{"id":51278,"date":"2021-06-25T14:14:17","date_gmt":"2021-06-25T18:14:17","guid":{"rendered":"https:\/\/www.smbtraining.com\/blog\/?p=51278"},"modified":"2021-06-25T14:14:17","modified_gmt":"2021-06-25T18:14:17","slug":"a-really-dopey-options-trading-concept","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/a-really-dopey-options-trading-concept","title":{"rendered":"A Really Dopey Options Trading Concept"},"content":{"rendered":"

Buying options instead of buying equities can seem very attractive on the surface to novice traders because of the low cost of entry compared to buying shares of stock. But there is a hidden fallacy in thinking in this way. In this video, Seth Freudberg, Head Options Trader of SMB Capital\u2019s options trading desk, breaks down the details of this fallacy and how to avoid falling into it.<\/p>\nView Video Transcript<\/strong><\/span>

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adobe is trading for 572 dollars a share<\/div>\n<\/div>\n<\/div>\n
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so<\/div>\n<\/div>\n<\/div>\n
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if you wanted to buy a hundred shares<\/div>\n<\/div>\n<\/div>\n
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you’d have to pony up fifty seven<\/div>\n<\/div>\n<\/div>\n
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thousand two hundred dollars but what if<\/div>\n<\/div>\n<\/div>\n
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there was a way to control one hundred<\/div>\n<\/div>\n<\/div>\n
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shares of adobe<\/div>\n<\/div>\n<\/div>\n
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for only ninety six dollars i’m seth<\/div>\n<\/div>\n<\/div>\n
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freubert the head trader of smb capitals<\/div>\n<\/div>\n<\/div>\n
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options trading desk here in manhattan<\/div>\n<\/div>\n<\/div>\n
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and the traders on our desk here<\/div>\n<\/div>\n<\/div>\n
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have a full understanding of how options<\/div>\n<\/div>\n<\/div>\n
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work how to trade them<\/div>\n<\/div>\n<\/div>\n
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and more importantly how not to trade<\/div>\n<\/div>\n<\/div>\n
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them so while the idea of controlling<\/div>\n<\/div>\n<\/div>\n
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100<\/div>\n<\/div>\n<\/div>\n
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shares of adobe for 96 dollars may sound<\/div>\n<\/div>\n<\/div>\n
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like an<\/div>\n<\/div>\n<\/div>\n
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awesome idea in this video we’ll show<\/div>\n<\/div>\n<\/div>\n
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you the<\/div>\n<\/div>\n<\/div>\n
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fallacy in that concept and hopefully<\/div>\n<\/div>\n<\/div>\n
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save you a lot of money in the process<\/div>\n<\/div>\n<\/div>\n
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so stick around so that you can be a<\/div>\n<\/div>\n<\/div>\n
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smarter trader and not get suckered into<\/div>\n<\/div>\n<\/div>\n
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dopey concepts that have hidden flaws<\/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 freuberg and i’m the head<\/div>\n<\/div>\n<\/div>\n
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trader of smb capital’s options trading<\/div>\n<\/div>\n<\/div>\n
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desk<\/div>\n<\/div>\n<\/div>\n
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smb capital is a proprietary trading<\/div>\n<\/div>\n<\/div>\n
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firm located in midtown manhattan<\/div>\n<\/div>\n<\/div>\n
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and we provide capital for options and<\/div>\n<\/div>\n<\/div>\n
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equity traders from all over the world<\/div>\n<\/div>\n<\/div>\n
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trading both remotely<\/div>\n<\/div>\n<\/div>\n
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and in our offices here in new york city<\/div>\n<\/div>\n<\/div>\n
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now i’d like to suggest that you click<\/div>\n<\/div>\n<\/div>\n
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on 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<\/div>\n<\/div>\n<\/div>\n
