/div>\n
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basics of index options and remember you<\/div>\n<\/div>\n<\/div>\n
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can buy options but your broker will<\/div>\n<\/div>\n<\/div>\n
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also allow you to sell options and your<\/div>\n<\/div>\n<\/div>\n
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broker will allow you to put together<\/div>\n<\/div>\n<\/div>\n
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combinations of options in other words<\/div>\n<\/div>\n<\/div>\n
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options strategies that involve both<\/div>\n<\/div>\n<\/div>\n
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long and short options purchased in a<\/div>\n<\/div>\n<\/div>\n
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way that is that I’ve been Tages to you<\/div>\n<\/div>\n<\/div>\n
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as a trader okay so now armed with that<\/div>\n<\/div>\n<\/div>\n
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knowledge let’s talk about this idea<\/div>\n<\/div>\n<\/div>\n
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which some option traders have which<\/div>\n<\/div>\n<\/div>\n
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seems so amazing on the surface yet it’s<\/div>\n<\/div>\n<\/div>\n
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so incredibly insane and dangerous once<\/div>\n<\/div>\n<\/div>\n
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you start digging into it a little bit<\/div>\n<\/div>\n<\/div>\n
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deeper so let’s drill down a little bit<\/div>\n<\/div>\n<\/div>\n
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deeper about the fallacy that we’re<\/div>\n<\/div>\n<\/div>\n
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highlighting in today’s lesson and we<\/div>\n<\/div>\n<\/div>\n
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can do that through a vivid example from<\/div>\n<\/div>\n<\/div>\n
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the real world that could have taken<\/div>\n<\/div>\n<\/div>\n
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place very easily in the past one of<\/div>\n<\/div>\n<\/div>\n
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many examples that I could have shown<\/div>\n<\/div>\n<\/div>\n
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you today ok so let’s go back to August<\/div>\n<\/div>\n<\/div>\n
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17 2015 now on that day let’s suppose<\/div>\n<\/div>\n<\/div>\n
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you said to yourself hey I think I’d<\/div>\n<\/div>\n<\/div>\n
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like to pull about 3000 dollars out of<\/div>\n<\/div>\n<\/div>\n
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the market over the next 12 days because<\/div>\n<\/div>\n<\/div>\n
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Valentine’s Day is coming up and I need<\/div>\n<\/div>\n<\/div>\n
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the money or for whatever reason so you<\/div>\n<\/div>\n<\/div>\n
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figure well I know something about index<\/div>\n<\/div>\n<\/div>\n
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options so let’s see on that day the<\/div>\n<\/div>\n<\/div>\n
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sp500 was trading it around 2100 so if I<\/div>\n<\/div>\n<\/div>\n
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go in and sell 10 of the 2040 puts<\/div>\n<\/div>\n<\/div>\n
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expiring in 12 days and the market<\/div>\n<\/div>\n<\/div>\n
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closes at or above 2040 in 12 days then<\/div>\n<\/div>\n<\/div>\n
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I walk away with 3000 $450 why because<\/div>\n<\/div>\n<\/div>\n
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the option sells for 3 dollars and 45<\/div>\n<\/div>\n<\/div>\n
