Options Selling is the Most Consistently Profitable Form of Trading
This is a bold statement for anyone to make, but the creator, Alan Parry will show you why it is true. It has to do with probabilities; knowing your probability of success before you do a trade is one of the things that most traders overlook, probably because they have never thought about it before. This system is a must for Options traders of all levels: intermediate to advanced.
Professional Options Trader Alan Parry, Trading Educators-South Africa who has mentored under Joe Ross since 1997, is creator of the Matrix Plus Options System™.
We all know about probabilities because we have taken a Lotto ticket or bet on a horse or have played Poker. Most of the time the odds of winning big are so stacked against you that it is virtually a miracle if you win. Most trading is no different; if you buy stocks or trade Forex or buy a futures contract the statistical odds against you winning are less than 50%. However, there is one method of trading which you can do that has statistical odds in your favor sometimes as high as 90% or better!
I know this sounds too good to be true but bear with me and I’ll show you how this is possible, and can make you consistent profits. The "Big Guys", also known as the "Smart Money", in the trading world know this secret and they are not too keen for everyone to know too much about it. It is called "premium accumulation" and is done by selling options.
Now if you talk to your broker or investment adviser they would likely try and scare you off by telling you that this is the most dangerous form of trading you can do, and that you will likely lose your shirt. Well, if most of the big trading houses and banks are doing it, and making tons of money, why shouldn’t you be able to do it too?
You see, what they don’t tell you is that there is a way of selling options where you can protect yourself and take most of the risk out of the trade.
Wouldn't you like a trading method where for once you didn’t have to be correct in predicting market direction; where most of the time you could find trades with a probability of 70% to 90% of being successful? Yes, you can win consistently, so take a look at what we have to say about trading options. The market can move up or down, and if you have constructed your trade correctly you can still make money. Our method of premium accumulation will open your eyes to the high probability options trades that you can do every day. Premium accumulation is probably the least understood form of trading, yet has very good returns for the trader who is prepared to take the time to understand our trading methods, and use the tools provided.
My trading is based on four simple maxims:
► To make the most money.
► In the shortest possible time.
► With the least risk.
► With the highest probability of success.
Obviously these four criteria have to be optimized for the best results. All of us would like to find a trade where we could risk $100 for 10 minutes with a 100% certainty of making $1,000,000. Unfortunately such trades do not come along that often! But by selling options we can optimize these four criteria and find trades that are really worth doing.
Here’s an example of the kinds of choices you have to make in options trading:
1. Would you rather spend $250 to make a profit of $250 with a 10% probability of success?
2. Post margin of $500 to make $250 profit with a 90% probability of success?
If you chose the second trade, then we are sure you will be interested in the Matrix Plus system which will show you how to consistently find options that have a good probability of making a profit, and how to manage each trade to completion.
I mentioned the "Big Guys" who trade in the options markets, and what I will show you is how we can see what the big guys are doing and how we can trade with them and not against them. They are the "Smart Money" and have the inside track when it comes to making money.
Finding good trades in the options markets has always been a time-consuming business and has frustrated many would-be traders, which has made them abandon options as "too complicated" to trade. Because of this I have now developed a set of software tools that will make it easier for the options trader to find and execute the best trades in any of about forty commodities that I track daily.
For many years now the Matrix software tools that I have used for my option's trading has stood me in good stead, and has also helped many traders world-wide to select and manage their trades. The new Matrix Plus software has all the capabilities of the original Matrix tools, but now takes the selection and management of options trades to a whole new level.
Before we dive into the features of the new Matrix Plus tools I want to show you the statistics for a typical day's options trading in the 41 commodities that I follow.
On this particular day the stats show us that of the 76 thousand options available to trade approximately 2.4 million options were traded. The value of the premiums that changed hands between the buyers and the sellers was about 1.7 BILLION dollars; yes that’s billions! That’s a lot of money changing hands every day, and as you can see from the expiry statistics that 94% of the options expiring on that particular Friday expired worthless! That means that 94% of traders still holding their options on expiry day lost all their premiums. Who do you think made all those premiums? Yes, you are correct; the big guys in the know who sell options and accumulate premiums.
