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Each of these Options concepts tackles a single topic, and drills it deep down. Think of these as "nuggets" that will improve your overall understanding of Options, the methodologies and the approaches you would take when taking a trade. Collectively, they'll give you a very good understanding of the Options market structure itself.
These Options concepts covers different areas - some are pure Options concepts, others have to do with understanding the details of spreads and their risks and rewards. And then we also cover some Order management and trade simulation topics as well as some best practices in Options trading.
The complete list of Intermediate concepts covered are as follows.
Option Risk Graphs and Greeks
Debit and Credit Spreads
Margins for Debit and Credit Spreads
Understanding Stop, Stop Limit and Trailing Stop orders
Pattern Day Trader rule
Selling Naked Puts
Trading the SPX Index with Leverage
Beta Strategy Selection
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|Section 1: Intermediate Options concepts for Stock and Options traders|
Risk Graphs are one of the most important tools available to Options traders. This video explores the use of Risk graphs. When analyzing an Options position, its helpful to put yourself in the role of an airplane pilot using Option risk graphs. A pilot needs two tools - a "Map" to know where you want to go, and an "instrument panel" that can reliably get you there. In this video, we show you these two tools in the Options trader's arsenal. A "visual" understanding of your positions are key - we introduce these concepts in this video, but these concepts are applied in almost every video throughout the courseware. Option Greeks play a vital role in understanding how your position will behave under different market conditions.
Using the different types of Orders can provide a strategic edge. Learn about Stop, StopLimit and Trailing Stop and much more..
What are Stop and StopLimit orders
What are Trailing Stops and TrailStopLimits
When do you use each order, and how do you use it effectively.
The Pattern Day Trader rule is an important SEC rule for Option traders. Get the complete details on this rule.
Who is a Pattern Day Trader
What are the PDT rules
How can traders avoid a PDT classification
This video provides all the details an Options trader needs to know about the Pattern Day Trader rule.
There are two kinds of Options spreads. This free mini-course explains the key differences between debit and credit spreads and their risk profiles. Debit and Credit Spreads are an intermediate level Options strategy, but they form the centerpiece of the Options playbook of strategies. If you can master Options spreads, you can easily tackle the advanced strategies because most advanced strategies can be broken down into spreads. Spreads are perfect for busy professionals because they control risks and provide for better capital management even better than single Options. Credit spreads can be used on a monthly basis to create a regular monthly income. We introduce the two types of spreads in this video, but we have a set of courses dedicated to Spreads.
Credit spreads and Debit spreads are very different and so are their risk, reward and margin requirements. This free course explains it all.
Debit spreads and credit spreads have vastly differing characteristics. Debit spreads assume the profile of an Option buyer, whereas Credit spreads assume the profile of an Options seller. When you're an Options seller, its helpful to think of yourself as an "insurance company". When you insure your car, your risk is low - its limited to the insurance premium you pay. This is the profile of an Option buyer. When you're an Options seller, you are the Insurance company. This is obviously more risky, but...hold on..Insurance companies would not have become some of the largest companies in the world if their model was flawed :)
Options prices move due to three factors. Price, Time and Volatility. This course shows how to model and simulate your Options position. In any Options position, its important to use a trade simulator and get a good feel for how your trade will perform over a period of time. There are 3 parameters to simulate your trade -
- Price movement (Delta and Gamma)
- Changes in Implied Volatility (Vega)
- Time Decay (Theta)
This video shows how a Bear Call spread on the S&P 500 ETF (SPY) would perform with changes in Price, Implied Volatility and Time decay. The December series has about 36 days to expiry. Using the built-in trade simulator on the Thinkorswim platform, we can see what happens to the trade changing all 3 parameters. Trade simulation and analysis gives insights about adjustment points and profitable exit points.
Free course for traders looking for leverage on the S&P 500 can use any of these trading instruments for an additional benefit and returns. Have you ever wanted to trade the SPX Index with built-in leverage ? Let's look at existing choices and some new ones that have cropped up.
There are several ways to trade the SPX Index (or the S&P 500 Index in general).
- SPX Index options itself. There is no leverage here. And this is a large Index and Options can be expensive, not to mention a Bid-ask spread as wide as the Panama Canal.
- SPY ETF. Great ETF, 1/10th the size of the SPX, fantastic liquidity, and a 1-cent Bid-ask spread. Can't ask for anything better. But its a bit boring, and you have to buy large quantities. And no leverage.
- SSO and SDS. These ETF's have a 2X leverage on the SPY. Not bad. Decent liquidity with about a 5-cent Bid-Ask spread. Definitely acceptable.
What if you want more ??
Well, it seems like two instruments have come up recently - the SPXL and the SPXS. As the names might suggest, the SPXL is a Long-instrument (3X leverage of the SPX), and the SPXS is a short version (also 3X leverage.). I've been watching these for some time, and they are interesting. But they are still new, so liquidity needs to come into these instruments.
