Review of Udemy Course: Options Trading for Rookies: Understand Options Completely

"Options Trading for Rookies: Understand Options Completely" will quickly help you understand the basics of Options trading in just a few hours.

Course

The course is by Kal Zurn and is a paid course on Udemy. It runs around 2.5 hours. It's the most expensive of his courses at $124.99, although I think he runs specials now and then. The follow-on courses are a lot less expensive, usually around $14-$16 each.

Overview

The course is broken into several sections: Intro, Defining Options, Options vs Stocks, Call Options, Put Options, and a "Bonus Section" Vertical Options. (He digs much deeper into verticals in the follow-on courses.)

At first glance, I was a little worried this would be too basic for me. I've been trading Options for a while, have watched a lot of YouTube videos, read several articles, and already took courses on stock trading before this.

Fortunately, I'm glad I didn't skip this course and go straight to his more advanced classes. That's because for each section, he digs into several scenarios; helps better understand Probability of Profit (POP); and, finally, how and when a trade can lose even if the original thesis is correct -- probably the most confusing aspect of Options trading for beginners.

Critique

Overall, a big thumbs up on this course if you have you been trading Options for less than a year, only dabbled, or lack confidence that you truly "get it." Side note: I find it easier to follow a specific track for training in a course format than by clicking through seemingly random YouTube training videos. 

A kind of annoying negative to note however. The volume really varies throughout the sections. For example, let's say he's talking at "volume 6 of 10" in one section, but in the next where he is doing an aside, he may suddenly be at "volume 9 of 10" and you have to scramble to turn down the volume (only to turn it back up in a later section.)

Rating

Strongly Recommended

Recommended

Not Recommended

How to filter on IVR in TOS Spread Hacker

I had a mission of consolidating all of my tools to Think or Swim (TOS) and, knowing that options trading is my main jam, I needed to be able to scan for credit spreads based on IV Rank. Most people will sell spread when IVR > 50% and buy them when IVR < 50%.

My first stab at this was to build a filter in Spread Hacker using: Max Profit, DTE, and Delta (I have since removed that):

That works great. The struggle now is only looking at credit spreads where the IVR > 50%. There is no filter for that in Spread Hacker unfortunately. At first I thought this was a dead-end. But in poking around, I found that you can restrict the filter to a watchlist. Interesting.

Next, I asked myself: Can I create a dynamic watchlist? That is, a watchlist that changes based on real-time criteria? The answer is YES. A dynamic watchlist is known as a "Scan Query" in TOS.

I created a Scan Query using IV_Percentile, which TOS names IVR for some strange, legacy reason. The filters for this Scan Query are very easy. I can't properly show them here because TOS won't show all the filters without scrolling (which is kind of dumb), but basically you need to do this:

1. Create a new Scan Query
2. Delete all of the defaults
3. Add Stock->Market Cap (I set to >= $1B)
4. Add Study->IV_Percentile (I set to 50% <= x <= 100%)
5. For Show, I set to 200.
6. Set the name to be "High IVR".
7. Click Save.

You now have a dynamic watchlist of high IVR stocks. We'll use this to restrict the results of Spread Hacker.

1. Go to Spread Hacker
2. Setup the filters
3. Set Spreads For->Personal->High IVR
4. Click Scan

You will now see credit spreads for high IVR stocks.

My Options Trading Cheatsheet

 This is a work in progress blog. I will edit it as I make changes.

Option	Acronym	Aliases	Leg In	BTC	Pref DTE	Hold to Expiration	Delta	Aggro Delta	Environment
Cash Secured Put	CSP		-	50%	45	Never	.3		Bullish
Credit Put Spread	CPS	Bull Put Spread	No	50%	45	Never	.3		Very bullish
Credit Call Spread	CCS	Bear Credit Spread	No	50%	45	Never	.3		Bearish
Iron Condor	IC	-	No	50%	45	Never	.2	.4	Sideways or inside Defined Channel
Short Straddle			No	25%	45	Never	.5		Stock will move up/down

Using Charting to Maximize Selling Covered Calls

There was a post recently on reddit.com/r/babytheta where OP was lamenting that they seemed to always sell their covered calls at just the wrong time.

That's very common. I have done it (and continue to sometimes).

If we break this down, there are three times you'll sell a covered call at the wrong time:

• Underlying crashes. You sold a CC and then suddenly the underlying starts crashing. Would have been better to sell the underlying in that situation than a CC on it.
• Underlying moons. You sold a CC and then the next morning the premium is 500% higher than what you sold it for. 
• Underlying trends up. You sold a CC and then the next morning the premium is 20% higher than what you sold it for.

Let's ignore "underlying crashes" and "underlying moons," especially the mooning event because that's very unpredictable and so can be thrown out of the discussion entirely. That just leaves the normal reason people get frustrated after selling a CC: the underlying ticks up and you find out you could have sold the CC for higher than what you did.

When the Underlying Trends Up

This is generally predictable, and in fact you did make a mistake. If you are wheeling, doing PMCC, reducing your cost basis, whatever, you need to understand your underlying.

Not everybody is big into Technical Analysis (TA) and that's totally fine, however for most underlyings a quick TA session can have a big impact on your profitability. I'll walk you through charting out what is going on with the underlying and it will be very clear WHY you generally sell a CC at exactly the wrong time.

Sell High, Buy Low

The classic mistake of course is to Sell Low, Buy High. That applies to options just as much as to stocks. Let's use $JPM as an example since I use it for PMCC. (I include screenshots below but you can view the entire chart with dates here.)

Now, let's say you own $JPM with a cost basis of $150. Per the chart, $JPM is currently at $152.24. So we can sell a CC at anything above $150, preferably above $152.24, and, for most, at strike of .3 delta or lower. I like to sell with a 30-45 DTE, but that (and the delta) is specific to your trading plan.

