Get 3 Daily Trade Ideas   CLICK HERE

A Must-Watch Options Trading Tutorial 

Voted as "Top Presenter" at the Benzinga Options Boot Camp

How the Top 1% Trade Options & Why The Greeks Don't Matter

I spent my whole Wall Street career advising, trading against, and dealing with the Top Hedge Fund Managers. I know how they think, what they look for, and how they trade options. It’s unlike anything available to you in the market. So, if you're looking to trade options like the Top 1%, then you don’t want to miss this highly-rated options trading tutorial that explains why the Option Greeks don't matter!

"Top Presenter"

Benzinga Options Boot Camp

This is a Must-Watch Presentation

How the Top 1% Trade Options & Why The Greeks Don't Matter

I spent my whole Wall Street career advising, trading against, and dealing with the Top 1% of investors. I know how they think, what they look for, and how they trade options. It’s unlike anything available to you in the market. So, if you are looking to trade options like the Top 1%, then you don’t want to miss this!

INDEX BELOW (TRANSCRIPT ON DESKTOP)

3 Steps to Profit

<        MAIN MENU        >

"Had never heard of Felix Frey before. I will certainly remember his name now. That was a great session. Very interesting. Material well organized and also well presented. Felix himself is a very good speaker. I learned several new things. Both thumbs up."

Ricky - Benzinga Options Boot Camp Attendee


OPTIONS TRADING TUTORIAL TRANSCRIPT

How the Top 1% Trade Options & Why The Greeks Don't Matter

Options Trading Tutorial

 >>> Intro: 2 Options Questions You Can't Answer (00:16)

Investors are at a Disadvantage

Hi! My name is Felix Frey and I am the founder and creator of OptionsGeek.com. First, I want to thank Benzinga for the invitation. I’m very honored to present this Options Trading Tutorial.

Let me start by telling you that there is no better time for you to be in the options game than right now. Over the last 25 years, Volumes have increased dramatically and continue to increase.

The power of Options is no longer a secret.

And through advancements in technology, trading options has become incredibly easy and accessible to all investors. As a result, millions of new investors are looking at options and trying to understand how to use them to gain an advantage.

That said, here are four major options trading problems facing the industry:

       Here are 4 major Options Trading Problems

  • With the available options education, it can take an enormous amount of time to learn what the education is trying to teach you.
  • The focus on the Black-Scholes formula, the Option Greeks and Implied Volatility is too difficult for the average investor to understand. And may not even be necessary.
  • The most important options tool, the Options Chain, is too complex, intimidating, and confusing.
  • Finally, the Options strategies taught are too difficult to understand and not practical for most investors.

2 Important Questions

As a result, the average investor trying to trade options is left at a disadvantage. Even worse, there are 10x more investors that don’t use options because they’re confused. And rightfully so.

Think about this incredible statement…

With millions of investors trading options, how is it possible that 99% of them, even the experts, can’t answer these 2 questions and prove that their answers are right? 

#1  When do I use options? 

#2  And which option do I buy?

Millions of options traders are guessing at these questions. What’s shocking is that the industry doesn’t offer a clear answer. This is at the heart of why investors lose money trading options. And, let me be clear, there is no available options education that provides those answers.

A Possible Solution

It's amazing to think that the industry hasn't explained what is seemingly a logical and important question. And it's a shame that only the Top 1% are privileged to have this information. So, let me ask you: 

  • What if you could understand how the Top Hedge Fund Mangers trade options in a short amount of time? 
  • What if options didn’t have to be complicated? 
  • Imagine not having to study the Option Greeks and Implied Volatility? 
  • What if you knew the strategies used by a Hedge Fund Manager? 
  • Wouldn’t that give you more confidence in your approach?
  • Now think about how clear options would be if you finally learned how to answer those 2 options questions that 99% of investors guess at? When do I use options, and, which option do I buy? 
  • Better yet, what if you had access to a tool that gives you those answers, so you could avoid analyzing options altogether?
  • If it was that easy, imagine how many new stock investors would start to use options.

Ultimately, the industry needs better education and a useful Options Trading Tool that give investors the information they need to profit. This would open the door to all investors! 

The tool would tell everyone when to use options and which option to buy, just like a Top Hedge Fund Manager does. Now that would be something special. And that’s what I’ll show you today in this Options Trading Tutorial.

In this Options Trading Tutorial:

  • You’ll learn how a Top Hedge Fund Manager think about options and how they use them to gain an advantage.
  • I’ll explain why you don’t have to understand the Option Greeks, nor do you have to understand Implied Volatility to trade like them.
  • I’ll reveal the tool that I created which is finally making it simple for all investors to trade options exactly like a Top Hedge Fund Manager.
  • Then I’m going to show you where I find great risk-reward trade ideas with results over the last year that are incredible.

But before showing you all of that, let me tell you a little bit about myself… 

Options Trading Expert Felix Frey

After graduating the Wharton School in 1995, I joined Swiss Bank O’Connor. O’Connor was one of the best Options Trading Firms in the business. They had the Best Options Training Program on Wall Street. 

And that’s where I learned options.

A few years later, I was recruited to go work for Bank of America. It was here that I advised and traded against the biggest Hedge Fund Managers in the world. Names like George Soros, Warren Buffett, Steve Cohen, Bill Ackman, and Carl Icahn just to name a few. 

