5 Step Blueprint To Option Trading Success www

You’re In The Right Place If: • You want to learn how to trade profitably, and recession proof your family • You are looking to build serious WEALTH over time • You're emotionally stable enough to weather the “ups and downs” of becoming a trader • Do not want to spend all day trading in front of your monitors because you want freedom to do what you love • You're ready to invest in yourself to become a consistently profitable trader • You're looking for a Step-by-Step SYSTEM that is proven to work © Copyright 2020. Options Trading IQ. All Rights reserved. 2

5 Step Blueprint For Options Trading Success Step 1: Avoiding the 2 Biggest Mistakes Step 2: Using Probabilities in Your Favor Step 3: Volatility Is Your Edge Step 4: Study Some Greek Step 5: Strategy Selection © Copyright 2020. Options Trading IQ. All Rights reserved. 3

MY STORY Started Trading Options in 2004 Spent Thousands of Hours Researching Live, Breath, Eat and Sleep Financial Markets Authored 7 Books, Multiple Bestsellers © Copyright 2020. Options Trading IQ. All Rights reserved. 4

MY STORY My first trade was a put option on a retail stock. The main reason I entered the trade was because it was cheap. The put option only cost me $200 and I figured if I lost it, then it was no big deal. I owned some stocks and mutual funds and I figured if my stocks went down, then I would make money on the put. © Copyright 2020. Options Trading IQ. All Rights reserved.

MY STORY As you can probably guess, I suffered a 100% loss on that first trade. My stocks went down and the retail stock went up. So that was a good first lesson. © Copyright 2020. Options Trading IQ. All Rights reserved.

MY STORY From there I started learning about credit spreads, iron condors and other option strategies. I was so excited and was sucking up as much knowledge as I could from any source I could find. I read countless books, blogs, attended webinars etc. All the things you have probably been doing as well. I had some success but really I was just a “Bull Market Genius”. © Copyright 2020. Options Trading IQ. All Rights reserved.

MY STORY The massive bear market from late 2007 to early 2009 was another

MY STORY I made every mistake in the book: • I would have a good winning streak, but then I would give it all back with one bad loss. • I struggled to know when to enter, adjust and exit trades. • I chopped and changed from strategy to strategy. • I didn’t cut losses early enough. • I was not disciplined. © Copyright 2020. Options Trading IQ. All Rights reserved.

MY AHA! MOMENT My first AHA! moment came when I realized that making money in the markets is incredibly easy. Any monkey with a dart board can make money in the markets. What is much more difficult is avoiding big losses. Everyone has heard the saying “cut losses early and let profits run”, but how many of you actually apply it? I became ruthless with cutting losing trades. © Copyright 2020. Options Trading IQ. All Rights reserved.

MY AHA! MOMENT If something wasn’t working, I simply closed the trade and moved on. I couldn’t allow losing trades to affect me emotionally. Managing losing or difficult trades expends a huge amount of emotional capital. It also means you miss other opportunities because your focus is clouded. Risk management and trading psychology is ultra important when trying to become a successful trader. © Copyright 2020. Options Trading IQ. All Rights reserved.

MY SECOND AHA! MOMENT My second AHA! moment was realizing that consistency is the key to success. To become a successful trader, you need to have a consistent set of actions. You can’t constantly hop from one trading method to the next. You need to plan your trades, manage your trades and review your trades via a consistent set of actions. © Copyright 2020. Options Trading IQ. All Rights reserved.

MY THIRD AHA! MOMENT My third AHA! moment came when I realized how important patience is in the market. Early on, I felt like I always had to be in the markets, always had to be doing something. Now, I prefer to be in the market less, and wait for the perfect opportunities. There will always be opportunities and if you can be patient and wait for the most high probability set ups, it will make a massive difference to your trading. © Copyright 2020. Options Trading IQ. All Rights reserved.