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for traders and investors all over the<\/div>\n<\/div>\n<\/div>\n
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world they’re really<\/div>\n<\/div>\n<\/div>\n
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very valuable okay so this is going to<\/div>\n<\/div>\n<\/div>\n
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be a pretty blunt video today because<\/div>\n<\/div>\n<\/div>\n
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there are certain<\/div>\n<\/div>\n<\/div>\n
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frankly dopey concepts floating around<\/div>\n<\/div>\n<\/div>\n
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in the trading world and i feel an<\/div>\n<\/div>\n<\/div>\n
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obligation<\/div>\n<\/div>\n<\/div>\n
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now and then to debunk them because we<\/div>\n<\/div>\n<\/div>\n
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try to keep it real here at smb capital<\/div>\n<\/div>\n<\/div>\n
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and<\/div>\n<\/div>\n<\/div>\n
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it annoys me to honestly see people get<\/div>\n<\/div>\n<\/div>\n
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sucked into new and different ways to<\/div>\n<\/div>\n<\/div>\n
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lose your money<\/div>\n<\/div>\n<\/div>\n
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and i think that it’s important to be<\/div>\n<\/div>\n<\/div>\n
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educated as to how to stay away from<\/div>\n<\/div>\n<\/div>\n
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these<\/div>\n<\/div>\n<\/div>\n
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get rich quick schemes in the options<\/div>\n<\/div>\n<\/div>\n
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world because<\/div>\n<\/div>\n<\/div>\n
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short of just hitting the lottery in the<\/div>\n<\/div>\n<\/div>\n
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real world of trading you have to<\/div>\n<\/div>\n<\/div>\n
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actually<\/div>\n<\/div>\n<\/div>\n
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work to become competent and<\/div>\n<\/div>\n<\/div>\n
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consistently profitable<\/div>\n<\/div>\n<\/div>\n
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and you just can’t get around that you<\/div>\n<\/div>\n<\/div>\n
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see a lot of people are attracted to<\/div>\n<\/div>\n<\/div>\n
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options trading<\/div>\n<\/div>\n<\/div>\n
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because they don’t really have enough<\/div>\n<\/div>\n<\/div>\n
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money to buy 100 shares of a stock like<\/div>\n<\/div>\n<\/div>\n
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adobe which i understand completely<\/div>\n<\/div>\n<\/div>\n
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because everyone has to start trading<\/div>\n<\/div>\n<\/div>\n
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with whatever capital they have but they<\/div>\n<\/div>\n<\/div>\n
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have heard<\/div>\n<\/div>\n<\/div>\n
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options are really cheap and you can<\/div>\n<\/div>\n<\/div>\n
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somehow control<\/div>\n<\/div>\n<\/div>\n
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100 shares of a stock way cheaper with<\/div>\n<\/div>\n<\/div>\n
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options than you can<\/div>\n<\/div>\n<\/div>\n
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outright buying the shares so they want<\/div>\n<\/div>\n<\/div>\n
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to know more<\/div>\n<\/div>\n<\/div>\n
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about options now in order to explain<\/div>\n<\/div>\n<\/div>\n
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why there’s a huge<\/div>\n<\/div>\n<\/div>\n
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flaw in thinking this way i need to make<\/div>\n<\/div>\n<\/div>\n
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sure that you understand how<\/div>\n<\/div>\n<\/div>\n
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call options on stocks work for those of<\/div>\n<\/div>\n<\/div>\n