There were also 32 million options still being held that were worth 35 billion dollars. These are huge amounts of money in anyone’s language and we should be able to nibble at the edges and take some of this money for ourselves.
Hopefully by now I have given you enough incentive to take a closer look at selling options, and I can promise you, you won’t be sorry.
Let’s look at a table of some typical option’s data. I have chosen the commodity Corn which will be expiring in 21 days’ time. The "$ premium" column shows how much you would have to pay to own any of these options; conversely how much you would be paid if you sold any of the options.
Looking at the last line we see that we could get $25 for selling the 450 strike Call, and that there is a probability of 96.0% that we will keep this premium. In other words, if the futures price in 21 days’ time is below the 450 strike price we keep the premium!
From this table we can see that we can get more premium if we are prepared to accept a lower probability of the option expiring worthless. Why sell the 405 strike option when you only have a probability of 63% of keeping the premium? Wouldn’t it be better to sell 14 of the 450 strike options and get the same amount of premium; the probability of success still stays at 96.0%.
Now everyone has their own level of risk/reward that they are prepared to take, but having this information at your fingertips allows you to make your own decisions about which options you would sell.
Naturally, having almost 150,000 options across 40 commodities it would be a daunting task to prepare a table like this for all options. The Matrix Plus system does the job in a few seconds!
By the way, at options expiry the Corn futures closing price was 386.75. So all the Call options in the above table would have expired worthless, and the buyers would have lost their premiums; the sellers of the options would be laughing all the way to the bank!
Here is a screenshot of part of the Matrix Plus analysis of the Corn options, of which the above table is a small part. The complete table gives you every Corn option with all its relevant data. The red circle on the left shows that there are 1,220 options available for trading in the Corn market.
Let's delve a little deeper into the business of selling options and collecting the premiums.
When you sell an option you will be required to put down a “good faith deposit”, which is called margin. This means that you have to have enough money in your broker’s account to cover this margin requirement. Now margin is set by the exchanges and sometimes the broker will adjust this margin depending on the risk that you are taking.
The risk you take when you sell an option is that if the futures price moves beyond the strike price of the option you sold, then you would make a loss on your trade; this loss could be substantial if the futures moves way beyond your strike price. So, the margin is dynamic depending on the risk that your option is exposed to.
This risk of substantial losses is the card that is always played when one starts looking into selling options, and why you are normally warned off. What you are not told is that there is a way of controlling the losses to a defined small amount, and sometimes it is also possible to sell the loss to another trader!
The methods and strategies used to control risk when selling options is one of the main parts of the Matrix Plus system. You need to know what your risk is and monitor how your trade is doing, which is not easy without the help of the Matrix Plus software.
THE MATRIX PLUS OPTIONS SYSTEM
What’s in the Matrix Plus?
1. Automatically find the best options combinations for any known strategy.
2. Strategies for Beginners, Advanced and Masters.
3. Select and test more than 50 different strategies.
4. Scroll through strike prices within the strategy to compare the P/L.
5. Modify a strategy by adding or subtracting contracts.
6. Get accurate premiums.
7. Back test any strategy over a set period of time using real data.
8. Back test the "greeks" and all option’s parameters.
9. Chart volume and open interest for any options.
10. Find where the "big guys" are likely to hold the market till expiry.
11. Set up a portfolio of options that you would like to follow.
12. The Matrix Plus manual, with tutorials, covering options from A to Z.
13. A financial planner to help plan your trades.
14. Trade Tracker to keep track of your trades, real or simulated, which will allow you to plug in your results into your own financial planner.
15. The "Options Training Aid", to help you learn how options work.
16. Sample "Trade Planning" documents.
17. A copy of the "Option Strategies" manual covering all known strategies, with examples.
18. File Create program to help filter out "junk" options.
19. Sample .txt and .csv files to use for testing purposes.
The Matrix Plus has many more features which are explained in the manual, and these will become clear when you use the Matrix tools.
Let's now go through an example of how we use the Matrix system.
First, let’s look at the various option’s strategies that you can trade using the Matrix. I have split the various strategies into Beginner, Advanced, and Master, and obviously one would look at doing trades in the Beginners’ category before attempting the more advanced strategies.
