If I Could Only Trade ONE Strategy, It Would Be This (Options Retirement Strategy For Beginners)
Summary
TLDRThe video script introduces the 'Put Ratio Spread Retirement Strategy' for investors seeking a consistent trading method for retirement. It explains how combining a short put option for a credit with a long put spread can create a neutral to bullish position, offering protection against market downturns. The script details profit scenarios, risk management, and tips for selecting stocks and strike prices, emphasizing choosing fundamentally sound, undervalued stocks and waiting for oversold market conditions for optimal trade entry.
Takeaways
- 📈 The video introduces a retirement investment strategy called the 'Put Ratio Spread', which is a combination of a short put option and a long put spread.
- 💡 The short put option generates a credit, which is then used to finance the purchase of the long put spread, creating a net credit for the investor.
- 🔄 The strategy is designed to be repeated, offering a single, consistent strategy for investors who prefer not to trade many different types of options strategies.
- 🛡 The long put spread serves as a defensive measure, protecting against market downturns by allowing the investor to profit from the bearish component of the strategy.
- 🤔 The video emphasizes the importance of choosing stocks that are fundamentally sound and that you would not mind owning long-term, reducing the risk of the strategy.
- 📉 The risk of the strategy is highlighted as the potential loss if the market continues to decline, causing the investor to lose on their shares.
- 📊 The video discusses various methods to reduce risk, including keeping a watch list of fundamentally good stocks, identifying undervalued stocks, waiting for a good setup, and identifying support levels.
- 𦓔 The selection of the DTE (Days to Expiration) for the options is flexible, with longer DTEs offering better entry prices for potential share assignments but lower ROI.
- 🎯 Strike selection for the short put is crucial, with Delta used to gauge the likelihood of assignment, and the choice between price selection or Delta selection based on investor preference.
- 📌 The long put strike selection depends on the investor's market outlook, with a more bullish outlook leading to a further out-of-the-money strike for a higher credit, and a more bearish outlook opting for a nearer strike for a higher max profit.
- 📚 The presenter offers a free 'Options Income Blueprint' for viewers interested in learning more about consistent income-generating options strategies.
Q & A
What is the put ratio spread retirement strategy discussed in the video?
-The put ratio spread retirement strategy is an options trading strategy that combines a short put option, which generates a premium, and a long put spread, which is purchased using the premium received. It's designed to be a repeatable strategy suitable for those looking for a single approach to trade for retirement purposes.
How does the short put option in the put ratio spread strategy work?
-In the put ratio spread strategy, selling a short put option involves receiving a premium for it. This premium is then used to finance the purchase of the long put spread, creating a net credit for the trader.
What is the purpose of adding a long put spread to the short put option?
-The long put spread is added as a defensive measure. It allows traders to profit if the market goes down, thus balancing the risk of the short put option, which is more profitable if the market goes up or stays stable.
Why might someone choose the put ratio spread strategy for retirement?
-The put ratio spread strategy can be chosen for retirement because it offers a balance between potential profit and risk management. It allows for consistent income generation with the potential for profit in various market conditions, making it suitable for long-term financial planning.
What are the different scenarios in which the put ratio spread strategy can be profitable?
-The strategy can be profitable in scenarios such as when the stock expires above the put ratio spread, when the stock goes below the long put but stays above the short puts, and when the stock goes below the put ratio spread, requiring careful management of the components.
How can one minimize risk when using the put ratio spread strategy?
-Risk can be minimized by choosing fundamentally sound stocks or index ETFs, identifying undervalued stocks, waiting for a good setup like an oversold market condition, and identifying support levels where the price has difficulty falling below.
What is the significance of choosing the right Delta for the short put option in the put ratio spread strategy?
-Choosing the right Delta helps determine the likelihood of the short put option being in the money at expiration. A lower Delta indicates a lower chance of assignment, which can be preferable depending on the trader's outlook and risk tolerance.
How does the Days to Expiration (DTE) affect the put ratio spread strategy?
-A shorter DTE can offer a higher return on investment due to a higher premium received, but it may also result in a less favorable entry price for long shares. A longer DTE may reduce ROI but can provide a better entry price and more time for the market to move in the trader's favor.
What is the trade-off when selecting a long put strike that is closer to the current market price?
-Selecting a long put strike closer to the current market price provides a more defensive structure and a higher maximum profit potential if the market goes down. However, it results in a lower credit for the put ratio spread and a lower overall profit if the market goes up.