I then switched sides and joined a very prestigious Hedge Fund, Scoggin Capital Management, where I had the privilege to get a seat next to two of the most successful Hedge Fund Managers over the last 30 years.

About Felix Linkedin

So, when I make a big statement downplaying the Black-Scholes formula, the Option Greeks, and Implied volatility, I know exactly what I’m saying. I don’t take it lightly. And I would never make a comment like that if I couldn’t prove it.

We'll get to that in a moment. First, this Options Trading Tutorial will dig into better understanding the problem.


 >>> The Options Education is the Problem  (04:34)

Two Types of Options Traders

I'm out there highlighting a major flaw in Options Education. Not that it’s wrong. And not that it has bad intentions.

The available Options Education is simply misdirected.

Now, I’m going to spend a couple of minutes of this Options Trading Tutorial revealing it to you because seeing this major flaw will help you accept that what I’m saying is the truth. 

First, let me explain that there are two very distinct types of options traders. You can be a Volatility Trader or you can be a Directional Leverage Trader. 

2 types of options traders

Different Ways to Profit

Volatility traders focus on the Black-Scholes formula, the Options Greeks, and Implied Volatility. They actively trade the Option Greeks while trying to remain neutral on the directional risk of the underlying asset. This means they are not profiting on where the stock goes. They profit on how the stock moves. 

Now, Directional Leverage Traders are generally using options to profit from the directional movement or lack of movement in the underlying asset. Profits mainly come from where the stock goes and not from Option Greeks.

Again, two very different types of traders that profit in very specific ways.

The Different Options Trading Groups

Here's a layout of every equity options trader/or investor in the world. It’s not drawn to scale, but I think you’ll get the point. 

Options Industry - Retail Traders vs Institutional

Over here you have the options exchanges, where you’ll find the market makers, next to them are the investment banks, and here you have the large institutional customers of the investment banks.

Within that area there is a group called Hedge Funds. 

In this large area, there are millions of individuals trading options with the various online brokerage apps. They are called retail traders.

Volatility vs. Directional Options Trading

Now, I want to highlight the volatility traders first. They are the market makers, the investment banks, and a very small group of traders within the hedge fund community. Citadel Hedge Fund Manager Ken Griffin is a famous Volatility Trader. But, in fact, less than 10% of Hedge Fund Managers are Volatility Traders that focus on the option greeks. 

Most Hedge Fund Managers that use options are Directional Leverage Traders. 

The largest Hedge Fund Managers in the news like Carl Icahn, Steve Cohen, George Soros, Bill Ackman, Dan Loeb, John Paulson, etc. etc. are all Directional Leverage Traders.

Which leads me to the Retail Trader. I would guess 99% or more of retail options traders are also Directional Leverage Traders. 

Now, here’s the kicker...

Who are the Options Trading Teachers?

The available Options Education was created by Market Makers and to this day is sponsored by market makers, the Investment Banks and the few Hedge Funds that all trade Volatility.

You see the mismatch there????

Volatility traders, who profit from the option greeks and trade very differently from the retail trader, created, teach, and continue to support the available Options Education. 

Look, if you want to get a job at Goldman Sachs, Bank of America, JP Morgan or at the Hedge Fund Citadel then you need to know the Black-Scholes formula, the Option Greeks, and Implied Volatility like the back of your hand. In that case, the existing education they created would fit you perfectly.

But, if you don’t and it’s likely you don’t, then you want to learn how to trade like a Hedge Fund Manager who trades Directional Leverage. I call a Hedge Fund Manager, the Top 1%, or a Shark. 

Hedge Fund Managers are called Sharks

New Options Trading Education

Unfortunately, there is no options education out there that teaches you how a Hedge Fund Manager thinks. Options education never evolved to meet the needs of the new investor, which is YOU.

This mismatch is the Options Industry’s fundamental flaw that I'm correcting with new education at OptionsGeek.com that targets the average investor. For the rest of this Options Trading Tutorial, I'll focus on how the Sharks use options.

OptionsGeek - Best Options Trading Course

Now, it’s important to know from the start that the Sharks BUY options to gain leverage. And they do it in a very specific way.

It's time to take this Options Trading Tutorial to the next level. Let’s start by highlighting where the Sharks gain their advantage. 


>>> The Advantages of the Top 1% (08:21)

A Hedge Fund Manager Uses Risk-Reward Analysis

There’s one Basic Assumption you must make about a Hedge Fund Manager. They know what they’re doing. They may not always get the direction right, but they always give themselves an advantage.

A Hedge Fund Manager is a “master of risk reward.” What do I mean by that? 

 Let’s take a look.

Hedge Fund Managers = Masters of Risk Reward

A Hedge Fund Manager is able to recognize when to use options and when not to use options by weighing the risk reward profiles of each trade idea. They are keenly aware that sometimes you use options and sometimes you don’t. 

It's very important to understand that not every trade idea is an options idea.

Where does a Hedge Fund Manager have an Edge

Take a look at this diagram I made to illustrate this point. It shows you exactly where a Hedge Fund Manager, the Top 1%, gains an advantage or gains his edge. 

Hedge Fund Managers Have an Advantage

The first place where a Hedge Fund Manager gains an edge is in the Stock Idea. He can use fundamental analysis, technical analysis, Quantitative analysis, data gathering, or any combination of these techniques.

Once he gets the Trade Idea and analyzes the possible outcomes, the Hedge Fund Manager needs to make a choice. Does he invest in stock or options?

