Cash Secured Puts | Technically Speaking: Trading the Trend

[Music] [Music] welcome to trading the trend weeks to months my name is james boydu uh it's great to have you here we actually have dan dom sandeep germa robert v j annette box trader and many others welcome to you good morning good afternoon wherever you are my name is james boyd alongside with me my good friend mike fairborne but just real quick uh as we get started i want to give us a quick reminder a couple disclosures and i'll actually explain what our agenda item is here today the content is intended for educational informational purposes only not investment advice recommendation of any security strategy or account type options not suitable for investors especially risk inherited trading options and also remember when we talk about spreads and other multi-leg options strategies can entail entail substantial transaction costs you should review that and also when we talk about demonstrating the functionality of the platform we will use actual symbols td ameritrade does not determine suitability of any security or strategy for individual traders that is up to the investor also futures and futures options trading involves substantial risk not suitable for all investors also understand that also as we talk about options remember if we do and we will show some examples here today remember that uh when we talk about options we want to know how those options move in terms of their prices or premiums we actually will talk about the option greeks here today now first thing we're actually going to take a look at here today number one is we will take a look at quick look at the market but i actually kind of want to talk about the market uh and then really kind of talk about the vix and today we will show an example of a hedge on both of the accounts one position in each account second we're going to talk about management of positions so if you said what was the thesis of today we're going to talk about management okay we're going to talk about the timing of income type of option trades and maybe also consider maybe protection as we talk about that for you stock investors out there as well we will also kind of fast fire in a couple stocks that are owned in the payment account and talk about stop management as well and then what we're going to do is we're going to talk about some new examples so if you are expecting to come to a class and only see one or two stocks times that by 10. okay i think that people can absorb a lot more information than that and so we're going to look at a number of examples new examples and then also past examples so let's go ahead and buckle up and uh let's kind of take a look at some uh just real quick on the market front so just super quick spx we got a daily chart here the candlestick chart looks a little different because it's called hakken ashi and what it really kind of does is it smooths out the price action and what you'll kind of notice is ever since the s p was able to get above kind of that march 15 high area and the moving average got back above the 10 two days later on the 18th it crossed over on the moving average we've kind of seen that there's just been a number of up days in a row and when we actually look at price action it's kind of just more consolidating at this area now what's it what is interesting is when you go back and look at the high and you go back and look at where we are here we're not really that far off an all-time high despite it all so that's kind of pretty amazing now the dow i won't talk about because it looks completely identical but what i will kind of just quickly show is if you look at let's say the nasdaq that one on a percentage basis has not gone up maybe as much okay i'm talking about using fibs off the bottom it's close but it has percentage-wise off the bottom gone up 10 plus percent here in about the last two weeks and this really kind of teaches the importance of being consistent okay you know the war is not one in a typically a day it's kind of just being consistent you're going to see the last 10 days it was really a bullish stampede on price action again the price action kind of sitting right at these really old highs about right there with the upside resistance which is a major one at about 15 000 5 5 2. now the one chart i want to really bring up is the vix okay we said this is probably the chart of the week if we're kind of talking about something that maybe investors are watching we know that the vix when the vix goes down okay stocks tend to go up think of a teeter-totter one side goes down the other side goes up and a lot of investors kind of watching to see if maybe we start to get a divergence here now we've been seeing the macd rotate back up and can anyone re tell me just real quick what tends to happen when volatility rises what tends to happen for portfolio performance when volatility rises yes i want you to admit it think back to prior times when the volatility went up here and previously what tends to happen now if if you