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cents but the option obligates you to<\/div>\n<\/div>\n<\/div>\n
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pay $100 for each point below 2040 if<\/div>\n<\/div>\n<\/div>\n
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the market sells also you multiply that<\/div>\n<\/div>\n<\/div>\n
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price by 100 and since you sold 10 of<\/div>\n<\/div>\n<\/div>\n
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them you<\/div>\n<\/div>\n<\/div>\n
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collect a total of three thousand four<\/div>\n<\/div>\n<\/div>\n
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hundred fifty dollars now if the market<\/div>\n<\/div>\n<\/div>\n
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closes above twenty fourty then you have<\/div>\n<\/div>\n<\/div>\n
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no obligation to pay anything because<\/div>\n<\/div>\n<\/div>\n
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the deal was that you’d have to pay $100<\/div>\n<\/div>\n<\/div>\n
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for each option for each point below<\/div>\n<\/div>\n<\/div>\n
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twenty forty so any closing price of SPX<\/div>\n<\/div>\n<\/div>\n
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above that means that the option expires<\/div>\n<\/div>\n<\/div>\n
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with no value no obligation on your part<\/div>\n<\/div>\n<\/div>\n
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and you just walk away with three<\/div>\n<\/div>\n<\/div>\n
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thousand four hundred fifty dollars so<\/div>\n<\/div>\n<\/div>\n
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that was your Valentine’s Day plan now<\/div>\n<\/div>\n<\/div>\n
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because of the risk that you’re taking<\/div>\n<\/div>\n<\/div>\n
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on with these ten puts your broker is<\/div>\n<\/div>\n<\/div>\n
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actually going to require you to have<\/div>\n<\/div>\n<\/div>\n
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two hundred fifty five thousand dollars<\/div>\n<\/div>\n<\/div>\n
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in your account to make sure that if<\/div>\n<\/div>\n<\/div>\n
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there’s a really big move down in the<\/div>\n<\/div>\n<\/div>\n
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market you could be obligated to come up<\/div>\n<\/div>\n<\/div>\n
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with a large amount of money to pay for<\/div>\n<\/div>\n<\/div>\n
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your obligations for those ten puts and<\/div>\n<\/div>\n<\/div>\n
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that money needs to be in your account<\/div>\n<\/div>\n<\/div>\n
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now in options trading there’s a concept<\/div>\n<\/div>\n<\/div>\n
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called Delta and it’s defined in<\/div>\n<\/div>\n<\/div>\n
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different ways but it roughly equates to<\/div>\n<\/div>\n<\/div>\n
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the probability that you’ll actually<\/div>\n<\/div>\n<\/div>\n
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have to pay off on options that you sold<\/div>\n<\/div>\n<\/div>\n
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so if an option has a delta of twenty<\/div>\n<\/div>\n<\/div>\n
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then there’s a 20% chance that the<\/div>\n<\/div>\n<\/div>\n
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option would expire in the money which<\/div>\n<\/div>\n<\/div>\n
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would be a bad thing because then you’d<\/div>\n<\/div>\n<\/div>\n
