The video starts with Nick and Mikey welcoming viewers and urging them to join the live YouTube chat. They discuss the current state of the market, mentioning that the S&P 500 futures and Bitcoin are down, while tech stocks are experiencing significant movements. They also talk about their own trades and the upcoming earnings cycle.
The main focus of the video is on the ZEBRA, which is a zero extrinsic value back ratio spread that gives you almost 100 deltas of stock exposure. They explain how to set up and manage zebras, including a concept called "ratcheting" which involves securing profits and adjusting the risk of the position to be back at-the-money. They also answer viewer questions, addressing topics like rolling iron condors and profit targets after ratcheting.
One important discussion revolves around the risk involved in different trading strategies. They compare vertical spreads and naked puts or calls, explaining that spreads have a higher chance of realizing risk because you can lose your entire investment close to the stock price, while with naked options you can roll and collect credits for more flexibility. They provide an example to illustrate this point, showing that a spread has a higher chance of realizing its maximum loss compared to a naked put.
The location where risk is realized is also emphasized. They explain that with a spread, the risk profile is shifted closer to the stock a bit compared to being naked. Even if the price moves to a certain level, the spread would realize a loss where the naked option could still be profitable. This is why the team likes to use wider spreads, especially for at-the-money options, to minimize the chance of realizing risk on an ITM move.
They also discuss the CRAB trade which is a calendarized ratio or butterfly spread. This involves using short options and a protective long option that are closer to expiration than a long asset leg. This trade has a dynamic greek exposure. It is considered a faster-moving butterfly trade with higher upside potential than a butterfly where all options are in the same cycle. The trade is also more efficient in terms of decay and implied volatility exposure. However, it requires a higher upfront cost than all legs being in the same cycle.
Tune in for more with a live Q&A session as well!