This decision and how he makes this decision is the second area where the Hedge Fund Manager gains an Edge. But it doesn’t stop there.

Once these Hedge Fund Managers decide that their trade is an Options Idea, they must pick the option they want to buy. And that’s where they head to the Options Chain to make sense of what they see. This is the third place where a Hedge Fund Manager has an edge.

old key

Options Trading Requirement

How to pick the right option is one of the most well-kept secrets on Wall Street. 

Most people don’t even know that there’s a process on how to pick the right option. Which further means that most people don’t use a process that they can defend or explain why that’s the right process. 

Even the experts!

Why do you think most, if not all experts, shy away from giving you a clear answer?

Just ask them and see what they say. 

Be prepared to be confused or to hear an answer that can’t be proved. 

You see, a Hedge Fund Manger is very specific right here. Knowing how to pick the right option to buy and then understanding how that option is working to give you an advantage is the Options Secret!

And later in this Options Trading Tutorial, I’m going to show you how a top Hedge Fund Manager does it.

Final Place Where They Have Edge

The fourth place where a Hedge Fund Manager gains an edge is in the Options Trading Plan. They have a process and then use a Plan to execute that process. When using options, the Options Trading Plan is just as important as the Options Trading Ideas.

Now, let’s narrow our focus for a moment. I’d like to take this area in the diagram, the choice between options vs stock, and show you what I mean, so you don’t doubt what I am saying.

Analyzing Steve Cohen's Options Trades

Hedge Fund Manager Steve Cohen has made more than $13 Billion on Wall Street and is considered one of the best traders ever.  

These are his top 48 stock positions in his portfolio as of March 31st , 2019

Notice anything? 

Of Steve Cohen's Top 10 Positions, 8 have options positions.
Below that we see very few. In fact, of the next 38 positions, only 3 use options.

The first takeaway should be clear.

Some positions use options, and some don’t.

So, like I said earlier… Not every Stock idea is an Options idea.

Shift the Odds in Your Favor

The question you should then ask is: 

Why or how does he choose to use options on certain positions and not others?

Which leaves us with the next obvious question: 

Of all the potential strikes and options, how does he choose the right one?

Again, this is the Options Secret.

Now, the simple answer is that he chooses the one that gives him an advantage. He chooses the one that “shifts the odds in his favor.”  

The problem is no one explains specifically what this means.

So, if we can answer these 2 questions then we can actually approach the investment process just like Steve Cohen and every other Hedge Fund Manager playing this game.

In the next section of this Options Trading Tutorial, we'll get into some details.

Hedge Fund Manager Steve Cohen portfolio 2
Hedge Fund Manager Steve Cohen portfolio 3
Hedge Fund Manager Steve Cohen portfolio 4

>>> Sharks Crave This!  (12:21)

Options Trading Offers Asymmetric Payouts

This Options Trading Tutorial taught you that Hedge Fund Managers buy options. We also learned that they are Masters of Risk Reward, which means that they only invest in options when they have an advantage. Now, let’s make it clear why the Hedge Fund Manager buys options and which ones they buy.

Hedge Fund Managers are looking for asymmetric payouts that are in their favor. What does that mean?

Let’s take a look…

Buy Options vs. Sell Options

Options offer asymmetric payouts. When buying options, your max loss is limited while your maximum gain is unlimited. On the flip side, when Selling options, your max loss is unlimited while your maximum gain is limited.

Symmetric would look like this. (Even potential gains vs potential losses)

Asymmetric looks like this. (Uneven potential gains vs potential losses)

A Hedge Fund Manager wants the asymmetric payout that Buying options offer. And add this...

They keep it simple. Most of the time, they buy puts or buy calls.

Now, the questions is: What causes this Asymmetry?

The answer is Leverage. 

Options Offer Leverage

Options Trading and Leverage

Leverage is the ability to take $1 and turn into $3, 4 or $5. Embedded in an Option is leverage with limited liability. That’s what a Hedge Fund Manager craves. It’s what they want ONLY when they find opportunity to take it.

So, which options do they buy?

Hedge Fund Managers buy OTM options.

Now, later in this Options Trading Tutorial I’ll get into the specifics on how to pick the right option. But first, let me give you an analogy that makes sense…

Analogy

The Hedge Fund Manager wants to play options like Wayne Gretzky played Hockey.

Wayne Gretzky wasn’t the biggest, strongest, or fastest Hockey player.
Yet he’s considered one of, if not, the best that has played the game.    

Wayne Gretzky once said: 

“A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” 

The Hedge Fund Manager thinks about the stock as the puck.

He thinks about where the stock is going to be.

A Hedge Fund Manager then looks to buy options BETWEEN the stock and their target stock price.

Why do they do this?

Hedge Fund Managers do this because it gives them the most leverage at the cheapest cost.

And here’s something important…

The Hedge Fund Manager targets 150-400% returns on their options trades.

They’re not looking for 50% returns, or option premiums that go from $1 to $1.50. That’s not in their range.

They are looking for situations where $1 has the potential to become $3-4- 5 or even $10.

That’s what they want. And that’s why they play!!

In the next section of this Options Trading Tutorial, I'll tie things up by showing you how to pick the right option to buy.