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have to pay off on the option you sold<\/div>\n<\/div>\n<\/div>\n
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as opposed to just walking away with the<\/div>\n<\/div>\n<\/div>\n
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money that you got for selling the<\/div>\n<\/div>\n<\/div>\n
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options you don’t have to figure it out<\/div>\n<\/div>\n<\/div>\n
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on your own incidentally every major<\/div>\n<\/div>\n<\/div>\n
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options broker will tell you the Delta<\/div>\n<\/div>\n<\/div>\n
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of any option for you on their platform<\/div>\n<\/div>\n<\/div>\n
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so anyway let’s say your system which<\/div>\n<\/div>\n<\/div>\n
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would be a very common system let’s say<\/div>\n<\/div>\n<\/div>\n
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that your system is that every time the<\/div>\n<\/div>\n<\/div>\n
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Delta of your option gets up to 20 then<\/div>\n<\/div>\n<\/div>\n
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you’ll buy back that put and roll it<\/div>\n<\/div>\n<\/div>\n
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down to an option on that same options<\/div>\n<\/div>\n<\/div>\n
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chain that is now a 10 Delta option<\/div>\n<\/div>\n<\/div>\n
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which is safer and farther away from the<\/div>\n<\/div>\n<\/div>\n
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market and because at that point you’ll<\/div>\n<\/div>\n<\/div>\n
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almost always be down money on the trade<\/div>\n<\/div>\n<\/div>\n
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then you’ll have to sell more options in<\/div>\n<\/div>\n<\/div>\n
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order to be able to make money on the<\/div>\n<\/div>\n<\/div>\n
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trade at the end of the day so at this<\/div>\n<\/div>\n<\/div>\n
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point you might think well hey if the<\/div>\n<\/div>\n<\/div>\n
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market sells off that’s okay I’ll just<\/div>\n<\/div>\n<\/div>\n
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roll my options down to a lower strike<\/div>\n<\/div>\n<\/div>\n
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and sell enough options at the new<\/div>\n<\/div>\n<\/div>\n
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strike to still be able to make money on<\/div>\n<\/div>\n<\/div>\n
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the trade right so I mean I really can’t<\/div>\n<\/div>\n<\/div>\n
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lose ultimately can I<\/div>\n<\/div>\n<\/div>\n
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I just keep rolling down till I win<\/div>\n<\/div>\n<\/div>\n
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right I mean the market will eventually<\/div>\n<\/div>\n<\/div>\n
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bounce right<\/div>\n<\/div>\n<\/div>\n
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always does in other words you’ll get<\/div>\n<\/div>\n<\/div>\n
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lured into options blunder number five<\/div>\n<\/div>\n<\/div>\n
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which says I’ll always win eventually if<\/div>\n<\/div>\n<\/div>\n
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I keep rolling my short puts down right<\/div>\n<\/div>\n<\/div>\n
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and this is a very common belief among<\/div>\n<\/div>\n<\/div>\n
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beginner option traders now before we<\/div>\n<\/div>\n<\/div>\n
