Basics of Options Trading using Data

[00:00:00.05] - Speaker 1
It's foreign.

[00:00:36.21] - Speaker 2
Welcome everyone. Happy Monday. This week is going to be very interesting and today we're going to use this session to actually go over kind of like some theory around options and then we're going to go into how we can build basically like a routine and look at the data and what's important and then I'm going to pass it on to Dan. Welcome Dan as well, who's going to talk to about how to use the data to then create like strategies and how to select, you know, like underlying to basically look at option strategy. So welcome Dan.

[00:01:13.02] - Speaker 1
Hello Fabio. Thanks for having me. And I'm very excited. We made some questionnaire and we talked, took this very seriously, what you guys answered, girls and guys. And yeah, that's why we're going to start here with some very basic stuff and then we can see how you can factor that into Mentor queue. And our goal is always to help you use basic but advanced options strategies and have the best possible data. So that's why we're here today.

[00:01:43.27] - Speaker 2
Yeah, and we're going to go into a short presentation and then we're going to go into the platform and then of course we're going to look at some more advanced things. So if you have any question guys, send it in the comments and then we'll, we'll answer those. But let's go into the presentation. So first of all, what we cover, we're going to cover today is the importance of looking at options. It doesn't matter really if you trade option, if you trade futures or if you simply like buy and hold stocks. Option data has a lot of key information that are going to be relevant for any type of investors, even if you are not a day trader, even if you are a longer term investor. Like for example in the case of Dan is like more of a swing trader rather than a day trader. So we're gonna show you some of the tools that you guys would be able to use with Mentor Q. Whether you are an option trader, a stock trader, a futures trader, options are now becoming key for everyone. And the reason is very simple. We always show this chart, but I think it's worth spending a few moments around it.

[00:02:52.06] - Speaker 2
What you see here is really the growth of option volume since the 2000s. And as you can see, we had a big boom in 2021 when obviously the old GameStop saga started to appear. And now we see that 2024 was actually the year that had the largest average daily option volume in the whole history of time. So this is very important because it really doesn't matter if you are trading options. You need to be looking at options because option will dictate the price of the asset that you look for. So today we're going to show you some of the things that you can use within mentor queue and then some of the also the things that you should be paying attention to. So the first thing is why have option become so relevant, right? Why? As we seen, such a high growth on volume. And the reason can be used to about two factors that we think are very key. The first one is leverage, right? So with options, traders can control 100 shares of a stock for every contact that they buy or they sell, right? And they might be paying a fraction of the cost.

[00:04:01.23] - Speaker 2
And think about if you are starting to trade and you have a smaller account, you don't need as much capital. So you could actually start trading option with a very, very limited amount of capital. You could also have higher return potential, right? So think about if you have $5,000 or $10,000 and you put them in a 5% return or 3% return, it's going to take you a lot of time to be able to see those returns. So that's why options are becoming very important, because investors are seeking for higher returns. And the third step is also risk management. With option strategies, you also have the ability to control how much you can lose and how much you can make, right? So very important, risk is very key. The second factor why options are becoming very important is flexibility and basically the ability to make profit in any market condition, right? So unlike stocks. So if you buy stocks, you only make money on one outcome if the price goes up. And if you sell stocks, you only make money if the price goes down. But what happens if the price stays in a range or if the price goes in the opposite direction?

[00:05:09.11] - Speaker 2
So you have one outcome out of three in your favor. With options, you could actually make money in any market condition, whether we are bullish or bearish, or even if the market doesn't move much. And we're gonna talk about option spreads and we're gonna talk about the importance of time decay in a few moments. But basically, like with option, you could really, you could buy calls if you are. If you think the market will go up, you could buy puts if you think the market would go down, you could buy spreads or sell spreads if you are looking to manage risk. And then you could also use more advanced strategies like Iron Condors and Stratos if you think the market will stay in range. And then we're done we're going to show you what that means in a second. But basically this flexibility really attracts a lot of players, from day traders to hedge fund managers or any investor that want to take advantage of the power of option. Right. So next we need to look at how then can we determine the price of option and why is this important? Right. So the price of option can be addressed or can be determined by mostly five factors.

[00:06:23.05] - Speaker 2
One is obviously the stock price or the underlying asset price, which is obviously the most important one. So for example, if you are buying call options, they will increase in value when the price of a stock will rise. If you are buying a put option, they will increase in value when the price of a stock or the asset will fall. Right. The second very important factor is the strike price, which is the price at which you can buy in the case of a call or sell in the case of the put the underlying stock. So we always refer to the terms in the money and out of the money when we talk about options. But what does that mean? Right. So options are in the money, which means that they have an intrinsic value so they become more expensive. Right. If an option is out of the money, they have no intrinsic value, so they are cheaper as they rely on a much larger move. So you could actually buy very cheap out of the money options. But the, the risk is obviously that they will not gain or get an intrinsic value if the price of the asset doesn't move.