could kind of see that volatility was low and starting to go up what have you learned from the past to actually try to change for the future and a lot of times you know my mom said to me one time james you can't bring your crappy self into your bright brand new future you've got to be good today and my mama was so right and a lot of times investors they have historical experience but they don't improve so when they actually see kind of that condition again they just repeat what they did before and i don't know if that drives you crazy but it drives me crazy that if you see things again you're thinking okay how am i going to try to make that condition better that if that volatility were to build how have my skills improved and we're going to talk about that here today now just real quick uh so when i talk about the bits one thing we actually will bring up is a hedge using the s p okay now what i want to kind of do is i want to kind of talk about some management okay this is agenda item number two and i want to kind of go into something we actually talked about just the other day and i want to kind of start off with stocks and many investors as we know they kind of have stocks or etfs we're going to start with stocks and we're going to maybe bridge our discussion where we actually kind of maybe introduce maybe options okay maybe like a cover call or something like that so i want to kind of take a look at the margin account and we're going to look at stocks so first thing i want to look at this portfolio and i want you to give me feedback on have these been maybe some areas that have shown relative strength because if someone watched me and actually said what is this really the portfolio it's more of a passive portfolio where it's trying to invest in relative strength so now cf that is in basic materials has that been a pretty strong area of basic materials and cf is in the fertilizer space has that been a pretty strong area and if i show you what that chart looks like if we actually pull that up and say let me see what the chart looks like has that been a trend for weeks to months on end now here's the deal it's not that investors know about it it's what have they done about it so that that's that's the difference there that's kind of where the you got tires and there's rubber that hits the road right seeing it knowing about it that's different did the investor actually invest in that's different okay now they can't invest in everything but you're saying you're asking yourself what areas of relative strength have you looked at and how has the investor try to take advantage of those trends so our example here we actually take a look at actually cf it's long shares of stock and then what you know you're going to notice here is it's a long put position now what do we actually call that when the investor actually has shares and stock with a protective put what do we call that now i also want your eyes to pay attention to this column right there and the reason why i'm bringing this up is we we mentioned on tuesday and if you don't watch the class on tuesday using options as a stock investor we talked about what those numbers mean what does the number four mean number four means the price is above both moving averages and the stock is hitting an area of resistance the purpose of seeing resistance is not to say i feel so stinking smart to say it's our resistance but is what would a bullish investor potentially consider at resistance so sometimes when stocks go to resistance they might break through just look at costco look at utilities right so sometimes when these stocks are up near resistance some investors might say hey james i might kind of do something like a cover call or something now this position right here this is a protective put and what happens to the value of the put if the stock goes up well the stock was at 70 it's at 105. okay so some investors like that game but what was kind of the bad part about this trade if you want to call it that is the put was purchased for four dollars and 60 cents and now what you're going to see is the value of that put is 27 cents now an investor might look at this and say well you know if you knew if someone was good at technical analysis they wouldn't have bought that put i don't think like that at all some investors think of this long put as really what's called the cost of doing business okay so if you owned a business and you you had a building and you actually bought protection on the building and the building did not burn down for that month but you paid the premium to protect the building okay that's why they call it the cost of doing business you're just trying to protect the underlying asset the stock or the building right now if the investor said okay if they knew the future which they don't they could have been up about 35 39 but this position is actually up 31.05 that's the net stock gain option loss they're up about 3100 and the stock if they would have known that they didn't need the put could have been up 3 500.