You may want to use the zoom function in your browser to see more detail on the screen.
Each strategy has a comment of what options make up the strategy if you hover the mouse over the relevant cells, as well as a pictogram of the positions required to form the strategy.
You will notice that each strategy has a button to load demo data. This will produce a typical Profit/Loss (P/L) graph of that strategy using simulated data. This enables you to get a feel for what the P/L potential is for this type of strategy, and which options are used to create the strategy.
The buttons in the Strategy Finder column will search through the available real data for what it determines are the best options to make up the strategy. This will usually be the options that will make the P/L ratio about even. You will also have the choice to extend the search for various days to expiry, because you may want to do the strategy with more time available. You can also move the strategy through the real data, taking the options further in or out of the money to give better probabilities of success.
Below are the Advanced and Master strategies that the Matrix can find for you.
As you can see, the three strategies pages of the Matrix covers every known options strategy. This makes the Matrix a very powerful tool for searching out and implementing good options trades.
The next screen shot is a result of a strategy search. I selected the corn commodity. I then went to the beginner page and asked the strategy finder to find the best "bull put spread", and this is the first result that strategy finder came up with.
Both the strike prices are highlighted as red bars on the graph, as well as the underlying futures price at the time of entry (blue bar). The red line indicates the Profit or Loss (P/L) on the expiry day, depending on where the futures price is on the option expiry day. The legend on the right indicates what is on the graph
Also notice that this is a credit trade so you will be given the difference between what you sold the put for and what you paid for the put you bought; in this case a credit of $131.25.
In this result we see that if the futures price on options expiry is anywhere above the 390 strike price we will make a profit of approximately $130. Anywhere below the 385 strike price and we will have to take a loss of about $118.
The real data making up the strategy is also displayed in the blue "Options Entry" area so that you can see the parameters for each option.
So, in this example, if we believed that the futures price would be above 390 on expiry we could go ahead and do this trade. If our assumptions are wrong, the most we can lose is $118.
Let’s use another example to see how the back tester works. The idea behind the back tester is to have a look at how a particular strategy has performed over the past few weeks or months.
In this example I have used the cotton options. I had a look at a chart of cotton futures and noticed a consistent uptrend so I thought it would be worth investigating further.
I back-tested the "bull put spread" strategy over 20 days, and from about the middle of the chart I can see that the strategy starts to make a profit. I also noticed that the open interest in the higher strike puts is about a tenth of the open interest in the strikes below the options that make up my strategy. So I decide to do the trade. (How I use open interest is explained fully in the Matrix Plus manual).
Having the confidence now of seeing what the back test has shown me I entered the trade and, as the chart below shows, eventually at expiry I made $235.
These are just two examples of how I use some of the Matrix Plus tools.
The analysis page, shown below is where we can see what open interest and volume look like at the various strike prices. It will also show the Put/Call ratios for open interest and volume. How this analysis is used is too lengthy to go into here, but be assured this analysis can really give you a jump ahead of the crowd.
As an option’s trader the Matrix Plus will provide you with everything you will ever need to make good, informed decisions before you enter any trade. It will also provide you with the tools to manage your trades to completion.
In summary, what we are offering you is a chance to enter the lucrative world of option’s trading. You can work from home on your own time, and trade from anywhere in the world where you can get an Internet connection. Option trading is a far more relaxed kind of trading, and once you have mastered the basics presented in the Matrix Plus, you will spend an hour or two a day analyzing the markets. No staring at a screen all day and watching every little quirk in the market prices. No trying to predict which way the market will jump next. You know the old saying about "work smarter, not harder"; well this is exactly what option’s trading is all about. If money is what you want, then the Matrix Plus could change your lifestyle (and has for many of our students), and provide you with the material things that you have always wanted. If you do nothing you will probably wake up tomorrow morning and nothing will have changed, or you can take the Bull by the horns (or the Bear by the tail) and make some changes for the better in your lifestyle. However that decision is yours to make, and I hope you will make the right decision for your circumstances.
There's lots of money out there being traded each day, and we will show you how you can put some of it in your pocket. Someone is getting the money − why not YOU?
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