[00:07:34.20] - Speaker 2
Then we have the third factor which is very, very important and we're going to talk about it when we go over our spreads with Dan in a second, which is the time to expiration or our time decay, which is also determined by the Greek theta. So the most important factor is that option have an expiration date and their value will decrease over time with the time decay. Right. So the closer an option is the expirations, the faster it loses value. Right. So a lot of Our traders are trading 0dte's options which expire on the same day. If the move doesn't happen very fast, that option will decrease, their value will decrease very, very fast because we don't have a lot of time till the expiration. Right. When we look at weekly option for stocks as well, you know, if the condition that you are betting on doesn't really materialize very fast, that option will, will decay. And if we invest in longer term option, then obviously they will hold their value longer than short term option because we have more time for a set condition to happen or for our option to go in the money.

[00:08:42.24] - Speaker 2
Which has intrinsic value. The fourth factor that is obviously one of the key one, and we're going to talk about this as well, is volatility, and in particular implied volatility, which is driven by the option market. And basically volatility measures how much a stock moves over time. And if you have a higher volatility, the options would be more expensive because you could expect bigger price swings, which means also higher profit potential. If you have a lower volatility, the options will be cheaper as the stock or the asset, the underlying asset is not expected to move much, right? So even when we are looking at earnings report and we talked about a lot or economic event, they can factor in an increase in implied volatility, making options more expensive. So always look for volatility. And the fifth factor is really interest rate and dividends that we're not going to spend too much time because they have less impact on the price. But the first four are very key. When we look at these variables, then those can be explained within the option pricing model by the Greeks. The Greeks is very key. And we always talk about gamma levels.

[00:10:00.20] - Speaker 2
We always talk about gamma, delta, theta and vega. Those are the most important factor that would determine the price of an option. And, and they can be really linked to the underlying factors. So we have delta that is really responsible for the underlying, you know, affected by the underlying price change. We have delta and Gamma that are really related to the strike price. We have theta, which is linked to the time to expiration, Vega, which is our volatility, and raw, which determines our interest rate and dividend exposure. All right, then we want to look at this chart again, right? And we want to explain why those Greeks are very important. If you guys remember, when we were in 2020, 2021, the GameStop saga happened, right? So here we can see what happened to the price of GameStop when people were buying in the money cause or out of the money cause. And the problem is that even if the stock price was going up, a lot of investors actually lost a lot of money on GameStop because the value of the option did not increase because of volatility. So they were buying options when the implied volatility of GameStop was at the highest and a drop in implied volatility was causing actually the price of those options to actually decrease, even though the price of the underlying was still going up.

[00:11:29.25] - Speaker 2
So if you are buying options and you are not looking at volatility or at the factor that we showed you in the previous slide, you might also risk to actually lose money. Because you're not actually taking into account all the factors that could determine the price of the asset of the option. So now let's go into a very, very short analysis of our Greeks. So here we have all our Greeks and we know that of course our delta is the change in option price due to the change in our spot is very affected by the underlying price. We have our gamma, which is the change of delta due to the change in spot. So gamma is of course affected by delta. So it's the second derivative of delta. We have our theta, which is the change in option price due to the passage of time, also known as time decay. We already looked at Vega. Vega is the Greek that explains our volatility. Raw is of course related to interest rate and dividend. And then we also have second order Greeks, which are vanna and charm, that are at the bottom.

[00:12:42.14] - Speaker 1
Right?

[00:12:42.20] - Speaker 2
We're not going to spend too much time on those today. So now let's look at the, at the effect on Greeks, whether we are long or short an option. So in this chart you can see that if we are long a call option, our delta is positive, our Gamma is positive and our theta is negative. Because of course, if we are buying a call option, theta is against us, meaning that the more time passes, the more the value of our option will decrease. And Vega is positive, meaning that if the implied volatility of our option increases, also the price of our option will go up. If we are short the call, meaning that we are selling a call option, then our delta and gamma are negative, but our theta is positive because we actually make money with the passage of time because the more time passes, the more of the value of our option will decrease. Right? And Vega is negative because of course, we're going to explain this in a few moments. If we sell when the volatility is low and our volatility increase, that is not good for us because the volatility will increase the price of the option.

[00:14:00.28] - Speaker 2
And then this brings us to the concept of delta hedging and market making. We talk about gamma levels all the time, but what does that mean? Right? So if we as an investors are buying a call option on the other side of the transaction, in probably 80 or 90% of the cases, we're going to have a market maker, right? And the market maker is taking the opposite direction. So if we are longer call, the market maker is going to be short call in order to hedge their positions so that they are risk free. Because we, we know that market makers do not take position, their goal is really to make money from the bida spread, they will be buying the underlying. If we are shorter call, the market maker will be selling the underlying. If we're longer put, the market maker will be selling the underlying to stay delta hedge. And if we are short put, they will be buying the underlying. This is very in a simplistic delta hedging use case that doesn't take into account volatility and you know, time to expiration. So this is really a very simplistic way of explaining delta hedging.

