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Dan Sheridan

Income Strategy Adjustments for the Downside


Mar 31, 2011
Sheridan Options Mentoring, Inc. www.SheridanMentoring.com

Disclaimer
Options involve risks and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling 1-888-OPTIONS, or at www.theocc.com. The information in this presentation is provided solely for general education and information purposes. No statement should be construed as a recommendation to buy or sell a security or to provide investment advice. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available at Sheridan Options Mentoring (info@sheridanmentoring.com). Past performance is not indicative of future results. Parameters relating to past performance of strategies discussed are not capable of being duplicated. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Multiple leg strategies involve multiple commission charges. Brokerage firms may require customers to post higher margins than the minimum margins specified in this presentation. Investors should consult their tax advisor about any potential tax consequences. The views of third party speakers are their own and do not necessarily reflect the views of Chicago Board Options Exchange, Incorporated (CBOE). CBOE is not affiliated with Sheridan Options Mentoring. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-CBOE product or service described in this presentation.

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Download The Presentation Slides!


You can download the slides here:

http://www.sheridanmentoring.com/x/cboe22

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Portfolio Plan

Income Strategies

Speculative Strategies

Long Term Strategies

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Portfolio Plan

Calendar Spreads Double Calendar Spreads Double Diagonals ATM Butterflies Condors
Collars LEAPS Covered Writes/Straddles Long Stock Long Term Calendars

Long Calls/Puts, Diagonal Spreads OTM Butterflies Vertical Spreads Directional Calendars Long Straddles

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How to Scale to a Larger Trades and Run a Successful Option Business


Month 16 712 1318 1924 Size $10,000 $20,000 $40,000 $80,000 LiveTrades PerMonth 34 34 34 34 Monthly Profit Breakeven atleast3% 45% 47%

How many different strategies should I trade? How many different vehicles should I trade? Should I do the same trade every month? How important is it WHEN you enter a trade? How much money will I make?
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Asset Allocation for Monthly Income Trades

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VIX 15 to 19 60% Long VEGA and 40% Short VEGA


z z z z

$10,000 Portfolio

$1000 in cash for adjustments

$5400 in Calendars and Double Diagonals $3600 in Condors, credit spreads and Butterflies 3-5 trades per month

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VIX 25 to 30 70% Short VEGA and 30% Long VEGA


z z z z

$10,000 Portfolio

$1000 in cash for adjustments

$3600 in Calendars and Double Diagonals $5400 in Condors, credit spreads and Butterflies 3-5 trades per month

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VIX 20 to 25 60% Short VEGA, 40% Long VEGA


z z z z

$10,000 Portfolio

$1000 in cash for adjustments

$4050 in Calendars and Double Diagonals $4950 in Condors, credit spreads and Butterflies 3-5 trades per month

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Credit Spread Traders SPX Price Chart


Date: 3/16/2011 SPX Price: $1256.88

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Credit Spread Before Down Move With No Adjustment


Date: 3/8/2011
Options 1280 Puts 1270 Puts

SPX Price: $1321.80


APR(38)
Price $17.10 $14.90 IV Delta Trade 10 +10 19.7% -26.0 20.3% -22.7

Warning Signs: When the spread is starting to go bad


Delta Gamma Theta Vega Credit Margin 33.1 -0.4 11.0 -85.6 2,200 7,800
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1. Delta of short 2. IV of short increases 10% 3. P/L down 30%-50% of max loss

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Credit Spread Before Down Move With No Adjustment


Date: 3/8/2011 SPX Price: $1321.80

How important is todays (T+0) graph?

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SPX from 1322 to 1257 in 8 Days!


Date: 3/16/2011 SPX Price: $1256.88
8 Days Later Starting Price $1321.80

APR(30)
Options 1280 Puts 1270 Puts Price $45.50 $40.40 Orig Pr $17.10 $14.90 IV Delta Trade 10 +10 19.7% -58.9 20.7% -54.0

Delta Gamma Theta Vega Loss Margin

49.0 -0.1 -45.6 42.7 2,900 7,800

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SPX from 1322 to 1257 in 8 Days!