Step #1 – Avoid These Mistakes Option trading offers much more flexibility than just trading stocks. You can make money if a stock goes up, down or sideways. Some newbies get sucked into the idea of making a quick buck. Marketing hype doesn’t help… Options can provide amazing leverage, especially out-of-the-money options. Who wouldn’t want to control 100 shares of a stock for only a few hundred dollars? © Copyright 2020. Options Trading IQ. All Rights reserved. 14

Mistake #1 Yes, buying out-of-the-money options can make significant gains. The problem is you have to be spot on in terms of both the direction, and the timing of the stock movement. As you know, this can be quite hard to do…. To make a profit, the stock needs to move in your direction, and do it quickly. Time decay is not your friend. © Copyright 2020. Options Trading IQ. All Rights reserved. 15

Mistake #1 Assume you’re bullish on ABC stock when it is trading at $115. You look at the $130 calls and see you can buy a 30 day call option for $40. That seems very cheap for exposure to 100 shares, right? Yes, it is. So much so, you decide to buy 50 of those calls, which costs you $2, 000. 50 calls represents 5, 000 shares. “Wowser, if ABC rallies big, I’m going to make a killing!!” © Copyright 2020. Options Trading IQ. All Rights reserved. 16

Mistake #1 If ABC hits $135 later in the month, you could be in line for a $25, 000 pay day. If only it were that easy…. $25, 000 on a $2, 000 investment is an 1, 150% return. Not bad for 30 days! At first glance, that kind of leverage is amazing. But don’t let the big numbers fool you. You need ABC to rally over 17% in 30 days for this to happen. © Copyright 2020. Options Trading IQ. All Rights reserved. 17

Mistake #1 You need the stock to make a 2 standard deviation move in 30 days. Not something that happens very often. Based on probability, there is a roughly 8% chance this would happen. In all likelihood, the options will expire worthless and you will lose 100% of your investment. So, in order to profit with OTM options, you need to seriously outwit the market, have insider knowledge, or just plain get lucky. © Copyright 2020. Options Trading IQ. All Rights reserved. 18

Mistake #1 A better approach is to use probability in your favor and be the casino rather than the gambler. We’ll talk more about that in Step 2. © Copyright 2020. Options Trading IQ. All Rights reserved. 19

Mistake #2 Having a written down trading plan will put you ahead of 80% of the other traders out there. Unfortunately, most newbies don’t have one. It’s either “in their head” or worse, they just make it up on the fly. Getting in to a trade is the easy part. Knowing when to take profits, when to adjust and when to exit is much, much harder. Emotions can get on top of you in this game, and when they do, you’re toast. The market will eat you up and spit you out. © Copyright 2020. Options Trading IQ. All Rights reserved. 20

Mistake #2 Having a written down trading plan, helps take the emotion out of the equation. You will have a plan and know exactly what you are going to do, no matter what the market throws at you. You can also refine and develop your trading plan as you go along. Keep good records of your trades, so you can analyze what works and what doesn’t. You can then adjust your plan accordingly. © Copyright 2020. Options Trading IQ. All Rights reserved. 21

Mistake #2 You should have an overall plan covering things like exposure levels, position sizing, eligible stocks, maximum number of trades etc. Also, have a trading plan for each specific option strategy you are going to trade. You can download a sample iron condor trading plan from: https: //www. optionstradingiq. com/condorplan/ © Copyright 2020. Options Trading IQ. All Rights reserved. 22

Step #2 - Using Probability Using probabilities in your favor is the best method for options trading success. You should aim to generate consistent income, rather than looking for home runs via out-of-the-money options. Typically, broad markets trade in a sideways manner the majority of the time. It’s been said that 80% of options expire worthless, so would you want to be a buyer of options? © Copyright 2020. Options Trading IQ. All Rights reserved. 23

Step #2 - Using Probability Market makers know that buying out-of-the-money options is a fools game, so they tend to trade from the sell side. Why? It’s all based on probabilities, but you don’t need to be a math geek. Market makers use mathematical models to determine the price of an option. Knowing the likelihood of a stock reaching a certain point, allows them to set a price based on that probability. © Copyright 2020. Options Trading IQ. All Rights reserved. 24

Step #2 - Using Probability © Copyright 2020. Options Trading IQ. All Rights reserved.

Step #2 - Using Probability Using probability analysis gives traders a very useful tool for determining price targets to trade against and they are free on most platforms. You can also use delta as a quick estimate. © Copyright 2020. Options Trading IQ. All Rights reserved. 27

Step #3 - Volatility is Your Edge Volatility is an extremely important factor to understand when trading options. Master this, and you will be ahead of 90% of other retail investors. There are two types of volatility: Historical Volatility: Historical volatility is a measure of how much the underlying asset has been moving in the past. Implied Volatility: Implied volatility shows the expectation of future volatility. © Copyright 2020. Options Trading IQ. All Rights reserved. 28