What is the role of the stochastic oscillator in the put ratio spread strategy?
-The stochastic oscillator is used to identify overbought or oversold market conditions. It serves as a defensive measure to help traders determine a good setup for entering the put ratio spread, with oversold conditions being more favorable for a bullish outlook on the strategy.
Why is it important to identify support levels when using the put ratio spread strategy?
-Identifying support levels is important because these are price points where the market has historically had difficulty falling below. Trading the put ratio spread near these levels can increase the probability of the strategy expiring worthless, thus maximizing the credit received.
Outlines
📈 Introduction to the Put Ratio Spread Retirement Strategy
The speaker introduces a retirement-focused options strategy called the put ratio spread. This strategy is recommended for those who prefer a single, repeatable trading method. It combines a short put option, which generates a premium, with a long put spread, which is bought using the premium received. The put ratio spread is explained as a mix of bullish and bearish strategies, offering a defensive measure against market downturns while benefiting from the premium received for selling the short put option.
🤑 Profit Scenarios of the Put Ratio Spread
The video script outlines various scenarios where the put ratio spread can yield profits. If the stock price remains above the put ratio spread at expiration, the full credit received from the strategy is kept. If the stock dips below the long put but stays above the short puts, the put debit spread can generate profit. The third scenario involves the stock falling below the put ratio spread, where the strategy can still be profitable, and the trader has the option to roll or let the short puts expire, potentially leading to a long stock position.
🛡️ Managing Risks in the Put Ratio Spread Strategy
The speaker discusses the importance of risk management when using the put ratio spread strategy. They suggest keeping a watch list of fundamentally sound stocks that one would not mind owning if assigned. Additionally, identifying undervalued stocks can provide an extra layer of security. The speaker also emphasizes the significance of the stochastic oscillator and support levels in determining good entry points for the strategy to minimize risk.
📉 Dealing with Market Downturns in the Put Ratio Spread
This paragraph delves into the actions to take if the market continues to decline, causing losses on the shares obtained from the short put option. The speaker advises on how to reduce risk by selecting stocks that one is comfortable holding long-term and ensuring they are fundamentally strong and undervalued. The importance of waiting for an oversold market condition and identifying support levels is also highlighted to enhance the probability of a market recovery.
🎯 Trade Construction for the Put Ratio Spread
The speaker provides guidance on constructing the put ratio spread trade, focusing on the selection of the right Delta for the short put option and the appropriate strike price for both the short and long put options. The choice of Delta indicates the likelihood of assignment, while the strike price selection depends on the trader's outlook on the market. The trade-off between higher returns with shorter Delta times and the potential for better entry prices with longer Delta times is explained.
🚀 Conclusion and Next Steps for the Put Ratio Spread Strategy
The final paragraph wraps up the discussion on the put ratio spread strategy, encouraging viewers to apply it and share their thoughts. The speaker also promotes a follow-up video and offers a free copy of the 'Options Income Blueprint' for viewers interested in learning more about consistent income-generating options strategies. The emphasis is on understanding the strategy's mechanics and making informed decisions based on individual risk tolerance and market outlook.
Mindmap
Keywords
💡Put Ratio Spread
💡Short Put Option
💡Long Put Spread
💡Premium
💡Defensive Measure
💡Market Direction
💡Profit Scenarios
💡Risk Management
💡Expiration
💡Stochastic Oscillator
💡Support Level
Highlights
The put ratio spread retirement strategy is introduced as a single, repeatable trading strategy for retirement purposes.
The put ratio spread combines a short put option, which generates a premium, with a long put spread, which is financed by the received premium.
The strategy involves selling two short puts and buying one long put, sharing the same strike price for the short puts.
The risk of the two short puts is mitigated by the long put, which acts as a hedge if the market declines.
An example illustrates the construction of the put ratio spread, using a $3 credit to finance a $1 long put spread, resulting in a net credit of $2.
The put ratio spread serves as a defensive measure in market downturns, allowing for potential profit from the long put spread.
Profit scenarios are outlined, including expiration above the put ratio spread, between the long and short puts, and below the short puts.
If the stock price falls below the short puts, the strategy involves separating the components and managing them individually.
Two methods for managing a short put in a down market are presented: holding to expiration or rolling the put to a different strike price and expiration date.
The importance of selecting fundamentally sound stocks for the put ratio spread is emphasized to ensure long-term value.
