© copyright 2017 theotrade, llc. all rights reserved · • central banks buying of corporate debt...

SURVIVE AND THRIVE IN VOLATILE MARKETS


RiskDisclosure•WeAreNotFinancialAdvisorsoraBroker/Dealer:NeitherTheoTrade®noranyofitsofficers,employees,representaAves,agents,orindependentcontractorsare,insuchcapaciAes,licensedfinancialadvisors,registeredinvestmentadvisers,orregisteredbroker-dealers.TheoTrade®doesnotprovideinvestmentorfinancialadviceormakeinvestmentrecommendaAons,norisitinthebusinessoftransacAngtrades,nordoesitdirectclientcommodityaccountsorgivecommoditytradingadvicetailoredtoanyparAcularclient’ssituaAon.NothingcontainedinthiscommunicaAonconsAtutesasolicitaAon,recommendaAon,promoAon,endorsement,orofferbyTheoTrade®ofanyparAcularsecurity,transacAon,orinvestment.•SecuriAesUsedasExamples:ThesecurityusedinthisexampleisusedforillustraAvepurposesonly.TheoTrade®isnotrecommendingthatyoubuyorsellthissecurity.PastperformanceshowninexamplesmaynotbeindicaAveoffutureperformance.•ReturnonInvestment“ROI”Examples:ThesecurityusedinthisexampleisforillustraAvepurposesonly.ThecalculaAonusedtodeterminethereturnoninvestment“ROI”doesnotincludethenumberoftrades,commissions,oranyotherfactorsusedtodetermineROI.TheROIcalculaAonmeasurestheprofitabilityofinvestmentand,assuch,therearealternatemethodstocalculate/expressit.AllinformaAonprovidedareforeducaAonalpurposesonlyanddoesnotimply,express,orguaranteefuturereturns.PastperformanceshowninexamplesmaynotbeindicaAveoffutureperformance.•InvesAngRisk:TradingsecuriAescaninvolvehighriskandthelossofanyfundsinvested.InvestmentinformaAonprovidedmaynotbeappropriateforallinvestorsandisprovidedwithoutrespecttoindividualinvestorfinancialsophisAcaAon,financialsituaAon,invesAngAmehorizon,orrisktolerance.•OpAonsTradingRisk:OpAonstradingisgenerallymorecomplexthanstocktradingandmaynotbesuitableforsomeinvestors.GranAngopAonsandsomeotheropAonsstrategiescanresultinthelossofmorethantheoriginalamountinvested.BeforetradingopAons,apersonshouldreviewthedocumentCharacterisAcsandRisksofStandardizedOpAons,availablefromyourbrokeroranyexchangeonwhichopAonsaretraded.•NopartofthispresentaAonmaybecopied,recorded,orrebroadcastinanyformwithoutthepriorwriXenconsentofTheoTrade®.•NoSoliciAng.NoRecording.NoPhotography.


Copyright Disclaimer All rights reserved. This Material may not be reproduced or distributed, in whole or in part, without prior written permission of TheoTrade, LLC. Any other reproduction or distribution, in whatever form and by whatever media, is expressly prohibited without the prior written consent of TheoTrade, LLC. For further information, please contact:

TheoTrade, LLC 16427 N. Scottsdale Rd. # 410 Telephone: 1-800-256-8876 Email: [email protected]


Don Kaufman Ø  Co-Founder and Lead Instructor at TheoTrade

Ø  Industry-leading options strategist

Ø  Derivatives Risk Manager

Ø  19 year trading career

Ø  17 years of thinkorswim® platform experience

5

About TheoTrade • TheoTrade Specializes in education for options, futures, and stocks.

• Founded by professional traders and trading educators each with a minimum of 15 years experience, several with many decades

• TheoTrade is here to help you mitigate the risks in the market, while learning a skill set that can last a lifetime.


