2020-10-14 · Episode 16

Go Ask A Trader · Episode 16

11 chapters
1:16:27

The webinar covers various aspects of options trading, including account types, margining rules, and risk management. It discusses how margining rules changed in 2006 or 2007, leading to higher margin requirements than actual risk, with examples of $5,000 risk and $15,000 margin. The speaker emphasizes proper margining and highlights the risk of iron butterfly trades at around $6,200, noting some brokers may double the margin requirement. Synthetic trading strategies and capital planning are explored, with a focus on assessing profitability in dollars and setting personal risk tolerances. The discussion includes exchange rules, market dynamics, and settlement processes, highlighting the influence of market makers and the importance of understanding settlement methods. Additional risks such as market volatility, settlement price variations, and the impact of external factors like elections are addressed. The webinar also covers implied volatility, its impact on options pricing, and the misconception that implied volatility determines options prices. Practical trading techniques, position control, and avoiding biases in trading decisions are emphasized, along with the importance of backtesting and adapting to market outcomes. Risk management strategies, including setting exit points and managing drawdowns, are discussed, as well as the role of technical analysis and self-coaching in overcoming personal biases. The episode concludes with the importance of understanding market reactions to major events and the need for disciplined trading practices to manage risk and profit effectively in options trading.

01 0:00Introduction, Disclaimer, and Risk Disclaimer

The webinar begins with an introduction and disclaimer, emphasizing that the content is for educational purposes only and does not involve broker deals or specific trade recommendations. It also highlights the substantial risks involved in options trading and the importance of being aware of these risks before placing trades. The presenter also notes that any trades shown are hypothetical unless stated otherwise, and live results may vary due to various factors.

IntroductionDisclaimerRisk DisclaimerHypothetical TradesLive Results
02 0:35Webinar Purpose, Account Types, Margining Rules, and Trading Strategies

The webinar's purpose is to allow members to ask questions and receive coaching on options trading. The presenter encourages participants to ask any questions without hesitation. The speaker discusses account types and brokers in the United States, noting that some brokers do not margin the type of physicians used properly. They also explain how margining rules changed in 2006 or 2007, leading to a situation where the risk was $5,000 but the margin was $15,000. They emphasize the importance of having the money in the account. The speaker highlights the need to think of ways to get around margining requirements if you don't have the money and suggests choosing a broker that margins you more properly. They discuss the risk associated with iron butterfly trades, noting that the actual risk is around $6,200. Some brokers may double the margin requirement for such trades, leading to a total $

Webinar PurposeQ&A SessionAccount TypesBrokersMarginingRisk Management
03 14:49Synthetic Trading, Capital Planning, and Risk Management

The chapter covers synthetic trading strategies, margin issues, and credit management. It then transitions into discussions about planned capital, strategy limitations, and risk tolerances, emphasizing the importance of assessing profitability in dollars rather than percentages and setting personal limits for downside risk.

synthetic tradingmargin issuescredit managementplanned capitalstrategy limitationsrisk tolerances
04 23:37Exchange Rules, Market Dynamics, and Options Trading Practices

The chapter discusses the authority of exchanges in settling options, the influence of market makers, and the vagueness of exchange rules. It also covers market closure scenarios, settlement pricing, and the use of PM versus AM options. The speaker also touches on the tradition of using monthly options and the role of habit in trading practices.

Exchange authorityMarket maker influenceMarket dependencyMarket closureSettlement pricingExchange announcements
05 28:41Options Trading and Settlement Considerations

This chapter covers various aspects of options trading, including settlement methods, legal interpretation, option exercise, cash settlement, vertical spreads, pin risk, and the differences between European and American-style options. It also discusses the risks associated with options trading and the importance of understanding settlement processes.

Options tradingSettlement methodsLegal interpretationOptions exerciseCash settlementVertical spreads
06 36:24Additional Risks and Market Dynamics

This chapter discusses additional risks in options trading, including the impact of market volatility, settlement price variations, new trading products, 24-hour trading options, and the financial performance of traders. It also touches on volatility curves, contango, and the impact of external factors like elections on market performance.

Risk AwarenessTrading RisksMarket BehaviorSettlement PriceMarket VariationsNew Trading Products
07 41:56Implied Volatility and Its Impact on Options

The video begins by discussing the VIX future and implied volatility, highlighting how implied volatility affects options positions and profit/loss. It explains the relationship between implied volatility and time premium, underlying value, and how changes in implied volatility impact different types of options. The segment also covers the misconception that implied volatility determines options price, emphasizing that it is the other way around. Finally, it introduces the concept of visual representations of implied volatility skew curves and the importance of analyzing them for trading strategies.

Implied VolatilityOptions StrategyTime PremiumUnderlying ValueOptions PriceMisconceptions
08 50:05Introduction and Practical Trading Techniques

The video introduces the complexity of the topic and suggests breaking it down for better understanding. It discusses options pricing based on supply and demand, the importance of implied volatility in market dynamics, and the need for encouragement and follow-up meetings. The segment also advises against over-analysis and suggests moving on to other topics. Additionally, it covers practical trading techniques, including position control, the use of analytical software, and the importance of understanding how different lot sizes affect trading strategies.

Complexity of the topicBreaking down the topicOptions pricingImplied volatilityMarket dynamicsEncouragement
09 56:50Avoiding Biases and Technical Analysis in Trading

The speaker discusses the importance of avoiding biases in trading decisions, especially in uncertain environments. They emphasize the role of technical analysis over speculation and the need to adjust position sizes based on market patterns and biases. The chapter also covers the impact of personal biases on trading outcomes and the importance of self-coaching to overcome them.

BiasesTrading DecisionsUncertaintyTechnical analysisMarket patternsPosition sizing
10 1:01:47Market Reactions, Risk Management, and Trading Strategies

The speaker explores how markets react to major events, such as elections, and the importance of understanding market sentiment. They discuss risk management techniques, including setting exit points, managing drawdowns, and adapting to market outcomes. The chapter also covers various trading strategies, including the rock strategy, bull strategies, and the importance of letting trades work while balancing trade breathing and loss control.

Market reactionsHistorical ralliesEvent-driven tradingTrading strategyRisk managementBelief-based trading
11 1:11:43Backtesting, Risk Management, and Trading Strategies

The video discusses the role of backtesting in understanding trading outcomes and the importance of probabilities in trading decisions. It also covers risk management techniques, including avoiding structural risk and proper position sizing. Additionally, it explores trading strategies such as bull strategies, directional bets, and the use of different contract types to manage market volatility, especially around uncertain events like elections.

BacktestingProbabilitiesUncertaintyElection ImpactMarket VolatilityTrading Strategy