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you familiar with call options just hang<\/div>\n<\/div>\n<\/div>\n
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in there<\/div>\n<\/div>\n<\/div>\n
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this is going to be really quick and<\/div>\n<\/div>\n<\/div>\n
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then we’ll jump back into the lesson of<\/div>\n<\/div>\n<\/div>\n
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this video really fast<\/div>\n<\/div>\n<\/div>\n
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okay so what’s known as a call option on<\/div>\n<\/div>\n<\/div>\n
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a stock entitles the buyer<\/div>\n<\/div>\n<\/div>\n
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of that option to purchase 100 shares of<\/div>\n<\/div>\n<\/div>\n
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a stock<\/div>\n<\/div>\n<\/div>\n
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that at a certain price called the<\/div>\n<\/div>\n<\/div>\n
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strike price of that option<\/div>\n<\/div>\n<\/div>\n
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regardless of what price the stock’s<\/div>\n<\/div>\n<\/div>\n
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trading at the buyer of a call option<\/div>\n<\/div>\n<\/div>\n
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pays what’s called a<\/div>\n<\/div>\n<\/div>\n
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premium to the seller of the option<\/div>\n<\/div>\n<\/div>\n
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because the seller of the option is<\/div>\n<\/div>\n<\/div>\n
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taking the risk<\/div>\n<\/div>\n<\/div>\n
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that the stock will go way above the<\/div>\n<\/div>\n<\/div>\n
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strike price of his call option<\/div>\n<\/div>\n<\/div>\n
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in which case the buyer can exercise his<\/div>\n<\/div>\n<\/div>\n
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option and the seller could lose money<\/div>\n<\/div>\n<\/div>\n
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on the transaction<\/div>\n<\/div>\n<\/div>\n
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because he’ll have to sell the shares to<\/div>\n<\/div>\n<\/div>\n
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you for far less than the value they’re<\/div>\n<\/div>\n<\/div>\n
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showing<\/div>\n<\/div>\n<\/div>\n
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in his account but it’s important to<\/div>\n<\/div>\n<\/div>\n
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realize<\/div>\n<\/div>\n<\/div>\n
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that if the stock on the expiration date<\/div>\n<\/div>\n<\/div>\n
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if the call option<\/div>\n<\/div>\n<\/div>\n
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is not above the strike price of the<\/div>\n<\/div>\n<\/div>\n
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call then the seller of that call just<\/div>\n<\/div>\n<\/div>\n
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pockets the premium that he was given by<\/div>\n<\/div>\n<\/div>\n
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the buyer he walks away completely free<\/div>\n<\/div>\n<\/div>\n
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of any obligations because no one would<\/div>\n<\/div>\n<\/div>\n
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exercise the right to buy<\/div>\n<\/div>\n<\/div>\n
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a stock at a price higher than is<\/div>\n<\/div>\n<\/div>\n
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trading in the open market<\/div>\n<\/div>\n<\/div>\n
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and so in a nutshell that’s how call<\/div>\n<\/div>\n<\/div>\n
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options work<\/div>\n<\/div>\n<\/div>\n
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so you’ll very often hear individual<\/div>\n<\/div>\n<\/div>\n
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traders say gee i love trading options<\/div>\n<\/div>\n<\/div>\n
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because the most i can lose<\/div>\n<\/div>\n<\/div>\n
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is the cost of the option which i’ve<\/div>\n<\/div>\n<\/div>\n
