SJ Options BRIC – Low Risk Options Trading
The BRIC™ - A safer option trade, developed by San Jose Options, that is profitable in any directional move in volatility!
The BRIC is another fine example of how unique and innovative our options mentoring course truly is. In this presentation you will witness with your own eyes an option spread that behaves as both Negative Vega and Positive Vega at the same time through the use of the second order Greek known as Vomma. We are not claiming the spread has both Positive and Negative Vega at the same time - this is impossible, but rather, it behaves as such. This is what we consider to be a "dual Vega" spread. We encourage all option traders to muse over this mysterious vega position for a while in order to strengthen your understanding of option Greeks.
This is a fantastic study that we're working on here at SJ Options.
In layman's terms this means that no matter which way the volatility goes, our trade can profit from it. We can collect just as much credit as the popular Iron Condor, but if volatility sky-rockets, then we make even more money, and if IV collapses, we make a profit too.
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Hi there to all the option traders out there! From San Jose Options, we have a great, little presentation for you today. We’ll be talking about one of our discoveries that we call the BRIC. It’s one of the most solid strategies that we’ve ever designed over the years and the name the BRIC is really fitting for this and we’ll show you why in this demonstration.
This is a clip from one of our live classes and you see it’s less than 3. And it’s called the mysterious vega position. The objective of the class that we taught today was just to show the students how this particular trade set-up has, what we call a positive vama and, in other words, as volatility rises, the vega position on this increases. But at the same time, this is a very unique strategy because as volatility drops the trade also will make a very nice profit. What we have here with the BRIC is an extremely unique, extremely rare and a quite amazing architecture because it’s actually a positive vega as well as a negative vega strategy all at the same time.
Now, those of you who are experienced option traders and understand the Greek language, then you would know that in order to be a successful option trader, you really need to focus on that vega position that you’re creating, watch the implied volatility of the underlying that you’re trading and you’ll only try to trade with it along the same time, you know, moving in concert with the prize. It’s kind of a battle there between volatility and also watching price and also watching time. You know, the options are 3-dimensional.
Now, when it comes to trading these cash indexes that we really enjoy trading so much like the Russell, SPX and NDX, then, we realize these are really volatility-driven vehicles. In other words, the price may move 5% one day and volatility could move like 50%. We might go through a major debacle like we did last summer where the market may go down 20-25% and the volatility may go up 150%. What we see when we trade this type of product is that volatility moves much more than the price. This tends to be one of the, I think, one of the weaknesses of most option traders out there is they really focus a little bit more on the price and not enough on the volatility charts. But when we’re trading with options we’re actually really trading volatility especially when you’re looking at this type of product.
Back to this vega position that’s so mysterious about the BRIC, well, it really helps solve the issue we’re talking about where these products are really volatility-driven because what the BRIC does is it actually makes the volatility go in your favor no matter what direction volatility goes. Imagine if you have a U-shape, like, if you’re doing a Strandler-Strangler type trade where you have this smile. Well, that’s what we’ve developed with this trade, when it comes to volatility. Imagine if volatility goes down, well, the trade makes money. If the volatility goes up, the trade also makes money. We have this trade architecture in such a way where there’s no risk with volatility and actually any move in either direction with volatility produce a very nice profit for us.
It’s amazing and it’s very unique. If you were to ask, I would say a thousand options trades, if they knew how to construct the trade that was actually simultaneously negative vega as well as positive vega, you’d be very lucky to find one that actually knew how to set up a trade like this. As far as most of you are, the famous gurus out there, I encourage you to go ahead and ask them. And if you’re in a different course, you know, ask your teacher “Is it possible to construct a trade that’s positive and negative vega at the same time?” Pretty much all your teachers out there are probably going to say no or at least they don’t know how to do it. It’s really, really, interesting and not only interesting but this trade can take a complete novice option trader, we could get somebody in our course who has, and we have a lady right now actually who’s never traded options, knows nothing about options at all or actually knew nothing a couple weeks ago. I guarantee you within 1 month to 2 months, she’ll be able to trade in a much deeper level, much more sophisticated level than your average option trader out there who’s been trading 10-20 years.
Most of you guys, you know, once you get to this intermediate level may be advanced then you start to focus a lot on your vega and you might put on a condor, a credit spread, a diagonal, a calendar and try to kind of mix all this together, you end up at this hodge-podge of a portfolio and you’re trying to achieve some sort of neutral vega. But what you really have is a big mess that’s hard to manage and actually a bunch of trades that aren’t giving you the vega position that you want anyway. But in our course, after just a month, you can learn our formulas, go out there and you’ll actually have a vega position that’s correct no matter which way the volatility of your product goes. We solve that for you.
Imagine if you’re doing a condor trade and you’re trying to bring in 10% in a month’s time. You have that credit sitting there and if everything goes great and it stays between those parameters, you can make the 10%. If the volatility drops, you can make that 10% quicker. However, if the market crashes and volatility rises like it did last summer, 150%, it went up 50 point or so but it started really low, like 20. If it goes up about 150% and you have on a condor, there’s a good chance you’re going to lose from about 30 to maybe 50% and then if the market whipsaws around, you end up locking in more losses ‘cause you’re dealing with this negative gamma position that gives you a frown. As the market moves left and right, left and right, you’re constantly battling this market and battling the sense of safety in the trade so you always have to do these adjustments that lock in losses.