Hedge Fund Manager is like Wayne Gretzky
Trading Course Teaches How to Buy Options

>>> Guess and You Will Lose (14:48)

Options Trading is a Probability Game

In order to continue with this Options Trading Tutorial, we’re going to agree on one thing here: 

Options are a probability game. And so a Hedge Fund Manager treats it as a Probability game.

In any probability game, you want to reduce the number of guesses that you have to make. The more guesses, the more chance for error. Let me explain with an example…

Example

In solving a problem, assume that you need to guess right at 3 different variables to reach the right answer. Also assume the variables have 3 possible outcomes. That means, you have a 33% chance to be right on each variable, or 1/3.

So, here are the calculations of guessing correctly on the first variable and each additional variable:

Options and Probabilities

Here’s the 1st Variable: 1 out of 3 or 1/3 which = 33% chance of being right.

The calculation for guessing on 2 Variables is:

 1/3 x 1/3 = 1/9 or about an 11% chance of being right on both.

If you’re going to guess 3x, then the calculations on 3 variables is 1/3 x 1/3 x 1/3 or 1/27.

This is only a 4% chance of being right on all three guesses.

Reduce the Guesses in Options Trading 

Just adding a couple of extra guesses drops your chances of being right by 90%, from 33% to 4%!

This is why you want to minimize your guesses, or guess-timates, whenever you can.

And this is exactly what Hedge Fund Managers do when trading options. They reduce the amount of guesses they take to give themselves a better chance of being right and profitable. 

The Average Investor's Approach to Options Trading 

The average investor that trades options thinks about and usually guesses at the following:

  • Where will the stock go?
  • How much time will it take the stock to get there?
  • And special thanks to the available Options Education - How will the Implied Volatility change? 

Maybe add in all the option greeks, too? 

There’s 5 option greeks. So, the average investor tries to figure out where these option greeks will be in the future or how the option greeks move as the stock moves over time. Some investors even try to guess at what the "true" Options price should be worth right now. 

For example, they’ll say… 

“Well, I see the option is trading at $2.00, but according to my options calculations the option should be worth $1.50.” 

Those calculations, as thorough as the research and analysis may be, are still a guess. Remember, more guesses equal a greater chance of being wrong. 

Hedge Fund Managers Avoid Guessing

How a Hedge Fund Manager Trades Options

Hedge Fund Managers keep it simple. They only guess at the Target Stock Price. And like I showed you before they are allocating enormous resources to make that guess a very good guess.

Hedge Fund Managers don’t guess on time. They're laser focused on an event that could move the stock toward their Target Stock Price.

They also don't guess on the Option Greeks and Implied Volatility because it’s almost impossible to be right on all of these guesses. It’s not worth the time. And as I will prove to you shortly, Implied Volatility and the "Implied Volatility Crush" isn’t going to matter much either if their only guess, the Target Stock Price, is correct.

Lastly, they are certainly not guessing on what the option should be worth right now because Hedge Fund Managers live in reality. The option is worth what you see on your screen. It’s worth what someone is willing to pay for it regardless of what any model says, including the Black-Sholes model with its option greeks.

That’s it.

Hedge Fund Managers put all of their focus on the Target Stock Price and the event that will move the stock in that direction.

Now, here’s the secret…

Options Trading and Certainty

Hedge Fund Managers like to do their analysis with the knowns and not the unknowns. What does this mean?

Well, there are only 2 things that the Hedge Fund Managers are 100% sure of today. And they want to base the majority of their decision on these two certainties.

Using Risk Reward with Options - No Option Greeks

The first, is, as we just discussed, today’s option premium. That is certain. If they buy the option, Hedge Fund Managers will pay that options premium.

The second is what the option is worth at a minimum when their target stock price is hit in the future. While Hedge Fund Managers don’t know for sure what the option will be worth, they know the minimum price at their Target Stock Price. That minimum price is called parity.

Hedge Fund Managers determine the risk-reward in the trade by comparing what the option is worth today vs parity at their target stock price. This is the risk, and this is the reward.

They then have to figure out if the reward outweighs the risk. Easy, right?

Well, not so fast. This Options Trading Tutorial is about to switch gears for a second…


>>> 35 to 1 Payouts   (19:45)

Lessons From Las Vegas

If I told you that I had an idea where you could make 35 to 1 on your money, meaning that for every $1 you could make $35, would you risk your $1?

I won’t put you on the spot, but most people say yes. Let’s assume that you say yes.

Now let me transport you from this Options Trading Tutorial to a special place … Las Vegas!

Assume that I brought you to a Las Vegas roulette table and told you to pick a number. If the spinning ball hits your number, then you win $35 x whatever you bet. What would you say?

Options Trading and Probability Games

Probably something like… “I don’t want to play that game.” Right?

“The odds are against me. The Casino always wins.”

And you’d be right. You don’t want to play roulette to make money. The odds ARE against you. Which means you’re not getting paid enough for your $1 bet. 

But now let’s look at an example with any stock…

Options Trading & Payouts

Assume XYZ is $100 and the $105 Calls are $1. And you think the Calls will be worth $5. That’s a 4 to 1 payout. You pay $1 to make $4.

You might like that trade. But here’s the question I want you to ask yourself every time you trade:

"Is 4 to 1 good enough to make that Options trade?"

Or whatever the potential payout you’re looking at… Is the potential payout good enough to make that options trade?