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heard are really cheap<\/div>\n<\/div>\n<\/div>\n
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whereas with shares of stock i can lose<\/div>\n<\/div>\n<\/div>\n
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way more than that because i’m putting<\/div>\n<\/div>\n<\/div>\n
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so much more<\/div>\n<\/div>\n<\/div>\n
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money up and they say to themselves just<\/div>\n<\/div>\n<\/div>\n
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think about the leverage i’m employing<\/div>\n<\/div>\n<\/div>\n
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here<\/div>\n<\/div>\n<\/div>\n
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how smart i am because if i spend a<\/div>\n<\/div>\n<\/div>\n
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little bit of money on the option<\/div>\n<\/div>\n<\/div>\n
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and the stock goes above my call strike<\/div>\n<\/div>\n<\/div>\n
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price by expiration day then i could get<\/div>\n<\/div>\n<\/div>\n
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a return of<\/div>\n<\/div>\n<\/div>\n
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a thousand percent or more and that’s<\/div>\n<\/div>\n<\/div>\n
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theoretically true<\/div>\n<\/div>\n<\/div>\n
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for instance let’s say that we thought<\/div>\n<\/div>\n<\/div>\n
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adobe stock was going to go up<\/div>\n<\/div>\n<\/div>\n
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over 600 by mid-july for whatever reason<\/div>\n<\/div>\n<\/div>\n
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but suppose with the stock trading at<\/div>\n<\/div>\n<\/div>\n
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572<\/div>\n<\/div>\n<\/div>\n
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we don’t have a spare 57 200<\/div>\n<\/div>\n<\/div>\n
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to spend on 100 shares but we do have 96<\/div>\n<\/div>\n<\/div>\n
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well then we could spend 96 by buying<\/div>\n<\/div>\n<\/div>\n
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a 635 adobe call expiring on july 16th<\/div>\n<\/div>\n<\/div>\n
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and what that means is that on july 16th<\/div>\n<\/div>\n<\/div>\n
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if adobe has rallied to above 635 to say<\/div>\n<\/div>\n<\/div>\n
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646 that call would be worth a lot of<\/div>\n<\/div>\n<\/div>\n
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money because<\/div>\n<\/div>\n<\/div>\n
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we could buy those shares at 635 and<\/div>\n<\/div>\n<\/div>\n
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immediately turn around and sell them<\/div>\n<\/div>\n<\/div>\n
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for 646 in the market making eleven<\/div>\n<\/div>\n<\/div>\n
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dollars per share<\/div>\n<\/div>\n<\/div>\n
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as you can see from the calculation<\/div>\n<\/div>\n<\/div>\n
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because you’d be buying the shares for<\/div>\n<\/div>\n<\/div>\n
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6.35<\/div>\n<\/div>\n<\/div>\n
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the sprite strike price of your call but<\/div>\n<\/div>\n<\/div>\n
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you could sell them for 646<\/div>\n<\/div>\n<\/div>\n
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immediately and so you’d make 11 on each<\/div>\n<\/div>\n<\/div>\n
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share<\/div>\n<\/div>\n<\/div>\n
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times 100 shares because each options<\/div>\n<\/div>\n<\/div>\n
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contract<\/div>\n<\/div>\n<\/div>\n
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represents 100 shares of stock cashing<\/div>\n<\/div>\n<\/div>\n
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it in<\/div>\n<\/div>\n<\/div>\n
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for a total of eleven hundred dollars<\/div>\n<\/div>\n<\/div>\n
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and then if you deduct the original cost<\/div>\n<\/div>\n<\/div>\n