so if you take a look at this they're up 88 percent of the maximum gain now i want you to notice this when you look at this column here implied volatility and by the way you can add those columns by simply clicking on custom columns this is actually a stock that also has pretty high implied volatility now i'm asked quite a bit which options would you consider maybe selling options on well number one is we might look at resistance which is what the trend column is but the investor might say geez maybe the investor might consider selling options if the implied volatility is high okay now is 60 a pretty high implied volatility well we know it's not low right now i don't really get hung up on where is it in the low to iv i don't look at the iv statistic i kind of look at more of the number and 60s in the upper end okay now if you take a look at this if we go to i'm going to go the trade let's go to the chart and let's kind of put this on a regular and we're going to kind of change this so that long that long put the chances of that actually being worth something is extremely low okay so the people one account is just gonna leave this long put because there's only another 27 cents that the investor could really lose or 27 dollars not really going to do anything but what might the investor do if they're up near an area of resistance with an implied volatility of 60 percent let's put our thinking cap on here okay you got a stock that's in an upward trend the implied volatility is 60 and you actually see it's up near an area of resistance what would you consider okay well investors might say james is it possible that the investor might go to the trade tab and say look can i actually maybe sell a call now if they looked at cf and they went to the may expiration and we'll kind of limit the number of strikes and if they kind of chose something that still has some potential upside okay let's say they said james i want to sell the 115 call now why am i bringing up cover calls here well when the volatility is low volatility is dropped and the volatility when i say this when the vix drops when the vix drops and kind of maybe starts to diverge and starts to go up this is where investors say stocks might kind of start to go more range bound and maybe start to pull back so this is when investors start to probably introduce some cover call strategies potentially to their stock portfolio now if the investor said james i want to go to may expiration and i still want to have some upside on the stock stocks at 105 the strikes at 115. there's still 10 more dollars to the upside and that's not all there's about five dollars of premium there when i say five dollars i ain't talking about five dollars i'm talking about 500 for the next 50 days so the one thing that actually is going to be done in this paper money account is it's going to sell the call and try to actually say look there's 10 more dollars of upside on the stock but add five more dollars on top of that so it's like there's another 15 to the upside what's so interesting about covered calls is how many times as ambassadors we just miss the opportunities okay we just miss it now the purpose of actually seeing this trend column is and by the way you could actually pull this actually up on the monitor tab you could pull it up on a market watch list you could actually pull it up on the charts all the above is kind of helping us time or consider where that stock is in relationship to the moving averages but you still want to put your eyes on it and verify isn't that an area of resistance so trade number one here it's going to actually leave the protected foot on there's not much to really do there can only lose 27 more dollars and it's going to sell that call and it's going to turn the stock position into a covered call okay now the comment actually came from ram how about rolling the put up for better insurance how about this comment if the implied volatility was 60. do you think those puts are going to be cheaper or more expensive so the thing is if you buy those puts you're buying puts that are very expensive what does that mean that means that the the average cost of the stock theoretically would go up and you know that's that's not where we're really going to take this position someone else might consider it but those puts are not inexpensive okay they could still buy them but what they might run into is high time decay and the stock has to go up a lot to offset that okay and i'll bring out another example in just a moment so trade number one here was on cf was just kind of looking for a cover call opportunity i'll point your eyes out to other examples that kind of popped up here today john deere went number four today which means the stock is about both moving averages but nearing area resistance we'll talk about that in just a moment fcx went to that as well has almost a 50 implied volatility when we actually look at pgr went to a number four condition price above both moving averages stock up near area resistance but notice that that does not have as high as volatility as the other ones do so if we said is there a stock in this list where the investor might consider maybe a protective put over maybe selling the caller etc yeah pgr lower implied volatility now let's bring this up as a stock investor we talked about john deere okay and we actually talked about that and we said hey maybe this stock is starting to break out to the upside we talked about this maybe from about when was this entered this was entered on 314 entered on 317 so we're talking the last two weeks let's go to the chart let's take a look at what we see see if it's still in the trend and let's evaluate kind of that stop management okay now if we actually look at this the paper account let's kind of delete any of these lines and we're just going to kind of strip out kind of anything so there it is so the stock really broke resistance okay and it was on 314 