TheoTrade Instructors •  Doc Severson – Stocks, Options and Technicals

•  Jeff Bierman – Stock trader & Former CMT for TD Ameritrade

•  Steve “Slim” Miller - 43 year veteran stock, futures trader

•  Tony Rago - Nasdaq Futures and Intraday Strategist


Risk and Success • How you handle your risk is directly correlated to your success in the markets. •  Too much risk and you will panic and close positions continuously at the worst

possible time. •  At least you’re consistent with your panic ☺


Get Ready, It is Coming…

We are about to embark on what could be one of the most pivotal periods in our market’s history, prediction of risk is easy, timing the onset of this risk is impossible.


We Need to Twist the Risk in our Favor •  Today we will present a strategy whereby we can harness the potential afforded to

us by the current market environment.

•  Specifically; I will detail how for little capital upfront you can risk $1 to potentially make $10+ with little upfront costs.

•  In the next 45 min you will see precisely the strategy, the plausible risks, and how

you can place these trades.

•  Let’s get into it!


THE VOLATILITY Or lack thereof…


Volatility in the Markets • Have you ever spent time looking at the volatility in the markets and compared

that with what you believed the risk to be?

•  First what is volatility and what does it measure?

•  Volatility most notably measures “risk” in the market.


Volatility = Risk • Options markets can be thought of as putting a price tag on risk.

•  Pricing in markets is determined via market participants.

•  Ultimately, options pricing comes down to supply and demand.


Historical •  the annualized standard deviation of the past stock price movement

Implied •  volatility that justifies an option’s current market price •  is found using an option pricing calculator

100 120 80

Vol = 20% St. Dev. = 20

68%

Implied Volatility © Copyright 2017 TheoTrade, LLC. All Rights Reserved

No Fear or Loathing on Wall Street •  The degree of complacency in markets considering the myriad of tail risks on the

horizon is truly remarkable.


THE ISSUES Yes we’ve got “issues”


The Looming Risks •  FMOC and Central Bankers interest rate policy •  Central Banks Buying of Corporate Debt and ETFs •  Presidential Administration •  $11 trillion of negative yielding debit (negative interest rate policy) •  Chinese Debt at 270% of GDP •  Chinese banking system grew 1000% in 10 years •  $1.3 trillion in Student Load Debt with 42% delinquent, postponed, or in default •  Brexit •  Global Currency Devaluations •  North Korea

• Correction: these are not looming risks… these are current events.


THE SUPPRESSION OF RISK Federal Market Open Committee aka: The FED


Central Banks Produce Volatility Suppression •  Thanks to the Central Bankers…

•  Banks, Proprietary Trading firms, and Hedge Funds anywhere in the world can borrow capital with near zero interest.

•  The world financial systems are bursting with cheap money. •  In many circumstances negative interest rate policy is forcing lending; and yes

folks this is by design!


Trillions Seeking Returns •  A global financial systems flush with FREE money is causing asset managers and

traders to seek returns ANYWHERE.

•  The GLUT of capital is smashing volatility as market participants throw caution to the wind in the search of returns.


Governments are Buying Stocks? •  The Swiss National Bank has gone so far as to print money in order to purchase

stocks. •  The SNB owns about $80 billion in U.S. stocks (June, 2017) and a guesstimated $20 billion or so in

European stocks. •  They have bought roughly $17 billion worth of U.S. stocks so far this year. •  And they have no formula; they are just trying to manage their currency. •  They have about $10,000 in U.S. stocks on their books for every man, woman, and child in Switzerland

•  The Bank of Japan owned about 71 percent of all shares in Japan-listed ETFs at the end of June 2017 •  BOJ ETF buying, now targeted at around 6 trillion yen ($53 billion) annually •  The NLI Research Institute has forecast that the BOJ could own almost three quarters of the

free-floating shares of Fast Retailing Co., the most heavily weighted company on the Nikkei


Markets are Irrational on Free Money • Money pouring into the financial system has inadvertently suppressed volatility

and price discovery.

