Replace Your Income with Options A Deeper Dive into Options Trading with Dan Sheridan, Ep #110
Dan Sheridan is the founder and CEO of Sheridan Options Mentoring, a company geared towards producing independent traders. With over 30 years of experience trading options and educating traders worldwide, Dan’s one of the pioneers in his industry. In this episode of How To Trade It, Dan shares how he maximizes profits by minimizing risk. You don’t want to miss it!
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You’ll want to hear this episode if you are interested in…
- [01:36] Learning how to make $3,000 per month on a $25K account
- [09:35] A solid risk management plan
- [12:54] Understanding Calendar Spreads
- [15:28] Unpacking Credit Spreads
- [18:25] Selling “Puts”
- [22:38] Utilizing Probabilities
- [29:01] Adjusting your risk
- [30:14] Discipline!
- [34:54] The Complete Options Portfolio
Calendar Spreads
Simply stated, a calendar spread is used to generate weekly or monthly income by buying a further out duration, and selling a closer one. For example, you might buy a June expiration and sell a May expiration. You make money on calendar spreads because the ones you are selling hit their expiration a lot sooner than the ones you are buying. Basically, you are benefitting from the decay on the short option.
Credit Spreads
Buying actual stocks kills your purchasing power because, let’s face it, they are expensive. Dan sees buying puts as credit spreads as a poor man’s way of getting a cash-secure put because you then have a hedge of protection. This cuts down your capital requirements dramatically. With credit spreads you can yield between 8 & 10% return each month.
Probabilities
Most former pit traders don’t even look at charts. Instead, they rely on probabilities. It’s not because they believe charts are bad, it’s simply because they never needed them to do their work when they were on the trading floor. By looking at volatility, you can get standard deviation. Dan also looks at average true range (ATR), and he has used indicators to stay out of trouble from the big moves and corrections in the markets.
Resources & People Mentioned
- Learn Options Trading Basics from an Expert, Ep 5 - How To Trade It podcast
- Make $3K Monthly on $25K
- TDAmeritrade - ThinkOrSwim
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