TopTrader Academy

“Putting the odds in your favor”

Selling Premium for Profits

Workshop Study Guide

1
© Copyright under US and International Law
 Disclaimer
In order to simplify the computations, commissions and potential tax implications have not
been included in the examples used in these materials. Commissions and taxes will impact
the outcome of all stock and options transactions and must be taken into account.
Options involve risk and are not suitable for everyone. Prior to buying or selling an option, a
person must receive a copy of Characteristics and Risks of Standardized Options. Copies
may be obtained from The Chicago Board Options Exchange (1-800-OPTIONS) or from
your broker. The investor considering options should consult their tax advisor as to how
taxes may affect the outcome of contemplated options transactions. A prospectus, which
discusses the role of the Options Clearing Corporation, is also available, without charge,
upon request, addressed to the Options Clearing Corporation: 440 S. LaSalle St., Suite 908,
Chicago, Illinois 60605 or to the Chicago Board Options Exchange: LaSalle at Van Buren,
Chicago, Illinois 60605.
ANY STRATEGIES DISCUSSED, INCLUDING EXAMPLES USING ACTUAL
SECURITIES AND PRICE DATA, ARE STRICTLY FOR ILLUSTRATIVE AND
EDUCATIONAL PURPOSES, AND ARE NOT TO BE CONSTRUED AS
ENDORSEMENTS, RECOMMENDATIONS, OR SOLICITATIONS TO BUY OR SELL
SECURITIES.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE.
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© 2017 Eagle Interests, LLC [Dec 22 2017] 2
 Portfolio Management – Notional Value
Important - Leverage
Definition
Notional Value = Number of contracts * 100 * Price of the Underlying

On average you do not want the sum of all your positons’ Notional Value to be
above 4 times your account value, especially if you are planning on defending the
positons that go against you!

A naked position uses about 20% of the Notional Value, hence if you are at 4
times leverage on your account and want to defend all positions you will use 80%
of the account to do so (400% * 20%)

© 2017 Eagle Interests, LLC [Dec 22 2017] 3

 Strategy Selection

Strategy Construction Risk Max

Most
Notional
preferred, High Profit Iron Min 4 wide wings,
highest
notional
Condor 30% of wing width
credit, wider better Width of wings
minus credit
Min 5 wide wings,
received Underlying
Iron Butterfly 50% of wing width
Price <= 20
credit, wider better
times risk*
Strangle Sell +/-30 Deltas, 2 times credit
$1 min credit received**
Least
Straddle Sell +/-50 Deltas, 1 time credit
preferred,
lowest $1.20 min credit received**
notional
*Apply margin relief % to Notional Value if trading in a Portfolio Margin Account
** For sizing purposes only, these are undefined risk trades
© 2017 Eagle Interests, LLC [Dec 22 2017] 4
 Initial Alerts and Exit by Strategy
Strategy Alerts Exit
High Profit 1) Alert on Put opposite to short Call, BID <= 0.01 50% of Initial
(Short Call goes ITM and Extrinsic <= 0.01 or Dividend Amount) Credit
Iron Condor
2) Alert on Call opposite to short Put, BID <= 0.01
(Short Put goes ITM and Extrinsic <= 0.01) 75% of Initial
Iron Butterfly Credit
Action if triggered, see Trade Repair Roadmap™ - Defined Risk

1) Alert on Call opposite to short Put, Delta <= 0.35

Action if triggered ~ Roll Call down to form Straddle
50% of Initial
Strangle 2) Alert on Put opposite to short Call, Delta >= -0.35 Credit
Action if triggered ~ Roll Put up to form a Straddle

(Trade Repair Roadmap™ - Undefined Risk)

1) Alert on Call opposite to (short Put – Trade Risk), Delta <= 0.35
Action if triggered ~ Roll Call down to form Inverted Strangle
75% of Initial
Straddle 2) Alert on Put opposite to (short Call + Trade Risk), Delta >= -0.35 Credit
Action if triggered ~ Roll Put up to from Inverted Strangle

(Trade Repair Roadmap™ - Undefined Risk)

© 2017 Eagle Interests, LLC [Dec 22 2017] 5

 Trade Repair Roadmap™ – Defined Risk
Follow Trade Repair
Roadmap -
Undefined Risk
1C 2C
Roll call vertical to Roll to next month
next month and 0.25 Delta Straddle
reset your exit below the market*
TRIGGER
Yes Yes 3C

Short Call goes ITM Close Take stock short and

short Roll Call Vertical OK with
and Extrinsic <= 0.01 Sell Covered Put in
to next month for downside risk
or Dividend Amount Put for zero or credit? /IVP high next month **
0.01 (assess BP)
Iron Condor
No
Trade
Iron Butterfly Profit
able Close Take stock long and
Vertical Short Put goes ITM short Roll Put Vertical OK with upside Sell Covered Calls in
and Extrinsic <= 0.01 to next month for risk /IVP high
Call for zero or credit? (assess BP)
next month**
0.01
Yes 3P
Yes