was the first entry right there and i think it was on 318 that was where it added to the position okay and by the way some investors bought that into the dip into the moving average so now the stock ran to the upside went to a brand new high and now that stock is now starting to fall down below its moving average now wait stop right here okay so first off if someone was a short-term type of trader and they saw that price getting down below that 10-period moving average what might that investor do if they're seeing that the moving average which might act like a support it's not holding the stock anymore by staying above well a short-term investor might say hey could that be an opportunity to get out they're just saying that momentum has declined and a shorter term investor might say i'm going to exit and see if the price can decline maybe down to this area and try to bounce off that level that's what a short-term investor might consider but this class is not about short-term investing this classes are really about trading the trend weeks to months so what that really means is the investor got in here it rallied to the upside and in the shorter term the investor is giving some of the unrealized profit back now what you're going to notice is this stop of the support if you look at this 399 we want to kind of evaluate can that stop be moved up if we said 399 less 3 percent that's going to really get us to a stop of 387 for all so for just kind of adjustment sake okay this stop is probably way too low we're going to go back in and kind of move up the stop the old resistance new potential support about 399. if the investor sets a stop less three percent what that's going to do we're going to right click on that line create a closing order we're just going to say with stop so we're just adjusting the stop and this is what long-term investors do they try to move up the stops over time to try to lock in potential profit now notice this only has 20 shares so if we actually take a look at this position 387.00 the stop

dated gtc all it's doing is just adjusting the stop up remember how the stop works though it's saying if the stock goes to that price or less or less sell the stock it doesn't guarantee it's going to sell 38703 that's the trigger to sell at the market price okay now if the investor says send the order now we actually go back let's visually look at it ah now it's below that old area of resistance okay now notice there was a dividend here a dollar if you had 20 shares it was 20 worth of dividends that actually is not included in that unrealized gain on the stock okay not yet now let's kind of talk about uh another example here so we talked about two management examples now you got to remember investing is not just putting on positions it's not it's managing positions too and sometimes the investor says look i own the stock position and i might kind of take the stock position to a covered call i might take let's say the stock position and maybe just adjust the stop like we just did that's a part of the routine now if we actually go to example i want to bring up there's a stock called royal caribbean and i don't know if you actually saw here today but the last couple days some of these cruise line stocks rcl ccl nclh they've actually had quite a big move now if you actually take a look at this stock what you're going to notice is it's kind of it went down quite a bit and in the last two weeks or so it's really shot up quite a bit now we know we're going into the summer time people like to take what europeans call holiday okay which i always kind of think is funny when they say holiday i'm like it's a vacation okay but we know that there's some pretty big discounts out there especially when you talk about the russian ukraine war i live in salt lake and if i actually wanted to let's say fly to europe or something like that it would take 45 000 miles if i want to fly somewhere like book a ticket now in september october to fly over to europe and take 45 000 points okay if i want to fly to arizona from salt lake to phoenix it would take like 30 35 000 points my point in actually saying this is when you look at let's say airbnbs marriott hilton royal caribbean because of what i think is happening to russian ukraine there's that you're kind of seeing some really incredible low deals right now okay and that might cause some consumers to make a decision to say they might want to go on vacation now i'm going to choose this one first and so let's see the investor said james i don't mind to buy the shares of stock but i want to kind of buy the shares of stock at a set price so what i'm getting to right now is let's say the investment says look this stock looks a little rich it's raining up quite a bit and maybe the investor says look i think maybe that support area is kind of maybe in that ballpark of maybe about here okay 77 maybe it's kind of right around the 80 threshold or so so the investor's kind of evaluating where the support levels are on the stock that's going to help kind of make the decision or the consideration what strike to sell now if the investors sold the 80 let's kind of look at the 80 or that 77 and a half if the investor said i want to sell the pets on that if we kind of chose something 20 to 50 days to expiration with a delta of 30 to 40 the one that's in that strike or that that that air the delta 30 40 that strike price is 80. now what you're gonna notice is those premiums are 390 or four dollars or 400 bucks and that implied volatility is not low now let's kind of let's kind of draw this up just real quick okay so we got a current stock price it right about 80 so let's kind of write this out 84.68 this is the stock price we're talking about the strike price we're talking about the 80 strike if we're talking about the option premium okay that option premium is about four dollars there okay now again i'm a big fan as far as writing it down big fan