[00:15:07.24] - Speaker 2
But it's very important for you guys to understand how this could affect the movement in price action and of course how this could affect the volatility in the market. So what is gamma? Right. We mentioned that Gamma is the change in the delta of an option for a unit of change in the price of the underlying. Right. Assuming that other factors are constant. So if the price of Apple changes, Gamma will tell us how fast our delta is changing based on the change of the underlying price. If we are in a long position, so if we buy a call option, for example, our gamma is positive. And if we are in a short position, so if we sell an option, our gamma is negative. And why is that important? Because this brings us to the concept of positive. A negative gamma that we always show you within the dashboard and we're gonna look at it today as well when we are building strategies. So when we are in positive gamma means that we are in a long gamma condition. So there's more people buying options than selling. Right. When we are in a positive gamma environment, market makers will go long when the price goes down and we'd go short when the price goes up.

[00:16:22.11] - Speaker 2
And this kind of like activity will actually decrease the volatility. So we would typically see when we are in positive gamma, a lower volatile environment because of the way the market makers are hedging. On the other side, if we are in negative gamma, that means that people are selling more option and buying. So we are in short gamma environment, which means more short options in the market. And basically the market makers will hedge in a different way. So they would short when the price goes down and they would go long when the price goes up. So they tend to accentuate really sharp moves. And we typically see that we have a very high volatility when we are in a negative gamma environment. Right. And one of the questions that we always get is like if we are in negative gamma, is the market going to go down? And the answer is not necessarily, but we are going to see very volatile movement throughout the day, right? So this is very important. Know if you are in positive or negative. Gamma will also help you understand how to read volatility. Now we're gonna look at some ways of reading volatility before we go into the practical section.

[00:17:36.21] - Speaker 2
And basically the most important part is really when you trade any asset, whether it's through options or whether it's through buying or selling, learn the volatility of your asset, learn how fast the asset can move, because that can help you understand not only how much money you can make, but also it will help you manage your risk. This brings us to looking at implied volatility versus historical volatility. So historical volatility is derived from the historical price action of an asset. So historically, how much volatility has the asset seen? And then implied volatility is derived from the option market. So it's a forward looking volatility, right? So if implied volatility is greater than historical volatility, then we can tell that volatility is expensive. If implied volatility is lower than historical volatility, then we can see that volatility is currently cheap versus the history, right? So this is very important. And why is this important? Because you need to ask yourself a few questions, right? Do you want to be a buyer or seller of volatility? So do you want to buy an option or sell an option? Do you have a view on the assets? So do you think that, for example, if you're looking at a company like Nvidia, do you think that Nvidia is going to go up or down?

[00:19:00.26] - Speaker 2
Right. Or do you think that the price will stay in a range? And then you also need to look at your objective. So are we investing to benefiting from the change volatility? Are we betting on a direction or are we trying to benefit, for example, from the passage of time? So do you think that we are going to be in a very low volatile environment and we just want to benefit from the passage of time? Right. So these are like some of the questions that are very key when you're building a strategy. And then of course you can look at what type of strategy can be available to you based on the three question that we had before and based on your objective. So if you are planning to take a direction on an asset, you could look at buying call options, buying put options, bull call, spread, bullpen spread. We're going to talk about this in a second. If you are more looking at neutral strategy, so if you don't really know which direction the price would go so, for example, when you're looking at earnings, you know the price could go up or could go down, right?

[00:20:06.04] - Speaker 2
So you don't really know the direction. You could then use neutral strategies, which really can help you generate profit in any market condition. So if you look at iron condors, straddles, strangle, all those can help you achieve those goals. All right, and then that brings us to really, the playbook of a successful option strategy, which is very, very simple, can be translated into two factor. If our volatility is high, we should really be looking at being option sellers. And if the volatility is low, we should be looking at being option buyers, because that's going to give us the best statistical advantage on how we can benefit from the change volatility. Because we know that if we buy options when the volatility is high, most likely the volatility will tend to go back to the historical mean and therefore the price of option could potentially decrease. And of course, we could still make money if the other factors are in our favor. But we are. We have a statistical disadvantage on the other side. If we are basically selling options when the volatility is low, then the risk is that we're going to see an increase in volatility that is against us if we are selling options.

[00:21:25.14] - Speaker 2
So when volatility is low, we really want to be option buyers because we could benefit from the increase in volatility in the future and the price of option, of course, increasing. And Dan, feel free to add anything at any time. And let us know, guys, if you have questions as well. All right, this brings us to another very important concept. When we look at volatility, which is the IV rank or implied volatility rank. The IV rank goes from 0 to 100 and tells us over the past 12 months, are we in a very high implied volatility environment? So is the volatility today very high compared to the previous 12 months, or is it very low? So when we have an IV rank between 70 and 100%, then our volatility is typically quite high compared to the average. So strategies like option selling or strategies with higher risk could be very rewarding because the volatility of our asset is really almost at the highest it has been in the past 12 months. When the IV rank is in the middle between 50 to 70%, then we could still be option sellers, but we also want to manage our risk.