Date: 3/16/2011 SPX Price: $1256.88
8 Days in Trade Starting Price $1321.80

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Adjustment #1: Add a Long Put


Date: 3/8/2011
Options 1280 Puts 1270 Puts 1220 Puts

SPX Price: $1321.80


APR(38)
Price $17.10 $14.90 $7.60 IV Delta Trade 10 +10 +1 19.7% -26.0 20.3% -22.7 23.5% -11.5

Without Long Put


Delta Gamma Theta Vega Credit Margin 33.1 -0.4 11.0 -85.6 2,200 7,800

With Long Put


Delta Gamma Theta Vega Credit Margin 21.5 -0.2 -18.8 10.7 1,440 8,560

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Adjustment #1: Add a Long Put


Date: 3/8/2011 SPX Price: $1321.80

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Long Put Cuts Losses


Date: 3/16/2011 SPX Price: $1256.88
8 Days in Trade
Options 1280 Puts 1270 Puts 1220 Puts

Starting Price $1321.80

APR(30)
Price $17.10 $14.90 $7.60 IV Delta Trade 10 +10 +1 19.7% -26.0 20.3% -22.7 23.5% -11.5

Without Long Put


Delta Gamma Theta Vega Loss Margin 49.0 -0.1 -45.6 42.7 2,900 7,800

With Long Put


Delta Gamma Theta Vega Loss Margin 16.0 0.3 -104.0 177.2 1,310 8,560

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Long Put Cuts Losses


Date: 3/16/2011 SPX Price: $1256.88

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Adjustment #2: Directional Butterfly


Date: 3/11/2011 SPX Price: $1304.30
3 Days in Trade
Price $22.80 $20.30 $17.60

Starting Price $1321.80

APR(35)
Options 1290 Puts 1280 Puts 1270 Puts Orig Pr $17.10 $14.90 IV Delta Trade Adj 10 +10 +10 10 New +10 20 +10 18.0% -37.7 19.1% -33.1 19.8% -29.0

Before Adjusting
Delta Gamma Theta Vega Loss Margin 41.5 -0.4 4.5 -68.2 500 7,800

After Adjusting
Delta Gamma Theta Vega Loss Margin -4.6 0.0 15.2 -17.1 -500 300

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Adjustment #2: Directional Butterfly


Date: 3/11/2011 SPX Price: $1304.30
3 Days Later Starting Price $1321.80

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Stock Down More: Why Still Profitable?


Date: 3/15/2011 SPX Price: $1281.90
7 Days in Trade Starting Price $1321.80

APR(31)
Options 1290 Puts 1280 Puts 1270 Puts Price $35.00 $31.00 $27.50 Orig Pr $22.80 $18.70 $14.90 IV Delta Trade +10 20 +10 19.6% -49.5 20.5% -44.2 21.4% -39.3

Delta Gamma Theta Vega Profit Margin Original Margin


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-4.1 0.0 8.9 -24.9 200 300 7,800

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Stock Down More: Why Still Profitable?


Date: 3/15/2011 SPX Price: $1281.90
7 Days Later Starting Price $1321.80

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Stock Continues Lower: Still Profitable?


Date: 3/16/2011 SPX Price: $1256.88
8 Days in Trade Starting Price $1321.80

APR(30)
Options 1290 Puts 1280 Puts 1270 Puts Price $50.70 $45.50 $40.40 Orig Pr $22.80 $18.70 $14.90 IV Delta Trade +10 20 +10 18.4% -64.2 19.8% -59.2 20.8% -54.3

Delta Gamma Theta Vega Profit Margin Original Margin


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-0.9 -0.1 21.3 -22.4 200 300 7,800

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Stock Continues Lower: Still Profitable?


Date: 3/16/2011 SPX Price: $1256.88
8 Days Later Starting Price $1321.80

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Adjustment #3: Turn Into an Iron Condor


Date: 3/10/2011 SPX Price: $1294.90
2 Days in Trade Starting Price $1321.80

APR(36)
Options 1335 1325 1280 1270 Calls Calls Puts Puts Price $11.90 $15.70 $26.80 $23.50 Orig Pr IV 17.2% 17.7% 20.3% 20.9% Delta Trade Adj 31.5 37.1 -39.1 -34.7 +10 10 10 +10 New +10 10 10 +10

$17.10 $14.90

Delta Gamma Theta Vega Loss Margin Original Margin


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-14.6 -0.4 34.1 -155.5 1,100 4,000 7,800

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Adjustment #3: Turn Into an Iron Condor


