Road Trip Trade Results

Ryan Simmen
November, 2016
 Disclosure
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The webinars and seminars given by Capital Discussions, LLC are for educational purposes only. This information neither is, nor should be construed, as
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be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.
Options involve risks and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks
of Standardized Options. Copies are available from your broker, by calling 1-888-OPTIONS, or at www.theocc.com. The information in this presentation is
provided solely for general education and information purposes. No statement should be construed as a recommendation to buy or sell a security or to
provide investment advice. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of
your financial circumstances. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk
tolerance and liquidity needs. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available at
Capital Discussions, LLC (info@capitaldiscussions.com).
Past performance is not indicative of future results. Parameters relating to past performance of strategies discussed are not capable of being
duplicated. In order to simplify the computations, slippage, commissions, fees, margin interest and taxes have not been included in the examples used in
this presentation. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any
transactions. Multiple leg strategies involve multiple commission charges. Brokerage firms may require customers to post higher margins than the
minimum margins specified on this web site. Investors should consult their tax advisor about any potential tax consequences. Simulated trading programs
are designed with the benefit of hindsight. No representation is being made that any portfolio or trade will, or is likely to, achieve profits or losses similar
to those shown. All investments and trades carry risks.
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Thank you Capital Discussions!

• Dan Harvey • John Locke

• Tom Nunamaker • Dave Thomas
• Jim Riggio • Kevin Lee
• Andrew Falde • Himanshu Raval
• Adam Grimes • Paul Demers
• Evan Rothschild • Andrew Stanton
• Tony Sizemore • Curtis Allen
• Ron Bertino • Tim Pierson
Trading Career

• Trading is my hobby (not my career)

• Fulltime software engineer
• Trading options since March of 2016
• Swing Trading since 2006
• Day traded Futures (once upon a time)
• Programmed several trading indicators
• Back tested several trading strategies
Options 101

• Put
• Vertical
• Condor
• Butterfly
• Broken Wing Butterfly
• Road Trip Trade
Long a Put

• Think of a put as insurance

• Premium (debit)

optionsplaybook.com
Put + Underlying

• Institutions
• Fund Managers
• Retail Investors
• All hedge using puts
• Why hedge vs exit positon?
• What does this mean for puts?

optionsplaybook.com
Short a Put

• Premium collected (credit)

• Bad RISK vs reward
• Risk 200k to win 2k

optionsplaybook.com
Short a Put Vertical

• Put Credit Spread

• Caps the risk
• Better Risk vs Reward

optionsplaybook.com
Long a Put Vertical

• Put Debit Spread

optionsplaybook.com
Condor

• Put Debit Spread

• Put Credit Spread
• Long, Short, Short, Long

optionsplaybook.com
Butterfly

• Put Debit Spread

• Put Credit Spread
• Short strikes are at the same price
• Long, 2 x Short, Long
• Great risk vs REWARD

optionsplaybook.com
Broken Wing Butterfly

• One leg is longer than the other

• Little or No risk to the upside
• Place butterfly below the market
• Price must move through the profit tent
in order to threaten the trade

optionsplaybook.com
Road Trip Trade

• Preserves Capital by reducing risk

• Very few simple adjustments which means fewer opportunities for mistakes
• Reduced commission costs and slippage
• Trades are diversified (layered) over time, price and volatility
• Fits my lifestyle
• Nice profits!
Trade Design

• Put Broken Wing Butterfly on SPX

• Upper long strike should be within 5 points of current market price
• Short strike is 40 points below the upper long put
• Lower long strike is 50 points below the short strike
• Planned capital is $1,500 per butterfly
• Enter 70 – 80 DTE on a flat to down day in the market
• Entry debit should be no more than 5% of max margin
• Exit at your personal profit target or between 10 – 15 DTE
Upside Adjustments

• If the market moves up quickly then you may lift the right side of
the tent by selling a put vertical.
• This will increase the risk and reduce the reward inside the tent.
• It will also increase your chances of earning a profit to the upside.
Downside Adjustments

• Exit the trade (my favorite)

• Neutralize the trade by selling SPY or /ES futures
• Buy a put debit spread (may use a conditional order)
• Sell back at 50% - 75% to protect against a market whipsaw
Advanced Techniques

• Different strike widths such as 50/75, 60/80 or 75/100

• Ratio of legs should be between 0.7 and 0.8
• If the market were to rally 1.5% the trade should still be profitable
• @ short strike trade should be profitable 15 days after entry
• @ short strike trade should show at least 25% profit at 15 days to expiration

• Layering additional butterflies above the tent

• Used to bring more money (theta) into the trade
• Keep layered trades small as this will increase margin (risk)
Questions

• How has your trading style evolved over the years?

• In what way do you incorporate option greeks into your system?
• How might the volatility skew curve affect your position?