How to use Theta for Trading Options

[00:00:00.07] - Speaker 1
Sam.

[00:00:40.10] - Speaker 2
Welcome back, Tim. We are back today with Dan and today we're going to focus on a very important topic for those who are interested in options, which is the importance of time. We're going to talk about data, we're going to talk about why this is important and what are the tools that you can use and how you can use data at your advantage within an option strategy. Within a further ado, Dan. I'll pass it to you and then we can go into the presentation and show the dashboard as well.

[00:01:11.13] - Speaker 1
Yes. Thank you, Fabio. Hello guys and thanks for having me, Fabio. So we chose a nice team. Maybe today. While the market is once again up in fighting, in retrospective, one always smiles and says, gosh, I should have been short there long there. But we will focus today on something which is very consistent and in the end of this very short basically presentation we put together, you should be able to understand time decay or feta burn as it's called better. We will spend time in the Mentor Q dashboard once again looking at possible data feeds where you can basically pick up ideas, or basically not only pick up ideas, basically starting your habits, trying basically to build trades, but methodically and making the best for out of the Q data which is offered to you every day here in great accuracy. And options traders, you should understand the Greeks and not only the names but how they used. And I think we can jump into this presentation.

[00:02:26.11] - Speaker 2
Let me know when you want to switch slide and we can start.

[00:02:29.08] - Speaker 1
Yes. So basically this, this term, I always think of it as theta burn, which is very nice because it's like lighting a candle and in the end it burns down. And one of my favorite strategies, the short strangle, it burns from both sides. And so last time we talked about the three aspects or three dimensions of options. So if you have futures traders or just trade traded stocks long, then this might be new to you. So a short revisiting of last time. We have volatility, which plays a major role. We have price and we have time. Nothing is as constant as time in our universe wage every day we get smarter, hopefully. And with options it's like that, an option when it's basically it's a contract. When it comes into the world, it has a time value and this time value decreases by every day and the decrease of the time value is constant. So even as today, let's say you had and you were one of the unlucky investors and thought a rebounds was happening this Monday and now you find yourself deep in the red with a put you opened. Let's say on Spy.

[00:03:45.09] - Speaker 1
If you looked at the Greeks on Friday and you looked at them today, you will see a very constant, normally a very constant letter burn there. So this value stays. And whatever happens today, say the option closes on Friday, you would make this amount of dollar value, but we will dive into that later. But this is a constant. Which price movement or the changes in implied volatility, they can work together, but they don't work against time. Basically, if you're an options trader, like knowing how time works for or against you is like at the uttermost importance. Because if you open a very short lived option, let's say an option for tomorrow or for the end of the week, and you don't know how the setup burn works in your favor, then you can't harvest that. But if you're on the other side, you don't sell an option. You buy an option like we showed you last time, then time works against you. So you need either implied volatility and price or the best, both of these two other factors to move that sure loss you will have in this option. So we can basically go to the next slide.

[00:05:01.06] - Speaker 1
Fabio. So this is a small mind bender. I won't make it as difficult as it sounds. We have intrinsic value and extrinsic value. This is a slide. I try to keep it simple. It's not maybe that simple. But think of this like that. It's like you have, you have a glass and you fill it with water and one is the intrinsic value and the other one's the extrinsic value. So if we look on the left side now to the intrinsic value in the money options, the question is how much is an option in the money? What does that mean? Moneyness. We have. And maybe we should circle back for a second. I didn't put an extra slide onto that. But if we look at an option which is like a hundred dollars right now, so 100 for the call or 100 for the put. If you look at both sides, $100 call and the $100 put at any expiration that is at the money. So if we go on to the put side, if we go let's say to 99, $98, then we would be in the money. So this is, we have an actual, we have an actual value of this.

[00:06:22.19] - Speaker 1
This option has an actual value. So as you know, it's not like with Leaps or European option. An option can be exercised at any time. Doesn't happen that often, but it can happen. So let's say someone buys that has Bought this, put, let's say on Friday at 98 and let's say the market like not today, it rose from 98 to $100. So this option had a value of at least $2. Because in the end the option is in the money, so there's an actual value to it. On the other side we have the extrinsic value, which is time and implied volatility. So this is, this is another factor. So if time is, let's say, passes, the extrinsic value of an option changes. Like extrinsic value is changed by implied volatility. So these three factors, you should always understand them. So that's why it's important if you revisit this, this course and these details today. Take an options chain, look at it. Maybe take Apple, take Amazon, whatever, Nvidia, or just Spy and look at the options, look at the calls, look at the puts and try to figure out which options are at the money, which are in the money, which are out of the money.

