How I Beat The S&P 500 With Options (12 Wins, 0 Losses)

I just completed the 2nd month of my 60  day options challenge with moomoo, to see if I can beat the S&P 500 using options. And this  time, I won every single trade I made. 12 trades, 12 wins, and I made a grand total of USD 485,  that's 9.7% return on my capital. However, I'm not here to hao lian or anything.  Because the truth is that anyone can also be a good options trader, as long as he  or she is disciplined enough. In this video, I'll show you how I did it, and the rules  that I use to increase my chance of success. But before that, full disclosure. This video  is produced in collaboration with moomoo, as part of an educational options challenge.  But rest assured that all the views here are my own and all the trades that you are about to  see are real, including losses. Options trading is high risk, so please do your own research,  and of course, none of this is financial advice. And if you want to see how much I made in the 1st  month, you can check out my previous video here. And with that being said, let's not  waste any time and let's jump right in. So first up, throughout my entire options  challenge, I only traded credit spread. To put it simply, a credit spread is a strategy where  you first sell an option to collect premium, then buy another option further  out as protection. By doing so, this lets me reduce the capital  that I need to perform the trades. That's because when you sell a normal cash  secured put, the broker would require you to have enough cash to buy 100 shares. So for  example, if you wanted to sell a $680 strike cash secured put on QQQ, you would need  to set aside a whopping $68,000 in cash. Or when you sell a covered call, you  would need to hold 100 shares. On QQQ, that's 69 over thousand dollars worth of stocks.  And sometimes, ain't nobody got money for that. Meanwhile, with a credit spread, all I need to  put up is the distance between my 2 strikes. So for example, if I sell a bull put  spread at the $680 and $685 strikes, that gap is just 5 points, which means I  only need about USD 500 worth of collateral. Now of course, this comes with  higher risk. With cash secured puts, even though the collateral required  is higher, if you ever get assigned, you are essentially buying the stock at  the price that you are comfortable with, which is fine. Same thing with covered call, you  do it because you don't mind selling the stock at the price that you want, so even if the stock  gets called away, you would be fine with that too. On the other hand, with credit spreads,  if the trade goes against you, orh, you would simply just lose money. So, that's the  tradeoff you would have to be comfortable with. Now, the nice thing about a credit spread is  that you can do it either direction. For example, if you think the stock is going up, you can sell  a put spread. Or if you think it's going down, you can sell a call spread. But, how  do you decide which side to take? For that, one of my favourite tools is  moomoo's Trend Projection tool. And I'm not saying that just because they're sponsoring  this video. I'm saying that because I genuinely use it on almost every trade I make,  even the ones outside this challenge. So what this tool does is take moomoo's own  technical analysis, run it through their AI, and match the current chart setup against thousands  of similar setups from the past. From that, it draws a cone of where the price is likely to  go next. And the shading inside that cone tells you a lot. The darker the colour, the more likely  the price would end up going in that direction. Not just that, it also tells me the  odds of the stock rising the next day, plus how far it might move up or  down. And that's incredibly helpful. Because if the tool shows me that there's  a good chance that the stock might go down, I can just sell a call credit spread to stay out  of its way. Likewise, if it shows that the stock is likely to head up instead, I can just flip  it around and sell a put credit spread instead. Now direction is only half of it, the other half  is timing. Because you can't just sell every day and pray pray that everything would work out.  A credit spread works best when there's fear in the market, or basically, when the stock  is more volatile, you would get paid more. Tastytrade actually measured this on SPY.  