if i had i could write this on a sheet of paper but i'm going to use excel here in this case so now what we're going to notice is what is the break even now when we say break even we mean break even at expiration okay and any spelling forgive me so when we're talking about the breakeven expiration you tell me what the break even is tell me what the break even is so as i'm getting that answer i'm going to kind of label this up i'm gonna then label if it goes sideways i'm gonna then label it if down okay so tell me what the break even expiration is well that break even expiration would just be the strike okay less the premium so that break even expiration would be 76 that's just the strike price minus the premium now what some investors also like to look at is they like to kind of say well how much when they look at the option premium i'm going to call it an option yield okay and i'll write this so we can actually follow along option yield what that really is is they're saying hey a four dollar premium relative to the stock price and what you're now going to notice is that is 4.2 4.72 percent there it is we'll say 4.7

and that option yield if you said how did we get that let me just kind of write this down so we can follow along i don't want that i want to do a quick note some of you are actually wondering how we got that so let me just kind of write that all that is is the option premium okay divided by the stock price current stock price when i say current stock price i am talking about the current stock price right now okay so i just want to write that down so if you said i'm not i don't know where you got that just taking the option premium divided by the current stock price now what you're going to notice is that is pretty dead gum high 4.17 now if the stock went up okay stock goes up what does the investor really get it's the four dollar it's the four dollars and if we said well how much is that well that's 4.7 percent okay now if the stock actually just goes sideways okay just go sideways the investor just grabs let's say four dollars which again is really 4.7 so in really those two scenarios if the stock goes up there's a cap the premium okay but it's still four hundred dollars four point seven percent stock goes sideways it doesn't go anywhere it's still four hundred dollars but if that stock went down that 76 dollars that's the break even now how many of you would say that you don't like to spend money okay now there's a little thing that i was taught when you grow up is how do you get a wad you become a tight walker okay so if someone goes out my family and spends money and they say i got a good deal well that says they spent money i want to know what was the deal so when you actually talk about doing a cash secure put and you sell something i really want to know how much of a discount from when you got into where the where did you actually net buy the stock so if that stock is at eight 84 68 and that break even is 76 i want to know what that dollar discount is well that dollar discount if we kind of said how much is it it's about 8.68 okay so that's almost 10 of the stock value so if we said what's the percent discount which is a lot better because well that way you can actually kind of get a sense of really i'm looking at different prices if you actually said how much of a discount is it it's about eight dollars and 68 cents and that percent discount is 10 wow now i'm going to kind of show you some of these numbers that kind of bounce around in my head first off when you look at option yield we kind of like to think about in terms of three levels one and a half two and a half three and a half so when we ran these numbers we said dadgum that option yield which if you said what is that again just read it there it is and when you actually go back and say dad gum that's 4.7 this is what we would call like lower medium higher okay higher doesn't mean better it just means the daggum stock is more volatile but also what might be factored into a higher option yield is there might be more time here that's impacting what that percentage is fair and so that's one so here when we're kind of looking at this it's it's a little higher and we we saw the option that that implied volatility was higher and there is a little bit more time so that's impacting it but it's still interesting the second part of this is that percent discount so when you actually kind of say the percent discount if we kind of said low word discount i'm going to be thinking about three to five percent would be like a lower discount if you actually said let's say five to eight percent i'd be thinking that's like a medium discount if you actually said james it's eight to ten percent that's where the investor will probably say it's probably on the higher end a discount now if you found like an example where the the percent discount was 20 do not take that as that is better that's actually saying something is implied in the option movement that that should be maybe more due diligence if you start seeing astronomical numbers something might be going on with that company that you might not know yet when you run this over and over and over again you're going to see how you kind of fall into these numbers a lot of the time so let's say the investor actually decided by the way is that helpful to kind of walk through those numbers and this is actually something i just really thought about a lot this week a lot of investors sometimes struggle with confidence i believe if they actually saw a routine and they could run through the numbers they could actually try to make a decision that could help them build their confidence to see that it's not just random that there's a procedure that they could evaluate and consider okay and this is that same procedure that they can do over and over and over again and actually kind of run through the numbers and when an investor is making an investment decision there tends to be a routine of what is the investment okay now if the investor sold the put only okay and let's say they just sold one there have an obligation to sell the shares 80 and if the investors say hey james is not four dollars anymore it's only 395 at the mid remember when they sell that put it's the obligation to buy the stock at the strike price now when we look at the numbers our numbers will be about a nickel off just because the premium now is not four dollars okay 3.95