[00:07:51.06] - Speaker 1
We didn't talk about out of the money. Out of the money is an option which doesn't have the intrinsic value. We will deep dive into that later. But for the understanding right now, it's important that you know that extrinsic value is factored by time and implied volatility, extrinsic value. And that's why it's important that we look at this today. Decays faster. We will look at some graphs later. The closer we get to the options. End of life. So the expiration. So if we have an option, let's say we have an option which is comes to life 90 days before its expiration. The time is in basically the time, the movement of time is always the same. But as the decay we close, we get closer to the expiration, the decay happens faster. So in the end, if we look at this, we see a potential, we can calculate the value this option will have, let's say at 60 days or at 30 days. Next time we will look at the options chains together and then I will show you some little things and tricks you can do without options, calculators, other stuff, just pure looking at the options chain and you can calculate in your head and just by looking at things, you don't even need math for that to see what value an option will have.

[00:09:24.18] - Speaker 1
Let's say in seven days, in 10 days, in eight days, closer to the expiration because all is in the options chain. So Fabio, we can move on from this slide. Basically the how much time is left, you can See, if you look into the options chain, you can see, let's say if it's 30 days, 60 days, and the mechanics, how this works and how this is calculated, depends how many trading days are left. And you see my emphasize on trading days, not on calendar days, on trading days. So there's a lot, There's a lot of talk about weekend impacts and does it work or not? I know a lot of people who believe in this factor and I've spoken to a lot of people from the industry. And if you open, let's say, an Iron Condor on Friday or just a short strangle or whatever, something which basically you sell for credit because you want time to work in your favor, and you say, hey, it's Friday, I will take two extra days, the weekend effect, it's not there. It's not reality. Because Even if the Vix, for example, it's based on 362 days, basically we take only trading days into account.

[00:10:51.11] - Speaker 1
This is how this is calculated. So if you pursue, let's say, if you pursue your own calculations or you take this as a factor, just count the trading days, not the days of the weekend or something else. Oh, I think we can go to the next slide. Fa Daniel, This is a question I've always getting asked. We saw that implied volatility and time that were factored in at the extrinsic value. Well, this is the question. Let's say we have. We have an option and time passes which is very constant. So is the question, is the OP if the option inflates or deflates? Iv, we saw last time and the time before we talked about implied volatility, historic volatility, how these work together, how the ratio is, why this is factor into, into IV rank and we will do a deep dive at some other point again into Vega and all these factors. But iv, and this is something I want you to remember. Implied volatility doesn't affect time decay as much as a lot of people would think it does. I did a little study. I want. I won't. I didn't put it in. I just.

[00:12:13.14] - Speaker 1
I just. The results here, like, you know, the people who have traded with me or seen me talk, I love the expected move. Like, what is the expected move? The expected move is normally you can take the weekly expected move on Friday or a month out, but even you have the rolling expected move. What is that? It's what the market expects a stock or an ETF or some other. Some other underlying will move in a certain amount of time. So if, let's Break it down. Very simple. Again, we're back at our stock, which is at $100 and the market expects it will move 10% within a week. So the market factors in that on the upper side it can go to 110 and on the other side it can go to 1 to $90. This can correlate with the call resistance and the put support. We've seen that. But normally this is something which is basically calculated every day and especially I factor in every Friday and take a look at the week. Because the weekly expected move, if you draw that up on a chart, we will do this the next time. In my, in my trading view, I will show it to you that the expected move in the end, it really, really is rarely breached.

[00:13:40.05] - Speaker 1
We stay in that range. Sometimes we go out on crazy days, but we go back into that. So this is something which is very important and something we will look at next lessons to factor in. Next to all the stuff method Q shows you. So you can see here, and this is the awesome thing. You don't only have the expected move of the week. You. What Fabio showed us was you saw, saw briefly the expected move for the day on the upper side in the expected move on the lower side. So what do we see here? We see the spiders. What did the spiders do? The spiders, they just dropped. They dropped like a stone. Yes, we have the put supporter. The put support was breach. So it can become a resistance or again a support like here. But Fabio, when, when, when I started up with Mentor Q, I remember you had a very nice study in the beginning and you showed how often the, the upper and the lower, the one day max and one day minimum, how, how often and how, how, how often they hold their line. And these are extraordinary statistics.