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of the option<\/div>\n<\/div>\n<\/div>\n
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you’ll see that the net profit on the<\/div>\n<\/div>\n<\/div>\n
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trade is one thousand and four dollars<\/div>\n<\/div>\n<\/div>\n
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which when compared<\/div>\n<\/div>\n<\/div>\n
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to the original ninety six dollars does<\/div>\n<\/div>\n<\/div>\n
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indeed produce a return of over<\/div>\n<\/div>\n<\/div>\n
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one thousand percent in a very short<\/div>\n<\/div>\n<\/div>\n
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period of time<\/div>\n<\/div>\n<\/div>\n
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less than a month before we get into why<\/div>\n<\/div>\n<\/div>\n
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there’s a<\/div>\n<\/div>\n<\/div>\n
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giant fallacy in this whole discussion<\/div>\n<\/div>\n<\/div>\n
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of buying cheap options to make huge<\/div>\n<\/div>\n<\/div>\n
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returns<\/div>\n<\/div>\n<\/div>\n
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i’d like to let you know that there<\/div>\n<\/div>\n<\/div>\n
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really are real and effective option<\/div>\n<\/div>\n<\/div>\n
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strategies<\/div>\n<\/div>\n<\/div>\n
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and if you want to learn three<\/div>\n<\/div>\n<\/div>\n
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legitimate option strategies<\/div>\n<\/div>\n<\/div>\n
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that our pro traders use including the<\/div>\n<\/div>\n<\/div>\n
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unique options trick that allows you to<\/div>\n<\/div>\n<\/div>\n
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make money<\/div>\n<\/div>\n<\/div>\n
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while you wait to buy stocks or etfs at<\/div>\n<\/div>\n<\/div>\n
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the price you want<\/div>\n<\/div>\n<\/div>\n
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or the options income strategy that<\/div>\n<\/div>\n<\/div>\n
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allows you to make<\/div>\n<\/div>\n<\/div>\n
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consistent money whether the market goes<\/div>\n<\/div>\n<\/div>\n
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up down or sideways and<\/div>\n<\/div>\n<\/div>\n
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how to make money on a stock or index<\/div>\n<\/div>\n<\/div>\n
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trade even if you’re outright<\/div>\n<\/div>\n<\/div>\n
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wrong on the direction click the link<\/div>\n<\/div>\n<\/div>\n
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that should be appearing now at the top<\/div>\n<\/div>\n<\/div>\n
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right corner of your screen that will<\/div>\n<\/div>\n<\/div>\n
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open the free workshop<\/div>\n<\/div>\n<\/div>\n
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registration page in a new window so<\/div>\n<\/div>\n<\/div>\n
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don’t worry you won’t lose this video<\/div>\n<\/div>\n<\/div>\n
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or you can register directly for free at<\/div>\n<\/div>\n<\/div>\n
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optionsclass.com<\/div>\n<\/div>\n<\/div>\n
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believe me you don’t want to miss this<\/div>\n<\/div>\n<\/div>\n
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so pause this video<\/div>\n<\/div>\n<\/div>\n
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sign up now and then resume watching<\/div>\n<\/div>\n<\/div>\n
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getting back to our adobe example<\/div>\n<\/div>\n<\/div>\n
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you may be wondering hey this sounds<\/div>\n<\/div>\n<\/div>\n
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great i mean i put up 96 bucks<\/div>\n<\/div>\n<\/div>\n
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and i make over a thousand percent<\/div>\n<\/div>\n<\/div>\n