Identifying undervalued stocks further reduces risk, providing conviction to hold shares if assigned.
Using technical indicators like the stochastic oscillator can help in timing the put ratio spread to avoid overbought conditions.
Support levels are important for determining a good entry point for the put ratio spread, increasing the likelihood of a price rebound.
The selection of the Days to Expiration (DTE) impacts the return on investment, with shorter DTEs offering higher returns but less favorable entry prices.
Delta can be used to select the short put strike, indicating the probability of assignment at expiration.
The long put strike selection depends on market outlook; a more bullish view would choose a further out of the money strike.
A more bearish or defensive approach would select a long put strike closer to the current market price for greater profit potential in a down market.
The put ratio spread retirement strategy is summarized, highlighting its flexibility and defensive nature in various market conditions.
Transcripts
all right alrighty so in today's video
we're going to be talking about one
option strategy that you can use for
retirement right so if you're the kind
of person that you know you don't like
to trade many different kind of
strategies you just want one strategy
that you can trade over and over again
and you were to ask me you know what
would I suggest then I would say it
would be this strategy so what is this
strategy well this strategy is what I
call the put ratio spread retirement
strategy right so we're going to use the
put r spread and train it in a way where
it will suit our retirement purposes so
first of all what exactly is the put
ratio spread so if you're not familiar
with the put ratio spread the way that I
like to see it is a combination of two
different strategies right two different
strategies both are simple on its own so
the very first strategy is what is
called the short putut right so with the
short putut when you sell the put option
you're going to receive a premium for it
right so this is the first part of it
you're going to receive a credit for
selling this put option now with this
credit that you receive what you're
going to do is that you're going to buy
a put spread right so this is what you
call a put debit spread or a long put
spread or you can also call it you know
the bare put spread so for this long put
spread what's going to happen is that
you're actually going to pay a premium
for that so the whole idea down here is
that you're using the premium which you
receive for the short putut to fin the
purchase of the long put spread right so
as you can see down here you will have
two short puts and one long put so when
you combine it together basically it
will look like this so the whole idea
down here is that the short putut part
of the long put spread as you can see
over here is actually sharing the same
strike price as the one sh put on the
left hand side right so if you combine
them together you will see that there
are two short puts at one strike and
then on top of it you have one long put
right so some people take a look at this
and they say hey there's two short puts
isn't it double the risk so it's not
double the risk because for one of them
you actually already have this long put
right so it's being covered by this long
put so how you want to see it again like
I mentioned you want to see it as a long
put spread and then one additional short
put at the side okay so this is the put
ratio spread so again the whole idea
down here is that you're using the short
putut to finance the purchase of the
long put spread so here's an example so
let's say you sell one short putut right
you sell the short putut and you receive
$3 in credit for it so for every short
putut that you sell that is $300 you're
going to receive in premium now with
this $3 credit that you receive you're
going to use a part of it to buy the put
debit spread right so as you can see
down here if you buy the long put spread
for a dollar then the overall spread the
put rtio spread when you combine them
together the total credit you're going
to receive is $2 right so that means
you're going to receive $200 per put
ratio spread so this is the whole gist
of the put ratio spread how you're going
to construct it now you might be asking
hey Davis why do I want to add the long
put spread right wouldn't it be much
more simpler if I just had you know just
the short putut and that is a good
question so there is a reason why we
want to use the long putut spread and
that is because we want to use it as a
defensive measure right because one of
the things that a lot of people are
afraid of whenever they you know do the
short putut is what if the market comes
down right if the market comes down this
is where they're going to panic right
because they got a short putut they
don't want the market to come down so
they you know are afraid right but with
the put ratio spread you have this long
put spread so it is like a defensive
measure so in case if the market
actually comes down we actually have
like a semi hatch in place right not a
full hedge of course a semi hch in a
sense whereby if the market comes down
you can actually still make some profit
from the put debit spread portion right
because the put debit spread is a
bearish strategy right so the short
putut is a semi bullish strategy right
depending on how far away your short
putut is but generally it is a neutral
to bullish strategy in the sense whereby
you want the market to go up to make
money whereas for the long put spread
it's very clearcut that you want the
market to go down in order for the long
put spread to make money so what you
have down here is a combination of a
bullish and a bearish strategy so
whenever we put on any strategy of
course if you put on a bullish strategy
we want the market to go up right but
how good are we in picking the direction
right if you're already so confident
thinking that the market is going to go
up then don't get into options right
just buy the stock outright the market