[00:14:54.03] - Speaker 2
Yeah, we can go into the, the guide. So to find this data, you can go under our guides and you can go under our quant strategies. We're gonna post a lot of use cases here, a lot of back testing results. We're not going to talk about swing levels, but as we approach earnings over the next few weeks, we are, we're going to go back there, but if you click on gamma levels and here we show the backtesting of the one they move. And what we have here is about four years of data. And basically we can see the success rate. For us, the success rate means that the price closes above the one the minimum for the next day and the price closed below the one day maximum for the next day. So on 87% of the cases, the price over four years of history. So about almost a thousand trading days, the price close the next day. So you get the data today at the end of the day and tomorrow you can use it for the trading day. On 87% of the cases, the price close above the one the minimum, on 85% closes below the one the max and on about 73% stays within the range.

[00:16:05.10] - Speaker 2
So for those who are doing like iron condor 0 DTES that can also be an important data point.

[00:16:13.10] - Speaker 1
Yes. And it's an inflection point as we saw. If please revisit this here what Fabio showed you. It's very interesting. It's important to know these things for setting up and for day traders. But also if you are in trades, you can see if you need to change something. And if you go back, Fabio, to the trading view, one second. What would have been a nice trade today? Yes, everything we dropped below all that stuff. Okay. And you have here, Fabio has the, the five minute chart on. We have the rolling. We have the rolling. The, the levels which are updated during the day, which is amazing. So what would have been a trade? The moment you see that we go above the one day minimum candle and you know again this put support can become at least can become again a support you could have taken. You could have taken the trade where we closed the candle above the one day minimum and as, as it doubled over the put support with let's say taking a long swing or sold something there. You could have easily made a very short trade here. But we will use it as a longer context.

[00:17:22.02] - Speaker 1
But if you understand these things then you can understand how to build safer trades, how to build trades which. And profit from other stuff. So what I just told you now would be an daily trade, for example, where time decays like it's, it's on adrenal and it's on tourbore time decay. Because these options which are expiring today there are seeing the last minutes and hours of, of in. In this. The trading in their trading life. So we go back to our slides, we just gonna browse through them and then we're gonna jump into the, into the strategy section to more practical things. So why is time so important? Especially it's like to sell, like to sell premium as we said, because not only interesting, if you have high implied volatility versus the historical, this is the vega aspect. But if you want time to pass, then you have. Every day you're in this trade, you make money. Yes. If you are closer to the money and the faster the, the decay Is then yes, you would you. You could say okay, I just enter like five day trades or everything. But as we said, time is just one factor.

[00:18:52.26] - Speaker 1
And I said yes, implied volatility doesn't affect it that much. But in the end, and that's why we have all the levels and all that stuff, in the end, the time decay is a bit more rapid and sometimes you can't really control the drizzle. So a good thing would be to zoom out and take trades 21 to 45 days if you want to be sure if you know what you're doing, you can go closer. Just take the models, 5 and 20 day models and do something with them. But in the end try to get to some out of the money options. Why? Because if options are in the money, they have a value next to the the time value. And that means that these options would be maybe of benefit for the ones who you sold them to to be exercised. And this is something you don't want to because you have all the time the risk of getting exercised. Normally this happens close to the expiration, but can happen even a week before if an auction is deep in the money. So basically if you understand the time concept, then it's good. Like we saw things in the vega section last time.

[00:20:16.19] - Speaker 1
So if you sell high expensive premium because implied volatility has upscaled option prices and you have a time on your hand, it's easy to set up nice trades where you benefit from a deflation of implied volatility mega. And you have time which passes every day and gives you more dollars basically for your contracts because the time value is decreasing. So if you want to manage risks easily, you can do it with credit spreads and just combine it with a high IV rank or high IV percentile. Or you could be a more risky and do some iron corners or even short strangles. We will look at these stuff later. So again, a repetition from last time. If you use high IV rank and the IV rank basically go for 50% and more because normally then the IV is elevated and you can profit from vega. And if you go out in time, then it's a good thing because you can manage your decay even faster. And why do you want to manage that before we change the slide? One hint. If you have time on your hand, then you can basically have two things. If you just factor in that you see you want the price move, then you shouldn't do just options.