max loss is saying if the stock goes to zero there's the break even and what you're going to notice is the buying power is the capital that's set aside for the potential obligation from now until expiration if the investor is okay with that they could actually say i'm going to send that order but be mindful on one contract okay it's 65 cents now i want you to kind of go back so if we were to kind of go back and look at this trade and say hey james when the investor did this trade it had an option yield a 4.7 percent when the investor actually did this it was eight to ten percent it has a higher probability of being right but that doesn't mean it's guaranteed to work but those odds are on the investor's side you'll have to see over time what happens okay now so here's the here's the thing alan says i'd struggle with my emotions anyone that says that to me here's what my comment would be i would actually place a very friendly wager that you don't run the numbers and that you don't run the numbers which is a part of a routine to help make in a potential investing decision and so in other words by not running numbers you stoke that emotion because you don't know what the routine is and since you don't know what the routine is you don't know what the math is and when you don't have those two things you fall into the own trap that's why the investor does the due diligence now hey james can we actually look at one more maybe so let's see the investor pulls it up and says i want to see this one time now yesterday we actually talked about a stock called bolero and we said you know this is kind of interesting because we got president biden talking about uh maybe doing a strategic oil release of maybe millions of barrels uh over time maybe a million or two a day i don't know he's talking about maybe trying to reduce that inflationary pressure right and we said that some of these companies that maybe are more in the refining space they tend to do better if oil prices decline okay now when they announced that i think it was late last night early this morning you saw these refiners and i'll mention kind of two of them it was valero if we go to analyze and what you're going to see is it actually will even say in their uh refining the refining segment so they have a refining segment petroleum refineries etc the other one that we actually noticed actually kind of had a little pop on that news that's in the energy space which has been an area that's been also quite strong if we actually look at a stock let's say apache i don't see actually that that says refining okay but that's what that chart looks like there that hit a brand new high but the other one we actually might say is what about a stock like psx okay philip 66 which actually did get above a little area of resistance and if you go back to analyze uh that actually does actually do refining right there okay we're going to look at the example of valero but what i'm going to kind of do is i'm going to use valero as our second example of maybe where the investment says look we see the stock in an upward trend on a daily chart we pull up that three year weekly and say okay here's what we got there's the trend and if you look at this on a longer term basis this is kind of like your classic okay kind of cop and it doesn't really have a perfect bottom it kind of really went down okay so let me kind of just do this i'm going to draw this it kind of went down and it kind of double bottomed there and then it kind of went up and it made a higher base of support okay but if you look at that irregardless what you're now kind of seeing is it's kind of coming back up to that prior high which some might really kind of call like a rim of a cup here okay so the first thing i want you to kind of notice is might this be a stock that might try to do a continuation pattern now we ain't talking about being a little day trader we ain't talking about getting in getting out tomorrow okay we're talking about trying to ride that trend for weeks to months now you might say well james you're talking like that because you're actually teaching the class on this no the first lesson i learned is big time is it's probably not a great idea just to do short term investing because you actually take a lot of active risk okay if you don't know what that is uh you'll learn over time if you do a thousand trades a year risking a thousand dollars on every trade you take a lot of potential risk one of the major reasons for passive investing is you're not taking so much risk all the time okay every time you get into a trade you have new risk okay so that's one of the reasons why people like passive investing over time trying to ride that trend now let's say the investors said you know what james i want to consider selling a pet on that now by the way we could run these numbers like a vertical but i'm going to keep consistent to actually what i just said let's say the investor said james i i i'm a little i want to kind of be a little on the safer side i want to consider selling a pet where maybe the ste right price now wait hold on before we go there if we actually looked at kind of the sector has this been maybe a sector that's shown relative strength over time i'll take yes or no has it been an area that's been kind of showing relative strength does that mean that investors have been investing in there no there's some investors that haven't had one energy stock the whole entire year so