if it goes up you're going to make even
more than just selling the put option so
the reason we want to put the long put
spread in place is also because we're
not very sure if the market really will
go up right nobody can really predict
the market 100% I mean if you can then
of course you're a genius you should be
a millionaire by now or a
multi-billionaire by now you shouldn't
be watching this video right but for the
most part all of us Mortals the rest of
us we're not sure so we want to have
this long put spread as a defensive
measure the market comes down we can
still make some profit on that put debit
spread and at the same time if the
market goes up we will actually still be
in a profit right because remember we
receive a credit for this whole put
ratio spread so we're not that worried
and if the market comes down we actually
also look forward to it because we have
the long put spread in place now the
next question you might have is Davis
how do I make money with this strategy
so there are a few scenarios that we
actually can profit with this strategy
and I'm going to share it with you right
so the very first scenario is if the
stock actually expires above the put
ratio spread right so this is our
structure down here so anywhere above
this structure it will expire worthless
right basically because you know it did
not come down right if it did not come
down the profit which we're going to get
is pretty much the full credit that you
receive for putting on this strategy so
if you recall the example earlier I said
that you know you put up this put ratio
spread you receive a total credit of $2
right so for every put ratio spread you
will receive $200 so this is a very
straightforward scenario now scenario
number two what if the stock actually
goes below the long putut but it
actually stays above the short puts so
right now as you can see it actually
went in between our structure down here
so at this point of time what exactly do
we do so if you do actually have this
scenario it actually is good for you
right because you are actually going to
be in a profit as long as it stays
somewhere there close to expiration
right so once it's near expiration all
you got to do right is just close out
the whole spread right close out this
put ratio spread for a profit right so
as you can see down here this is the p&l
graph of the put ratio spread so as you
can see down here there are two puts
down here so this corresponds to this
one down here and then you have one long
put so this one long put is down here so
you can see down here this is where the
market price is right so this also you
know coincides with where the current
market price is down here so that means
to say if the market actually comes down
here and stays between the put options
right that means the two short puts and
the one long put you are actually going
to make more than if the market actually
went up right so you can see down here
if the market actually went up all
you're going to get is just the credit
which you Reed for putting on the
strategy but as the market actually
comes down you notice that the max
profit is actually near where the short
puts are right in fact the max profit is
right at where the short putut is so if
it actually stays between these two puts
down here then actually you will be in a
better profit right let me just draw a
line down here so somewhere down here or
let me just shade it this whole area
down here right as long it's below the
long put above the two short puts then
your profit is going to be greater than
what you would get if the market goes up
right basically you get more than the
credit so why is that so and the reason
is because remember I told you about the
long put spread when the long put spread
is in play When the market Comes Down
The Long put spread actually helps you
make money as well so that is why you
actually make more than if the market
was to go up and you just receed the
credit right so if you think about it
this way you're actually paying money
for the put debit spread so if the
market actually go goes above the put
debit spread so let me just remove all
this again so let's say if the market
stays above the put debit spread your
put debit spread actually lost money
because you actually paid for it right
so you actually do not get anything from
the put deit spread you lost whatever
you sort of you know used to finance
this put debit spread but if the market
comes down now your put debit spread
actually makes money so down here you
have a combination of two things you
have the credit which you receive UPF
front plus you get a profit for closing
out the debit spread which is in profit
all right so this is for scenario number
two now scenario number three what if
the stock actually goes below the put
ratio spread right so if you were to
just go back to this graph down here you
notice that even though if it goes below
the put ratio spread that means let's
say for example somewhere down here let
me just remove this drawing again and
I'll draw this so that means we just go
slightly below the two shuts if you
actually go slightly below the two short
puts you notice that at expiration we
actually still going to be in a profit
right at this point down here it's going
to be you know a pretty nice profit but
we actually do not want to hold it to
exploration why is that so well because
if you're going to trade this on
individual stocks right or even on index
ETFs these two shuts is going to get
assigned at expiration right so for
scenar number three if the stock goes
below the put ratio spread what we want
to do is that we're going to separate
this tra stry into the two components
which we talked about right the short
putut and then the long putut spread
because now we're going to manage them
separately so bear with me here just uh
really pay attention to this part
because it's quite important so the
first step you want to do once the
market actually goes below the whole put
ratio spread construct that means below
the short put this is where your put