You see, just like in roulette, the payout doesn’t determine how good or bad the trade might be. A 35 to 1 payout looked great, but you balked when I told you the game was Roulette. You knew it wasn’t good at that point because Vegas always has the odds shifted in their favor. This suggests that there’s another part to assessing the risk reward of a trade...

And that’s what the education at OptionsGeek teaches you. How to understand whether or not an option is good for you given your view on the stock. 

Keep in mind that there might be several options which offer you attractive payouts. My education teaches you how to figure out which one is the best option for you. And you’ll also learn how to prove it!

This Options Trading Tutorial now gets to the controversial statement I made in the title...


>>> The Greeks & IV Don't Matter   (21:43)

Guess Who Agrees?

While I reveal the calculations and show you how to pick the right option in the best options trading course, I wanted to make the education practical for everyone to use. So, I spent a lot of time reinventing the Options Chain to give you the answers you need to succeed at options. And better yet, it’s simple to use and easy to understand. 

I’ll walk you through that tool right here in this Options Trading Tutorial in just a moment. But before I do that, I want to address the elephant in the room. How could I say that the Black-Scholes formula, the Option Greeks and Implied Volatility don’t matter???

Well, it's about time this Options Trading Tutorial gives you some answers.

The Black-Scholes formula is clearly an important financial model. From this model, we get the concepts commonly known as the Option Greeks and Implied Volatility. These concepts are the backbone of the Options Industry’s Educational process.

Now, I know these statements that you don’t have to understand the Black Scholes formula, the Option Greeks or Implied Volatility causes people to take pause. Some people even get angry at me. So, I thought maybe I could get you to listen to a familiar voice.  

Here’s Warren Buffett:

Warren Buffet Uses Options - No Option Greeks

"Ya, we…. Charlie and I, have thought about options all I life. I mean, my guess, is that Charlie was thinking about that in grade school. And, uh, you know, you have to understand… You DON’T have to understand Black-Scholes AT ALL. But you have to understand the utility... uh, and in a general sense the value of options." - Warren Buffett

You won’t hear the Options Industry play that sound byte too often.  

Warren Buffett very clearly states that you don’t have to know anything about the Black-Scholes formula, including the Option Greeks. But, like everything else I do, let me try to prove it to you right now in this Options Trading Tutorial.

Why a Hedge Fund Manager Avoids Implied Volatility

First, let’s start with Implied Volatility. People get caught up looking at Implied Volatility to see whether or not an option is cheap enough to buy. They’re missing the point. If you want to trade like the top Hedge Fund Managers, then an option is cheap when you consider where the option is going relative to what you’re paying for it. 

Think about our earlier example in this Options Trading Tutorial where the option premium was $1.00 and I think it’s going to $5. If you told me that the volatility was 20% or 50% or 100% or whatever, would it change my mind? 

Regardless, of what Implied volatility you tell me, the option is still $1.00. And I still think it’s going to $5 at expiration. Nothing has changed in my risk reward assessment. You see, the Implied Volatility doesn’t change anything. And that’s why it isn’t the focus for a Hedge Fund Manager. 

Your focus should be the option premium you pay and your Target Stock Price, which determines the future Options price you need to evaluate!

Now, in this Options Trading Tutorial, I'll briefly explain why the Option Greeks don’t matter for the Top Hedge Fund Managers.

Why a Hedge Fund Manager Avoids the Option Greeks

An option is made up of two parts: Intrinsic Value (sometimes called “parity”) and Time Value. Intrinsic value is the part of the option that represents how much of the stock is built into that option, the ITM part. Time Value will be everything else.

The Option Greeks and Implied Volatility only affect the Time Value of an option. That's easy enough to understand.

Now, Hedge Fund Managers buy OTM options , and OTM options are made up of all Time Value. 

We stated that Hedge Fund Managers base their decision on what the Option is worth today and what it will be worth, at a minimum, in the future given their Target Stock Price. That future price dictates the ITM Part of the options or intrinsic value. 

Depending when the option reaches the Target Stock Price will determine some level of Time Value. But, I want you to make sure you see and understand this...

Intrinsic Value vs. Time Value of an option

As the stock moves higher, toward the Target Stock Price, notice what happens to the option.
I’m showing you different time intervals in pictures here.

The Time Value of the option goes lower while the Intrinsic Value of the option rises. By the time, you get to your Target Stock Price, the Intrinsic Value makes up most of the value of the option. Time Value is a meaningless part.

Example

In our example, Intrinsic Value may be $0 here. But, $5 here. (See picture above)

Time Value was $1 here, but maybe $0.05-$0.10 here.

Remember, the Option Greeks are inside this Time Value box.

So, as you can see, the Time Value box is not going to matter if you hit your Target Stock Price.
Now people ask… “Ya but what if you don’t hit your target?”

If you don’t hit your target stock price, the option will be worth what the market says it’s worth and you should focus more on why you were wrong with the Target Stock Price and less on why the option didn’t make you as much money as you thought it would.

The process is very specific.

Focus on today’s option price, your Target Stock Price which determines the Future Option Price, and then evaluate whether or not that payout is worth the risk. Get that right and the Option Greeks don’t matter.

Now, in the next section of this Options Trading Tutorial I'll introduce you to the new options tool I built and look at some real examples. 


>>> The GameChanger (26:46)

What You Learned So Far

 In this Options Trading Tutorial I’ve identified for you the two options questions that make up the Options Secret, known only to the top Hedge Fund Managers in the world. 

#1  When do I use options? 

