Options Trading Strategy for Small Accounts

Introduction

• Presenter: Mike Bella Fury, Head of Options Trading at SMB Capital
• Location: New York City, Proprietary Trading Firm
• Focus: Options trading strategy that requires minimal capital
• Goal: Generate $500+ income per week

Overview of Options Trading

• Common Usage: Exploiting big moves in stocks without owning them
• Alternative Usage: Steady cash income generation
• Strategy: Easy-to-learn option strategy for weekly income
• Educational Resource: Video on options basics

Detailed Strategy

General Concept

• Objective: Make $500 most weeks with minimal capital
• Myth: Requires large trading accounts ($1,000,000-$200,000)
• Reality: Fraction of that capital needed for this strategy

Example: ETF QQQ

• ETF: Tracks NASDAQ 100 index, mainly tech stocks
• Scenario: Started June 2nd, 2023
• Market Stats: QQQ up 34% in 2023

Credit Spread Explanation

• Initial Trade: On June 2nd
  • Sell: 10x 346 Put for $0.65 each (total $650)
  • Buy: 10x 321 Put for $0.06 each (total $60)
  • Net Cash Income: $590
  • Capital Required: $4,410

Adjusting Trade Size

• Smaller Accounts: Adjust the number of spreads to match account size
  • Example: Sell half, gain half the income, use half the capital

Expiration Example

• Date: June 9th
• Outcome: QQQ closed at 354.50
• Result: Both options expire worthless
  • No one exercises put options below market value
• Profit: Keep initial cash income of $590

Repeating the Process

• Next Trade: June 16th
  • Sell: 10x 342 Put for $0.61
  • Buy: 10x 317 Put for $0.08
  • Net Cash Income: $530
  • Outcome: QQQ closed at 367.93, options expired worthless
• Continuation: Repeated weekly, similar results for June and July

Handling Losses

Dealing with a Down Week

• Example: July 28th trade
  • Sell: 10x 373 Put for $0.59
  • Buy: 10x 348 Put for $0.05
  • Net Cash Income: $540

Market Close Below Strike Price

• Date: August 4th
  • Outcome: QQQ closed below 373
  • Action: Buy back spread, net loss of $470

Shift to Call Credit Spreads

• Strategy: Buy long-term calls, sell weekly call options
  • Sell: 373 Calls weekly
  • Buy: Long-term 370 Calls (Dec 29th)
  • Objective: Cover short-term losses

Example of Call Strategy

• Initial Trade: August 11th
  • Sell: 10x 373 Calls for $3.66 each (total $3,660)
  • Outcome*: QQQ closed below 373, options expired worthless
• Updated Score Card: Profit of $3,660
  • Repeated weekly until stock closes above 373

Expiration and Adjustment

• Date: September 1st
  • Outcome: Stock above 373
  • Action: Close short calls, sell long calls
  • Net Effect: Small losses on final transactions
• 3-Month Campaign Outcome: Total gain of $5,030, 20.5% return, annualizes to 82%

Advantages of Strategy

• Small Capital Requirement: Adaptive to account size
• Consistent Income: $500+ in most weeks
• Risk Management: Strategies to handle market downturns

Conclusion

• Pro Trader Insight: Common in professional trading
• Learning More: Additional strategies and workshops available
• Workshop Registration: Link provided for further learning