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explain why this idea which seems so<\/div>\n<\/div>\n<\/div>\n
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logical on the surface is actually<\/div>\n<\/div>\n<\/div>\n
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completely and utterly insane and will<\/div>\n<\/div>\n<\/div>\n
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never work I wanted to let you know that<\/div>\n<\/div>\n<\/div>\n
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there really are sound techniques for<\/div>\n<\/div>\n<\/div>\n
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trading options for income and in fact<\/div>\n<\/div>\n<\/div>\n
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we’re currently running a – our free<\/div>\n<\/div>\n<\/div>\n
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intensive workshop where we’ll be<\/div>\n<\/div>\n<\/div>\n
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teaching you three of the strategies<\/div>\n<\/div>\n<\/div>\n
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that real professional options traders<\/div>\n<\/div>\n<\/div>\n
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use including a really simple but<\/div>\n<\/div>\n<\/div>\n
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incredibly effective strategy that some<\/div>\n<\/div>\n<\/div>\n
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of the greatest investors in the world<\/div>\n<\/div>\n<\/div>\n
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like Warren Buffett use all the time<\/div>\n<\/div>\n<\/div>\n
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plus an options trading strategy that<\/div>\n<\/div>\n<\/div>\n
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has a statistical 80 percent probability<\/div>\n<\/div>\n<\/div>\n
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of profit month in and month out plus an<\/div>\n<\/div>\n<\/div>\n
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option strategy that you could employ<\/div>\n<\/div>\n<\/div>\n
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with a stock that you like where you’ll<\/div>\n<\/div>\n<\/div>\n
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make your target profit whether the<\/div>\n<\/div>\n<\/div>\n
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stock goes up goes nowhere or even goes<\/div>\n<\/div>\n<\/div>\n
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down as a small percentage so if those<\/div>\n<\/div>\n<\/div>\n
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strategies would be of interest to you<\/div>\n<\/div>\n<\/div>\n
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then you should check out the free<\/div>\n<\/div>\n<\/div>\n
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\n
options class that we’re currently<\/div>\n<\/div>\n<\/div>\n
\n
\n
running just go ahead and click the link<\/div>\n<\/div>\n<\/div>\n
\n
\n
that should be appearing now at the top<\/div>\n<\/div>\n<\/div>\n
\n
\n
right corner of your screen that will<\/div>\n<\/div>\n<\/div>\n
\n
\n
open the free registration page in the<\/div>\n<\/div>\n<\/div>\n
\n
\n
new window so don’t worry you won’t lose<\/div>\n<\/div>\n<\/div>\n
\n
\n
this video or you can just head on over<\/div>\n<\/div>\n<\/div>\n
\n
\n
to options class com to register for<\/div>\n<\/div>\n<\/div>\n
\n
\n
this free intensive workshop it’s a rare<\/div>\n<\/div>\n<\/div>\n
\n
\n
opportunity for retail traders and<\/div>\n<\/div>\n<\/div>\n
\n
\n
investors to learn directly from Wall<\/div>\n<\/div>\n<\/div>\n
\n
\n
Street traders but that’s exactly what<\/div>\n<\/div>\n<\/div>\n
\n
\n
you’ll be getting through this free<\/div>\n<\/div>\n<\/div>\n
\n
\n
online workshop so click the link to<\/div>\n<\/div>\n<\/div>\n
\n
\n
sign up now and don’t miss it<\/div>\n<\/div>\n<\/div>\n
\n
\n
so let’s get back to our example so we<\/div>\n<\/div>\n<\/div>\n
\n
\n
sold those 10 puts at twenty forty<\/div>\n<\/div>\n<\/div>\n
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\n
twelve days out from the expiration and<\/div>\n<\/div>\n<\/div>\n
\n
\n
now let’s move forward to August 20th<\/div>\n<\/div>\n<\/div>\n