[00:21:43.05] - Speaker 1
Options can be good for price moves. If you have a day trade, you can still day trade with options, but that can be better things to trade directionally. If you want to trade options, then you should always try to use the three dimensions of options. Price, volatility and time. If you choose an option which is like one or two or three days out, yes, time passes and yes, as time passes, it might go worthless. If price moves or something happens with volatility. Yes. But most of the time should be very experienced to do trades like that. If you have more time on your hand, you can better manage your risk on the one hand. And on the other hand you can basically adjust trades which might go against you. For example, if we had set a trade up on Friday and let's say we didn't open credit spread or let's say a put credit spread because we, we believed in MTA and fully and so the market is oversold and we looked at the levels and we saw the put support, which is great as we saw today, it reclaimed. But let's say if the market just opens and you get into panic because you sold an option which expires today, you had sold the put spread that day, week out, two weeks or better, 30 days out, you look in the metrics like we will show you later and you see the put support is somewhere else.

[00:23:18.08] - Speaker 1
Yes, there might be a negative change today, but what happens even if, let's say the market dips a bit, you still make money on the theta. And this is what I want to put into your head. This is something it can't. If you sell premium, this doesn't go away and this is the good thing. So maybe we can go to the next slide. Fabio. So how do we do that? When we go into Men cube, we will look in our volatility screen because there is the IV rank. So the first reference is because time is something which now you understood that there's a concept behind of it. And basically you can choose the time decay you want to have on something. So the first entry point would be if we take some of the, some of the levels. This can be one thing. Or as we looked at last time, you can enter by using the volatility screen. And we will do that after we finish with the slides and then you can confirm that it's. You just won't open a trade because it has very high IV rank and you choose let's say 30 days out or something.

[00:24:33.17] - Speaker 1
Then doesn't mean. Still doesn't mean that it's a good trade. You should check the men Q data to see where. Where are they? Maybe a where can I put my break Even the easiest thing is like we showed you, take the five or 20 day swing model, set a break even there if you want to have a directional trade or if you say I want to take a bigger swing, maybe build an iron condor or we will show you this maybe a bit today or in one of the following videos how you can set up short strangles and how you can manage them. You shouldn't be afraid there. If you know how to manage that stuff then and use the data right then most of the time sites should be basically winners. At least this is what I have seen. And then you can do a lot of things with one directional trade. So we will do and build things for you later. So maybe we can go to the next slide. Fabio. So again here just for the checklist, there are more things which you can look at. But one thing was important for me.

[00:25:39.08] - Speaker 1
I. I like to trade earnings, which is amazing and, and this kind of crazy market earnings is still something which will again put our attention to. Because earnings season is kicking off and earnings are still giving us an edge as a retail trader. But if I was trading, let's say something which I just picked out out from the, from the screeners, I would try to avoid earnings. Why is that? Because if you have earnings, anything can happen whatever the models say in anything. So if you want to have a directional trade or a non directional trade, you don't want to be in earnings. So if you ever had the. If you ever were in a trade and forgot that there were earnings and something big happened, you won't forget. So something I would always, always take a look at, go to the NASDAQ page or wherever and check out when the next earning is planned. If we go and look at directional trades, what is important important is we need GAGS levels for a break even setup. Basically what does that mean? If I would set up a trade, I would try to see if I had let's say a bullish bias, I would try to see where's the next put support for the expiration I'm taking where's the expected move?

[00:26:57.19] - Speaker 1
How is the expected move changing over time? But especially, and this is more important, we will show you in the metrics later. How is the put support changing? So if you go on a trade, let's say 30 day trade then I would always try to see what happens with a put support in the next two or three expirations. For example, the weekly expirations after a month. Why is that? If the put support is significantly lower later than the expiration you have chosen. And it's a good way of maybe going a bit on the safe side. But we will talk about some other tricks which I use and if you want to refine that and say okay, I'm having a 30 day trade but my plan is to get out at let's say in 10 days or 50 days because I don't want to get the effect that much implied volatility gamma has in the last days. I don't want all these fast move movements every time price swings around. I can't take that. So I'm going to take this trade or whatever happens in 10 days or let's say 20 days to expiration. So basically then it's again important to look at the put support if we had a bullish bias to see what, what the market thinks will happen and where the stock should shouldn't go under in the time you have chosen for your options trade.