debit spread will be in a profit now at
this point in time you can actually
close it out for a profit now that you
have already closed out the put that
spread you are left with just the short
putut so what do you do with the short
putut right so there are two methods
that you can do right now number one you
can leave it to expiration because
remember the whole idea down here is
that you actually do not mind getting
into the long stock position right the
way we want to trade put ratio spread is
a way whereby we don't mind getting into
the stock and then if we are in the
stock position the market goes up again
we're going to profit on the shares that
we got assigned on so method number one
you leave it to exploration
two things can happen the first thing is
that if the stock goes back up by
expiration that means it expires
actually worthless then you actually do
not have to worry about anything because
right now you made the full profit on
the short put side because the credit
whatever you receed you got it and then
you also sold the put debit spread you
got a profit there as well right so this
is a good scenario for you now the
second scenario after using method
number one is that if the stock stays
below the sh putut at expiration you
will get a sign right you get 100 shares
and this is actually what we want so
remember the whole idea of this put
ratio spread strategy is we actually
don't mind getting into a long stock
position right a very simple way is to
just get into the shares if the market
goes up and then you get a profit from
there as well now method number two is
that you can actually roll the shut
right so how do you roll the shut you
can roll the shut simply by roll pulling
out to a further DTE and to a lower
strike price so for example if there's
maybe let's say there's 15 DTE left in
this shut right and then you just roll
it so what you want to do is you want to
roll it to maybe a higher DTE so it
depends on what you can get right and
also how low of a strike price you want
to go to but basically when you're
rolling you can actually get an
additional credit and at a lower strike
price so maybe this time you want to
roll it to 30
DTE and then you want to roll the strike
price further down right so whatever the
price is so maybe if originally it was
$50 then you want to roll it down to
maybe $48 depending on what you can get
on the option chain so when you do this
you can actually get a credit at the
same time you leave more room for the
market to actually have a possibility to
go back up then this whole sh putut
again will expire worthless now what if
it goes down well if it goes down then
guess what you can go back to Method
number one again right method number one
that means you can either just leave
that to exploration see whether you get
assigned or if you can roll it again you
can choose to roll it even further down
and if you get assigned again this time
you will get a lower strike price right
you will buy the shares at a lower price
so this actually is a very good scenario
for us because if you actually get
assigned the shares and then the market
shoots back up you make on a lot of
wayte right you make on the put debit
spread you also receive the credit for
the shut and then for the shares you're
going to make profit if the market goes
up right so there'll be a capital gain
so at this point in time you might be
asking Davis this sounds all fine and
dandy right it sounds so good but where
is the risk in this strategy by the way
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all right back to the video well that's
a very good question because we must
always find out what is the risk in the
strategy and the risk is if the market
keeps going down right so for example in
scenario number three you get assigned
the shares the market keeps keeps going
down so if the market keeps going down
you're going to start to lose on your
shares all right so in this case what do
you do right how do you reduce the risk
okay so I'm going to share with you a
few ways that you can reduce the risk so
uh really take some notes if you can so
the very first thing you want to do is
to keep a watch list of stocks that you
actually don't mind owning right so
ideally you want to go for fundamentally
good stocks or index ETFs right so if
you go for stocks that you know in the
long term it's going to keep going up
you actually do not mind getting into
the long stock right so for some people
they like to you know buy more
speculative stocks for example I've had
people that say you know I like GameStop
right they're waiting for roaring Kitty
to maybe suddenly come up with a tweet
the stock shoots up right that's all up
to you right basically you want to keep
a watch list of stocks that you do not
mind owning so even though if you're
long the stock you're okay with that now
the next way that you can reduce the
risk is to actually identify the stocks
that are currently undervalue right so
you already have a watch list of the
stocks you don't mind owning and most of
them hopefully is fundamentally good
stocks then what you can do is that you
can go to some of the sites down here
right for example simply Wall Street or
Guru Focus or Morning Star so on so
forth right there are a number of the
sites where they actually you know tell
you what is the value of it whether is
it undervalue or overv value now each s
might have their own valuation so what
you want to do is that you just want to
go through you know all the size and
then just maybe get an aggregate of it
or just find the one that has you know
the the one that makes sense to you most
or whereby you know you find one where
the fair value is the lowest all right
so out of those stocks you want to find
the one that is undervalued because now
you have an additional defense mechanism
right because you may have actually
fundamentally good stocks that you want
to go long which you don't mind owning
the shares but if you get it at a price
where it's too expensive right if it's
above the fair value then it could take