[00:22:48.22] - Speaker 2
So we need to determine strategies that would have a lower risk because we could still have a risk that the volatility could potentially decrease over Time. And when we are in a low IV rank, so here we have from 0 to 50%, selling options becomes more risky. So we can focus maybe on buying options or maybe on some strategies that do not really involve volatility, because we could have a risk that volatility could increase. And if we are selling option, of course we know that that's not good for our position, then this really is a simple visualization on how to use the IV rank, whether we want to sell spreads or we want to buy spreads. So in this case, for example, if you have a high IV rank and you have a bearish view, then you could really do a call credit spread, which is really selling call credit spreads to benefit from the premium. If you are in a high IV rank and you have a bullish view, then you could sell put credit spreads, right? Because you benefit from volatility. If you are in a low IV rank environment and you have a bearish view, then you could buy a put spread.

[00:24:12.02] - Speaker 2
And if you are in a low IV rank and you have a bullish view, then you could buy call debit spreads, right? And then basically this is what it represents. Credit spread really refers to a position where the trader collects the premium. So you are selling option in this case, or selling spreads. And debit spreads refer to a position where the trader pays out a premium. So in this case you are buying a spread or a credit or debit spread. All right, and then let's go over some of our bullish strategies. You can see them right here. And we have a section of our academy and blog where you can look at those in details. Those are our bearish strategies. Right? So you have our long put, our short call. And then of course, you have all our more advanced neutral strategies right here where you could use them to benefit from the implied volatility move or the passage of time. So these are very, very widely used strategies. And then we'll go over some of those as well. So now that we've went over really in the last 20 minutes on how you can read the option market, how you can read volatility, what can you use, and what are the tools that we provide for you to look at those things?

[00:25:38.09] - Speaker 2
Right? So what models can you use? Right? And then we're going to go into the platform. So the first thing is looking at our key level. So when you open up an asset, whether it's a stock, an index, a future, you can have access to our key levels. And here we see some very important metrics. So we see in the bottom we see our implied volatility, our historical volatility, and our highway rank. And then we see our gamma conditions. So we mentioned positive and negative gamma. Immediately you can see in red that we are in this case looking at the S and P in a negative gamma environment. So as a first glance, you can immediately understand what type of environment we're on and what are the things that we should be watching for. We can also look at our Q score and we're going to mention our Q score in a second. But you can see our option score, our volatility score, our momentum score, and our seasonality score as well there. Then we have our net gamma exposure chart, which is our net jax. And we're going to go into and show you how you can look at that.

[00:26:49.08] - Speaker 2
But essentially what this tells us is really the net market positioning. Whether we are on the put side, you see the buzz in red and whether we are on the call side. So what you want to understand is really how this chart changes over time to understand if people are positioning or investors are positioning more on the call side, on the put side and what are the strike prices that could become a market reaction and could become interesting for you to look for. And then of course we have our hival level, which is the yellow line which is pointed out with the red arrow in the middle, which is really the gamma flip level which dictates when the market goes from positive to negative gamma. And what is the key level that we should be watching for. So this chart really helps you understand market positioning, sentiment indicators and a lot of really important metrics. When we look at option, the first chart is looking at all expirations. We are looking at the full option chain. But we also have our multi expiration net gamma exposure chart right here. So here we are looking at four different expirations.

[00:28:05.10] - Speaker 2
We are looking at the first two expirations at the top and then at the bottom we are looking at the two expirations with the highest net gamma. This is important because most likely those are monthly expiration where we're going to see a lot of gamma expiring. So looking at the overall picture across multiple expirations can help you understand if the market is just overall bearish or bullish or is if the market is overall bullish on certain dates, maybe there's an event, maybe we have earnings and we see a lot of like put positioning accumulating. And then after earnings, maybe the market becomes more, more bullish because they, you know, the earnings rush is gone. So looking at multiple expiration can really help you understand the overall picture. Then we have our gamma levels and here we have highlighted our one day max and our one day mean. This is very important because these are like volatility levels that you can monitor. So whether you are trading options or directional, this could be target prices, target profit targets, stop loss, target. And they tend to be really well respected throughout the day. And we also have some backtesting results on our website.

[00:29:17.02] - Speaker 2
Then we can look at our option matrix. So when we look at our option matrix, this is really, the goal of this model is really to simplify the option chain and show you how you can read the option chain very fast and understand things that could be irrelevant for your strategy. So the first section of the matrix is really looking at our gamma exposure. Right there you see in green that we are in a positive gamma. Our total exposure is positive. We can see our total gamma exposure, which is our JAX exposure or our total delta exposure, which is our dax. And we can see it across all the expiration. So here we are looking at Nvidia and we are looking at all the different expiration going through all the way through December 2027. Right. Then we move to the middle and we look at our jax, DAX and open interest normalized. And why do we do that? Because we want to understand how much JAX or open interest could expire at any expiration in the future. So for example, here we're looking at March 21, we have 16% of Jax. If we look at June 20, we had 20.9% of Jax expiring.