#2  And which option do I buy?

You’ve learned that Hedge Fund Managers use options:

  • When they have isolated an event that will move their stock.
  • When they have high confidence in their Target Stock Price; and, 
  • When the OTM options offer them great risk reward, that shifts the odds in their favor.

You’ve also learned that they choose an option by:

  • Focusing on the price of the option…
  • And by focusing on what the option will be worth when their target stock price is reached.
  • They then analyze the risk reward of each strike to determine which one (if any) is the best option that gives them the best risk-adjusted returns.

They don't focus on the Option Greeks.

How Hedge Fund Managers Buy an Option

An Easy Solution

My Options Trading Course, 3 Steps to Profit, walks you through more of those final details. But education, even great education, only becomes special if you can find a way to use it. If you can find a way to make it practical. So, I set out to bring my education to life.

I started at the most important Options Tool – The Options Chain.

Everyone uses the Options Chain. It contains the options premiums available for you to trade, which clearly, makes it an important part of the options trading process. Everyone gets confused right here because they don't know how to pick the right option and then guess at the options strike they want to use.

But being confused is not their fault because the available Options Chain doesn’t give everyone the information needed to make the right decisions.

That’s why I created the New Options Chain.

The New Options Chain thinks like a Hedge Fund Manager

The New Options Chain is an interactive Options Chain that gives you a simple answer. It leaves out all of the hard work needed to analyze the data yourself and there are no option greeks. This means, once you understand the concepts that I provide in the education, then the Tool does all of the work for you.

All you have to do is give the New Options Chain the following:

#1  Expiration Date.

#2  Target Stock Price.

#3  Confidence Level.

Give the tool those 3 things and it gives you a solution with a simple answer. Now, let me show you an example.

DIS Example - Developing the Idea

Look at Disney. They just announced Positive news on their Disney+ subscriber base. You might think:

  • Is that a signal to buy calls? 
  • Or is that just a small bit of positive news within a deteriorating economic outlook for the consumer over the next 18 months?
  • How are you thinking about this Covid-19 virus in your analysis?
  • Can earnings be normalized going forward?
  • The stock went from $140 to $80, now back through $100. Where does it go next?
  • And how long will it take to get there?

These are all questions you should ask yourself when analyzing Disney. In fact, just because you think it’s going higher or lower is not good enough when trading options. You have to be more specific with: 

  1. An Expiration Date
  2. A Target Stock Price
  3. And a Confidence Level

Let’s assume we think DIS is going lower because the consumer won’t rebound as fast as people think and DIS will suffer for it. Your analysis points to a retest and a break of the lows, possibly reaching $70. You think earnings will be the catalyst and you are very confident in your analysis. 

The next step becomes very important.

DIS Example - Choosing an Option

Now, remember, once you have your idea, you are here. Your next step would be to look at an options chain and start the options analysis. The New Options Chain is going to quickly complete this part for you.

How to pick the right option

So, I pulled up June Expiration, which allows you to see their next earnings announcement. We’ll use the default of 80 as a confidence level. And let’s plug in $75 as your Target Stock Price.

You see the pointer pop up at the $97.50 Put.

The New Options Chain is saying that giving your view, and after making all the calculations for every strike, this put option offers you the best risk reward. It’s also in this unshaded area, which happens to be where the Sharks look for opportunity.

But what if you moved the Target to $70?

How to find cheap options to buy

The tool quickly recalibrates the risk reward and now finds that the $95 Put is better.

But, notice that you kept the same confidence level. Perhaps, we want to lower that confidence a bit to 70%.

How to choose strike price for call option

The New Options Chain recalibrated and returns the pointer back to the $97.50 Put.

By landing the pointer within the unshaded area, you have found an opportunity to trade options that shifts the risk reward in your favor. And you should buy the $97.50 Put to capture that.

It’s that simple. Notice that we never mentioned the option greeks.

In 3 Steps to Profit, I help you better understand exactly how the machine is evaluating the risk-reward. 

The New Options Chain & a Target Stock Price

Listen, the New Options Chain allows you to focus on what’s most important, the Target Stock Price. Remember, you only want to take one guess and then let the computer do all the calculations.

Here’s another way to think about it…

The market has offered you their view, which is embedded in these options prices.

The New Options Chain is telling you whether your view gives you an opportunity to buy options.

Now, if you’re just guessing at the Stock Idea and guessing at the choice of option then maybe it might be better to head over to that Roulette table we left a little while ago. At least you can get a 35 to 1 payout there.

I further explain all of this and much more in my Options Trading Course, 3 Steps to Profit.

Now that you’ve seen how easy I made it easy for everyone to use options just like the top Hedge Fund Managers in the world, you probably have 2 main questions.

The first, is about the Confidence Bar. 
“How do we determine our confidence?”

Let’s go back to Hedge Fund Manager Steve Cohen’s portfolio.  

Hedge Fund Manager Steve Cohen Portfolio

The New Options Chain - Confidence

Remember the options trades he took?

They were bunched up near his top positions. As you can imagine, he is most confident about the potential reward in his top positions. That’s WHY they’re his top positions. So, think about confidence as the confidence you have in your assessment of where the stock will be.

As we discussed earlier in this Options Trading Tutorial, Hedge Fund Managers don’t want to guess too much. They want to play options when they are most certain about their Target Stock Price. I want you to follow their lead. 