Check out this video I made on these two instruments. BOTH HAVE 3X leverage, but the price of the stocks is reasonable, so the Option prices are also reasonable.
Traders must understand the risks involved with selling Naked Puts. They are a perfectly viable strategy in one circumstance. What are the risks in Selling naked Puts and when should you sell Naked Puts. Learn to sell Naked Puts the proper way. But you must apply them smartly as they have risks..
Free mini-course on Stock Betas and how to design and analyze Options trades using Beta. Beta is the correlation of any stock to the Index.
As we enter September, there is quite a bit of uncertainty in the global scene. An attack on Syria seems all but given at this point, and there is a looming battle in Congress over the debt ceiling and Obamacare. All of this seems to indicate a volatile month in the markets.
Given these conditions, it helps to review how we choose stocks, and then more importantly how we choose individual strategies for such an environment. An important consideration during these times is Beta of a stock.
Beta is defined as the correlation of all stocks to the S&P 500 Index (SPX). A calculation is made based on the past 12 or 24 months or any other length of time, and the price movement of a stock is plotted against a $1 movement in the SPX, and a correlation is calculated. Stocks that have a Beta of more than 1 are said to be well-correlated or strongly correlated. Stocks that have a Beta of 0.5 or less are said to be weakly correlated..
The following video explores the concept of Beta, and the video also discusses the general trading environment we can expect to see in September. And most importantly, what strategies would we choose and what are the considerations for such a market environment..
Options concepts Quiz
Knowledge. Strategy. Execution.
Hari Swaminathan is the founder of OptionTiger, a cutting-edge Options Mentoring company, and a full-circle educator in all areas of Financial Markets, Hari has developed several proprietary Intellectual Property "methods and approaches" around enhancing base case Options strategies (which favor the Market Makers) and turns that deficit into a massive EDGE on the trader's side.. Like building a powerful Strategy "for all Option Strategies".
Hari is self-taught in Options and actively trading these instruments for almost 10 years, mostly through trial and error. Trial and error in general, is an excellent method of learning, but applied in this context, trial and error CAN BE EXPENSIVE. My courseware focuses on this aspect mostly, so you can avoid losing money in the 1 to 2 years when you're learning. Yes, it does take that long, if not more. If the markets were indeed simple, you'd have everyone involved in it. Patience, Diligence, and Determination are what you need during this time.
Hari has a Bachelors degree in Engineering from India, and MBA's from Columbia University in NYC and London Business School in London UK.
More than ever, its become important for normal people to take charge of their financial situation, and truly understand how financial markets, and the various asset classes, trading nuances really work. Investing in the financial markets is no longer a HANDS-OFF ACTIVITY. There's no point blaming financial advisors after the fact. Now, it's become crucial for everyone to do "their OWN homework", so you can decide for yourself whether something is good or risky. This is of course easier said than done, and that's exactly where we come in.
My mission is to educate everyday people on the deep, strategic underpinnings of the stock markets, and exploit that knowledge with the use of OPTIONS. THERE IS NOTHING RANDOM about the markets. There are surprises all the time, but there's always a method behind every madness. And my goal is to get you to this point of understanding and awareness. That's when it starts to fit in.
Knowledge, Education, Crafting Breakthrough strategy, Technical analysis, Following Smart Money, Risk management, Disciplined Money management, and near flawless Execution approaches are just a few of the crucial points emphasized in all the Courses. Video-based education courseware, Practical workshops, several elite proprietary Advanced systems, a 4-week Live Mentoring program are just a few things we offer. The goal is to provide a "full circle" education in the Markets, which is necessary before it starts "fitting in".
Let's break down the Options game in a realistic manner.
1. Options were invented out of thin air. And the people who invented them won Nobel Prizes for their invention (Fisher and Black). It is purely a "Mathematical" concept, with no real connections to the external world except for one, that's defined implicitly in its design.. Its fascinating, mathematical, strategic, risky, but can also provide the basis for life-long income streams. There's focus on Analysis, Data science, Statistical Modeling and Probability theory.
2. This gives rise to very complex but interesting analytical scenarios. It also gives us the ability to model Options with a set of tools like a car dashboard. In many cases, you don't need to see what's going in the Markets, or the Stocks themselves. This data is embedded in the mathematical formulas that underpin Options structure itself, and you can operate on the basis of your Dashboard.
3. Because everything in Options is defined in mathematical terms, its also important to realize that OPTIONS will always be the same. The math behind Options will always be the same. Forever. Unless they discover serious flaws in the formulas and models used by these Nobel winners. And of course, sadly, if it were the case, the Nobel prizes would have to be retracted and we go back to the drawing board again. But today, several well developed markets around the world exist purely based on their Mathematical Modeling of RISK.