[00:30:37.07] - Speaker 2
And why is that important? Because once that gamma is, once those options are expired, the gamma is released. So there's no more need for market makers to hedge that exposure. Right? So that could actually be the start of a technical move. So knowing how much of those gamma delta and open interest expires, very, very important. Then we move to the sections where we look at the change. Here we show the one day change. So how much gamma positive or negative was added versus the previous day. That can help you understand, for example, how participants are positioning maybe after an important event. We have FOMC this week would be very interesting to see the change after the event. So you can monitor it through there. And then finally the last column on the right is the expected move for the expiration. So in this case we want to understand how much can the price move in points at that expiration in the future. So if we look at the first expiration, which is March 21st, we expect the price of Nvidia to move plus or minus 8 points from the current level. So that can help you understand again how much money you could expect to make if you are taking a directional bet or if you're taking.

[00:32:00.10] - Speaker 2
If you are looking at spreads, what are the levels that you should be watching so that you know the price does not get to those levels? Right. So very, very important. Next we're going to look at the swing levels. So we have two swing levels and swing models. We have a five days model and we have a 20 days model. We're going to show you also how to use those. But essentially those becomes sticky price levels that you can use if you are interested in selling credit spreads five days and 20 days in the future, or if you're also interested in understanding if the option market is telling us that the price of a stock could be bullish or bearish. Within these models you can have the price levels for the next five days and 20 days. You can also look at the backtest at the top and you can also look at the bias. So we also have a dedicated section and a dedicated course on swing levels. If you guys are interested as part of the academy, then we look at our sku, right? And this is our one month SKU for in this case we're looking at Tesla.

[00:33:08.29] - Speaker 2
We also have a three month skew and the first expiration SKU or zero dte sku. So we have three types of SKU here. And basically what we are looking here is our 25 Delta which is also called risk reversal, which is looking at out of the money options with 25 Delta. And we are looking at the price of puts minus the price of calls. And we are looking at if the price of puts is more expensive than the price of calls, then that means that obviously there is more interest in puts. And we are in kind of like a bearish bias. You can see it at the bottom chart right there where Tesla was kind of still kind of is in a put bias environment. And kind of like the skew has gone down over the last few days, but we're still in a very, very high negative bias skew. And basically that is how can we use this tool is really like a sentiment indicator. So we can look at it as what is the market doing and why is the skew changing? Right? So if a steepening in the skew, that could be a very, very big sign that we can use.

[00:34:19.24] - Speaker 2
And this is available on all Our asset stocks, ETFs and indices every day, updated to you in the dashboard. Then we have More advanced model, we have our term structure and our smile curve. And that can help you understand how volatility changes at different points of the curve and how can you look at the changes historically. So within the the chart, you can look at the five days, one day and one month change. Right? So you can see our volatility has changed over time, which I think is very, very important. And finally, and then of course, I'm gonna pass it on to you. Dan is looking at our Q score, right? The Q score was released a few weeks ago. Here what we see is the score of an asset. In this case, we're looking at the spy, I believe. And basically we're looking at the option score, the volatility score, the momentum score, and the seasonality score. And at the bottom, we can see the change in our option score over time. And you could see how that change could potentially have predicted a market move, etc. Right. And again, we have also a lot of documentation about the score available on our, on our website.

[00:35:46.10] - Speaker 2
And if now we go into the dashboard, this is kind of like how I set it up. So I have my watch list on the right hand side, I have my indices, my equities, my ETFs, and my futures. And then I have kind of like similar to what we showed in the presentation, I have my setup right here where I have my net JAX chart as the first model that I have, my multi expiration, my option matrix. Then I have my SKU right here, my 5 days and 20 days model. And all of these can be customized. If I wanted to change the order, I could do that very easily. And then I have my volatility, smile term structure, my option scores, and I also have my other score. I want to look at seasonality, I want to look at momentum. And then basically right here, we also have our other models right there. But basically, once I set this up, I can then apply to any asset that I look for. So right now I'm looking at Tesla. I can see right here that we now are we move back to a kind of like a bullish bias within our swing model.

[00:36:58.29] - Speaker 2
You can look at the backtest right here, and you can also look at the skew. So with the skew, the skew is going down, but we're still kind of like in a put bias environment. All right, let us know guys, if you have any questions done. Let me know if you have anything to add here and then maybe we can pass it on to you.

[00:37:20.00] - Speaker 1
Yeah. Thank you, Fabio. This was amazing, and I hope you Guys saw a lot of stuff. I picked up two, three things which is always nice. Which reminds you of things of a learning curve and that was good to have that. So I'm very happy that we have this recorded now and everyone can rewatch it. I will definitely rewatch it because it was so informative and thank you, Fabio. We have about 20 minutes left, I think roughly. So I'm gonna try to fast pace from the theory plus some insights Fabio gave you into how I use these things. And yeah, let's start. I. I came to Mentiq to use the data and started showing some of my trades and I have one section, I have a lot of sections, but my one of my most active section next to the earnings. You want talk about earnings mainly today, but about what we saw and how we can use that. So one of my most active threads you will see and most successful threads is the Theta and Vega thread. And yes, this is a magic combination of knowing your Greeks and trading them. But I've added tons of value by using mental queue.

[00:38:45.14] - Speaker 1
And this is not only because the data is so good, but because it makes things so much faster and helps me visualize things. Plus thanks to Memphiq and this is the most important thing and I will show you that in a second is it's easy to set up a couple of well running trades. You can use your Dulce's other stuff. You can hedge, right. You can have your theories about hedging and and so on. Think like a market maker because this is meant to data helps you think like a market maker and enhance your trading. But what has helped me is manage my trades better. And that's a lot of things. It's important if you see things shift, if you have a bias or if you. What I do mostly is direct and non directional trades. If you see a certain shift or you see the data points pointing to some setup you can skew. We learned today, if you haven't, if you didn't know it before, what the skew is. You can skew your trades means and you can give them a slightly directional bias but profit from both ends. And so how do I like to start?

[00:39:59.01] - Speaker 1
Basically to find good trades. We talked about volatility, we talked about the other Greeks. We will start very practically with the most easiest thing here, which you can do basically you have here the high the volatility panel. And one of the easiest things is to start and to see where is the IV rank, where is it high. Some of you I know I also use IV percentile You can use both. Both are very well known metrics. And for example, we can pick out here something. So we pick out Netflix. This is very nicely here. It has high IV reg. Why is that? Because the stock market has gone down a lot and Netflix had some violent moves. Let me just show you something here. You should see my tossed here. So if we take this, don't look too much at the other stuff. This is just like a monthly move, the monthly expected move. And these are the rolling monthly expected moves. So you see this shift around a lot. But you can see volatility skyrocketed. So normally if stocks tend to go down, volatility goes up. Or we have some special events like here, like we had earnings, won't talk about earnings that much today, but this would be a nice entry point to think of.

[00:41:28.29] - Speaker 1
Yeah, we are in a very maybe violent volatility regime, but the whole market is not destabilized. So we could use IV rank to find some nice trade idea like we saw Netflix right now and maybe set up ourselves a proper trade. So. But what you should expect is that we have here some negative gamma conditions, which means we could have a lot of move to go for some other stock. But everyone knows Netflix. So why don't take, why shouldn't we take that? You can see two other metrics which are very important to me. Implied volatility is higher than historic. What did we learn when we have a higher implied volatility than historic? I can't draw right now, but I would do this with my mouse. This is a simple bell curve. If we take these two and we think 10 things tend to go to the middle. So we should drift to that if nothing really bad happens. Plus we have these, do the call resisted and put support. We will look at the, at the expected move or the setup of the trade. This will help us build up maybe a non directional trade or if we see a shift, we can maybe just sell some credit spread.

[00:42:48.08] - Speaker 1
So we will open, we will open our Netflix. And what I do, the first thing is like Fabio said, we will take a look here. So the first thing is are we ready to be a negative comma environment which means a lot up and down, basically. I have no problem with that because if I sell a non directional trade, I'm super okay if it goes up and down as long as my strikes are not breached. Like I don't want to. But you can set this up. So what I know is we had a lot of, you know, not down grinding, let's say it like that. But what gives me confidence to be able to set up a good trade Here we have a high volatility which we saw from the IV rank and we have a slightly positive seasonality. Two contradictions. This is wonderful. If you have a non directional trade, which is a more advanced strategy, which means that you can in the end collect premium on both sides. If we want to get a credit, why do we want to get a credit? Most of the time won't only go for credits. I do a lot of debit stuff too because I've learned to use volatility in the right way.

[00:44:02.27] - Speaker 1
But if you go for a credit, then it's important and this is what we showed you today. Not to only use the data right, but to know that you have Vega on your side volatility and to have time better on your side. Because if time passes every day you make some bucks. You don't care where the market moves, you make some money. This is set up. No one can avoid, no one can escape that. So if you buy a debit, this works against. But if you sell a credit, this works for you. So if you add a good volatility regime and you know that volatility might, after it rushed, it might deflate, then you have two very, very important factors working for you. That's why I called this thread. Some people already guessed that. And I called this thread. Well, many of my trades are better and better. So how would we set up the trade? We will go into a very practical thing, how we can do that. I will talk about SKU later. Like let me add. Give me a second. Where is it? No, here's my swing model. Let's say we see this here, still the 20 day swing model.

