 Good evening, everyone. Welcome to the webinar. My name is Hari Swaminathan. Today, we're going to talk about the proprietary options systems. We can see the title slide here. All of these systems gives options traders an edge on every trade. It's very important that we have an edge on every trade. There's a very big, very important reason for that. And so the systems that we're going to talk about today is something that will give you an edge. No system can be 100% perfect. However, we're talking about methods. How do you approach certain trades, certain strategies, especially with options? As we know, in the options market, we are dealing with a market maker. So this is very different from the stock market. We'll cover that. And this is the reason that we need an edge. Whenever you place trades, you want to make sure that you have some kind of an edge in the trade. If you just place a trade arbitrarily, it doesn't matter if it's a calendar or an iron condor or a debit spread or a credit spread. If you simply place a trade and then don't think about how you can get an edge from that trade, most likely or at least statistically over 10 trades, you'll find yourself losing more times than winning. So that's what we're going to talk about. This edge is very important and how do we get this edge? Alright, so let's get right into it. My name is Harish Swaminathan. I'm the founder of optiontiger.com. I've been an options trader for about 8-9 years now and I have a bachelor's degree in engineering from India and I have an MBA from Columbia Business School in New York. I mentioned I have about 8-9 years of options trading experience and anybody that has gone through options will find the first couple of years fairly challenging, fairly frustrating and it was no different with me. Many things I've learned by making mistakes. Many things I've learned by trying to really get deep into the market structure itself which reveals a lot of things about options and so a lot of this it's all coming from personal experience and when you say personal experience, when you learn by mistakes, it goes without saying that you learn by losing money and so you know that's very critical to not lose too much money when you're learning, when you're in the learning curve and unfortunately we are going to lose money in the beginning but the trick is to keep those losses as low as possible because you want to learn the game and options trading is a game. It is a game of skill it is a game of skill that is no different from chess. It is a game of skill much higher level of skill is required than poker. Poker is also a game of skill however it has an element of chance to it also whereas the options are entirely a game of skill so it is no different from chess so we'll get into some of this also. So let's get started and in general let's talk about the options market. Now many of you may have quite a bit of experience in the options market and so some of the stuff you may already be aware of maybe you have not realized a couple of things even if you're experienced traders and if you're a beginner or fairly new to options trading then this is very important information for you. You know when you look at the options market there is one very significant difference between the options market and the stock market. In the stock market most of the time 90%, 95% of the time you're dealing in a peer-to-peer network so meaning you have stock trading platforms whether it's E-Trade or Charles Schwab or whoever it might be if you put in a buy order the broker tries to match your buy order with the sell order from another customer another trader so it's a peer-to-peer system whereas in the options market that is not the case in the options market we always deal with the market maker so every one of our trades is not against another trader it is against a market maker so this makes the options market no different from a casino. So when we walk into a casino we play against the house. There are very few games where you play against each other I think poker may be one of them but most of the games in a casino like blackjack or roulette or perhaps or whatever it might be most games are designed where you play against the casino. So the casino is legally allowed to have an edge and you know that's not some earth shattering news we know that we know that the casino operators have an edge because if they don't have an edge why would they be in that business why would they spend so much money creating this fantasy land and having all these entertainment options and all of that if they have an edge so the fact is they have an edge and it's no different with the market maker the market maker is a market maker in the options market for a reason and that reason is obviously because the regulators have allowed them to have some kind of an edge obviously the edge has to be within reason otherwise the regulators won't allow it and the same goes for a casino as well however they are allowed to have an edge and in the options market the market makers have two ways of having that edge one is we know very clearly they set bid ask prices so whenever we make a trade we will face slippage on the bid ask spread. The second way they have an edge is they have considerable flexibility in setting option prices you know the way they calculate volatility the way they set option prices they have considerable flexibility and then obviously the market will have a supply demand dynamic and then it will go from there however they do have considerable flexibility in setting option prices. By these two methods the market makers have a statistical edge in the long run so in the long run we are talking hundreds thousands tens of thousands of trades the market makers are there they are there every day and they have deep pockets so even if they have bad days you know they can come back and make that up no different from a casino when we go to a casino we can have a great day sometimes yeah I mean you know you might win a lot of money however what you really have to look at is the long run statistical edge and that unfortunately is on the other side whether we are talking about casino operators or the options market market makers the statistical edge is on the other side and that's why whenever we take trades we think we are making good trades and so by definition that means that the market maker is taking a crappy trade so but they still take crappy trades all day and they still win you can know if you if anybody is following all these big wall street banks and trading companies trading profits are just skyrocketing for all of these companies and so you know they all have proprietary trading desks which then creates markets for all of these products all of these stocks and trading has become a very profitable venture for all of these companies so net net bottom line is we traders face a problem of consistency and if you've traded options for any length of time you know that this is true when we say consistency meaning we can have two great trades three great trades a day four great trades or you know over a period of a week we'll have five or six or seven great trades but one trade will come and it'll hit you and when it hits you you realize that you give up a lot of the profit if not all of the profit that you made on the previous trades and that's the problem there's a couple of reasons for this and all of this is coming from my personal experience my personal studying of what is happening in the options market what are the mistakes we make and believe me we make a lot of mistakes we take off trades at the wrong time we adjust at the wrong time or we make the wrong kind of adjustment then we have transaction costs that work against us so there's a lot of things that are going against us traders when we enter the markets and all of this over the long run over a period of a few months or a year or two it creates a problem of consistency and consistency fishing also you know today we try some trades tomorrow we try different adjustments so we have what I call in constantly in a fishing mode and so all of this actually works in the favor of the market maker the market makers are never fishing they know exactly they don't even think they are pretty much acting like robots when an order comes in because you know they look at the Greeks they look at their risk numbers and they only go with that so you know they are actually acting pretty robotically and that's really the way to win in the markets we traders need to act just like the market maker you know so we have a method you follow a method and that is what will put the edge on our side they say in a casino the casino has maybe a 52-48 edge maybe 53-47 in the options market if you look at all of these factors I think although it's not some scientific study but I think the options market have the market makers have a much larger edge than even the casino operators now the only difference is we know how well the casinos do because their assets is very visible to us and in the case of market makers we really can't see how much money they are making but they aren't making money all of these like I said these wall street companies are all every quarter they are producing 100 million 200 million 300 million more than that in trading profits I'm only talking about proprietary trading so there's a lot of money they are making which we can't see it's behind a firewall we cannot see it but they are making a lot of money so bottom line we traders need to find a way to be consistent with our trades and so the only way we can put consistency on our side is we have to have an edge on our trades and that's what the max systems are all about