\n
\n
now on that day the market opened up<\/div>\n<\/div>\n<\/div>\n
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down sharply most traders will wait till<\/div>\n<\/div>\n<\/div>\n
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about 10:30 to make moves on their<\/div>\n<\/div>\n<\/div>\n
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options income trades and so in this<\/div>\n<\/div>\n<\/div>\n
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case the 2040 options had actually moved<\/div>\n<\/div>\n<\/div>\n
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up to 41 deltas which makes sense now<\/div>\n<\/div>\n<\/div>\n
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that the markets of 2050 to the 2040<\/div>\n<\/div>\n<\/div>\n
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options we sold are only 12 points away<\/div>\n<\/div>\n<\/div>\n
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with nine days to expire so shouldn’t be<\/div>\n<\/div>\n<\/div>\n
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surprising that the chances of those<\/div>\n<\/div>\n<\/div>\n
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expiring in-the-money have now risen to<\/div>\n<\/div>\n<\/div>\n
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41% so with our protocol once we get<\/div>\n<\/div>\n<\/div>\n
\n
\n
into the area of 20 or higher we have to<\/div>\n<\/div>\n<\/div>\n
\n
\n
roll the options down to closer to the<\/div>\n<\/div>\n<\/div>\n
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\n
10 Delta options at that time so let’s<\/div>\n<\/div>\n<\/div>\n
\n
\n
take a look at what happens next it’s<\/div>\n<\/div>\n<\/div>\n
\n
\n
important to understand this<\/div>\n<\/div>\n<\/div>\n
\n
\n
so our protocol dictates that we must<\/div>\n<\/div>\n<\/div>\n
\n
\n
buy back to 2040 puts well those have<\/div>\n<\/div>\n<\/div>\n
\n
\n
really increased in price because now<\/div>\n<\/div>\n<\/div>\n
\n
\n
they’re so close to the market so the<\/div>\n<\/div>\n<\/div>\n
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ones selling them is now taking on a<\/div>\n<\/div>\n<\/div>\n
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huge amount of risk if there’s a 41%<\/div>\n<\/div>\n<\/div>\n
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chance that they’ll have to pay off and<\/div>\n<\/div>\n<\/div>\n
\n
\n
so to close those short positions and<\/div>\n<\/div>\n<\/div>\n
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\n
buy those back is going to be very<\/div>\n<\/div>\n<\/div>\n
\n
\n
expensive and in this case it’s $16.25<\/div>\n<\/div>\n<\/div>\n
\n
\n
but remember you only sold those for 3<\/div>\n<\/div>\n<\/div>\n
\n
\n
dollars and 45 cents so to roll your<\/div>\n<\/div>\n<\/div>\n
\n
\n
puts is gonna cost you a lot of money so<\/div>\n<\/div>\n<\/div>\n
\n
\n
now you’ll see that we’ve rolled down<\/div>\n<\/div>\n<\/div>\n
\n
\n
but we also increased our size to 35 put<\/div>\n<\/div>\n<\/div>\n
\n
\n
options now it’s crucial for you to<\/div>\n<\/div>\n<\/div>\n
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\n
understand why we had to increase to 35<\/div>\n<\/div>\n<\/div>\n
\n
\n
put options so remember we originally<\/div>\n<\/div>\n<\/div>\n
\n
\n
received three thousand four hundred<\/div>\n<\/div>\n<\/div>\n
\n
\n
fifty dollars for the 2040 puts well to<\/div>\n<\/div>\n<\/div>\n
\n
\n
close them and roll them down we’re<\/div>\n<\/div>\n<\/div>\n
\n
\n
gonna need to pay sixteen thousand two<\/div>\n<\/div>\n<\/div>\n
\n
\n
hundred fifty dollars now if we roll<\/div>\n<\/div>\n<\/div>\n
\n
\n
down to the ten Delta options at the<\/div>\n<\/div>\n<\/div>\n
\n
\n
1975 strike you’ll see that they’re<\/div>\n<\/div>\n<\/div>\n
\n
\n
priced at three dollars and ninety five<\/div>\n<\/div>\n<\/div>\n
\n
\n
cents so even to get back up to about<\/div>\n<\/div>\n<\/div>\n
\n
\n
just one thousand dollars of cash flow<\/div>\n<\/div>\n<\/div>\n
\n
\n
you need to buy thirty-five of them<\/div>\n<\/div>\n<\/div>\n
\n
\n
because much less than that and you<\/div>\n<\/div>\n<\/div>\n
\n
\n
don’t even overcome the deficit from the<\/div>\n<\/div>\n<\/div>\n
\n
\n