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return on that small investment in a<\/div>\n<\/div>\n<\/div>\n
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very short period of time<\/div>\n<\/div>\n<\/div>\n
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so what could be wrong with this i’m<\/div>\n<\/div>\n<\/div>\n
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living the dream right<\/div>\n<\/div>\n<\/div>\n
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but there’s a problem with that thinking<\/div>\n<\/div>\n<\/div>\n
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and the problem goes like this<\/div>\n<\/div>\n<\/div>\n
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you see when somebody says to you the<\/div>\n<\/div>\n<\/div>\n
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most i can lose is the cost of the<\/div>\n<\/div>\n<\/div>\n
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option<\/div>\n<\/div>\n<\/div>\n
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what they’re really saying to you is the<\/div>\n<\/div>\n<\/div>\n
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most i can lose is<\/div>\n<\/div>\n<\/div>\n
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100 of my investment because the cost of<\/div>\n<\/div>\n<\/div>\n
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the option<\/div>\n<\/div>\n<\/div>\n
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is your investment so somebody said to<\/div>\n<\/div>\n<\/div>\n
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you the most i can lose is 100 of my<\/div>\n<\/div>\n<\/div>\n
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investment<\/div>\n<\/div>\n<\/div>\n
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that wouldn’t sound so great but that in<\/div>\n<\/div>\n<\/div>\n
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fact is exactly<\/div>\n<\/div>\n<\/div>\n
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what you’re being told when someone says<\/div>\n<\/div>\n<\/div>\n
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the most you can lose is the cost of the<\/div>\n<\/div>\n<\/div>\n
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option<\/div>\n<\/div>\n<\/div>\n
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as though it’s not a big deal to lose<\/div>\n<\/div>\n<\/div>\n
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100<\/div>\n<\/div>\n<\/div>\n
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of what you put into the trade but the<\/div>\n<\/div>\n<\/div>\n
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fact is that most people who buy<\/div>\n<\/div>\n<\/div>\n
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cheap options are exposing themselves to<\/div>\n<\/div>\n<\/div>\n
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losing 100 of their investment and to<\/div>\n<\/div>\n<\/div>\n
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make matters<\/div>\n<\/div>\n<\/div>\n
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worse the probability of this happening<\/div>\n<\/div>\n<\/div>\n
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losing 100 of his investment is<\/div>\n<\/div>\n<\/div>\n
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extremely high<\/div>\n<\/div>\n<\/div>\n
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over 90 in most cases when you’re<\/div>\n<\/div>\n<\/div>\n
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referring to<\/div>\n<\/div>\n<\/div>\n
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cheap options so let’s take a look back<\/div>\n<\/div>\n<\/div>\n
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at this<\/div>\n<\/div>\n<\/div>\n
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adobe example that we were just<\/div>\n<\/div>\n<\/div>\n
\n
\n
discussing but this time<\/div>\n<\/div>\n<\/div>\n
\n
\n
we’re going to focus on something else<\/div>\n<\/div>\n<\/div>\n
\n
\n
not the cheap<\/div>\n<\/div>\n<\/div>\n
\n
\n
price of the option but rather the<\/div>\n<\/div>\n<\/div>\n
\n
\n
crucial issue of the probability<\/div>\n<\/div>\n<\/div>\n
\n
\n
of that cheap 96 dollar option having<\/div>\n<\/div>\n<\/div>\n
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\n
any value at all on the day that it<\/div>\n<\/div>\n<\/div>\n
\n
\n
expires<\/div>\n<\/div>\n<\/div>\n
\n
\n
which is july 16th in this case so if<\/div>\n<\/div>\n<\/div>\n
\n
\n
you look at the column called<\/div>\n<\/div>\n<\/div>\n
\n
\n
delta on this options chain you’ll see<\/div>\n<\/div>\n<\/div>\n
\n
\n
that the option has what is known as a<\/div>\n<\/div>\n<\/div>\n
\n
\n
delta of 6.09<\/div>\n<\/div>\n<\/div>\n
\n
\n
