Felix Frey Says This Is How The Top 1% Trade Options

This special presentation from Felix Frey is from Benzinga's first-ever virtual Benzinga Options Boot Camp on Saturday, April 18. Check back with Benzinga for more coverage of this all-day event with options trading experts who are giving traders of all experience levels real, dependable strategies for hitting the ground running or expanding an existing portfolio. 

Felix Frey, the founder of OptionsGeek, told the Benzinga Options Boot Camp on Saturday about what he sees as being the major flaw in options education, and detailed how large money traders use derivatives to minimize risk and maximize reward. 

'One Of The Most Well-Kept Secrets Of Wall Street' 

Institutions and big money traders use options selectively, depending on the fundamental, technical and quantitative picture of a particular asset, Frey said.

“Once they decide that their trade is an options idea, they must choose the option they want to buy. That’s where they head to the options chain and make sense of what they see. Choosing the right option is one of the most well-kept secrets of Wall Street. Most people don’t even know that there is a process to it.”

Large traders only invest in options when they have an advantage, typically in the form of asymmetric payouts in which reward is uncapped and risk is limited, he said. 

These same traders derive a target price — an educated guess to where the stock will be at some point in the future — and then look to buy options between the stock and their target stock price, Frey said. 

Two considerations are made during the picking of a strike price, he said: 

• Option value at current stock price.
• Future option value at the target strike.

“The minimum price is found by comparing what the option is worth today and what it will be worth at a minimum in the future, or the target stock price that helps them determine the risk to reward in the trade.” 

Once risk-reward can be gauged, the odds of success are shifted in the individual trader's favor, Frey said. 

“Focus on today’s options price and your target stock price, which determines the future options price, and then evaluate whether or not that payout is worth the risk,” he said. “Get that right and the Greeks don’t matter.”

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