4. Options and Chess have LARGE overlaps. You may agree that Chess is a game of "skill". It's a game of Strategy and depends upon how well you can plan (ahead) to attack, defend or take a neutral position. We also believe that Chess is strategy-focused and depends upon certain mathematical principles. Why or How do we know this - The reason we know its a game of skill is : Try to play 100 chess games with Kasparov or Anand. Normal people are almost guaranteed a loss in all 100 games. So it has to be a game of skill. And why do we know its underlying features are mathematics based. The fact that a computer like Deep Blue beat the GrandMaster Garry Kasparov in 1997, proved to be both shocking, and revealing at the same time. While human beings abilities have not increased in exponential terms during the last 20 years, and we may be able to plan 3 or 4 or 5 moves ahead, the computer of today can calculate a 1000 moves ahead, go down every possible path, and record the outcomes like photographic memory. This is a capability that humans may never achieve, proving that Math plays a key role. So today, every professional Chess player refuses to play the machine, because it's almost guaranteed that the Masters WILL LOSE EVERY GAME.
5. Lastly, You MUST believe this completely - Options, just like Chess, are a "skill set", and requires acquiring a deep set of analytical skills much more so than most skill sets in the world, and THEY can only be MASTERED over a period of time. Once you understand Options better, you'll realize how true this is. We cannot turn into a Kasparov in a matter of weeks or even a few months. It does NOT work like that. But once you go through this process that can go for 1 to 2 years or more (depending upon your commitment to this process), there is a very powerful light at the end of this tunnel. You build a skill set for life. Age, Geographical location, Lifestyles, or Weather are no longer a barrier to creating consistent income streams, regardless of who you are, where you are, or how old you are.
This is very POWERFUL stuff.
Now let's look at the negatives. This is what most people will NOT tell you. Anyone that tells you Options are SIMPLE, and you can make extra ordinary income easily, is JUST NOT TRUE. I will tell you Options can be brutal if you simply apply speculative methodologies. Then you should just STICK TO STOCKS, which are nothing BUT speculation, with a minute role in STRATEGY Give yourself time to master this CRAFT. And once you can develop a SYSTEMATIC approach to every situation (which is the Real Game), you'll be well on your way to consistent performance.
Options are easily the most fascinating financial instrument with several upside benefits, but also an equally powerful set of negatives.
1. Options have a steep learning curve. Don't expect to become Kasparov in a couple of months. Or even a year or two. And why is this important to realize: Because we are playing a Kasparov or Anand every time we enter the Options market. Market Makers who are 99% of the time, the counter party to all Options trades, are Options professionals, with 10 to 20 years of experience, in performing their "legal duty" of providing liquidity. While we have hours to plan our attack, the Market Maker literally has a few seconds. In a normal day, a market maker can do many thousands of trades. One can only be in awe of their skills.
2. If you're interested in Options, try NOT approach it with a mindset or requirement of making money. This is not only NOT going to happen, but its a recipe for disaster. It's like a student of Medicine wanting to practice their skills after 2 months of study. To develop a meaningful batting average, you will need Time, Patience, and Perseverance. They don't develop overnight. Focus completely on the learning, ideally practicing on paper money accounts because you WILL LOSE at first.
3) As someone that has self-learnt Options and through making mistakes from Trial and Error, I can tell you Options trading is not something you should take lightly. You will hear people talking of fantastic triple and quadruple digit returns. I'm here to be brutally honest with you -
- Be very very careful in the first 12 months of Options trading.
- This is when everyone is the most vulnerable to losing money.
- Your main objective during this time is to focus on learning this craft and NOT lose (too much) money
Having said that, if you can get past the first 12 months and acquire the expertise in a Systematic manner with Systematic approaches to every situation, true financial independence awaits.
You can trade Options from anywhere in the world, regardless of how old you are. You never have to worry about job security any more because you have a skill that can produce consistent income month after month.
But you have some serious but exciting work to do before you get there, and I'm here to help you in this journey.
Watch my Free Mini-courses or my YouTube channel , all of which have the highest quality education in Options as well as Financial Markets..
And join me in my UDemy courses, where I share cutting-edge theoretical knowledge mixed with practical insights, strategy and impeccable execution approaches, through live trading examples. How do we know it's all this (don't just go by my word). Check what 25,000 students have to say in 2100 Reviews, with almost 2000 of them being 5-Star or 4-Star
If you have any questions at any time, please feel free to message me on Udemy.
The order to follow on my Udemy courses
Comprehensive guide to Financial Markets, Investing and Trading
Options Trading Beginners Bundle (3-course Bundle)
Advanced Options Concepts
Options spreads and credit spreads Bundle
Technical analysis and Chart reading Bundle
After this, the order does not matter. You can take any of the courses as per your interest.