 Welcome! In this video, I want to talk about how to make money trading options like an insurance company. So what do I mean by that? Well, let's start off by talking about how an insurance company makes money. And in this example, let's just talk about an insurance company that sells auto insurance. So first off, the insurance company, they sell an insurance policy and they collect a premium. They pay an agent commission, they have overhead, they have their staff, their buildings, all their overhead. Their actuaries then calculate pricing models to determine the probability of a claim occurring. So the probability of somebody getting in an accident. And the insurance company keeps the net premium if no accidents occur over the life of that policy. So they must keep enough in reserves to pay for future claims and they want to sell a lot of policies to spread their risk over many insurers. They want to diversify in different areas of the country. You know, so if a natural disaster happens in Florida they don't want to be so concentrated in just that one area so that they get a ton of claims because that could potentially wipe them out. So let's take a look at an example. If an insurance company sells an auto policy and the premiums $1,000. So they got to pay the agent and the overhead and let's just say for example that adds up to $300. So the insurance company keeps $700 if the policy expires with no accidents occurring over the life of that policy, right? So if an insurance company, if they only sell 10 policies, they'll net $7,000. But if they have one claim for $10,000 then they'll end up losing $3,000 on those 10 policies, okay? And so that's why they want to sell a lot of policies. So as I say at the bottom, if they sell a thousand policies and they net $700,000 in premium after expenses but they have 50 claims for $10,000 for each claim that's a total of $500,000 they still make a net of $200,000. And that's how an insurance company makes money. They want to limit the number of claims and they want to sell a lot of policies and diversify over a lot of insurance and a lot of areas of the country to spread that risk out. Well what does that have to do with trading? So at navigation trading a lot of the strategies that we use are option selling strategies, okay? So we sell an option contract and we collect a premium. We collect an option premium. We have to pay our broker commission and there may be other little costs like you've got your computer that you trade off of, you've got different expenses that might come into play. But secondly, the exchanges then calculate option pricing models and the brokers calculate option pricing models to determine the probability of profit or loss over the life of the option contract. Sound familiar? So then we keep the option premium, the net option premium if no accidents occur over the life of our option contract. So between now and the time our option expires which we typically like to trade in that 30 to 60 days to expiration. So if no major market moves or if no accidents occur we keep that premium. So remember but we've got it just like the insurance company we must keep enough in reserves, we must keep enough money in our account to account for future big moves in the market because remember when we're selling options we want the price of that underlying symbol to stay in a specific range and we continue to collect that premium. Where we lose money is if the market makes a huge move if we have an accident and the market moves outside of our range. But just like an insurance company we also want to place a lot of small trades to spread out our risk. So we want to do it at different times so we don't want to put them all our trades on in one day we want to spread those out over time and we want to diversify in different symbols. We want to place trades in stocks in the S&P 500 in the NASDAQ in oil in gold and natural gas and all these different symbols that are uncorrelated to each other. So if there's a huge disaster in natural gas we might still make money in oil in the S&P and in other stocks that we're trading. So we want to keep that diversity within our portfolio. Let's go to the platform and take a look at an example. One of the core trading strategies that we utilize at navigation trading is the iron condor. So we're looking at a sample iron condor trade in SPX and so as you can see we've set our price slices to the breakeven points so as long as price stays within this range which initially we have a 60% probability of that happening between now and expiration. We're going to keep your eyes on the little box down here. We're going to keep that premium that we collected of $850. If there's a huge if there's a disaster so if there's an explosion to the upside or a crash to the downside the max loss that we could occur is $2,150. So selling option premium is very similar to how an insurance company makes money. We want to place a lot of trades over time. We want to be able to manage our risk. We teach different management techniques and adjustment techniques to manage our risk and to manage our profits and over time the probabilities will play out but you've got to keep your trade size small and you've got to keep enough reserves in your account not only to take advantage of future opportunities but to take if a large movement occurs it doesn't wipe out our account value. So I hope this was helpful. If you'd like to learn more about the different strategies that we use to make consistent returns come see us at navigationtrading.com. We've got a ton of free resources including the navigation watch list which is a list of the most profitable symbols to trade for each type of strategy. We've got the volatility indicator which you've seen on my charts. You can download this directly to your Thinkorswim trading platform and we've got a free options course called Trading Options for Income which is a step-by-step guide to get you making consistent trades right away. We look forward to seeing you there.