If we look at the option chain for May 14, we see a $160c strike .29 delta for an ask of $2.36 credit. If we wanted to sell the CC right now, we'd likely sell around a $2.27 credit. 

Since the strike is OTM, that means that the $2.27 is pure extrinsic. We can also do a quick calculation of the premium rate, which is just $2.27 / $152.24 = 1.49%.

Going back to our chart, we'll draw a channel around the stock. This is not always accurate. You may chart something at the wrong timescale or just at a bad time and your chart is wrong. That's why not everybody is a fan. That said, again, I think it helps improve our "average case" even if it doesn't get us to the best case.

Per the chart, $JPM is currently trading inside a channel that has an uptrend. This does not mean that $JPM won't break out below or above the chart, go wonky, or whatever, but at least we can see a current pattern. And we can also see that TODAY that if we sell a CC, even if it's a green day, we would likely lose out on profit and likely be assigned on our underlying. Note that $JPM is at the bottom of the channel and is likely going to bounce back up. If we sold a CC today at $160 with an expiration of May 21, $JPM will be ABOVE $160 even at its low point on that day.

If we did want to sell a CC, probably best to sell a $160c Apr 9 or a $170c Apr 16 if we wanted to keep the underlying.

More importantly, we are selling a CC when $JPM is at its lowest in the channel. We will get the least amount of premium possible if we sell in the next week. Honestly, to maximize premium we would want to sell around Apr 27 because that's when it will hit the top of the channel (give or take several days).

We can also see that if we sell around Apr 27 that we could sell a $190c and that the value of the CC would plummet very quickly as $JPM began going down toward the bottom of the channel. We would also want to sell CC's as fast as possible Apr 27 and follow $JPM down to the bottom of the channel, watching the value of each sold CC plummet quickly, we BTC at 50%, and rinse-and-repeat.

Ideas

I'd love feedback, but to me this indicates that:

On the upswing:

• Set your ask above the market ask when selling a CC on an upswing. Let the market catch up to your ask while reducing your risk of assignment (your CC being executed).
• Sell at or below .3 delta.

On the downswing:

• Set your ask at market to ensure the CC is opened.
• Be more open to a higher delta on the downswing.

Poor Man's Covered Call (PMCC) with 3M (MMM)

I've been wanting to try my hand at running a Poor Man's Covered Call (PMCC), and finally bit the bullet. If you aren't familiar, a PMCC is where you a buy a Long-Term Equity Anticipation Securities (LEAPS) and then sell Covered Calls (CC) against the LEAP.

A LEAP is just an option that is far in the future, a year or more.

You can see them when you pull up the options for a security. If you see calls and puts that have an expiration that are one year or further away, that's a LEAP.

The way it works is this:

You buy a LEAP ITM, usually around .8 delta. The reason you want to be ITM is for protection if the underlying goes down in price. You have some cushion to prevent your LEAP from being worthless one morning. You'll see why that's important below.

So you buy a LEAP, which will have very slow theta decay. You then sell CC's against the LEAP, preferably above your breakeven on the LEAP. When the LEAP is coming close to expiration, you sell it back. 

Put another way, you are basically "borrowing" the stock for a year to sell calls against it. You then return the borrowed stock (selling the LEAP call) for a wash. (This assumes the underlying price went up over time to some extent.) And then you keep the premium from the recurring covered calls you were selling.

A few keys things that I've learned:

• PMCC on low IVR stocks, not high IVR. The reason is that high IVR stocks are, by their nature, less predictable. That's why they have high IVR. A PMCC should be more like a highly-predictable revenue stream, not a gamble that a stock will skyrocket in price overnight.
• Do not PMCC on meme stocks. (See above.) There is a high risk the underlying will tank, you'll own a worthless LEAP, and you'll be forced to hold the LEAP hoping the underlying goes up or you'll try to dig out by selling covered calls below your cost basis.

I am running a PMCC on MMM currently. Here is what I have so far (below). I'll run the PMCC until December and then STC the LEAP. My goal is to generate $1873.67 in profit from $3515.00 in capital. That seems extreme, so we will see how this plays out.

Using Excel to Track Stocks

You can use Excel to track stock information. For this, I am using Excel for Office 365, but that just means I'm using the latest version. The features of Excel for tracking stocks have been around for a bit now. (Side note: I have not tested this with Excel Online.)

Using the stock functions, you can track everything from the company name associated with a ticker to the 52-week high and low.

To test this, create a new Excel spreadsheet. Then, in A:1 put "Stock" and in A:2 put MSFT.

Next, after ensuring you have clicked the field A:2, click Data->Stocks.

Excel may need you to disambiguate the ticker:

Once done, notice how Excel expands the ticker to the company:

Now is the fun part! Excel will now provide various functions, including ticker, 52-week high, 52-week low, price, etc. There are 20+ functions provided out-of-the-box! To choose one, go to B:2 and type in "=A2." and you'll see the list of functions available:

Now, you can easily create an Excel spreadsheet that only requires 3 input fields (orange in the screenshot) to track everything you need to know.

One key note, unless you enable Auto Refresh, you'll need to click the Data->Refresh All button when you first open the spreadsheet each day/week/month for review.

Edit Order in TOS Web vs Cancel/Replace Order in TOS Desktop App

Generally I'll do my work in the TOS Desktop App for Windows. However, now and then I'll have TOS Web open so I can monitor things if I'm not actively doing any trading. For example, I may have a swing trade already setup and the OCOs order to STOP LOSS/SELL setup and just let it run.

Today I needed to change the SELL LIMIT ORDER price on an OCO order. I clicked on the OCO in TOS Web and was able to Edit the existing order very easily.

Here is how I clicked into the Edit feature:

And the Edit itself: