Live @ 7pm Central Time - Theo Trade€¦ · About TheoTrade •TheoTrade Specializes in education for options, futures, and stocks. •Founded by professional traders and trading

Live @ 7pm Central Time

How To Turn a Small Account into a

BIG Accountwith Matt Williamson

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Risk Disclosure• We Are Not Financial Advisors or a Broker/Dealer: Neither TheoTrade® nor any of its officers, employees, representatives, agents, or independent contractors are, in such capacities, licensed financial advisors, registered investment advisers, or registered broker-dealers. TheoTrade ® does not provide investment or financial advice or make investment recommendations, nor is it in the business of transacting trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation. Nothing contained in this communication constitutes a solicitation, recommendation, promotion, endorsement, or offer by TheoTrade ® of any particular security, transaction, or investment.• Securities Used as Examples: The security used in this example is used for illustrative purposes only. TheoTrade ® is not recommending that you buy or sell this security. Past performance shown in examples may not be indicative of future performance.• Return on Investment “ROI” Examples: The security used in this example is for illustrative purposes only. The calculation used to determine the return on investment “ROI” does not include the number of trades, commissions, or any other factors used to determine ROI. The ROI calculation measures the profitability of investment and, as such, there are alternate methods to calculate/express it. All information provided are for educational purposes only and does not imply, express, or guarantee future returns. Past performance shown in examples may not be indicative of future performance.• Investing Risk: Trading securities can involve high risk and the loss of any funds invested. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon, or risk tolerance.• Options Trading Risk: Options trading is generally more complex than stock trading and may not be suitable for some investors. Granting options and some other options strategies can result in the loss of more than the original amount invested. Before trading options, a person should review the document Characteristics and Risks of Standardized Options, available from your broker or any exchange on which options are traded.• No part of this presentation may be copied, recorded, or rebroadcast in any form without the prior written consent of TheoTrade ®.• No Soliciting. No Recording. No Photography.

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About TheoTrade• TheoTrade Specializes in education for options, futures, and

stocks.

•Founded by professional traders and trading educators each

with a minimum of 15 years experience, several with many

decades

• TheoTrade is here to help you mitigate the risks in the market,

while learning a skill set that can last a lifetime.

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Your TheoTrade Instructors

• Jeff Bierman – Analyst, Trader, & Former Chief Technician for TD Ameritrade

• Don Kaufman – Co-Founder TheoTrade and Volatility Super Geek!

• Corey Rosenbloom – Senior Strategist & Swing Trader

• Brandon Chapman CMT– Macro Economics, Technicals and Fundamentals

• Steve “Slim” Miller - 43 year veteran stock, options, futures trader

• Tony Rago - Nasdaq Futures and Intraday Strategist

Matt Williamson

➢ Market Neutral Option Strategist

➢ Risk manager for private hedge fund

➢ Began Paper Trading: Age 9

➢ Began Investing: 2003

➢ Began Trading Options: 2010

➢ Specialize in complex position management,

greeks, risk analysis, and wing spreads

(butterflies and condors)


© Copyright 2018 TheoTrade, LLC. All Rights Reserved

Introduction

• I’ve been down the path of shiny objects – I know it well.

• I’ve traded naked puts, strangles, straddles, earnings plays, dividend

capture, covered calls, iron condors, double diagonals, triple

calendars, and subscribed to an embarrassing number of trade

services when I started.

• The trick is to stop chasing the dragon. Learn one thing really, really

well.

• I know how to trade wing spreads (condors and flies), and I know them

inside and out, backward and forward.

© Copyright 2018 TheoTrade, LLC. All Rights Reserved

What You Will Learn In This Presentation

•How to quantify and define edge in trading

•How to build a butterfly spread to express a

directional bias

•How to aim for large returns with a small account

•3 things NOT to do when trading flies

Acronyms and Shorthand Cheat Sheet

• PnL – Profit and Loss (P. and L. → P n L)

• IV – implied volatility

• Fly – pesky insect, also short for butterfly spread

• IRA – Individual Retirement Account

• Vol – Volatility (typically, IMPLIED volatility)

• DTE – Days to Expiration

• Roll – move an option from one strike and/or expiration to a different strike and/or expiration

• ATM/ITM/OTM – At the Money, In the Money, Out of the Money

• Legging – trading a piece of a spread by itself instead of the whole spread

• BWB – broken wing butterfly

• BWC – broken wing condor


Let’s define quantifiable edge…


34.13% 34.13%

13.59%13.59%

68.26%

95.44%

0 +1-1 +2-2



YOU MUST TRACK your own performance record to establish 4 things:

• Win percentage

• Loss percentage

• Average win

• Average loss

With those 4 items, you can then calculate per-trade expectancy and forward project into time to establish

a timeline for your goals and can begin to adjust your allocation to meet your timeline. Let’s take a look…



Using a set of random inputs:

Win % 70

Loss % 30

Average Winner $45.00

Average Loser $38.00

We can then plug them into the expectancy formula:

Expectancy formula:


(Probability of Win * Average Win) – (Probability of Loss * Average Loss)

From previous slide:

Using a set of random inputs:

Win % 70

Loss % 30

Average Winner $45.00

Average Loser $38.00

(0.7 * $45.00) – (0.3 * $38.00)

($31.50) – ($11.40) = $20.10 per trade expectancy

Butterfly Spreads offer superior risk/reward and edge


Why is a butterfly the best choice to grow a small

account?