And they found that, when the fear is high, the difference between the average  realized move and average expected move, aka the seller's edge is worth around  USD 10 a trade. But when it's calm, the edge drops to only about  USD 6, for the exact same risk. So rather than trying to be like  "Mmm.. Premiums", every other day, I wait patiently for the fear to spike, because  that's when the same trade pays me the most. One simple way to check this on moomoo is  to tap on Options, Analysis, then scroll down to Volatility Analysis. And right now,  you can see the IV Percentile is sitting at 91%. That means the current volatility is higher  than it's been on about 91% of the days in the past year. As a rule, anything above 70%  might be a good time to sell. So at 91%, options are about as expensive as they get, and  this is exactly the kind of setup I'm waiting for. Besides that, another tool I often  use is moomoo AI. For example, if I'm not sure which is the  better side to take right now, I could just ask moomoo like "Should I do a put  or call credit spread right now? I have a 7 DTE". And right off the bat, it told me, "A call credit  spread aligns better with the current technical setup and high IV environment", and then it  breaks down exactly why. In this scenario, I agreed with its thesis, so I placed that  exact trade, and sure enough, it became my biggest winner of the whole round. Here's another  example. I asked moomoo AI for its insights, and it gave me information on a bear call  spread. And same story, that one paid off too. Here's a pro tip, if you switch it over  to expert mode, you can even ask the AI to use the live options data and the unusual  options activity, and chart it all out for you. A few minutes later, it came back with a  whole report. It told me to take the put side, then showed me why. You get a chart of the IV  skew laid out for you, unusual options trades, the technical signals, and even a section  on why not to do a call spread instead. However with that being said, before you go and  YOLO your entire account based on AI response, do note that this AI is not a crystal ball.  Even if it shares a strategy with you, that doesn't mean it would always be right.  So just treat it as a second opinion, and you still have to make your  own judgement. Because after all, if the trade ends up losing, it's you who'll  be losing money and cry, and not the AI. Next, once you have decided on the direction,  the next step is to choose the days to expiry, or DTE. Typically, the best DTE to go for is  45 days out. Tastytrade ran a study on SPY, and found that if you go anything lesser than 45  days, the market would tend to move more than the options said it would. What this means is that,  if you go with short DTEs, you would be taking a lot more risk than the premium is actually  paying you for. But at 45 days or more, the market tends to move less than the options said it  would, and this would give you this slight edge. However, since this options challenge is  just 30 days, I didn't have the luxury of time. Because of that, I decided  to just go with 7 to 14 DTE instead. And sure enough, it almost cost me a few  times. Take my 693/698 put spread for example. After I opened the trade, the  stock fell all the way down to 702.81, ending up less than 1% away from my strike,  before it turned back around. Heng ah. Then there was my 738/743 call  spread, where I needed QQQ to stay under 738. Instead the stock rallied  very close towards it before backing off. Now, I was lucky enough that the stock backed  off, but if I were to run these short dated trades long enough, this will eventually come  to bite me. That's why it's always better to go with longer DTEs as it will give you the one  thing most traders don't have, and that is time. Ok, once you have decided on your days to expiry,  the next step is to pick your strikes. Picking the right strikes is important because it gives  you extra protection when things go wrong. For example, when I'm selling a put credit spread, I usually want my short strike sitting just  below a strong support level. That way, if the stock ever drops, there's a  good chance it holds above that level. So during the options challenge, when I  was trying to sell a put credit spread, I noticed that there was a strong support at $700, because previously the stock kept  bouncing off there. Because of that, I decided to place my short strike just below  it and went with the 693/698. And sure enough, even though the stock later fell all the way from  $730 down toward my strike, it never breached the strike, because $700 level held and the buyers  stepped right back in to push the price back up. On the flip side, when I'm selling a call  credit spread, I would be looking for a strong resistance instead. In this case, I saw  a resistance sitting around $730. So I decided to go with the 739/749 call spread. And when  the stock tried to rally back in early July, it couldn't break past $730. And  the trade ended up in a profit. Now, if you're a noob at spotting  support and resistance like me, you can check out moomoo's Market Position  Overview tool. Every bar that you see here is a price where people actually bought  in. So the green bars are everyone who's currently in the green, and the red bars are  everyone who's currently underwater. Then