Roll put vertical to Roll to next month

next month and 0.25 Delta Straddle
reset your exit above the market*
1P 2P

Follow Trade Repair

Roadmap -
Undefined Risk

* You will need Tier 3 options approval (be able to trade naked options), if you do not have Tier 3 or in an IRA,
you can substitute with Sigma IC methodology
** You will need Tier 2 options approval (margin account), make sure to check you have funds in the account to
take the stock long/short
Hack: To mimic the alert on the extrinsic value of an option you can set an alert on the BID of the opposite option
in the option chain © 2017 Eagle Interests, LLC [Dec 22 2017] 6
Trade Repair Roadmap™ - Undefined Risk
Adjusting when the market is dropping 0.30 Delta Strangle / former High Profit IC
(Same reverse logic when going Up)
Trigger New Config Trigger Reasoning Adjustment Adjustment Reasoning Exit Order
Buy back for original exit + Sum of
1st P/L is usually at 2X Initial Roll Call to Short Put We are aggressive since this strike is Adjustments (positive for credits, negative
Adjustment Short Put Strike Call's Delta <= 0.35 Straddle Credit Loss Strike the one closest to the market for debits)
We continually roll down to
Buy back for original exit + Sum of
2nd keep Theta high and Delta in Roll Call to Trigger Adjustments (positive for credits, negative
Adjustment Trigger Strike = Current Call Strike - (2 x Initial Credit or Trade Risk) Inverted 1 check Strike Same as above for debits)
We continually roll down to
Buy back for original exit + Sum of
3rd keep Theta high and Delta in Roll Call to Trigger Adjustments (positive for credits, negative
Adjustment Trigger Strike = Current Call Strike - (2 x Initial Credit or Trade Risk) Inverted 2 check Strike Same as above for debits)

nth
Adjustment Same as above…. Inverted 3 Same as above…. Same as above…. Same as above…. Same as above….

Adjusting when the market is dropping for Straddle / former Iron Butterfly
(Same reverse logic when going Up)
Trigger New Config Trigger Reasoning Adjustment Adjustment Reasoning Exit Order
Buy back for original exit + Sum of
1st P/L is usually at 2X Initial Roll Call to Trigger We are aggressive since this strike is Adjustments (positive for credits, negative
Adjustment Trigger Strike = Current Call Strike – (1 x Initial Credit or Trade Risk) Inverted 1 Credit Loss Strike the one closest to the market for debits)
We continually roll down to
Buy back for original exit + Sum of
2nd keep Theta high and Delta in Roll Call to Trigger Adjustments (positive for credits, negative
Adjustment Trigger Strike = Current Call Strike – (1 x Initial Credit or Trade Risk) Inverted 2 check Strike Same as above for debits)

nth
Adjustment Same as above…. Inverted 3 Same as above…. Same as above…. Same as above…. Same as above….

We will roll to extend duration if we want to continue collecting premiums

(see Rolling out in time guidelines)
Always keep in mind the amount of money it will take to take a stock when having an ITM short option https://www.tdameritrade.com/retail-en_us/resources/pdf/AMTD086.pdf

© 2017 Eagle Interests, LLC [Dec 22 2017] 7

 Rolling out in time guidelines
We generally roll out when either one of the below happens

- Short Call goes ITM and Extrinsic* <= 0.01 or Dividend Amount**

- Short Put goes ITM and Extrinsic* <= 0.01

- The Theta*** of the rolled position is greater than the Theta*** of the current position

Trade Hacks
*To mimic the alert on the extrinsic value of an option you can set an alert on the BID of the opposite option in the option chain

**Some ETF dividend dates can be found in

https://www.ishares.com/us/literature/distribution-information/ishares-distribution-schedule-2018.pdf

**To approximate the dividend amount of an ETF compare the extrinsic value of the ATM Call and Put in the chain closest to
expiration which already includes the dividend date

*** In the last week of expiration Theta may be inaccurate, use extrinsic/days to expiration to get a better approximation for it
© 2017 Eagle Interests, LLC [Dec 22 2017] 8
 Rolling out in time guidelines
Rolling Procedure
1. Create order to roll to ATM Straddle in next month
(write down credit/debit and add/subtract to current exit price)
• Is your new overall trade exit price above zero?
• Yes – Execute Roll
• No – Go to Step 2 below

2. Shift the new Straddle in the direction of original strikes one (more) strike
(write down credit/debit and add/subtract to current exit price)
• Will your delta alert* get immediately triggered?
• Yes – Move Straddle back one strike to ATM and execute order
• No – Is your new overall trade exit price above zero?
• Yes – Execute Roll
• No – Repeat this step

*If Straddle below market ~ Put alert / if Straddle above market ~ Call alert

“We will sacrifice Theta (since it's greatest ATM) with a bit of Delta up to the point of our alerts getting triggered”
© 2017 Eagle Interests, LLC [Dec 22 2017] 9