Butterflies can be bought VERY cheaply relative to

the potential reward, and as such, allow for the

ability to lever the returns into easy large % wins.

We need large wins, and lots of them to grow a

small account.


What is a butterfly spread?

A butterfly spread is a long vertical spread (call or

put) partially paid for by a short vertical spread

further OTM.

…wait, what?!?


What is a vertical spread?

• A vertical spread is a long option (call or put) and

a short option in the same expiration, but at

DIFFERENT STRIKES.


Long Vertical Call Spread – selling the further OTM strike


Long call

Short call

Long Vertical Call Spread – selling the further OTM strike


Long 286 Call

Short 290 Call

Short Vertical Call Spread – BUYING the further OTM strike


Long call

Short call

Short Vertical Call Spread – BUYING the further OTM strike


Short 290 Call

Long 294 Call

Put them together, and what do ya get???


Long call

Short callShort call

Long call

Put them together, and what do ya get???


Long call

Short call x2

Long call

Long Call Butterfly

The Butterfly Spread


Long 286 Call

Short 2* 290 Call

Long 294 Call

286 290 294

What is this the Value at Expiration?

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Long 286 Calls X 1 Short 290 Calls X 2 Long 294 Calls X 1 Profit/Loss

SPY <= 286

SPY @ 290

SPY >= 294

Common complaints checkpoint:

• What a low-odds trade! Why not just FLUSH MONEY DOWN

THE TOILET INSTEAD??



• What a low-odds trade! Why not just FLUSH MONEY DOWN

THE TOILET INSTEAD??

• Probability = Risk/Reward

• Stop looking at the expiration line!

• Let’s examine this closer to discern our edge



• Why isn’t this called the COMMISSION MONSTER???


Give me your

commissions! ARGGGG!


• Why isn’t this called the COMMISSION MONSTER???

• Brokers are currently in a race to the bottom on commissions (good for

retail traders)

• If you’re making money net-net, who cares???

• Be patient with executions and you’ll make about 100x the money

you’re losing on commissions.

• I’m asking you to put aside commissions for now. Learn the trade first,

and worry about the commissions later.


But… arg!


• This is too complicated!

“Anything worth doing is not easy.”- someone who already did it


Why trade butterflies?

• When set up properly, they offer a

superior risk/reward/probability

setup that has statistical and

demonstrable edge

• (this famous internet browser, in a

vicious twist of irony, does not)


Use case (replacing bearish verticals)


Vertical PnL

+5%: (-$71.89)

-5%: +$88.18

Risk 0.82 to make 1

50% odds (coin flip)

Use case (replacing bearish verticals)


Butterfly PnL

+5%: (-$28.27)

-5%: +$24.22

Risk 1.16 to make 1


Give it time to marinate…


Vertical PnL

+5%: (-$98.32)

-5%: +$126.77

Risk 0.78 to make 1


…and viola!


Butterfly PnL

+5%: (-$33.23)

-5%: +$58.10

Risk .57 to make 1


Why trade butterflies – learn options management

• They are a wonderful tool to actually learn to manage

complex options positions. We won’t be doing a great deal of

adjusting in this portfolio, but the butterfly is a very

adjustable trade due to the large amount of

potential/expiration profit available to work with.


Why trade butterflies - LARGE GAINS

• A butterfly can (and regularly DOES) hit 100%+ return on risk.

If you’re looking to grow a small account with some safety,

butterfly spreads offer a way to do it with some edge.


Live Butterfly Trade Examples

•CRM Butterfly Spread 42% in 20 days

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•ADBE Butterfly Spread 67% in 15 days

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•TXN Butterfly Spread 82% in 13 days

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What NOT to do when trading flies:

1. Look at the expiration graph

2. Glance at the expiration graph

3. Study the expiration graph


Types of butterflies:

1. Balanced butterflies• Directional to an extent; most simple to understand; equidistant wings and equal numbers of debit spreads and

credit spreads; risk equal to debit paid for a long fly

2. Unbalanced butterflies• Equidistant wings; differing number of credit spreads or debit spreads; asymmetrical risk to down/upside; more

complex

3. Broken-Wing butterflies• Asymmetrical wings; same number of credit and debit spreads; skewed risk profile; more complex


Which will we be using???

For the most part, we will be using balanced flies. When skew

presents a problem (usually on the bullish call-side trades), we

will typically opt for a 2-3-1 unbalanced fly, occasionally using a

broken-wing butterfly instead.


Risks and Considerations

• This strategy works well if you follow the entry criteria, but

there are risks to be aware of as well as other considerations

that can enhance profitability and cause losses if not fully

understood.


Binary (Event) Risks

• This trade sets up and behaves very differently ahead of a binary

event (earnings announcements/FDA approvals/etc.), so it’s

important to understand the effect such an event has on the trade. In

general, we don’t initiate the trade prior to a binary event.


