Options Trading for Small Accounts

Introduction

• Common misconception: options trading requires a lot of capital.
• SMB Training has experience training traders with small accounts.
• Options trading is capital efficient and possible with as little as $1,000.

Key Speaker

• Seth Freuberger, Head Trader at SMB Capital's Options Trading Desk.

Importance of Options Trading

• Options strategies can be executed with smaller capital.
• Video aimed at teaching three strategies for accounts starting at $1,000.

Understanding Options

• Stock and index options are foundational.
• Reference to a video for understanding options basics.

Strategy 1: Iron Condor

• Involves selling calls and puts and buying protective calls and puts further away.
• Example using SPY ETF:
  • Sold 10 calls at $445 and 10 puts at $441.
  • Bought 10 calls at $446 and puts at $440 for protection.
  • Result: $300 cash flow with a requirement of $700 margin.
• Outcome:
  • All options expired worthless.
  • Pocketed $300 profit, a 30% increase on a $1,000 account.

Strategy 2: Debit Spread

• Involves buying a call and selling a call at a higher strike.
• Example with Microsoft:
  • Stock had declined by 20% by June 1st.
  • Executed call debit spread:
    • Bought $295 call and sold $320 call.
    • Reduced cost from $2,633 to $956, within a $1,000 budget.
• Outcome:
  • Microsoft rallied to $348.10.
  • Profit of $1,546, increasing account to $2,546 in a year.

Strategy 3: LEAP Options

• Long-term options expiring in a year or more.
• Example with H&R Block:
  • Stock priced at $21.58; bought a deep in the money call at $15 for $690.
• Outcome:
  • Stock rose to $37.25.
  • Sold call for $22.90, with a profit of $1,600.
  • Account increased to $2,600, over 230% return.

Conclusion

• Options trading is feasible with small accounts.
• Allows participation in large stock movements with less capital and risk.
• Efficient capital use is beneficial for both small and large account holders.

Additional Resources

• Viewers encouraged to watch next video for more strategies.