what moomoo does is take all those bars and  mark out the support and resistance for you. Next, once you have decided your strikes, before  you even place the trade, moomoo's P/L Analysis panel would give you a quick run down of the  trade. For example, the max profit of this trade, in order to breakeven, the stock needs to stay  above $669, your max loss, and this trade has an 88% probability of profit. Then if you are ok with  this, you can just proceed with placing the trade. Last but not least, once you have entered a trade, it's also just as important  to decide how you exit it. Tastytrade backtested different exit strategies, and found that if you hold your options to  expiration, your win rate would be around 85%, and your annualised return on capital would  be 20%. However, if you close the trade at 50% profit, both your win rate and your return on  capital would go up to 93% and 34% respectively. The reason this happens is because  when you close your trade at 50%, you lock in the win before the market even gets  a chance to swing back and turn it into a loser. Not only that, the sooner you get your capital  back, the sooner you can recycle that capital back into your next trade, instead of it sitting  there trying to squeeze out the last few dollars. So throughout the challenge, I stuck to that rule  and kept taking profit around the 50% mark. And if you can follow this one exact rule, taking your  profit and walking away instead of getting greedy, you'll already be keeping more of  your gains than most traders ever do. And if you don't want to sit there staring at  the market waiting for your profit target to hit, you can just use a limit if touched order  instead. You set the trigger price that you want, and the moment the option touches that price,  moomoo would send out your order at the price that you preset. So you can go and do your own  thing, and let the order do the watching for you. However, with that being said, there's one  exception where I didn't close the trade early, and it's when I'm almost certain that the  trade is going to expire worthless. So instead of buying it back, I would just let  it run and keep almost the whole premium. Take my 750/755 call spread for example. With  just 2 days left to expiry, the stock would have had to rally more than 3% just to reach my  short strike, and I was almost certain that would not happen. So I let it run, closed it for  almost nothing, and kept 96% of the premium. Here's another example. With 6 days left to  go, the stock would have had to fall almost 5% to even touch my strike. So I let this  one ride too and kept 83% of the profit. Now to be clear, this doesn't always work  out. Because even when a trade looks certain to expire worthless, a surprise event or  Donald Trump could come out of no where and be like "SURPRISE", and all of a  sudden you could end up losing money all over again. So while this strategy has  worked here, it won't hold every single time. In short, you don't need any special talent  to do well in trading options. Instead, what you need is the discipline  to stick to your own rules. Get that part right, and the tools will  do most of the heavy lifting for you. moomoo's tools gave me the direction,  roughly where to place my strikes, and told me when volatility was high enough  to be worth selling. And the 50% exit rule isn't even mine, it's straight  from tastytrade's own backtest. So how did the full 60 days  go? Across both months, I made a grand total of USD 667 on my USD  5,000, which works out to 13.3%. In contrast, over the exact same period,  the S&P 500 only returned 0.7%. So does that mean buy and  hold is dead? Of course not, my average win here is only USD 32,  while my average loss is USD 109. What this means is that I need to be right  about 4 times out of 5 just to break even. So a couple of bad trades can easily undo a good  month. That's exactly why I run both. Buy and hold keeps compounding in the background, while  options pay me a bit of income along the way. Now if you want to try out options yourself,  moomoo's got a few perks that can help you get started. If you're new to options  on moomoo and sign up through my link, you'll get zero commission on options  for your first 6 months, plus a SGD 10 trading cash coupon after making your first  option trade to cut your costs even further. And on top of that, you'll also get up to  SGD 1,200 worth of sign up rewards. And if you use my code KELVIN88, you'll get  an extra SGD 100 worth of NVDA shares. Plus, you'll also get a free copy of their  Options Playbook after completing your trading task to help you pick your  first strategy. For more details, do check out the link in the description below. Anyway, that's all for this video.  Hope you found it useful. Like, share, and subscribe as I'll be  posting new videos every week.