Step #3 - Volatility is Your Edge Just like a stock, you want to

Step #3 - Volatility is Your Edge Here is a theoretical example to demonstrate the idea. Let’s look at a stock priced at 50. Consider a 6 -month call option with a strike price of 50: If the implied volatility is 90, the option price is $12. 50 If the implied volatility is 50, the option price is $7. 25 If the implied volatility is 30, the option price is $4. 50 © Copyright 2020. Options Trading IQ. All Rights reserved. 30

Step #4 - Study Some Greek The Greeks are risk measures that can help you choose which options to buy and which to sell. With options trading you must have an idea of the direction of the underlying as well as a view of the direction of implied volatility, and then factor in the timing. The Greeks help you tailor your strategy to your outlook. Understanding the Greeks gives you even more of an edge in this zero sum game of options trading. © Copyright 2020. Options Trading IQ. All Rights reserved. 31

Step #4 - Study Some Greek Delta: Delta is the option's sensitivity to changes in the underlying stock price. It measures the expected price change of the option given a $1 change in the underlying. Vega: Vega is the option's sensitivity to changes in implied volatility. A rise in implied volatility is a rise in option premiums, and so will increase the value of long calls and long puts. Vega increases with each expiration further out in time. Theta: Theta is the option's sensitivity to time. It is a direct measure of time decay, giving us the dollar decay per day. Theta increases exponentially as you approach expiry. © Copyright 2020. Options Trading IQ. All Rights reserved. 32

Step #4 - Study Some Greek © Copyright 2020. Options Trading IQ. All Rights

Step #4 - Study Some Greek Gamma: The gamma metric is the sensitivity of the delta to changes in price of the underlying asset. Gamma measures the change in the delta for a $1 change in the underlying. Rho: Rho is the option's sensitivity to changes in interest rates. Most traders have little interest in this measurement © Copyright 2020. Options Trading IQ. All Rights reserved. 34

Step #5 There are literally hundreds of ways to trade options. Over the long haul, income trading provides one of the best opportunities for generating consistent profits. Every trader should master 3 -4 income strategies and select the best one based on their trading style and market outlook. © Copyright 2020. Options Trading IQ. All Rights reserved. 35

Step #5 – Strategy Selection Iron Condors Butterfly Spreads Covered Calls – The Wheel

Covered Calls are a logical place for newbies to start. It’s simple step for those that are familiar with stock ownership to start trading covered calls. The covered call strategy involves owning or buying stock and selling an appropriate number of calls against it. It is a slightly bullish to neutral strategy. It can generate extra income in your account and potentially reduce volatility. The trade off is giving up some potential gains © Copyright 2020. Options Trading IQ. All Rights reserved. 37

Covered Calls © Copyright 2020. Options Trading IQ. All Rights reserved. 38

Covered Calls © Copyright 2020. Options Trading IQ. All Rights reserved. 39

Butterfly Spreads Butterflies gains from stocks staying within a narrow range. Profits accrue very quickly near expiry, but P&L will move around a lot. Spreads can be wide, so traders should be aware of this when entering and exiting trades. Directional butterflies are a cheap way to gain directional exposure on a stock. © Copyright 2020. Options Trading IQ. All Rights reserved. 40

Butterfly Spreads © Copyright 2020. Options Trading IQ. All Rights reserved. 41

© Copyright 2020. Options Trading IQ. All Rights reserved. 42

Iron Condors Iron condors are the fundamental option income trade. This trade profits from stocks trading within a defined range. They provide a great way to take advantage of spikes in volatility. Iron condors are high probability trades that are easy to manage once you have some experience. © Copyright 2020. Options Trading IQ. All Rights reserved. 43

Iron Condors © Copyright 2020. Options Trading IQ. All Rights reserved. 44

Diagonal Spreads Diagonals spreads are a cross between a calendar and a credit spread. They are positive Vega. Traders want the short option to expire worthless, leaving them with the long option that they can choose to hold or close. © Copyright 2020. Options Trading IQ. All Rights reserved. 45

Long and Short Strangles are risky because they have unlimited risk, but they can have a place in your portfolio. However, beginners should avoid them. Long Strangles can be a great hedge for your core trades. If they market makes a big move, it will hurt iron condors, but the gains on the Long Strangle will help offset that. Long Strangles should be entered when implied volatility is low and when the underlying has had a period of consolidation. © Copyright 2020. Options Trading IQ. All Rights reserved. 47