Date: 3/10/2011 SPX Price: $1294.90
2 Days Later Starting Price $1321.80

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Iron Condor Adjustment


Date: 3/16/2011 SPX Price: $1256.88
8 Days in Trade Starting Price $1321.80

APR(30)
Options 1335 Calls 1325 Calls 1280 Puts 1270 Puts Price $4.90 $7.10 $46.40 $41.60 Orig Pr $11.90 $15.70 $17.10 $14.90 IV 19.1% 19.9% 23.3% 24.1% Delta Trade 16.9 21.6 -55.2 -50.4 +10 10 10 +10

Delta Gamma Theta Vega Loss Margin Original Margin


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2.2 -0.6 27.7 -119.2 1,000 4,000 7,800

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Iron Condor Adjustment


Date: 3/16/2011 SPX Price: $1256.88
8 Days Later Starting Price $1321.80

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Synthetic Covered Write with all Options

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Covered Write with All Options


Date: 3/8/2011
APR(39)
Options 132 Calls 122 Calls Price $2.95 IV Delta Trade 10 $12.20 22.4% 81.3
When to adjust short option?

SPY Price: $132.58


JUN(102)
Price IV Delta Trade +10

17.2% 55.6

How to pick long strike?

Delta Gamma Theta Vega Debit

256.0 -37.6 14.0 47.8 9,250

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Covered Write with All Options


Date: 3/8/2011 SPY Price: $132.58

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Adjustment #1: Turn into a Calendar


Date: 3/10/2011 SPY Price: $129.94
2 Days in Trade Starting Price $132.58

APR(37)
Options 132 Calls 122 Calls Price Delta Trade Adj $1.85 41.0 10 New 10 $3.85 $10.35

JUN(100)
Price Delta Trade Adj 51.8 75.9 +10 +10 10 New +10

Before Adjusting
Delta Gamma Theta Vega Loss Margin 349.0 -36.5 10.4 81.1 750 9,250

After Adjusting
Delta Gamma Theta Vega Loss Margin 75.5 -22.2 13.1 107.2 750 2,750

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Adjustment #1: Turn into a Calendar


Date: 3/10/2011 SPY Price: $129.94

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Adjustment #2: Roll Short Out & Down


Date: 3/10/2011 SPY Price: $129.94
2 Days in Trade Starting Price $132.58

APR(37)
Options 132 Calls 131 Calls 122 Calls Price Trade Adj New $1.85 10 +10

MAY(72)
Price $3.60 Adj 10 New 10

JUN(100)
Price Trade

$10.35

+10

Before Adjusting
Delta Gamma Theta Vega Loss Margin 349.0 -36.5 10.4 81.1 750 9,250

After Adjusting
Delta Gamma Theta Vega Loss Margin 259.5 -19.3 2.5 8.8 750 7,500

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Adjustment #2: Roll Short Out & Down


Date: 3/10/2011 SPY Price: $129.94

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Adjustment #3: Take Off of Position


Date: 3/10/2011 SPY Price: $129.94
2 Days in Trade Starting Price $132.58

APR(37)
Options 132 Calls 122 Calls Price $1.85 Trade Adj 10 +5 New 5 $10.35

JUN(100)
Price Trade Ajd +10 5 New +5

Before Adjusting
Delta Gamma Theta Vega Loss Margin 349.0 -36.5 10.4 81.1 750 9,250

After Adjusting
Delta Gamma Theta Vega Loss Margin 174.4 -18.2 5.2 40.5 750 5,000

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Adjustment #3: Take Off of Position


Date: 3/10/2011 SPY Price: $129.94

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CBOE Real Trading with Dan Sheridan


Uniondale, NY Tuesday, May 17th Boston, MA Thursday, May 19th

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Website Walk Throughs See Whats on the Other Side


Let us show you a behind the scenes look at what our mentoring program and what our trading community is like. Dan pioneered option mentoring and has the most robust program with the best support to help you learn and continue to grow as a trader. Take a few minutes to see for yourself how we can help take your option trading to the next level.

Sign up for your website walk through at http://www.sheridanmentoring.com/x/WT

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Dan Sheridan
+1-800-288-9341 info@SheridanMentoring.com

Sheridan Options Mentoring, Inc.


http://www.SheridanMentoring.com/

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