Lecture: Option Strategies for Small Trading Accounts

Introduction

• Speaker: Mike Bellafiore and Seth Freiberg
• Firm: Proprietary trading firm, SMB Capital
• Locations: New York City and Miami
• Topic: Options strategy for small trading accounts
• Objective: Teach an option strategy that doesn’t require much capital

Common Misconception

• Many traders believe a large capital is needed for options trading.
• Several strategies exist that require less capital.

Strategy Basics

• Iron Condor: Requires significant capital but can limit maximum loss

Iron Condor Example

1. Example date: October 1st
2. Index: Russell 2000 index
3. Options Chain: Expiring October 31
4. Actions:
   • Sell 2310 call for $18.30
   • Sell 2110 put for $20.65
   • Buy 2360 call for $9.35
   • Buy 2060 put for $12.75

Cash Flow and Capital Requirements

• Cash Flow:
  • Collected total: $1,685
• Capital Requirement:
  • Broker requires $3,315
  • Net maximum loss: $3,315 after initial cash collection
• Outcome if index at 2380:
  • Pay net $5,000 (max loss)

Iron Butterfly Strategy

• Alternative to Iron Condor
• Trading at-the-money options

Iron Butterfly Example

1. Actions:
   • Sell 2210 call for $57.95
   • Sell 2210 put for $51
   • Buy 2260 call (50 points away)
   • Buy 2160 put (50 points away)

Benefits of Iron Butterfly

• Higher Premium Collection: $4,205 vs $1,685 (Iron Condor)
• Lower Capital Requirement: $795
• Max Loss: Still $5,000 on either side

Example Outcome

• Index closing: $2,196.65
• Profit: $2,870
• Return: 361% on risked capital

Conclusion

• Small accounts can trade options successfully using structured strategies.
• Proper structuring reduces capital requirements and increases profitability.
• Professional traders use techniques to control trade capital requirements.

Additional Resources

• Workshop available for more strategies:
  • Making money while waiting to buy stocks at desired prices
  • Consistent income strategies regardless of market direction
• Registration: optionsclass.com