quite some time before the market comes
back up again if it keeps going down
right and that is why you know if you
find it undervalue again then this would
be one other way that you can further
reduce risk whereby if you actually do
get long let's say for example you get
assigned on that short putut you now at
least have the conviction to hold on to
those shares because you can see that
it's undervalue right so for example as
an example we're just going to use this
price right for some people you know if
you find this too expensive go for the
cheaper stocks right so let's say for
example for this you can see that the
fair value down here and the current
price is quite a big difference right so
if you think that this fair value is
pretty accurate then even though you get
assigned at the current price you don't
have to worry right you can just hold on
to it right for example in 2022 where a
lot of the stocks right they went so far
down that you know a lot of people panic
they close up their stocks but if if you
already understood the stock that you
are buying the company and you think
that it's undervalued you can hold on to
it and then the market will eventually
come back up as it did right as you can
see in 2023 2024 the market just shot
back up that is why you know certain
stocks like Google meta Amazon if you
had entered them at a price where you
know it was undervalued then you
definitely would have the conviction
holding power to hold on to it until the
market eventually comes up now the third
one is to wait for a good setup right so
we already have quite a number of
defensive measures now this will be the
final defensive measure right so what is
a good setup so this is something that
I've talked about in quite a number of
videos so this is a very good way
especially if you're new to trading
options then this good setup you can use
is number one just put on the stochastic
oscillator right so the stochastic
oscillator basically just measures the
condition of the market right is it
overbought or is it oversold so as you
can see down here I've circled it in
rate already as long as it goes below
this line at the bottom it considered
overs so that means to say that the
market has already sold off quite a bit
and the chances of it you know going
back up at least would be slightly
better than if it were to continue going
down right of course that is not to say
that the market won't continue to go
down it can right but you've already
reached a point whereby it's really
pretty overs soap right and you've got
this two points down here as well that
gives you further conviction that if
you're assigned you can hold on to it
right so if it's oversold definitely
it's a much better position for you to
put on the put ratio spread than if it's
overbought right you notice that every
time if it's overbought take a look at
the chart right this is where the market
has gone up quite high right that is why
the stochastic label it as overbought
right so if at this point if you were to
put the put ratio spread right the
market could just come tumbling down
very quickly and you may not necessarily
be you know comfortable holding on to
the shares if you get sign right so wait
till the stochastics oversold and next
one the final one identify support level
so if the over so reading is not enough
you also want an additional defensive
measure whereby you find places where
the prices find it very difficult to go
below right so these are what you call
support levels so you can see that
prices have bounced off several times
and then it went back up now it come
back down and then it's about to test
this support level right so doesn't mean
the support level it's going to hold all
the time it's just that you know again
everything about trading and options is
about probability at least you have a
better chance of it going up so if it
does go up then the whole put ratio
spread expire worthless you just make
the full credit that you receive for
putting on the put ratio spread but if
it does go down despite all the measures
that we have in place and then now
you're assigned the 100 shares then
guess what you are already at a point
whereby the market is pretty pretty
overs right it has gone through quite a
bit and that is not to say it won't go
further down but there is a chance that
there could be a retracement back up
right or even a reversal and at the
point as long as you are in a profit you
can choose to close out those 100 shares
all right so once you've identified all
this this is where you can construct the
put ratio spread right basically you
want to construct the put ratio spread
below this support level okay so I've
already given you quite a number of
defensive measures that you can use to
further reduce the risk of this strategy
so now let's get into trade construction
because this is where a lot of people
will ask me Davis so for this strategy
what is the DTE which DTE should I go
for should I go for zero DTE or minus
one or minus 7 so that my profit you
know would have been already realized
before I actually put on the trade no
okay I'm just kidding right so the whole
idea down here is that whenever people
ask me DTE a lot of times they want to
go for the shorter ones and yes I
understand why right we want to realize
the profit very quickly and here's the
thing about this strategy for the most
part whenever I talk about you know DTE
with a lot of the strategies that I
shared on my channel I tend to go for
above 45 DT because that's where our
Edge lies right the edge where the
realize move is often time lesser than
the expected move but for this strategy
the TT selection is actually not that
important because we actually don't mind
getting into the shares right we don't
mind getting into a long stock position
so with that said there is still some
difference between the shorter DTE and
the longer DTE that you need to know in
order to crop the put ratio spread
according to your preference right so
now let's talk about the shorter DTE
first so with the shorter DTE you