now an options delta is arrived at<\/div>\n<\/div>\n<\/div>\n
\n
\n
through a mathematical formula<\/div>\n<\/div>\n<\/div>\n
\n
\n
which projects how much the option’s<\/div>\n<\/div>\n<\/div>\n
\n
\n
value will change<\/div>\n<\/div>\n<\/div>\n
\n
\n
with a one-point move in the stock from<\/div>\n<\/div>\n<\/div>\n
\n
\n
which it’s derived<\/div>\n<\/div>\n<\/div>\n
\n
\n
but a delta has also been shown to<\/div>\n<\/div>\n<\/div>\n
\n
\n
approximate<\/div>\n<\/div>\n<\/div>\n
\n
\n
the probability that an option will have<\/div>\n<\/div>\n<\/div>\n
\n
\n
a value on the day it expires<\/div>\n<\/div>\n<\/div>\n
\n
\n
in other words the probability that<\/div>\n<\/div>\n<\/div>\n
\n
\n
adobe will get past<\/div>\n<\/div>\n<\/div>\n
\n
\n
that call 635 strike price by the time<\/div>\n<\/div>\n<\/div>\n
\n
\n
these options expire<\/div>\n<\/div>\n<\/div>\n
\n
\n
and so what this means is that as a rule<\/div>\n<\/div>\n<\/div>\n
\n
\n
of thumb there is a<\/div>\n<\/div>\n<\/div>\n
\n
\n
6.04 likelihood that the option will<\/div>\n<\/div>\n<\/div>\n
\n
\n
have<\/div>\n<\/div>\n<\/div>\n
\n
\n
any value at all on the day it expires<\/div>\n<\/div>\n<\/div>\n
\n
\n
and so<\/div>\n<\/div>\n<\/div>\n
\n
\n
putting it more realistically it has a<\/div>\n<\/div>\n<\/div>\n
\n
\n
94<\/div>\n<\/div>\n<\/div>\n
\n
\n
chance of expiring completely and<\/div>\n<\/div>\n<\/div>\n
\n
\n
utterly<\/div>\n<\/div>\n<\/div>\n
\n
\n
worthless on the day it expires because<\/div>\n<\/div>\n<\/div>\n
\n
\n
the chances<\/div>\n<\/div>\n<\/div>\n
\n
\n
of adobe closing below 635 on that day<\/div>\n<\/div>\n<\/div>\n
\n
\n
are actually super high meaning you just<\/div>\n<\/div>\n<\/div>\n
\n
\n
burned up<\/div>\n<\/div>\n<\/div>\n
\n
\n
96 dollars in a game that you should<\/div>\n<\/div>\n<\/div>\n
\n
\n
have known going in<\/div>\n<\/div>\n<\/div>\n
\n
\n
had a 94 chance of being a losing<\/div>\n<\/div>\n<\/div>\n
\n
\n
proposition and so if you do the math if<\/div>\n<\/div>\n<\/div>\n
\n
\n
you do that exact same trade<\/div>\n<\/div>\n<\/div>\n
\n
\n
over and over again you will lose 15 out<\/div>\n<\/div>\n<\/div>\n
\n
\n
of 16 times<\/div>\n<\/div>\n<\/div>\n
\n
\n
and that’s because the probability is so<\/div>\n<\/div>\n<\/div>\n
\n
\n
high of that call expiring worthless<\/div>\n<\/div>\n<\/div>\n
\n
\n
so what this means is that if you do<\/div>\n<\/div>\n<\/div>\n
\n
\n
this trade 16 times in a row<\/div>\n<\/div>\n<\/div>\n
\n
\n
the overwhelming likelihood is that you<\/div>\n<\/div>\n<\/div>\n
\n
\n
will lose almost every single one of<\/div>\n<\/div>\n<\/div>\n
\n
\n
those times<\/div>\n<\/div>\n<\/div>\n
\n
\n
and so therefore if you made this<\/div>\n<\/div>\n<\/div>\n
\n
\n
equivalent trade<\/div>\n<\/div>\n<\/div>\n
\n
\n
16 times the losses on those 15 trades<\/div>\n<\/div>\n<\/div>\n
\n
\n
would be 1440<\/div>\n<\/div>\n<\/div>\n
\n
\n
meaning that just to break even and make<\/div>\n<\/div>\n<\/div>\n
\n
\n
no money<\/div>\n<\/div>\n<\/div>\n
\n
\n
but at least not lose anything you’d<\/div>\n<\/div>\n<\/div>\n
\n
\n
need to make 1440<\/div>\n<\/div>\n<\/div>\n
\n
\n
on that one winning trade meaning the<\/div>\n<\/div>\n<\/div>\n
\n
\n
stock price would have to go<\/div>\n<\/div>\n<\/div>\n
\n
\n
way past the strike price of the call on<\/div>\n<\/div>\n<\/div>\n
\n
\n
that one out of 16 times<\/div>\n<\/div>\n<\/div>\n
\n
\n
and that’s only to break even mind you<\/div>\n<\/div>\n<\/div>\n
\n
\n
and if you do the math on that you need<\/div>\n<\/div>\n<\/div>\n
\n
\n
a to have a fifteen hundred percent<\/div>\n<\/div>\n<\/div>\n
\n
\n
return<\/div>\n<\/div>\n<\/div>\n
\n
\n
on that one winning trade just to break<\/div>\n<\/div>\n<\/div>\n
\n
\n
even<\/div>\n<\/div>\n<\/div>\n
\n
\n
that’s the hurdle that you have to<\/div>\n<\/div>\n<\/div>\n
\n
\n
overcome on that one<\/div>\n<\/div>\n<\/div>\n
\n
\n
trade just to break even otherwise the<\/div>\n<\/div>\n<\/div>\n
\n
\n
whole thing has been a fiasco<\/div>\n<\/div>\n<\/div>\n
\n
\n
doesn’t sound so great now does it under<\/div>\n<\/div>\n<\/div>\n
\n
\n
the light of honest<\/div>\n<\/div>\n<\/div>\n
\n
\n
scrutiny in other words what this means<\/div>\n<\/div>\n<\/div>\n
\n
\n
is that even if<\/div>\n<\/div>\n<\/div>\n
\n
\n
right out of the blocks i make a<\/div>\n<\/div>\n<\/div>\n
\n
\n
thousand percent return<\/div>\n<\/div>\n<\/div>\n
\n
\n
on a long way out of the money cheap<\/div>\n<\/div>\n<\/div>\n
\n
\n
call trade like this<\/div>\n<\/div>\n<\/div>\n
\n
\n
the likelihood is i’ll give it all back<\/div>\n<\/div>\n<\/div>\n
\n
\n
and more<\/div>\n<\/div>\n<\/div>\n
\n
\n
if i continuously make an equivalent<\/div>\n<\/div>\n<\/div>\n
\n
\n
trade the next 15 times<\/div>\n<\/div>\n<\/div>\n
\n
\n
because there’s such a high probability<\/div>\n<\/div>\n<\/div>\n
\n
\n
that i’ll lose the trade<\/div>\n<\/div>\n<\/div>\n