Directional Risk

• This will be a directional trade, meaning that we are exposed

to adverse moves in the underlying. We use scans to find

candidates that are most likely to go our way, but build in

edge in case we get it wrong.


Skew Risk

• Skew is the difference in upside option premium vs.

downside premium.

Some understanding of skew is helpful when trading

butterflies. Sometimes the underlying doesn’t price ideally,

and rather than shrugging our shoulders and not

understanding why, we can understand the skew and work

around it to adjust our entries.


Allocation Risk

• This is easily the most important risk to understand. If you

allocate improperly, you will ruin your edge and blow up your

account. You MUST have an allocation plan!


Bring on the Butter !!•You may not know options OR have limited experience in placing

options trades.

•We can show you HOW and WHEN to place and manage these trades in

a matter of a few hours.

•TheoTrade creates detailed recipes for every strategy including this one

•You would not bake a cake without a recipe, so why trade without one?

Why Doesn’t Everyone Do This?•Here is what you NEED to KNOW!

✓ What stocks do I trade this on?

✓ How do I determine bullish or bearish?

✓ What expiration do I select?

✓ What strikes do I use?

✓ Position sizing?

✓ What is the correct probability for the trade?

✓ How do I execute the trade?

✓ When do I exit?

✓ What to do in a losing position?

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THEOTRADE RECIPES IN TRADING

Criteria… it’s what we at TheoTrade do!

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Trading is about Answering the What Ifs

• What might be a good stock or ETF candidate for this buuterfly strategy?

•What is the correct options expiration cycle to buy?

• How much capital do I commit to each trade?

• What Strike Price Options do I sell and how many?

• What Strike Price Options do I buy?

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TheoTrade is the Answer to Your Questions

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4

• What is the right probability for my trade?

• How many options contracts do I trade in for my account size?

• When do I close the trade?

• What if the stock sells off big? What is the correct return for the strategy?

• What if the stock rallies massively?

• Can I fix a losing trade?

TheoTrade Has Your Answers

• TheoTrade has the answer to your trade related questions!

• We Build Recipes with definitive criteria and checklists for

each strategy and each unique variable you will encounter.

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How, When, Why, at What Price?

• This is just the beginning of the many variables you will face

while trading these Butterfly spreads!

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The Secret is in the Sauce•Now you may be thinking… hey I can read about these butterfly spreads anywhere

and do this; well think again…

• The following strategy and corresponding criteria requires the utmost attention to

detail.

•We spent lots of time fine tuning this trade setup and criteria, when we approach

the section on criteria FOLLOW the STEPS to build a trade!

•Would you like the criteria to build a small account to a LARGE account?

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Growing a Small Account Class: Curriculum

Part 1 - Foundations

• Our goals

• Large gains

• Smart money management

• Edge - what is statistical edge?

• What is a butterfly?

• What is a bullish vertical?

• What is a bearish vertical?

• Edge inherent in butterflies

• Types of Butterflies

• Bullish BWB

• Greeks Review

• Delta

• Gamma

• Theta

Part 2 - Criteria

• Underlying's/Scans

• Entry/Setup

• Prob

• R/R

• Entry Tweaking for skew

• Allocation model

• Risks

• GTC order upon entry

• Using limit offset orders

• Management - manual

• Management - auto

• Possible adjustments

• Exits

• Exit Execution Considerations

Part 3 – Allocation

• What is money management?

• Why is money management important?

• Risk of Ruin

• Scaling down while scaling up

• Goal planning and management

Tracking systems

Growing a Small Account Class

• Trade Instructor: Matt Williamson

• 3 hour course LIVE Saturday November 10th 9am – 12pm Central Time

• Class slide deck that includes entry and exit criteria checklist available for download November 10th.

$199

*Class qualifies you for a reduced commissions rate*

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You’ve been there done that…•Many of you tuning in have been through the gauntlet of paid classes,

indicators, secret squirrel black boxes and more…

•Only to find… just BUY this one last thing to make all the difference?

But wait there is more!

•We at TheoTRADE have had enough of the educational garbage and

sales pitches and we intend to put and end to it!

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Disrupt Financial Education!•TheoTRADE is built by professional traders with a minimum of 15 years

experience, not professional salespeople.

•Educating you is our ONLY goal and we will demonstrate it.

•TheoTrade changes the way you view financial education…

Introducing TotalTheo® Unlimited Streaming

Monthly Membership!

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TotalTheo Unlimited ONLY $99 per month• The Growing a Small Account course is INCLUDED in the TotalTheo® Unlimited

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Insights and Analysis– broadcasting live 6 hours per day.

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• Instructors directly answer your trading questions via email!

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It’s As If We Are Giving You $100, Take The Money

Growing Small Accounts Class

$199 one time fee

✓ Growing Small Accounts Class

TotalTheo® Unlimited Streaming

$99 per month

✓ Growing Small Accounts Class

✓ Over 74 classes

✓ New monthly classes

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Documents

Live @ 7pm Central Time - Theo Trade€¦ · About TheoTrade •TheoTrade Specializes in education for options, futures, and stocks. •Founded by professional traders and trading