• On a broader time frame you need to forget about: •  Charts and Technicals •  Fundamentals are meaningless •  Volatility readings are deceased


THE OPPORTUNITY Suppression of Risk presents OPPORTUNITY


Risk is GOOD •  Recognize ALL of these issues for what they are…YOUR OPPORTUNITY.

•  You need a strategy whereby you will NOT substantiate inordinate risks yet you want to position yourself for an onslaught of volatility.


Let’s put it bluntly, we want to BUY Volatility • We want to BUY volatility as we believe the future market risks are formidable.

•  Even if you DO NOT believe the risks are forthcoming you still need to accept the relative dangers and mitigate your exposure accordingly.

•  The risks are clear and we can see the opportunity, yet HOW do we go about BUYING Volatility?


You can Buy Volatility-based ETF products

•  It’s common knowledge we can BUY volatility products in today’s marketplace.

• However, volatility-based products are riddled with failure!


Volatility Exchange Traded Funds (ETFs) •  Let’s take a look at 2 prominent Volatility ETF’s.

•  VXX – SP500 Short Term VIX ETF

•  UVXY – Ultra VIX Short Term ETF


Flushing Your Money? •  Buying Volatility ETFs is a FAST way to LOSE MONEY!

•  You cannot succeed via buying volatility outright.

• You need to be smarter than your competition!


Positioning Your Portfolio for a BIG Move!

•  Let’s get down and dirty; how do you position yourself most effectively for the possibility of an extreme move without exposing yourself to drastic risks?

•  Let’s not get cute; this is serious and there are millions up for grabs.


Risk Twist Spreads •  You will employ a ratio type option spread to index and/or equity product known as

a “Risk Twist Spread”.

•  The idea is easy; we want to achieve maximum reward for a minimal upfront cost.

•  The risk twist screams…

“Limit your exposure and maximize your potential!”


Characteristics of Risk Twist Spreads •  Increase in value when exposed to heavy volatility. •  Increase in value when markets sell-off. •  Significant profit potential in a downside market move. •  Loses minimal capital if markets rally. •  Loses minimal capital if markets continue to drift. • Need ONLY be placed a few times per year. •  This is the PERFECT spread to reduce risk of a stock portfolio. •  This is an excellent tool for those seeking large returns on a big market event.


Building the Risk Twist Spread • Do not let options intimidate you! •  The spread below is being done for a 1.17 debit. • However, this spread is akin to a massive chainsaw. •  Used correctly, can be extremely effective in creating returns! •  Used incorrectly, you may cut off a few fingers.


Fear NOT the Risk Twist Spread •  You may not know options OR have limited experience in placing options trades.

• We can show you HOW and WHEN to place Risk Twist Spreads in a matter of a few hours.

•  TheoTrade creates detailed recipes for every strategy including the Risk Twist Spreads.

•  You would not bake a cake without a recipe, so why trade without one?


THEOTRADE RECIPES IN TRADING Criteria…it’s what we at TheoTrade do!


Trading is about Answering the What Ifs •  What might be a good stock or ETF candidate for a RiskTwist Spread?

• What is the correct options expiration cycle to buy my Risk Twist Spread?

•  How much capital do I commit to these Twisted Trades? •  What Strike Price Options do I sell and how many?

•  What Strike Price Options do I buy?


TheoTrade is the Answer to Your Questions

• What is the right probability for my trade? • How many options contracts do I trade in for my account

size? • When do I close my Risk Twist Spread? • What if the stock sells off big? What is the correct return for

the strategy? • What if the stock rallies massively? •  Can I fix a losing trade?


TheoTrade Has Your Answers •  TheoTrade has the answer to your trade-related questions! • We Build Recipes with definitive criteria and checklists for

each strategy and each unique variable you will encounter.


TheoTrade.com/Don


© copyright 2017 theotrade, llc. all rights reserved · • central banks buying of corporate debt...

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