\n
\n
in the first place so next time that<\/div>\n<\/div>\n<\/div>\n
\n
\n
someone brags to you about a thousand<\/div>\n<\/div>\n<\/div>\n
\n
\n
percent gain<\/div>\n<\/div>\n<\/div>\n
\n
\n
on an out of the money call option the<\/div>\n<\/div>\n<\/div>\n
\n
\n
next question should be well tell me<\/div>\n<\/div>\n<\/div>\n
\n
\n
how many times have you lost money<\/div>\n<\/div>\n<\/div>\n
\n
\n
making that same trade and at that point<\/div>\n<\/div>\n<\/div>\n
\n
\n
they’re pretty likely to change the<\/div>\n<\/div>\n<\/div>\n
\n
\n
subject so remember<\/div>\n<\/div>\n<\/div>\n
\n
\n
when someone says to you all i can lose<\/div>\n<\/div>\n<\/div>\n
\n
\n
is the cost of the option<\/div>\n<\/div>\n<\/div>\n
\n
\n
that’s like saying all i can lose is<\/div>\n<\/div>\n<\/div>\n
\n
\n
everything<\/div>\n<\/div>\n<\/div>\n
\n
\n
and to make the experience even more<\/div>\n<\/div>\n<\/div>\n
\n
\n
pleasurable you’ll lose<\/div>\n<\/div>\n<\/div>\n
\n
\n
100 of your investment 94 of the time<\/div>\n<\/div>\n<\/div>\n
\n
\n
that’s what these guys are bragging<\/div>\n<\/div>\n<\/div>\n
\n
\n
about and it makes no sense<\/div>\n<\/div>\n<\/div>\n
\n
\n
and that’s because they leave out the<\/div>\n<\/div>\n<\/div>\n
\n
\n
probabilities<\/div>\n<\/div>\n<\/div>\n
\n
\n
when they’re telling you they’re one<\/div>\n<\/div>\n<\/div>\n
\n
\n
anecdotal big win<\/div>\n<\/div>\n<\/div>\n
\n
\n
so to me it’s pretty much a losing<\/div>\n<\/div>\n<\/div>\n
\n
\n
proposition now<\/div>\n<\/div>\n<\/div>\n
\n
\n
selling those same options where you<\/div>\n<\/div>\n<\/div>\n
\n
\n
would win<\/div>\n<\/div>\n<\/div>\n
\n
\n
94 of the time that sounds like<\/div>\n<\/div>\n<\/div>\n
\n
\n
something a little more interesting to<\/div>\n<\/div>\n<\/div>\n
\n
\n
me<\/div>\n<\/div>\n<\/div>\n
\n
\n
and that approach being net sellers of<\/div>\n<\/div>\n<\/div>\n
\n
\n
what is known as options time premium<\/div>\n<\/div>\n<\/div>\n
\n
\n
is the kind of trading that we practice<\/div>\n<\/div>\n<\/div>\n
\n
\n
on our desk and that’s a completely<\/div>\n<\/div>\n<\/div>\n
\n
\n
different sort of story for another day<\/div>\n<\/div>\n<\/div>\n
\n
\n
now just to remind you if you’re serious<\/div>\n<\/div>\n<\/div>\n
\n
\n
about your trading<\/div>\n<\/div>\n<\/div>\n
\n
\n
you’ll need to check out the free<\/div>\n<\/div>\n<\/div>\n
\n
\n
intensive options class<\/div>\n<\/div>\n<\/div>\n
\n
\n
that we’re currently running where<\/div>\n<\/div>\n<\/div>\n
\n
\n
you’ll learn three real world option<\/div>\n<\/div>\n<\/div>\n
\n
\n
strategies that our professional options<\/div>\n<\/div>\n<\/div>\n
\n
\n
traders use<\/div>\n<\/div>\n<\/div>\n
\n
\n
all the time so just click the link that<\/div>\n<\/div>\n<\/div>\n
\n
\n
should be appearing now at the top<\/div>\n<\/div>\n<\/div>\n
\n
\n
right corner of your screen or you can<\/div>\n<\/div>\n<\/div>\n
\n
\n
just head on over<\/div>\n<\/div>\n<\/div>\n
\n
\n
to optionsclass.com to register for this<\/div>\n<\/div>\n<\/div>\n
\n
\n
free workshop directly it really<\/div>\n<\/div>\n<\/div>\n
\n
\n
is a rare opportunity for retail traders<\/div>\n<\/div>\n<\/div>\n
\n
\n
and investors to learn<\/div>\n<\/div>\n<\/div>\n
\n
\n
directly from wall street traders but<\/div>\n<\/div>\n<\/div>\n
\n
\n
that’s exactly what you’ll be getting<\/div>\n<\/div>\n<\/div>\n
\n
\n
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<\/div>\n<\/div>\n<\/div>\n
\n
\n
before you miss it<\/div>\n<\/div>\n<\/div>\n<\/div>\n
\n
\n
\n
English (auto-generated)<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\"\"<\/a><\/p>\n

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

Buying options instead of buying equities can seem very attractive on the surface to novice traders because of the low cost of entry compared to buying shares of stock. But there is a hidden fallacy in thinking in this way. In this video, Seth Freudberg, Head Options Trader of SMB Capital\u2019s options trading desk, breaks down the details of this … Read More<\/a><\/p>\n","protected":false},"author":290,"featured_media":51279,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[4189],"tags":[],"class_list":["post-51278","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-free-daily-trading-video","post_format-post-format-video"],"yoast_head":"\nA Really Dopey Options Trading Concept | 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\/a-really-dopey-options-trading-concept\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Really Dopey Options Trading Concept | SMB Training\" \/>\n<meta property=\"og:description\" content=\"Buying options instead of buying equities can seem very attractive on the surface to novice traders because of the low cost of entry compared to buying shares of stock. 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