first roll well now the market would<\/div>\n<\/div>\n<\/div>\n
\n
\n
have to drop a lot to hit those 1975<\/div>\n<\/div>\n<\/div>\n
\n
\n
puts but still you’ve taken on the risk<\/div>\n<\/div>\n<\/div>\n
\n
\n
now of thirty-five foots so now your<\/div>\n<\/div>\n<\/div>\n
\n
\n
broker is it going to require a ton more<\/div>\n<\/div>\n<\/div>\n
\n
\n
capital from you and in fact you’ll need<\/div>\n<\/div>\n<\/div>\n
\n
\n
over eight hundred nineteen thousand<\/div>\n<\/div>\n<\/div>\n
\n
\n
dollars of capital to roll down and<\/div>\n<\/div>\n<\/div>\n
\n
\n
we’ve just gotten started so yes it’s<\/div>\n<\/div>\n<\/div>\n
\n
\n
possible to sell enough puts to have<\/div>\n<\/div>\n<\/div>\n
\n
\n
positive cash flow but it requires a lot<\/div>\n<\/div>\n<\/div>\n
\n
\n
more capital than the original trade now<\/div>\n<\/div>\n<\/div>\n
\n
\n
let’s move forward to the next day<\/div>\n<\/div>\n<\/div>\n
\n
\n
you’ll see that the SPX is now sold off<\/div>\n<\/div>\n<\/div>\n
\n
\n
again this time down to 2015<\/div>\n<\/div>\n<\/div>\n
\n
\n
so that has pushed our 1975 puts to 27<\/div>\n<\/div>\n<\/div>\n
\n
\n
Delta’s so it’s time for us to roll<\/div>\n<\/div>\n<\/div>\n
\n
\n
those down again 50 points<\/div>\n<\/div>\n<\/div>\n
\n
\n
19:25 strikes which are a hundred<\/div>\n<\/div>\n<\/div>\n
\n
\n
fifteen points below our original<\/div>\n<\/div>\n<\/div>\n
\n
\n
strikes so now let’s take a look at why<\/div>\n<\/div>\n<\/div>\n
\n
\n
we had to sell 75 of those well remember<\/div>\n<\/div>\n<\/div>\n
\n
\n
the deficit from the first roll was<\/div>\n<\/div>\n<\/div>\n
\n
\n
twelve eight but we brought back in<\/div>\n<\/div>\n<\/div>\n
\n
\n
thirteen thousand eight twenty five from<\/div>\n<\/div>\n<\/div>\n
\n
\n
selling the thirty-five puts but now to<\/div>\n<\/div>\n<\/div>\n
\n
\n
buy those back as the market has sold<\/div>\n<\/div>\n<\/div>\n
\n
\n
off so dramatically we will need to pay<\/div>\n<\/div>\n<\/div>\n
\n
\n
twelve dollars and fifteen cents and<\/div>\n<\/div>\n<\/div>\n
\n
\n
we’ve got 35 of them to buy back this<\/div>\n<\/div>\n<\/div>\n
\n
\n
time so it will cost us forty two<\/div>\n<\/div>\n<\/div>\n
\n
\n
thousand dollars to buy those back and<\/div>\n<\/div>\n<\/div>\n
\n
\n
roll them down and now it will take us<\/div>\n<\/div>\n<\/div>\n
\n
\n
seventy five options at the nineteen<\/div>\n<\/div>\n<\/div>\n
\n
\n
twenty five strike to make up all of<\/div>\n<\/div>\n<\/div>\n
\n
\n
that loss from the previous rolls and<\/div>\n<\/div>\n<\/div>\n
\n
\n
still be able to eke out about a<\/div>\n<\/div>\n<\/div>\n
\n
\n
thousand dollars from the trade but now<\/div>\n<\/div>\n<\/div>\n
\n
\n
that we’re selling seventy five options<\/div>\n<\/div>\n<\/div>\n
\n
\n
our broker is going to require us to<\/div>\n<\/div>\n<\/div>\n
\n
\n
have in our account over 1 million six<\/div>\n<\/div>\n<\/div>\n
\n
\n
hundred sixteen thousand dollars because<\/div>\n<\/div>\n<\/div>\n
\n
\n
of the much larger risk of this trade so<\/div>\n<\/div>\n<\/div>\n
\n
\n
by now I think you may already have<\/div>\n<\/div>\n<\/div>\n
\n
\n
figured out where this is going and I<\/div>\n<\/div>\n<\/div>\n
\n
\n
won’t go into as much detail on every<\/div>\n<\/div>\n<\/div>\n
\n
\n
roll but just quickly at the end of that<\/div>\n<\/div>\n<\/div>\n
\n
\n
same day August 21st we had to roll<\/div>\n<\/div>\n<\/div>\n
\n
\n
again and this time we had to roll down<\/div>\n<\/div>\n<\/div>\n
\n
\n
to the eighteen hundred strike and sell<\/div>\n<\/div>\n<\/div>\n
\n
\n
two hundred eighteen puts just the turn<\/div>\n<\/div>\n<\/div>\n
\n
\n
our cashflow positive again because at<\/div>\n<\/div>\n<\/div>\n
\n
\n
that point we were down a hundred fifty<\/div>\n<\/div>\n<\/div>\n
\n
\n
four thousand dollars on this trade and<\/div>\n<\/div>\n<\/div>\n
\n
\n
now our capital requirement has<\/div>\n<\/div>\n<\/div>\n
\n
\n
skyrocketed to over four million dollars<\/div>\n<\/div>\n<\/div>\n
\n
\n
three days later the market tubes again<\/div>\n<\/div>\n<\/div>\n
\n
\n
and now we’re down three hundred<\/div>\n<\/div>\n<\/div>\n
\n
\n
fourteen thousand dollars and we’re<\/div>\n<\/div>\n<\/div>\n
\n
\n
forced to roll down yet again but this<\/div>\n<\/div>\n<\/div>\n
\n
\n
time we have to sell that’s right<\/div>\n<\/div>\n<\/div>\n