[00:28:27.02] - Speaker 1
But we will look at this later and see how we can build some robust setups. Non directional trades, what does that mean? I don't trade a direction which means I don't care if the market is bullish. I don't care if the market is bearish. For example, take the Spiders now or the asx, everything is red. But in between we had some rallies. So in this kind of case, if the market is so in leaned into one direction but you never know when the next swing comes up or down, then basically it's very difficult to choose a direction. So you could just go out in time and maybe decide what is good for you and maybe set up something up which is non directional. And this is also important to know where the expected move is sending us and which levels are around. So I will even go a bit further and use decks, the deck structure to see if we are in a more neutral environment. Because non directional trades need on the longer scale and on the for the time of the trade they need a bit swinging around. So we profit every day from theta decay.

[00:29:36.08] - Speaker 1
We profit from a decay of Vega if we're sellers of premium. So that's the great thing. We have two factors and the only factor we can't control is price. But we don't care about that as long as we stay in range. I would take a look at the skew, I would take a look at the smile and see how I can set up my trade to be in accordingly to the belief of the market. And we will see in further classes how to monitor these trades and not just monitor them by Greeks like Delta change and everything, when to kick, when the hatching has to kick in, whatever. But we will take a look how you can just use Mathiq data to just take a peek at what the market is doing and if you should adjust your trade or if everything just looks bad for two, three days or a week, but the market comes back, maybe we go to the next slide. Fabio, two things we talk a lot about here at this webinar is the expected move but also the GAX levels. Basically what is important here. I believe the GEX levels are important to know where to set up a break even, but also as a profit taking.

[00:30:52.23] - Speaker 1
Last time we talked about the hbo, the high volatility level for example. So if we have a bullish trade and we see that the put support has been, let's say under attack for a couple of days, but it hasn't been breached and we see in the gag structure and in the deck structure that there is a change and basically we, we might, we might have a regime change soon. And we see that basically we see more bullish flow. You can see that in the, in the Mentor Q data and we are confident that we are on the right track. But we want time on our hand. We don't want to be fast, we don't know when this will happen. We don't use TA because this is lagging. So what will we do? We will set up a trade maybe a bit lower than, than the put support and take the expected move into factor. We will give the trade some time. But the big question is for everyone, why isn't a profit taking target? You can do this basically by setting up already when you open a trade, stop losses and profit takings at 25, 50 or something like that, which is okay, which is good.

[00:32:10.27] - Speaker 1
But another thing is where is the next level which reacts? So the next level from the put support or from the call resistance on the upper is the high volatility level. So this is something which can ignite if we are in a bullish trade, more upside or it would be a good idea maybe there to take some profits. So it's very important to look at these levels. And the big nice thing is now you have rolling levels in between of the day, but you also have fresh levels every evening. So best thing is you you're not sure and you haven't traded that much is just pick out something, even paper trade it and try to see how you set up your trade and how this trade basically changes maybe a bit. It will be green, it will be red. But how the Levels changed. And if you see that the put support is going down every day, then you know, oh, I might have, I might have been wrong here and the market doesn't believe in my bullish setup. But if you see the put support going a bit higher or the expected move moving or the hvl, if you're coming close to the hvl, then maybe it's time to take off this trade and open something else.

[00:33:29.20] - Speaker 1
But this, this is the thing we try to do repetitive trades with a high probability, basically. So if we have trades which are 70 to 80% profitable and we have a proper risk reward ratio, then we can sit down with Chester Pen and calculate over 100 or thousand trades how this works out. And if we want to deep dive, we do a Monte Carlo simulation or something like that. So what is the expected move? The expected move is basically, as I said, the weekly ex expectancy of the market where basically this, the range underline should stay in. Why is this important? If you set up a trade, it's always good to know where the market believes a stock will stay for the week or for the month. Let's say if you have 30 days set up, then it's good to know what happens in this week. So let's say you want to open a bullish trade and you have one 1k to spend on this trade, one 1 credit spread is 250. So what would I do? I would open one or two contracts or two spreads basically and see if this works in the week.

[00:34:55.16] - Speaker 1
If we dip a bit. But I still believe in the bullish bias and the data suggests that maybe I was a bit early so I would open more, I get a better price and if I'm non directional, I might lag in. What does that mean? If I see that the put support isn't breached, we stay in our expected move. We still on the lower side. And I believe because everything, like everything tends to go again to the middle. We showed you the bell curve last time. I don't know if you can see my mouse pointer. So this would be a bell curve and everything tends to go to the middle again. So in the end you can use this data to skew. But if this sounds abstract, we will take look and we will take a look later at some examples and we will build you something so you can see these things in reality. So maybe we can go to the next slide. Fabio. In the last 10 days, theta decay accelerates significantly. Theta burns basically, basically happens a bit faster. So the expiration impact you should always have this, it can be a great time to enter.