[00:45:21.01] - Speaker 1
So I say, all right, we have a positive, we have a very positive, we have a slightly positive seasonality, but still we have a very violent regime here. We know we are going up here. This was green, but we still have an upper band. So what would be the easiest trade here? The easiest trade would be to sell credit here because we have high premium. So we could sell some calls here and try to put our break even here. If we go for 20 days or longer, we can adjust that by looking at the metrics here. But before I would do that I would try to see what is the five stay swing model do. Because if I set up a longer data trade, why will I do that? Not go for five days? I will explain in a minute. I do weekly trades but I prefer longer time because you can adjust better. Normally I Would go for a longer data trade just to have more time on my hands. Because like Fabio showed in our last session together that at the money options, the decay is far more faster. And you had a very nice video about the SKU two weeks back about the model, where you also saw how they had the money options or closer to exploration options which were in the money at the money lose time value even faster.

[00:46:49.06] - Speaker 1
So if you have more time on your hand, time is still ticking for you. So, but this is the technical thing I will do. I will double check before I set up a direction. I will try to check if we can build a very simple trade. So I would go for calls here. And this is very simple because the model gave us the 1035. And this is very encouraging because I see the core resistance here is thousand. So this is a very sticky level. So market needs to move a lot in order to break that. What do I see here? If I look at all the expirations, I see, yes, we have a bias on the upside and I see that the delta hedging is a bit more heavy here. So this means if we get above this level, tend to go above this level, then it will stick here, then maybe I would be in trouble. But until I'm there, I'm still fine. And we a couple of strikes away, which is fine. And in order to take this trade, I would go about 30 to 45 days. This gives me hope that this should work out very nicely.

[00:48:04.11] - Speaker 1
You see, we are more in a bearish environment than the bullish environment. So if you want to have a directional trade, you could do this just with. By selling some calls, you would collect premium. And on the other hand, the risk is lower because every day the clock is ticking for you, plus volatility should decrease, which will definitely help you. Let's talk two seconds. How you could even a simple trade like that, enhance this trade? I've talked about that before. Another way of making this trade even better is looking at the risk trigger. And maybe you will build yourself a very simple condor. Then you can sell here, you won't make much on that one, but you can sell some, some put spread here. So you have an iron condor. And condor is either a short strangle added with some, some long options. But easier to understand for most of you is just selling a call spread and a put spread and combining that together on the same expiration. We'll talk about calendars right now we'll do that and another session based on all the things we saw today. But with this Here, probably this won't be hit or you will see some very nice reaction.

[00:49:25.26] - Speaker 1
And what is the benefit of that? With this 15, 20 or 50 bucks you will make here, you will pay. You will pay the ferryman, like a friend of mine is saying, because it's so far out, most probably that won't be hit, that in the end you pay the fees and the spreads, which is nice because this is from what market makers live. But if you stay here in line, this is okay. Because this is where the status were the chases. As long as we take our model, I hope this is easily understandable. If someone has a question and please let me know. Oh, I've shown that a couple of times more and then we will do very fast break on a debit and then we will continue this. All these basic stuff we saw today, all this information. We would deep dive next week because we only got a couple of minutes left. So if I want to go out and say 30 days, 45 days, which is my preferred, like Fabio said. The easiest thing is take a look here. So you see here, this is getting lighter, but it's not so green.

[00:50:44.14] - Speaker 1
And yes, well, the call resistant level opus. Yes, it should hold because we go out 45 days, we still here around this thousand. And the 800 which I told you for Iron Condor could be used. It's also very easy. Where would I go? Where would I start to wake up and maybe think something is wrong? Or I have to adjust two things. If the model, at least the five day model is what I monitor daily. If I have a trade on if the model switches suddenly, your trade can be profitable. But if the model switches, then maybe take a look and see what happens. And another thing is I will look at the closest exploration high volatility level. So if I see this is breached, this could be the start of a change. Because volatility regime change doesn't mean that volatility will. The increased volatility which was going down will increase again. But we change the regime, we have less volatile moves. But volatility is depraved, which is good for our trade. But something else could happen. I should monitor this trade closer because the whole regime could change and it could work against us.

[00:52:05.08] - Speaker 1
And in general terms this is nothing bad because we still have 80, 90. If I create 90 strikes for the proposed. When we take the 20 day model strike when we build out 1035 right there. So this is super easy. This is very similar trades you can take in it. How long did it take me to explain that maybe 10 minutes. If you do it 10 times, 20 times, it would take you only a couple of seconds to set up a trade and monitor it easily. Like how do I monitor that? I have all my things here in Memphis Q in my, in my dashboard. But the easiest thing is I look at the five day swim model just to get a feeling about the trade plots. I have all the levels and all the trades in. In my trading view and I've set an alarm for the high volatility level. So if this is hit I will take a look before of that I don't care. I just let time pass and it's out of mind, out of sight, which is easy. So back to that we have. There's so much we could do here.

