The 3 Certainties Of Life 🍦

[image] You might have thought there were only two? Death & Taxes However, there are really 3! Death, Taxes & the Time Decay of Options By the way, this reality is CENTRAL to how the Money Press cranks out the dough. Since options deal with happenings in the future, ALL options carry an expiration. A date-certain when that option will expire. It’s built right into the price, it’s inescapable, and a major factor in an option’s price. So let’s talk about this reality. Just like most everything else, when you buy in bulk, you get a discount. On the other hand, when you’re desperate for something that’s last minute (like an in-demand concert ticket), you’re going to pay top dollar. Since I dream of ice cream, let’s look at it this way: Consider the ice cream giant Baskin Robbins. How have they managed to stay in business since 1945, and now sell ice cream in over 50 countries? You might think it’s because of their creative flavors and colors… the “31 flavor” concept. Or perhaps, the testing and engineering that’s gone into the magic of each bite/lick, carrying a richness and a certain satisfying finish. Well, that’s only part of the story! In the pic below, you see a 5-gallon tub of Baskin Robbins ice cream. [image] When all’s said and done, these 5-gallon tubs of Baskin Robbins goodness cost $25-$30 bucks each. That’s called ice cream in bulk! However, when customers come in on a hot summer day, they’re eager and willing to pay $3 ($4?) for a single scoop. And each tub contains over 100 scoops! Do the math: 100 scoops X $3 = $300. With a cost of, say, $25. That’s called margin and that’s what keeps you in business! It’s the same thing with option pricing. When you buy option time “in bulk” you pay way less. Here’s what I mean: I just now looked at a $200 stock, and the price quote for a 6-month out option is $15.70. Next, I looked at the price for a 1-week option (for the very same strike price). That price is $3.10. Now, realize a 6-month option has 26 weeks of time (1 year = 52 weeks, ½ year = 26). When you take the weekly quote of $3.10, then multiply it by 26 weeks it comes out to $80.60! $80.60 is the “retail” price if you were to buy 6-months of option time -a week at a time- . . . Insane!! However, by buying in “bulk”, the market’s willing to let you buy a 6-month option for only $15.70. These are real numbers, That’s staggering math!! You can see how this “retail/bulk” concept comes alive in option pricing. What this means is there’s a huge line-your-pockets factor. (collecting $80.60 while spending $15.70 is a rather nice proposition . . . all inside of 6-months!) [image] Now that we’ve talked about bulk pricing vs. “retail” pricing, it’s time to talk about another one of life’s certainties: the time decay of options. Here’s an example of the “time decay curve” for any sort of option contract: [image] Notice how the time decay curve doesn’t happen in a straight line. Instead, time decay is barely noticed at first! But as time goes by, it falls off fast and steep as the option nears expiration. Now let’s bring this full circle. Take a look at the final week of the time decay curve (in the graphic above). It simply drops off a cliff! And because we’re sellers of premiums (cash in our pocket) -week in and week out- we greatly benefit from life’s third great certainty: (after death and taxes) the “time decay of options!” To simplify even more…think back to our Baskin Robbins example. For our protection in the trade, we buy a long put “in bulk” with an expiration date around 2-3 months out. [image] Then…with that protection in place, we then look to sell a weekly put for a premium! (See the graphic below) [image] Best part is, we get to do this week after week after week! Little by little we’re putting this all together. You’re beginning to see more of the mechanics of how the cash gets cranking using the Money Press method. As an added bonus, I recorded a video where you get an “over-the-shoulder” look at me creating a Money Press trade right from my brokerage account. Hopefully it brings it all together for you! [>> Watch Me Place A Real Money Press Trade <<]( Yours for more profits, more often, Preston [Unsubscribe]( Traders Edge Network 8180 South 700 East Suite 210 Sandy, Utah 84070 United States (801) 733-4190