50X YOUR MONEY WITH THIS INSANE $3 STRATEGY! | OPTIONS TRADING

hey what's going on youtube welcome back to tech conversations i'm your host guillermo it is june 6. hope you're all having a great weekend so far the lemon on the comment section below if you think tomorrow will be a red day or a green day in the stock market now in today's video i want to talk about a very interesting options trading strategy very cheap to enter literally two to three dollars and can give us returns up in the thousand percent range and so i'm going to show you guys how the strategy works and how to set it up but before i get into that all i ask is that you guys hit the like button down below and subscribe guys it really helps with the channel also check out the discord link to it in the description below 31 000 members completely free or you can also become a premium member on here for seven dollars a month you'll get access to a bunch of great resources one of them is our alerts here's an example of an alert from last week this was a call option on crm we bought for 176 we sold for 315 so we made a 139 dollar profit per contract on this alert so again check out the discord link to that in the description below and so let's get into today's videos so first let's talk about what our goal here is and what types of stocks we want to be using with this strategy so our goal here will be to profit from neutral stock price action near the strike price of the short calls that we're going to sell with limited risk and so again i always stay away from strategies that have unlimited risk i suggest you do as well and so the appropriate market forecast for this strategy then since we're going to realize our max profit when the stock price hits one of the strike prices that we're going to choose we can actually kind of mold this strategy to either be neutral modestly bearish or modestly bullish and this makes this strategy very unique we can kind of control which direction we want the stock to go in uh so the ideal stocks then for me generally i would stick with stocks here that trade sideways and what i mean by trade sideways i mean stocks that kind of stay within a price range uh stocks that obviously have low volatility so i wouldn't choose stocks that have huge price swings i would find try to find stocks here that kind of trade sideways and so then for this video i'm just going to choose a random stock here i'm going to choose xpev and again this is probably not the best stock to use for the strategy this is just for demonstration purposes so don't copy this exact same trade but i'm going to show you here how you would set up this strategy here so this is going to involve call options here and what's interesting about this strategy 2 is that this is going to involve six different contracts okay there's going to be six contracts here so let me show you how we would start here so the first thing we're going to do of course is choose an expiration date i'm just going to leave it as june 11 since that's next friday there's plenty of time for us to realize some gains here now the first thing we're going to do is we need to determine now what price we think this stock will be at on the expiration date that we chose so i need to sit down and kind of think what price do i think xpev will be at on june 11th and so again let's say that let's just pretend that this is a stock that kind of trades sideways let's be let's let's let's just pretend that i think that this x uh this xpev will just kind of stay within the range that it's in right now let's say i think it's just gonna stay at the same price it's at right now at 37 on the expiration date so what i'm going to do first then is i'm going to go over to sell and we're going to sell three call options at uh as close of a price range as we can to that price that we determine so if i think it's going to be a pretty much the same price on expiration date 3708 i'm going to find the strike price that's the closest to that which would be the 37 strike here and again i'm going to sell three call options here so i'm going to click on the plus sign here remember when you sell a call option you receive a premium so here we're going to receive a dollar and 34 cents per share for selling this each contract controls 100 shares so we're going to receive 134 per contract again we're selling three call options here and i'm going to show you here how you can change the amount of contracts you need here once we've set up this complete this whole trade here but that's the first step okay so now that we've determined that we're selling three call options remember to sell a call by itself you'd have to have a hundred shares of a stock we don't have that so what we need to do now then is buy three call options in case we're assigned on the calls we're selling uh we can exercise our long calls to kind of uh counteract that so now we're gonna buy three call options here and so the first thing we're gonna do is we're gonna go over here to buy and what i'm gonna do now is i'm gonna go up one strike from this uh from the call from the strike of the calls we're selling so i'm going to go up one strike to the 37.50 strike and i'm going to go ahead and i'm going to buy two call options here so i'm going to click on this now that i'm buying this call option i'm going gonna have to pay a premium and i'm gonna have to pay a dollar and nine cents per share or a hundred and nine dollars for each contract and again i need to purchase two here and i'm gonna show you how we do that here at the end of the trade so now we've sold three here we're gonna buy two here so we still need to buy one more call so we'll go back here to the calls that we sold now we're gonna go down one strike and we're actually gonna skip this strike as well we're going to go on to the next strike price which is here the 36 dollar strike this is where we're going to buy our last call option i'm going to buy one here so again i'm going to have to pay here 1.86 per share or dollars for this contract now i need to come back up here and i need to change the amount of contracts i want so i can click on this drop down and i can go to custom and so again for the calls that we're selling remember we need three of these and then for this higher strike the 3750 we need to buy two of these so i'm going to go here and i'm going to buy two calls here so now take a look at this here this is going to cost us two dollars to enter this trade here again there's six contracts three four five six it's gonna cost us two dollars to enter this trade this is going to be called the christmas tree butterfly with calls it's kind of like a mod a modified butterfly spread uh and the christmas tree because if you take a look at the profit and loss chart down here kind of resembles a christmas tree okay uh so again it's gonna cost us about two three dollars to enter this trade and so again our max risk here then our potential max loss is defined and it's limited we always want that we want to stay away from unlimited risk and so this is going to be the net debit paid to enter the strategy so again two three dollars is the most we can lose with this trade now our max reward our potential max profit is going to be