\n
\n
365 puts to get to barely positive cash<\/div>\n<\/div>\n<\/div>\n
\n
\n
flow and now our capital requirements<\/div>\n<\/div>\n<\/div>\n
\n
\n
have ballooned to six and a half million<\/div>\n<\/div>\n<\/div>\n
\n
\n
dollars so let’s just summarize to show<\/div>\n<\/div>\n<\/div>\n
\n
\n
you how unseen this guy we started out<\/div>\n<\/div>\n<\/div>\n
\n
\n
with ten puts and a capital requirement<\/div>\n<\/div>\n<\/div>\n
\n
\n
of two hundred fifty five thousand<\/div>\n<\/div>\n<\/div>\n
\n
\n
dollars and by the time we’re done we<\/div>\n<\/div>\n<\/div>\n
\n
\n
were selling three hundred sixty five<\/div>\n<\/div>\n<\/div>\n
\n
\n
foots and our broker was requiring us to<\/div>\n<\/div>\n<\/div>\n
\n
\n
put up over six and a half million<\/div>\n<\/div>\n<\/div>\n
\n
\n
dollars in our account to cover our risk<\/div>\n<\/div>\n<\/div>\n
\n
\n
now that was the<\/div>\n<\/div>\n<\/div>\n
\n
\n
roll and at the end of the day you would<\/div>\n<\/div>\n<\/div>\n
\n
\n
have in fact made money on the trade the<\/div>\n<\/div>\n<\/div>\n
\n
\n
market did bounce at that point and the<\/div>\n<\/div>\n<\/div>\n
\n
\n
trade would have actually been very<\/div>\n<\/div>\n<\/div>\n
\n
\n
slightly profitable when the options<\/div>\n<\/div>\n<\/div>\n
\n
\n
expired but that’s obviously not the<\/div>\n<\/div>\n<\/div>\n
\n
\n
point the real point should by now be<\/div>\n<\/div>\n<\/div>\n
\n
\n
fairly obvious you started out with a<\/div>\n<\/div>\n<\/div>\n
\n
\n
nice idea to buy your wife or girlfriend<\/div>\n<\/div>\n<\/div>\n
\n
\n
some jewelry on Valentine’s Day and you<\/div>\n<\/div>\n<\/div>\n
\n
\n
end up before the final roll downs three<\/div>\n<\/div>\n<\/div>\n
\n
\n
hundred fourteen thousand dollars on the<\/div>\n<\/div>\n<\/div>\n
\n
\n
trade and having to put up six and a<\/div>\n<\/div>\n<\/div>\n
\n
\n
half million dollars just the more or<\/div>\n<\/div>\n<\/div>\n
\n
\n
less breakeven on the trade now why<\/div>\n<\/div>\n<\/div>\n
\n
\n
don’t you close your eyes and just<\/div>\n<\/div>\n<\/div>\n
\n
\n
imagine the slow-motion train wreck of<\/div>\n<\/div>\n<\/div>\n
\n
\n
this trade even if you did have a spare<\/div>\n<\/div>\n<\/div>\n
\n
\n
six and a half million dollars lying<\/div>\n<\/div>\n<\/div>\n
\n
\n
around do you think you would have<\/div>\n<\/div>\n<\/div>\n
\n
\n
exposed it to this trade when you were<\/div>\n<\/div>\n<\/div>\n
\n
\n
down three hundred fourteen thousand<\/div>\n<\/div>\n<\/div>\n
\n
\n
dollars and had to sell three hundred<\/div>\n<\/div>\n<\/div>\n
\n
\n
sixty-five puts just to put yourself<\/div>\n<\/div>\n<\/div>\n
\n
\n
into a position to basically break even<\/div>\n<\/div>\n<\/div>\n
\n
\n
on the trade will allow me to bring you<\/div>\n<\/div>\n<\/div>\n
\n
\n
into the real world<\/div>\n<\/div>\n<\/div>\n
\n
\n
no one has no emotions and no one has an<\/div>\n<\/div>\n<\/div>\n
\n
\n
infinite amount of capital and even if<\/div>\n<\/div>\n<\/div>\n
\n
\n
you did I have never met the person who<\/div>\n<\/div>\n<\/div>\n
\n
\n
would just keep digging a deeper and<\/div>\n<\/div>\n<\/div>\n
\n
\n
deeper hole for himself even though it’s<\/div>\n<\/div>\n<\/div>\n
\n
\n
an undeniable fact that if you threw<\/div>\n<\/div>\n<\/div>\n
\n
\n
enough capital this trade you’d always<\/div>\n<\/div>\n<\/div>\n
\n
\n
eventually make a little bit of money<\/div>\n<\/div>\n<\/div>\n
\n
\n
but you’re human and you do have<\/div>\n<\/div>\n<\/div>\n
\n
\n
emotions and you certainly don’t have<\/div>\n<\/div>\n<\/div>\n
\n
\n
unlimited capital and so one point you<\/div>\n<\/div>\n<\/div>\n
\n
\n
would cry uncle because you wouldn’t be<\/div>\n<\/div>\n<\/div>\n
\n
\n
able to take the risk and the pressure<\/div>\n<\/div>\n<\/div>\n
\n
\n
of this trade if you can’t intuit that<\/div>\n<\/div>\n<\/div>\n
\n
\n
from this presentation then just take my<\/div>\n<\/div>\n<\/div>\n
\n
\n
word for it you would have bailed out at<\/div>\n<\/div>\n<\/div>\n
\n
\n
some point in this process and taken a<\/div>\n<\/div>\n<\/div>\n
\n
\n
huge loss so please do yourself a favor<\/div>\n<\/div>\n<\/div>\n
\n
\n
and do not ever get trapped into the<\/div>\n<\/div>\n<\/div>\n
\n
\n
thinking of options blunder number five<\/div>\n<\/div>\n<\/div>\n