Now, the second question revolves around the Target Stock Price, more specifically, the question is:  How do you get a Target Stock Price?

Everyone has their own unique way of looking at the market. Technical analysis combined with Fundamental analysis seems to work very well with Options Trading. What also works well is analyzing Unusual Options Activity. And you might be surprised how Unusual Options Activity can give you a Target Stock Price.

In the next session of this Options Trading Tutorial, we'll talk more about finding the best risk reward trade ideas in the market with Unusual Options Activity and I’ll show you some results. 


>>> Finding Great Options Trade Ideas   (32:54)

Unusual Options Activity Scanner

Unusual Options Activity

Without a doubt, there’s enormous value that you can get from Unusual Options Activity.

The thinking is that large Hedge Fund Managers, the Smart Money, have an information advantage versus the average investor. So, obviously, it would be great to see the stocks they’re trading at the moment they’re trading them. It would be even better if we could get more detailed information about their idea.

Tracking Unusual Options Activity

Tracking large options trades, or Unusual Options Activity, can give you a lot of that information. Besides direction, it also offers timing. Now, there are many people and websites feeding you this information. The issue is that there are so many trades to follow. On any given day there might be 200 unusual options trades. Are you going to trade every single one?

Of course not. So, how do you choose?

Choosing the Right One to Follow

Choosing the right one to follow is the problem that most traders face when looking at Unusual Options Activity. With so many Unusual Options Activity trades each day, how do you filter them?

It’s not practical for you to take 20 different trades per day. But if you try to filter them, what should you be looking for and why?

Since we’re looking for Hedge Fund Managers, we know that they buy options. But let me ask you: How do you determine that they actually bought the option? Are you sure that they bought the option?

More importantly, most people don’t understand that there’s more to the story than just a large print. There's a whole process that happens before you see the actual trade.

Unusual Options Activity Flow chart

What Makes Unusual Options Activity Valuable?

This process starts at the Hedge Fund and then leads to a trade with an Investment Bank. While I am an expert at options and analyzing the data, I actually worked at a top Hedge Fund and at the Top Investment Banks dealing with these Hedge Fund Managers. This gives me more options experience than most people. At OptionsGeek.com, I’ve translated that experience to give you a step-by-step process to filter, analyze, and understand Unusual Options Activity.

Remember, all you see are the trades on an Unusual Options Activity Scanner. I'm trying to explain to you everything else that happens before it gets there. Here's an example that separates me from everyone else looking at Unusual Options Activity.

One of the most coveted pieces of information you want when you look at Unusual Options Activity is the Hedge Fund Manager's Target Stock Price. Where does he think the stock is going? 

You won’t find that anywhere online either or in any book?

You probably didn’t even know you could get close to that answer. But you can!

This Options Trading Tutorial shows you how. Let me explain.

How to get a Target Stock Price

Getting a Target Stock Price

The Tool I built, the New Options Chain, is a 2-way function. This simply means that we can input information one way to get an answer, but also input the answer to get back the information.

Do you see where I am going with this?

I’ve created a tool that thinks exactly like the top Hedge Fund Managers do. We use the tool by inputting the Target Stock Price, Expiration, and Confidence level to receive the right Options Strike. So, if we gave the Tool the Options Strike that was trading, then we could back out the Target Stock Price with some certainty. Essentially, we are backing out the Hedge Fund's Target Stock Price by using the Options Tool.

Now, that’s valuable! And that’s just the start of it.

Questions that Need Answers

You see, Hedge Fund Managers trade a certain way. Their trades have a certain DNA. In my options trading course, I try to help you find the clues that spot a “Shark Trade” so you can do your best to verify the "Right" trades to follow.

Remember, the Hedge Fund Managers trade options using the least number of guesses in order to give themselves a better chance to profit. We want to make the least number of guesses trying to follow them. So, you need answers to the following:

Where do you find the data?

How should you filter the data?

How do you analyze the data?

What is the Target Stock Price?

The answers you need to find the best Unusual Options Activity Trades are all in my Options Trading Course, 3 Steps to Profit. After this Options Trading Tutorial, you can find it at OptionsGeek.com.

Unusual Options Activity - Trading Strategy

Keep in mind, I don’t just explain how to look at Unusual Options Activity, I'll show you how to analyze it to find trade ideas like the ones I give in Winning Picks Premium, the best options trading alert service producing ideas with consistent triple-digit-returns 

Each week, I give 2 to 4 high probability options trade ideas for my members to follow. Over the last year, the results have been fantastic. Let me finish up this Options Trading Tutorial by explaining a little more about these Trade ideas and show you the results.


>>> Incredible Results   (37:04)

A Quick Recap

Let’s quickly review what you learned in this Options Trading Tutorial:

  • So far, you learned why the available options education is flawed.
  • You learned how the Top Hedge Fund Managers think about options and why they buy them.
  • We’ve gone into how to pick the right option but I left the last part for you in my Options Trading Course. 
  • I’ve shown you the Tool I made which makes everything simple and allows you to focus on your trade idea. This removes the guesswork with options.
  • We then walked through Unusual Options Activity and the trade ideas.

I think you’ll find value in better understanding how that game is played, which leads me to OptionsGeek.com.

Breaking Down the Options Trading Course

Best Options Trading Course for Beginners

This Options Trading Tutorial is just a warm up for the information you'll receive in the Best Options Trading Course, 3 Steps to Profit.