defined and limited as well and we can actually calculate that very quickly it's going to be the difference between the lowest strike and the strike of the call sold so the lowest strike is 36 the strike of the call sold is 37 difference is one we multiply that by 100 that's a hundred we subtract the net debit that we're paying we're paying about two three dollars so a hundred minus two three is going to be about 97.99 dollars so we're risking about three dollars here to potentially make 97 okay that's a huge potential return if we get this strategy right and so with that being said let's go on over to the options profit calculator let's visually see what this trade will look like what our losses or our profits will be depending on what the price of the stock is depending on what date it is so i'm gonna go under custom and i'm gonna go to three legs here and let's set up the exact same trade that we just set up on robinhood so again i can go to the symbol here and i click on here and i'll enter the ticker symbol for whatever stock i wanna you know take a look at here so xpev is what we were using we can click on get price here and then let's start by just going through this uh one at one at a time here so uh let's just start with the lowest uh call or the lowest strike call that we use so make sure the expiration date is correct up here june 11th uh remember so the lowest strike was 36 and we bought one call option calls it on the left puts it on the right be careful then let's go ahead and write or sell our three call options so again same expiration date for this we chose the uh we chose the 37 strike so here's the 37 strike and again calls are on the left we want three of these so we'll go ahead and put three there and then finally we'll buy uh the last two calls here so same expiration we chose 37.50 for this one so here's the 3750 right there and again we want two here and then we'll do like 32 to 42 here and let's calculate this let's see what this looks like here so here's what this trade looks like now as you can see uh again if we just scroll down here entry cost two dollars that's a debit we're paying two dollars to enter this trade that's also our max risk that's the most we can lose we'll take a look at where that's going to happen max return 98 that's going to happen at 37 on expiration so where's 37 dollars coming from that's the strike of the call that of the calls that we sold the three calls that we sold so that's why we start off by kind of determining what price we think the stock will be at on expiration because that's where we actually want this stock to be at we want it to be at 37 or as close to 37 on the expiration date so that we can make our max potential return here and then we get our breakevens probability of profit 20 not the best uh but a couple of things here first of all take this with a grain of salt i'm not 100 sure how they calculate this uh but it's probably not a hundred percent accurate secondly like i mentioned this is probably not the best stock to use for the strategy this is just to demonstrate to you guys how the strategy works uh and uh finally remember that you are risking only two dollars to potentially make ninety eight dollars uh so the probability of being profitable is not going to be extremely high either uh so let's take a look here at what this looks like though so on expiration date right what we don't want to happen is for the price of the stock to be above the highest strike that we chose so 37.50 if it's at 37.50 or above that's where we lose our max uh loss of two dollars or we also don't want it to be under the strike the lowest strike that we chose because if it's under 36 on expiration we also lose our max loss of two dollars so we want it to be in between there you want to be to be in between 37 and 36 dollars on expiration date and as you can see some pretty huge returns if you can land in there 98 almost a 5 000 return now even before that remember you can close out a trade anytime so even like for example on june 10th there's a pretty big range here where we could make some pretty big returns i mean for example if it's at 37 on june 10th that's a 14 return which is a 700 percent return right and again you don't have to wait until expiration you can close this out early and take your 14 and make that 700 return so don't think that you have to actually wait until expiration uh to make money you can make money before uh it's just that you know you want to make the max potential profit you will probably have to wait until expiration so anyways uh that is what this will look like now couple of other things to keep in mind number one commission cost you're opening you're closing six different contracts now if you're on robinhood we don't care about this because there aren't any commission fees however there are some brokers that do have commission fees some brokers have some pretty high commission fees so make sure you understand how much the commission fees will be and if you know your risk to reward still looks favorable after factoring that in the other thing of course is risk of early assignment anytime you sell an option there is risk of assignment or selling three calls here and so assignment before the expiration date is rare but it does happen uh and the most common reason for early assignment is actually related to dividends so you should always take a look at a stock take a look if there's a dividend take a look at when the x dividend date is if the x dividend date is on the week that your options expire i would either a not sell any options that expire that week or b close out two days before the ex dividend date to avoid being assigned early and have to deal with all of that now of course the stock we chose xpev doesn't have any dividends so i wouldn't have to worry about anything like that i would also recommend closing this out by yourself even if it's one minute before the end of the day on the expiration date uh just because some weird things can happen after the market closes and so you know i really don't trust robin at closing out things for me i always close out every single contract i have uh prior to the end of the day on the expiration date so again this is the christmas tree butterfly with calls as you can see you can risk two three dollars to potentially make ninety eight ninety seven dollars if you have any questions feel free to leave them in the comments section below check out the discord link to that in the description below i hope you enjoyed the video well let me know what you guys think and i'll see you guys next time

Channel: TechConversations

Views: 157,412

Rating: 4.9343653 out of 5

Keywords: christmas tree butterfly spread, butterfly christmas tree, butterfly spread christmas tree, robinhood investing, robinhood app, stock market, robinhood trading, option trading, robinhood options, trading options for beginners, robinhood options trading, robinhood, options trading, options trading strategies robinhood, options trading strategies for small accounts, trading options on robinhood, trading options strategies, trading options, trading options strategies robinhood

Id: ZcTUew5Kq1c

Length: 14min 36sec (876 seconds)

Published: Sun Jun 06 2021