\n
\n
I’ll always win eventually if I keep<\/div>\n<\/div>\n<\/div>\n
\n
\n
rolling my short puts down right the<\/div>\n<\/div>\n<\/div>\n
\n
\n
irony is that it’s an absolutely true<\/div>\n<\/div>\n<\/div>\n
\n
\n
statement but it’s utterly an insane and<\/div>\n<\/div>\n<\/div>\n
\n
\n
impossible to tolerate in the real world<\/div>\n<\/div>\n<\/div>\n
\n
\n
not the fantasy world of no emotions and<\/div>\n<\/div>\n<\/div>\n
\n
\n
unlimited capital professional traders<\/div>\n<\/div>\n<\/div>\n
\n
\n
would never fall into this trap and you<\/div>\n<\/div>\n<\/div>\n
\n
\n
shouldn’t as well now just to remind you<\/div>\n<\/div>\n<\/div>\n
\n
\n
as I said earlier if you enjoyed this<\/div>\n<\/div>\n<\/div>\n
\n
\n
video and learn something valuable from<\/div>\n<\/div>\n<\/div>\n
\n
\n
it and would like to learn the details<\/div>\n<\/div>\n<\/div>\n
\n
\n
of three real-world<\/div>\n<\/div>\n<\/div>\n
\n
\n
often strategies that professional<\/div>\n<\/div>\n<\/div>\n
\n
\n
options traders use all the time then<\/div>\n<\/div>\n<\/div>\n
\n
\n
you should check out the free options<\/div>\n<\/div>\n<\/div>\n
\n
\n
class that we’re currently running just<\/div>\n<\/div>\n<\/div>\n
\n
\n
go ahead and click the link that should<\/div>\n<\/div>\n<\/div>\n
\n
\n
be appearing now at the top right corner<\/div>\n<\/div>\n<\/div>\n
\n
\n
of your screen that will open the free<\/div>\n<\/div>\n<\/div>\n
\n
\n
registration page in a new window so you<\/div>\n<\/div>\n<\/div>\n
\n
\n
won’t lose this video<\/div>\n<\/div>\n<\/div>\n
\n
\n
don’t worry or you could just head on<\/div>\n<\/div>\n<\/div>\n
\n
\n
over to options class comm to register<\/div>\n<\/div>\n<\/div>\n
\n
\n
for this free intensive workshop it’s<\/div>\n<\/div>\n<\/div>\n
\n
\n
really a rare opportunity for retail<\/div>\n<\/div>\n<\/div>\n
\n
\n
traders and investors to learn directly<\/div>\n<\/div>\n<\/div>\n
\n
\n
from Wall Street traders but that’s<\/div>\n<\/div>\n<\/div>\n
\n
\n
exactly what you’ll be getting through<\/div>\n<\/div>\n<\/div>\n
\n
\n
this free online workshop so click the<\/div>\n<\/div>\n<\/div>\n
\n
\n
link to sign up now and don’t miss it<\/div>\n<\/div>\n<\/div>\n
\n
\n
and one more thing please don’t forget<\/div>\n<\/div>\n<\/div>\n
\n
\n
to click on the subscribe button right<\/div>\n<\/div>\n<\/div>\n
\n
\n
now so you won’t miss the next episode<\/div>\n<\/div>\n<\/div>\n
\n
\n
of huge options trading blunders and all<\/div>\n<\/div>\n<\/div>\n
\n
\n
the other free trading videos that we’re<\/div>\n<\/div>\n<\/div>\n
\n
\n
posting constantly on our channel to<\/div>\n<\/div>\n<\/div>\n
\n
\n
help you to improve your game as an<\/div>\n<\/div>\n<\/div>\n
\n
\n
options trader<\/div>\n<\/div>\n<\/div>\n
\n
\n
<\/div><\/div>\n<\/div>\n<\/div>\n

\"\"<\/a><\/p>\n

* no relevant positions<\/p>\n","protected":false},"excerpt":{"rendered":"

In this episode of our continuing series on huge options trading blunders, we discuss a completely insane idea that sounds totally reasonable on the surface to beginner options traders who don’t know better. We show a vivid example of how foolish this idea is. * no relevant positions<\/p>\n","protected":false},"author":290,"featured_media":49622,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[4189],"tags":[],"class_list":["post-49621","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-free-daily-trading-video","post_format-post-format-video"],"yoast_head":"\nHuge Options Trading Blunders Series: I always win eventually if I keep rolling my short puts down, right? (episode 5) | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/huge-options-trading-blunders-series-i-always-win-eventually-if-i-keep-rolling-my-short-puts-down-right-episode-5\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Huge Options Trading Blunders Series: I always win eventually if I keep rolling my short puts down, right? (episode 5) | SMB Training\" \/>\n<meta property=\"og:description\" content=\"In this episode of our continuing series on huge options trading blunders, we discuss a completely insane idea that sounds totally reasonable on the surface to beginner options traders who don’t know better. 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