[00:53:11.11] - Speaker 1
So much we could do another two or three hours. But the other thing is we focus on technical things for you. So we will take a look at the lower IV rank and we will show other stuff. Next time let's pick ourselves something which is easy here. This is, this is, this is one. Sorry, I was a bit fast. Go back one. There you go. Why would I pick that one? Implied volatility is. Was in historical volatility. We know about what that we had earnings. Oh you see the earnings were here at some volatile times here was rising, rising, rising. And it's still in a good state here. But it's going down, it's going down, it's going down. So it will need some time to rise again. So by looking here historically we will move to a higher volatility. We have some positive resume. So what would I do? I would buy a debit. You can buy naked call. I wouldn't advise that because how often does this happen that like, like GameStop stocks go to the moon? Not that often. I would just do a debit spread here most probably I don't know either.

[00:54:41.05] - Speaker 1
A debit call. If I would think the model and we can look in the model gives us some idea that we would go up or let's take a look at this one second. Yeah, we are lower. So I would go for calls here. So I would buy some calls here. A bit higher than the lower band most probably. So we are right at the money or a bit higher. So it's not that expensive. You can also go in the money if you like that you have more security there because some, there's some intrinsic value. But this would be a very easy trade because what helps you here. Yes, time is bad for you. But you see where we won't have that volatile moves Most probably we are in an uptrend. Plus here the model helps you, plus we have volatility on our side, it should rise. So the prices will inflate, which is very good for you. So you will make some money on that. If you bet for a huge move like in Tesla, let's say it will explode on the upper, lower side. You could do a long straddle or a long straddle, but we can deep dive some other time into that.

[00:55:54.11] - Speaker 1
So to wrap that up, you can see this very easily here we have very low volatility. You can also double check here, the volatility moved. And you can see here we're like historically lows. So we would go up again. This is what I explained to you. The bell curve always like this. And we tend to go to the middle. Seasonality is neutral, which is okay, but we have a positive gamma environment. An option is neutral and should switch to positive very soon. So I think with one minute left we covered some pieces of the practical things here. But we can deep dive next time because now we have the full foundation of the month options basis and how you can trade the data properly. And we can deep dive next time into more basics, plus building better trades, longer lasting trades and more successful trades.

[00:57:35.10] - Speaker 1
Fabio, I think I can't hear you right now. The microphone switched off right now.

[00:57:41.05] - Speaker 2
Yeah, sorry, Dan. Okay, sorry for that, guys. So I think, Dan, what I was trying to say is that if you're looking for more supporting documentation on the things that we talked about today, you can go over your account. We have our guides. So the guides are basically documents or you know, blog post or use cases that can help you understand the data. So if you go under our products, we will explain everything from our Q score. You know, we talked about seasonality option. Everything is explained here. Our option matrix, our screeners in our swing trading models. And then of course, if you want to learn more about option, we also have our knowledge base, we also have all our trading strategies. If you want to expand and learn more about some of the strategies that we talked about like the bear coil spread or put spread or if you want to look at some iron condor, short struggle, long strangle, everything is available here. It's all covered. And basically we also have, if you go back our academy and we have some really advanced option courses here. So just scroll all the way down.

[00:58:53.26] - Speaker 2
We have our gamma levels course, we have our terms, structure and sku, our option Greeks, our derivative scores, how to use your models using options. We talk about liquidity, you know, we have advanced strategies with options here. We have a lot of videos with Dan where we go over, like all the different strategies. So we have a lot of documentation available to you. So in the next few weeks, we are also going to go more advanced into how to build credit spreads. But I think for now, Dan, this was awesome. And I think. And I think basically, yeah, let us know if you have any questions. But I think, yeah, we went over like the basics of options, the basics of how to use volatility, how to use the data to put in the strategy. And then next would be obviously to set up like a trading plan and set up more advanced strategies there. But we're going to touch base that on that on a second, second time and in the next few weeks.

[01:00:04.09] - Speaker 1
Thank you, Fabio. And yeah, please rewatch especially what Fabio showed you so you get more acquainted with the models and with everything. And like you have seen in other strategy sections, like, you build a roadmap for today. This is the same procedure, just on a longer time scale. And this is, I can say it for myself is if you don't live in the States and you need more time and options are not only built for every day odt, which is great, I do it more actionable, but you need to be closer to the market. But you can trade options like this. And we will show you even more and further trades with very few minutes every day. If you are a day trader, it's great and exciting, but not everyone has the time. But you can build up your whole. You can build an option, not an empire, but you can be your portfolio and increase that. And mentor Q makes it so much easier just with a couple of minutes a week, every day or a month, just to build the right strategy for you. And we will show you in the next coming weeks how to use that even better.

[01:01:17.21] - Speaker 1
We will deep dive into different strategies and I will try to share and trade ideas which are just a selection of what you could think of. It's no advice. It's you can do it if you like it, but please use again man3q and tell us if maybe be wrong with Paul. We do a lot of that stuff and I've had some very nice discussions there. And because MathIQ helps you just get data to everyone and democratize the things and make you see better. And this is what you need if you want to see the future.

[01:01:54.15] - Speaker 2
Yeah, that's awesome. All right, thank you guys for watching. Thank you, Dan. And we're going to be back next week and yeah, have a great evening.

[01:02:04.07] - Speaker 1
Thank you. See you next week.