[00:36:07.14] - Speaker 1
But if you're not sure what you're doing and you don't know how implied volatility might react and how prices then take more time on your hands. And don't forget, if you are, if you're an option seller, but also if you are, if you buy options or a debit in the last days, seven to ten days, this accelerates. So if we go to the next slide, Fabio, This is the weekly decay percentage near the time expiration. I think we won't do all the slides today. We'll do this slide and the next slide and then we can move because we have then 20 minutes left to the dashboard. So this is just something I put up. So we have the weekly decay percentage near the expiration. So what do we see here? We see how fast the decay happens if we get closer to the expiration. So we'll see this again in the next slide. Oh, we talked about extrinsic value in the last seven final days. If you look at the right extrinsic value is like big. Why is that? Because we have time on our hand and we have applied volatility. We don't know where it is.

[00:37:28.12] - Speaker 1
Let's say if we are lucky, we have time on hand and we have Vega on our side. So theta and Vega both on our side. But as the end of the life circle or days to expire would be five to seven days or something around there. We see that we really, really dipped here. So if you are an options buyer, if you have bought a call because you believe Nvidia still will go to the moon, you either need like a price, great price movement to try to make up for the daily theta decay and the change in volatility. Or, or basically you need, if you are a seller, you need to get out of something when time decay is so fast that it won't tell you you can't manage that. So I think the rest of the slides we can put into the, into the discord or into the dashboard and we can jump to the amazing monthly Q dashboard so we can take a look how we can do something with that. So basically if we, we are here in the sbx so last time and maybe we go here, this is the app.

[00:38:42.26] - Speaker 1
If you start here and you go into indices and stocks, which is very, very hope helpful here and last time and this is what we will do again. Like you can have your watch list on such side. Normally I have a watch list of the biggest indexes. I have a Watch list for the Max 7. Why is that? Just to get a breather of the market. But if you want to have it easy, just read the daily monthly queue mail you're getting. Everything is in there. So if we jump back and take a look on the left side, we can go to volatility once again. Last time we took a look here and said, okay, we said what can we do with the things we talked about with Fabio two weeks ago? And what did we talk last week ago? We talked about applied volatility, Vega. So if we want to build a trade and this, this week things come together. If we go again to high IV rank, this is something where we can pick out a trade which we like. How would we choose that trade? We can choose the trade by just looking at the high IV rank.

[00:39:54.26] - Speaker 1
So where is the high IV rank? Basically all of these have high every rank. Why is that? If we had got, if we had come here like two months ago, something like that, we wouldn't find that many trends because the market is dipping. So if we say we want to sell something here, then it would be a good time to choose something with a high IV rank. I every rank can also be a warning. But let's say we are optimistic that everything will go well. So we choose one of the bigger, bigger, bigger companies we know. For example, let's take a look at Google here or Palantir, two of the market's favorites. Google is like very, very big. Okay, it has lost a lot. But if we look Google here we saw a high IV rank and now the easy thing is first look is at the dashboard. So opinion is low, volatility is very high. But what do we have? We have slightly positive seasonality which could be good for us. Well, this is a trade where we know on the long run we will profit at least from and decline of volatility if market stabilizes again and we will profit from time if we go out in time.

[00:41:10.03] - Speaker 1
So as we said last time, if you don't know about Teta and about Vega, what is the easiest thing to do is to go to the 5 and 20 day swing model. This is the 5 day swing model and the 20 day swing. What do we see here? And we will go back to time and to Theta and Vega in a second. We see here that basically we are have an upper band. What does that mean? That the five day swing model signals us that in the next coming five days, the model believes that Google stock will stay below the upper band. So basically the model takes a better stand if we have a bias and we will see how we can factor that in. If we go to the 20 day model, we saw 162, the 20 day model says, tells us that we believe we will stay for the next 20 days. We will stay here in the upper band which is the 170. So if we want to build ourselves trade, let's say we chose Google. We said, okay, it dipped, it will go on dipping. I won't take you to SKU on other stuff.