Again, the condor trader, they’re trying to achieve this 10%. They have this negative vega position but as soon as volatility rises it just crunches their profits and it puts their portfolio at great jeopardy. You could lose 30 to 50% and if you continue with the condor after the market crash, when the market’s really whipsawing around, you would just lock in even more losses. Let me go ahead and give you a demonstration of what I mean by this trade, of how it’s actually negative and positive vega so you could see for yourself.
Here I am in Think or Swim and what you’re looking at is one of our constructed BRICs. Unfortunately, I can’t show you all the strikes because that’s proprietary information and that wouldn’t be right for our students. But what you’re seeing here is we have an initial credit that goes up to 1,600, the buying power is 18,000. You can see right away that we’re bringing in a very similar credit to your standard condor. We also have a vega position here that says -100. Those of you who understand the Greeks, at least in immediate level, when you see that vega position, you would assume that for every point volatility drops on this product, which is the Russell, every point the RVX goes down you would assume we’ll make $100. Your other assumption would be every point that the RVX rises will lose $100. Those who know that would probably be intermediate traders to some advanced traders who would all agree, as well as your instructors.
In our course, we go to a much deeper level with your Greeks. We actually start to work on things like vama, like we saw on the first screen. Vama is the rate of change of your vega position. Most courses don’t even know what that is. They don’t know how to manipulate that or architecture trades around vama. Again, in our course, we work in a much deeper level. Our understanding of Greeks is a lot deeper than you’ll find in an ordinary course.
As you saw on the first screen, this trade has a positive vama. Now what that means is as the vega increases this trade isn’t losing this $100 per point that each—that the RVX increases. Instead, we have a positive vama. As RVX goes up, guess what? Our vega position goes up, alright? As the implied volatility drops, the trade also makes money. That’s really brilliant, to say the least. It’s amazing. Again, like I said, we could put any newbie in the driver seat and they’ll be managing vega instantly. These other option traders, they work at this 20 years, 30 years and they never learn how to manage vega that we can show you in a snap.
Let me go ahead and give you an example here. Let’s say volatility drops 20%; that is what happens to my PNL, I’m up almost $1,600. Again, the negative vega worked, we had -100 here, volatility dropped and I have an instant return of 1,600. Now, I’m going to show you what happens, market crashes, we go down 20% in one month, volatility rises 50 points, look what happens. I’m up $15,000. That’s almost a 100% return on this trade. I showed you how I brought in, at the beginning, about 10% credit just like a condor, market crashes, I make even more.
Let’s say something unheard of happens and volatility skyrockets to 100 points, about 41,000. Investment in an 18,000 now looking at 41,000 while the condor traders have just lost their entire accounts; they lost 100% guaranteed that this happens with volatility, imagine. We have designed the trade, again, that could put any trader in the driver seat. You’ll be trading with volatility in a matter of days. You learn our trade, you learn our formula, put this trade on. You have safety, again, if the market crashes. We have another major debacle, 25% drop in a week. We are looking at making some extra money. If the market doesn’t move, you saw how the trade started, about a 10% doesn’t move, you make money. Market whipsaws around, you make money.
The most important thing is is the safety. We have that safety built in that you don’t have with any of your traditional strategies. You look at a calendar, you don’t have the safety. You look at a condor, you look at a credit spread, covered call, diagonal, none of those trades have this type of safety that we have. All of those trades have a one way vega position. In other words, it’s either positive or negative but is not this type of dual vega position that we have achieved.
Anyway, there you have it. I hope you’ve enjoyed that and understand. Whether you’re new or advanced, I hope you were able to really grasp what we have achieved here with the BRIC, just the most solid strategy that you’ll even find. You can bring in 5-10% in a month but if this market crashes, not only are you safe but you’re actually going to make more. It’s just quite amazing to have this dual vega position in a strategy. Never seen it, never heard of this type of thing before and believe me, if you would ask me how to construct a trade that was negative and positive vega just a few months ago, I wouldn’t have known how to do it either. I mean, these are the kind of things that happen in our course because we keep experimenting and moving things around. If you hear—go on these message board and things and you hear people saying there’s no secret sauce or there’s no holy grail or there’s only one way to trade options, there’s nothing different, you know, don’t listen to those. Those people don’t know. That’s the type of person that will be stuck trading the condor their whole life because they don’t explore. If you just look at option chain, you have months that go out now 3 years. Every option chain has so many strike, I mean, there’s literally, probably billions of combinations that you can create.
So when someone’s saying, you know, there’s only one way to trade, there’s only condor and a credit spread and that’s all there is, well, you know, we beg to differ. There’s a billion different ways to construct the trade and that’s what we do in our course. We explore all the different options that’s why we have developed a trade like this, that’s both positive and negative vega. You can’t get that with traditional strategy. You just don’t get it. Alright, thank you guys so much! Hope you enjoyed something from this and this is Morris signing off from San Jose Options.