Complete Cheat Sheet for High Probability Option Trades

http://www.youtube.com/watch?v=4wtYVLI-jqE

MarketHeist's Jeffrey Lin interviews Pablo Navarro, Options Strategist for Hamzei Analytics' HFT Stocks & Options.  The HFT Stocks & Options team exemplifies how we all want to make money: consistently making a percent or more per week without much money at risk. It's impossible to be lucky every day, so anyone who makes money day in and day out has the techniques you want to learn.

TRANSCRIPT

Jeffrey: What are a couple of steps of how you strategize an options trade, and how do you try to do that to have better odds? Like we were saying earlier, to have the risk/reward be in your favor and not be gambling?

Pablo: What we try to do when I check the options in the chat room, we usually try to get first that direction, we are going to decide if it is going up or down. I think that is the basic thing you need to know because that is going to be what is going to act in your favor. After we have done that we try to get a price target. As I mentioned, we try to get a plan ready before we actually get an option strategy. After we have the price target, the time frame, and the direction basically we have everything nailed down. Then we start looking at the different type of options we want to play. Maybe we want to go with a long hold, depends on the volatility of the stock. If it is a pretty volatile stock, we might want to do the actual spread to lower the risk, that's because we are selling something so we are getting some money out of it. After that we want to see that we get, at least, a one by two pay ratio. We never want to risk a dollar to get less than a dollar, because that way we just buy stocks one by one. So we try to get a good risk/reward, then get the timing worked out. Usually we try to sell the weeklies or monthlies, depending if there are weeklies or not, then buy a month or two weeks out. That's what gives us the Delta we want. We usually want point five Delta or more when we are going up. That would be the equivalent of 50 stocks. Then we would limit the size. We would decide how big do we want to trade, depending on our conviction, depending on how we feel about the stock, and how big the position is. As I mentioned, we never try to trade more than 2 to 3% so we try to limit those and see if we hit. How much would we win? How much would we lose? Then we would decide if we are going to go forward with the trade or are we just going to pass and go get another one.

Jeffrey: So how many reviews do you do before you settle on a trade? How many potential trades do you have in your list versus the ones that you narrowed down to?

Pablo: Usually I look at, at least, 100 to 200 charts per day, every night before going to sleep. Then the next morning I wake up early, before the market opens, take a look at the ones that I wrote there was something interesting in, so around 10 to 20 by the market opens. I usually tell the room this is what I am looking at, these are the charts that I think are interesting right now, these are the potentials; this could go down, this could go up. Then after that I talk to Fari, talk to The Admiral, we get the team ready. What do you think about these charts? How do you see the volatility on these options? Then we get the trade ready, I go back write up everything for the room, let everyone know what's the plan, why are we thinking this is the best play, and then I send it to Fari again. We take a last review and then we'll send it out to the room. If anyone has a question or something, maybe they don't understand why we are selling the vertical instead of just going with straight goals. We'll explain, we'll let them know because that is part of what you get, it's dedication.

Jeffrey: It's experience.

Pablo: Experience, exactly.

Jeffrey: That's a great looking set of how professionals put a trade together, it's a lot of detail planning and a lot of work. Thanks for your hard work and hope people can follow in your footsteps and learn from you.

Jeffrey: Thanks then.

Pablo: I am Pablo Navarro for HamzeiAnalytics HTC Stocks and Options. You can find me at hamzeianalytics.com or follow me at @pnavarro88. Thanks for watching marketheist.com

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Learn more from Pablo at HFT Stocks & Options:
http://bit.ly/hftstocksoptions

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http://twitter.com/pnavarro88

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ABOUT PABLO NAVARRO
Majored in Economics and Communications with a minor in business from Texas Christian University. Pablo graduated from OptionsAnimal and completed all levels that the CBOE Options Institute offers. Pablo actively manages his own accounts trading options, futures, and stocks for over 3 years. He is always pushing beyond the limits to achieve his goals. He is convinced that its all about going that extra mile and always having a plan for each scenario.

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Market Merchandise: Stock Options, Options,
Events: Earnings Disappointment (Miss), Earnings Surprise (Beat), Earnings Call,
Styles: Options Trading,
Strategies: Volatility Arbitrage, Event-Driven, Directional,
Skills: Technical Analysis, Position Sizing, Risk Management,

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