[00:42:27.17] - Speaker 1
The thing is we could do is to go to the matrix and see how things are playing out there. How would we build something out without looking at the options? So we have the 20 day model we looked at and say, okay, we want to build something which will profit from time and high volatility. Would you take the 20 day trade here? No, I would do something else. I would take the 35 day or 60 days. Why? Because my aim is to close around 20 days. So why is the 20 day model so good for me? Why don't I, why don't I have a 40 day model? I don't need a 40 day model because I will open a trade with more time on my hands. So I can manage the trade better. But I will close the trade most probably at, at half time. So this is the 20 day model and Fabio is showing. So we would take let's say the upper band as a break even point, as a first factor for a break even point. If we go back to the metrics for a second again, Fabio, I'm very sorry, I can't make you switch around here.

[00:43:36.29] - Speaker 1
We would take a look at the, at the 35 days first. So the first thing is, what we see here is we see a negative dax, we see a yellow DAX which is without looking at numbers signals a bearish standard. This is what the model told us. So if we had a bias here, we would sell a call maybe at 170 or maybe higher or something like that and buy a put. So if we take a look here into this, into the, into the matrix or Fabio, what do we see here? We see if we again go to the 35 days it says it's a weekly expiration which is not bad. It's the 16th of May. Let's just do it for the sake of it. We see that the model told us the 20 day would be at 170. What do we see here? We see the put support at 160 and the high volume level at 170. What does that mean? How do you Interpret that. Now, if you want to be on the safer side, you sell the 66, 160. Do you believe in the model which we basically have seen? The model works actually in exceptionally well.

[00:44:53.04] - Speaker 1
You can get a bit more credit because if you have more credit, yes, you risk more. But the more you risk, basically if the risk reward is 1 to 2, 1 to 3 and you have a high percentage of wind like the model has with 70 to 80%, then even in, in the Monte Carlo simulations you will be successful. So what I, what would I do? I would have in my, in the back of my mind the 160 and in the end, basically I would lose the high volume level. So. But why do I love this here? If we go up, if we have. Yes, if we have, if we look, take a look at the, if we take a look at the call resistance and the put support here. Again, if we sell now calls because the model told us to sell 170 calls, we see the 180 here, which, what does that mean? 180 is higher and the 170 is lower. So what could we choose? We could choose the 180 or we could choose again the high volume level. And again I would go for the high volume level because I trust the model and I've seen how it works.

[00:46:05.11] - Speaker 1
But a nice thing is to do if we have bearish, if we have bearish trades here to know where the market might reverse and where basically we should get out of our trade. I don't know where Google is right now, Fabio. Maybe we take a look what the, what the price is for, for Google right now.

[00:46:29.27] - Speaker 2
Of course this is like data, so it's not like advice. You know, the data is just looking, no options, positioning. So Google is Now quoting at 153.

[00:46:41.15] - Speaker 1
Yes. So the 170 looks very nice. Basically we are below the put support. So maybe if you take the five day expiration, you won't get much of a credit. But if you go out in time like we showed you with the 35 days, you will get some good credit for it and still you will be on the safe side. If you want to be on the super safe side, you take the call resistance. But if you want to be a good risk reward would be maybe take a break even where the model signals us. So what I want you to do for next time is basically to take some. Take the Max 7, pick out the Max 7, pick out the bands and for yourself build trades. Build trades. Take maybe for example the model. Take the days you choose at least, at least 30 days. And as an exercise here, look in the metrics and look at the call and put support and the high VL and try to imagine what the market sees here. So it's very easy for you. You take a bearish stand or a bullish stand and then you choose a side.

[00:47:59.04] - Speaker 1
That's the easy factor. And then you take these levels to see how you should set up your trade. What I, what do I mean with that? We go back to the 170 level and we see that we, the core resistance always stays above it and the high VL is moving a bit, but always stays below that level. And we have a very high, very high chance that this level of the 20 day model at the time we wanna, at the time we wanna basically take this trade off will be successful. This is the thing I want you to make the most out of the data. So basically maybe we. I don't, I take a, I will take a look in the chat. No, we don't have any questions. As I can see. Fabio, Anything you want to add to that or. So we basically take another look and swing last wing at what theta does with setups and what you can, which trades you can do by coming here to the, to the screener and set things up that.