actually get a higher return right so
you notice down here the ROI is higher
compared to this one and how do you
calculate the RO I is actually pretty
simple right you just take the credit
which you receive you you can see down
here
0.34 which is $34 right and then you
divide it by the strike Price Right
basically the cost of the amount that
you have to put up to Long 100 shares
for this right so basically if you were
to just calculate Roi divided by the DTE
* 365 that's how you're going to
calculate the ROI you will get a higher
return than the longer DTE right as you
can see down here I compare it with a 29
DT
but there are some slight differences
where you might consider a longer DTE
right so for example you have lesser
premium to purchase the long put spread
right you can see down here if you sell
this 134 strike you get only 34 CS so 34
cents is going to be quite difficult for
you to buy you know a bigger put spread
because you don't have that much credit
and at the same time your put ratio
spread is going to be closer to where
the current market price is right mainly
your short strike right so if you take a
look at this down here 134 it's giving
you only 34 cents that means to say that
if you want to go for a further strike a
further away strike let's say maybe 130
you're not going to get that much credit
already right it's going to be so little
that there's no point for you to even
put it on but whereas for the 29 DTE you
notice that hey you get
$243 for the same strike price what does
this mean it means that if you were to
go further out the market so maybe you
can even go to 130 maybe 128 127 and you
find that there's still some credit so
why does this play an important part
because if the market actually comes
down and you reach a point where you
want to actually get assigned or you
have to get assigned then of course
you're going to get a better entry price
if you get a further away strike price
with the longer DTE down here right so
if you're going to get a sign is it
better for you to get long at maybe the
strike price of $127 or at $134 of
course $127 so that is why you know
longer DTE will actually give you that
better strike price if you are going to
get into the long shares right so again
you get more premium to purchase the
long put spread and a put raal spread is
further away to market price only
difference or rather the small setback
is that it's a slightly lower Roi if you
would just you know get the credit but
for me I value more towards the risk
side right if the risk is to the
downside if I'm going to get into the
long shares I rather get it at a lower
price than a higher price okay so this
is on DTE selection now next let's talk
about shut strike selection where are we
going to position our short putut right
so there are two ways that you can do
this now the very first way very simple
way is just price selection basically
you choose the strike price at a place
where you don't mind going long the
shares at so let's say for example uh it
could be at a price of $50 so let's say
for example you think that $50 is what
you like then you can place it at $50
right if you are able to construct this
whole put ratio spread for a pretty
decent credit right so that's the first
way the second way is that you can use
the Delta to select your short strip
right so you use Delta as an indication
of the percentage chance of being in the
money at expiration so let's say for
example you want only a 25% chance that
you could get Bri on the short put side
then you get assigned then at this place
you can go for the 130 strike price now
the final component is the long put
strike selection so how do we Define
where we put the laput strike so if you
have a more bullish Outlook then this is
where you want to go for the further out
of the money strike right so as you can
see down here this is where the current
market price is so out of the money will
be below this current price down here so
basically the lower the price is the
more further away it is and the cheaper
the put right so if it's much further
away then you notice that the purchase
of this uh put is going to be much
cheaper so you're going to get a higher
credit for the put ratio spread and a
lower Max profit for the long put spread
right because your put spread right now
is going to be smaller so this is if
you're more bullish but if you're more
bearish you know you're not very sure or
you want to be more defensive right
you're afraid that you know the market
is going to come down then in this case
you want to go for a nearer to where the
current market price is the strike price
there and it's going to be more
expensive right as you can see down here
because you're going closer to the
current market price so at the money
strike will always be more expensive
than further out of the money so for
this is the good thing is that you have
a much defensive uh structure if the
market comes down so you actually
anticipate the market to come down you
want it to come down so that your put
spread down here you can get a much
bigger profit right the trade-off is
that you get a lower credit for the put
ratio spread that means if the market
goes up then your overall credit that
you get is going to be lesser as you can
see down here this is 50 Cents for the
previous structure you actually get much
more right you get $2 if the market
actually goes up but for this if the
market comes down then you're going to
get a higher Max profit for the long
putut spread all right so this is the
put ratio spread retirement strategy so
use it and let let me know what you
think in the comments below by the way
if you like this video then you're
absolutely going to love this next video
which I have for you so go ahead and
watch that video right now also if you
haven't already gotten your free copy of
the options income blueprint you can do
so just by clicking this link down here
on your screen and you'll be able to get
it for free all right I will see you in
the next video
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