3 Steps to Profit includes a full course of 50+ videos, Q&A, and approximately 12 hours of material. It was built to quickly make you an Options Trader armed with a process and plan for success.

So, if you liked this Options Trading Tutorial and the way I take theory to practice, then you’ll love the complete Options Trading Course. 

Options Chain - which option to choose

Getting the Answers 

Second, there’s the New Options Chain which takes away all of the analysis and all of the guesswork. It makes options simple for everyone to understand and finally opens the door to the millions of people looking to trade options.

The New Options Chain is a game changer in the industry. It answers the 2 toughest questions in options that you no longer can ignore.  

#1  When do I use options? 

#2  And which option do I buy?

These 2 questions are confusing everyone. Now, you finally get the answers that are one of Wall Street’s best kept secrets.

Great Trade Ideas

Last but not least, there are the Trading Ideas which I call Winning Picks Premium.

Best Options Trading Alert Service outline

Winning Picks Premium is a Monthly or Annual Premium Service that offers you great options trade ideas which are easy for you to trade. The service also lays out a risk management plan that you could understand. The results speak for themselves. 

Month to Month results

Each week, I give my Winning Picks Premium members 2- 4 options trade ideas. Here are the Options Trading Picks - Results by month using the same dollar amount on each trade with a simple stop-loss and exit strategy that I teach as part of the service.

Options Trade Ideas Results

Note: These are not actual results by any one member. It is an illustration of equal investments in each trade idea offered. Results are not compounded returns. Trades are consistently rolling off, whether winners or losers, and then placed in new trades. Stop-losses of 50% and staggered positive exits are put in place by each individual at his own discretion. The Program offers several different possible strategies and teaches you how to determine which levels best suit you. Ultimately, that decision is left to the Member. All past trades are documented and presented to all Members in the Members Area. Almost all trades are presented to Members prior to the market open to give each Member equal chance to execute from the same starting point. Results vary according to the members own plan relating to their entry and exit strategy. Past results are not indicative of future performance.

A Simple Approach

Within the Month of March, I used March 13th as the starting point because, while my service was live before that, I made my first live public presentation on stage at the NY Trader Expo.

MoneyShow Traders Expo New York

If you head over to the Options Trading Course, you will see every trade we took in the last year. They include winners and, of course, the losers. 

It’s important to state upfront: 

  • We do not buy the low.
  • We do not sell the high.
  • And we certainly don’t ride the options to zero.
  • We simply try to capture the middle. 
  • We also lose more times than we win.
  • But when we win, we win big.

You’ll see in the results there are many trades with triple digit returns, and a few 1,000% winners to over 2,000% winners. 

Let me show you some specifics. This is an example of a weekly update you’ll receive. I chose February during the Covid-19 crash.

Winning Picks Weekly Update

More Details on the Trade Ideas

You’ll notice here that Red shading is for Put Options and Green shading is for Call options. I try to have both calls and puts on at the same time to keep a balance.

The average maturity is 2 months. Holding periods have been as short as 1 week. 

Listen, it’s not a fast service trying to win right now on any particular trade. We are using a methodical approach and I have set it up like a probability game with rules that are easy to follow.

I try to stay away from ETF’s or indices. Mainly because it’s hard to have edge on a whole sector.

We mainly trade options on equities. 

And remember, we are using my experience to find the right Unusual Options Activity trades that piggybacks the Edge obtained by the Hedge Fund on a specific company. 

An Incredible Offer

Now, I package:

  • Lifetime Membership to the Options Trading Course; and,
  • Lifetime Access to the Tool together for a One-time payment to make it affordable for everyone. 
  • In addition to your purchase of 3 Steps to Profit, I also offer you a 1 Month Free trial to the Winning Picks Premium product. Even if you don’t trade my ideas, they are incredibly valuable as an educational supplement.
Learn Options Trading Free

I hope you enjoyed this Options Trading Tutorial enough to consider my Options Trading Course, 3 Steps to Profit.

I'm offering 25 years of my unique experience on Wall Street translated into a neat package with lifetime membership to the Options Trading Course, Lifetime access to the tool, and 1 free month of Winning Picks Premium priced at the cost of 1 hour (if you’re lucky) for a NYC lawyer.

I think that’s reasonable. 

This is a can’t miss opportunity to start thinking, trading, and profiting like the Top Hedge Fund Managers in the world.

And remember, I gave a similar (but live on stage) Options Trading Tutorial like this in New York just over a 1 year ago. People in that audience who joined months later were kicking themselves for not coming on board in March.  

So, believe me, the only problem you’ll have is dealing with the fact that you didn’t start sooner. What do you say...

Are you in?

<        MAIN MENU        >

"Had never heard of Felix Frey before. I will certainly remember his name now. That was a great session. Very interesting. Material well organized and also well presented. Felix himself is a very good speaker. I learned several new things. Both thumbs up."

Ricky - Benzinga Options Boot Camp Attendee

 WEBINAR INDEX

0:16    Intro: 2 Options Questions You Can't Answer
4:34    The Education IS the Problem
8:21    The Advantages of the Top 1%
12:21    The Sharks Crave This!
14:48    Guess and You Will Lose
19:45    35 to 1 Payouts
21:43    The Greeks & IV Don't Matter
26:46    The GameChanger
32:54    Finding Great Trading Ideas
37:04    Incredible Results

BACK TO MAIN MENU