[00:49:05.15] - Speaker 2
Yeah, I think, I think we can do that. I think it's very important because one of the things that we talked about the other day is like volatility a couple of weeks ago, which is obviously probably one of the most important factor when you look at options especially. And then after of course time, I think the, the key success of options, Dan, is of course the flexibility. So of course a lot of questions have come, okay, the market is down. How can I build a strategy? And the good thing about option is that you can potentially have a return when the market is on a bearish side, on the bullish side and as you showed on, on the neutral side, meaning that the price moves within range. So how can you benefit from the effect of data? Yeah, maybe we can show some other things that we can look for to benefit from time. And of course then let's see if we have any questions.

[00:50:00.07] - Speaker 1
I, I don't see any questions. So basically the thing is, and this is another exercise you maybe can put yourself into, as I said, if you build your bias trades for the Max 7, for example, just go into your broker, don't open the trades, just look at what the factor of theta is there and you will see maybe 0.3, 0.2 or 0.8. This means how much, basically how much dollar value you getting for each day which passes. So basically you can take all this together and calculate that and see how much money you would make within a week or in a month just by basically opening these trades. Will they be successful with that? No, but this is a factor which is there. So basically, if you are, if you want to sell options and you want to have time on your side, this is something which you can basically calculate on your own and which is very motivating if you set up the things. If you say, okay, I, I don't like selling premium, I don't like spreads, I like things simple. I like naked options. But selling naked options, that's too risky for me.

[00:51:20.16] - Speaker 1
Definitely risky if you, if you don't know what you're doing. So I prefer I spent money on a call or I spent money on a long put. And basically I believe the market will go up or the market will go down. But then again, look at the options chain or in your broker, broker's account before looking or opening a trade like that. And again, etc. Into the factor. So if you pay 100, $100 for an option and you're losing $5 a day, and this option basically has, let's say another 30 days or 40 days and you can calculate basically how much, how much, how much money you're losing every day when price is not moving or implied volatility is not helping you. So that's why a lot of people choose option selling. But we will show you again beyond Vega, when to choose to. To. To sell option, when a debit might make sense. Because the deck structure is giving you some hints, this queue is giving you some hints. You have seen the setup. And then you say, okay, I'm expecting a bigger move here, or I'm expecting another setup here, and volatility would be on my side.

[00:52:41.08] - Speaker 1
And then we can maybe take out the factor time. That's the thing, because sometimes you want to have time to work for us, and sometimes we, if we have time working against us, then at least we wanna, we wanna be profitable on the other sides. This is basically what this whole session today was about to give you a small glimpse how important the time factor is when trading options and how to choose the things rightly here from your dashboard. And just, you can just follow the model, which is extraordinary. Great. But if you don't understand these factors, then you might find yourself in a loss without being able to explain it. And time is easily, you can understand time more easy than Implied volatility. But we did implied volatility before because this is basically the setup where you always normally start a trade. A longer dated expiration trade is choosing if. If you want to be a seller or buyer of a setup, either be it naked options and spreads or multiple spreads. Okay, Fabio, are there any questions or things we should still look at?

[00:54:00.24] - Speaker 2
No, I think. I think it's good. I think we have five minutes. Let's see if we have some questions. So for those who are interested in learning more about all the models that we showed you today. So this is, of course, our Dashbo. We cover about over a thousand assets between stocks, ETFs, indices. Soon we are going to come up with our crypto data. So stay tuned. There's a lot of stuff going on there. And yeah, so if you have any questions, we're going to be live with Dan again next week. This week. We also have a really busy schedule, so don't miss it. You can find us on YouTube. And we, we're gonna go over some volatility with Ryan on Thursday. We're gonna go over some new stuff that we're launching on Wednesday. We're also gonna have a session with Patrick. So a lot of things to come. And so stay tuned, follow us on YouTube and join [email protected] and thank you, Dan, for. For the time. This was awesome.

[00:54:59.18] - Speaker 1
Thank you, Fabio, for having me. And please, guys, if you don't put your questions here, just. Just put the questions or tag us here in the discord. And if you do your exercise, please tag me there. And if you have questions and practice makes the master. So just go over the slides, go into the academy, and if you have further questions on Vega and Theta, just let me know and I will help you. And even also Paul is there to help. So we are very happy to give you insights and give you the edge which mental Q data gives you. But if you're under. Understands. Understand the Greeks, then you surely should be on a winning. On a winning trail. If not today, then at least tomorrow.

[00:55:46.19] - Speaker 2
Awesome. Thank you, Dan. Have a good day, guys.

[00:55:49.01] - Speaker 1
Yes. Bye. Bye.