Lecture Notes: Profitable Trading of SPY and QQQ Options

Introduction

• Focus on profiting from SPY and QQQ options trading.
• Proven track record with personal account details.
  • Account at $695,000.
  • Up $35K for the month, averaging 45%+ return annually.
  • 93% win-loss ratio.
• Reminder: Information shared is not financial advice.

Key Principles for Trading

1. Understanding the Macro Environment

   • Identify if the market is bullish or bearish.
   • Importance of aligning with market trends: "Trend is your friend".
   • Impact of interest rates on SPY and QQQ.
   • Historical lesson: Misunderstanding the macro environment led to losses in 2020.
   • Current environment: Lowering interest rates favor asset appreciation.

2. Understanding the VIX (Volatility Index)

   • Measures market fear and S&P 500 options volatility.
   • High VIX indicates overpriced options premiums.
   • Strategy: Sell options when VIX is high.
   • Portfolio allocation relative to VIX levels:
     • VIX 10-15: 25% allocation.
     • VIX 15-20: 50% allocation.
     • VIX >20: Up to 100% allocation.
   • Historical spikes in VIX and market responses.

3. Identifying Key Levels on the Chart

   • Use of RSI and Bollinger Bands for market analysis.
   • RSI (Relative Strength Index):
     • Overbought if RSI > 70, oversold if RSI < 30.
   • Bollinger Bands:
     • Indicates price deviations from the average.
     • Stocks typically stay within these bands 95% of the time.
     • Use as indicators for entering/exiting trades.

4. Choosing the Right Options Strategy

   • Beginners should focus on selling options rather than buying.
   • Strategies include vertical spreads and cash-secured puts.
   • Risk management: Avoid using stop losses when selling options.
   • Buying options suitable when advanced and market conditions allow.

Trading Strategy Execution

• Vertical Spread Example:

  • Aim: Maximize returns with high probability of profit.
  • Example: Selling a put at 500 level while buying put at 495.
  • Risk: $400 to make $94, 75% probability of profit.

• Cash-Secured Put Example:

  • Suitable for larger accounts.
  • Example: Sell 30 Delta put, collect $695 premium.

Advanced Strategy: LEAPS

• For seasoned traders looking to buy options.
• Long-Term Equity Anticipation Securities (LEAPS) reduce time decay risk.
• Example: Buying 70 Delta LEAPS to leverage control over shares.
• Advantages of LEAPS: Control 100 shares at a fraction of upfront cost.

Conclusion

• Comprehensive approach to SPY and QQQ options trading.
• Emphasis on understanding market conditions, appropriate strategies, and risk management.
• Further resources available for in-depth strategy learning.