this big one account is trying to invest in areas that have a trend and it could buy the sector or the index or it might buy let's say individual stock like valero so now the investor actually goes back after just kind of verifying that and thinking hey our asking could that trend continue let's run those numbers so let's say the investor says james i'm considering selling the 95 okay so now don't kind of make me rush here okay let's say the investor says okay here we go 102 39 that's the current stock price i feel pretty confident about that and then what's the bid on that option right now it's it's the 95 strike for three okay so here it is 95 then he got three dollars and so first thing we actually see is if we said i can't remember what the option yield was well the option yield was just the opposite premium divided by the current stock price so if we kind of look at that where we're saying that's 2.9 percent and it's kind of right in that medium now that does not mean negative that just probably means that this stock is probably not as volatile as the previous example okay which higher volatility does not mean better it means more risky okay now if we actually take a look at this and say okay so the strike is at 95. the premium

is at let's say three dollars what's the break-even expiration and if you said james could you hit me with that one more time i forgot absolutely strike minus premium okay now i don't know about you but i forget things okay and it's just kind of nice to have it pop right back up in your you know right back up where you can see it so now what you're going to notice is if we said well if the stock actually goes up it's three dollars and that's that cap gain okay and if we said well what percentage is that it's 2.9 stock goes sideways it's the premium and that's 2.9 percent now remember if that stock went down if it went down at expiration it needs to be above 92 okay so it needs to be in essence above 92 so here let me ask you a question if that stock for example was okay at 90 dollars at expiration would it be up or down would that position be up or down if the stock was at ninety dollars would the position be up or down but what you're gonna notice in this case is it would be down two dollars per share now let's kind of go back and kind of look at the the discount and i want to see if this is right so the stock is at 102.39 the break even is at 92. so they actually kind of say right in the right in the text the investor could try to buy the stock at a relative discount that means squat to me i don't even know what that means so when you actually say i want to know what the discount is you can express it as far as a dollar term which it is or a discount okay and what you're going to notice is the number what we really want to get to is what is the percent and what you're now going to see is wow so it's a little bit in the higher camp now if the investor can get that stock at a higher discount now if you said to me hey james i don't know where you got that can you tell me where you got that absolutely current stock price okay minus uh the break even that's where we got that i'm writing this down because some people struggle with the terminology and where they're getting that so let's put it there what is the dollar discount current stock price minus the break even what is the percent discount again i don't know what that is well let's let's tell you that is really the dollar discount divided by the stock price and what happens is the investor that does this over and over imagine they did it a hundred times do you think they would actually say okay i get it now you don't have to show me any more examples okay you kind of just say i get it and so this is where the investor sees up sideways down and also what it really does here is they start to kind of see what the numbers mean now the biggest actually thing is if the investor said hey james on this example that stock can go down all like 10 and still be above breakeven that's huge so the stock would have to go down more than 10 to be above to be in a losing position it'd have to go down more than 10 percent so here's my kind of the point here i think as investors brand new investors they all they pitch and hold themselves to only one thing what what i mean by that they just need their stock to go up and if their stock doesn't go up their whole plan of investing blows up but what this actually does is it actually spreads out the likelihood of potential profit if it goes up some money if it goes sideways some money and if the stock goes down some and if it does there's a higher chance to be above breakeven and i think the average investor doesn't get that because they're always wanting all their stocks to go up all the time i think that it's unrealistic to think that all the time because stocks don't go up all the time so if you find yourself where you're buying stocks left and right and you pay money down i i just want to go up the problem is they don't always go up this is why investors kind of spread maybe buying a stock maybe doing a cover call maybe doing a cash secure put spreading out the ways the investor can make money let me ask you a quick question here and i'm going to go to questions after this okay you ever walked into a store ever where they only had one product i'm talking about one you walk into a store and all they sell is water one size of water that's it i don't think in your life you've ever gone to any store where all they did is sell just one thing one size one product why why don't they just do that well because that everyone that goes into that store might not be looking for the same thing the store actually tries to sell multiple products or strategies to increase the probability of making money and that's why stock investors say hey could there be other things like a covered call which is a stock position too could they actually do a cash secured put which is a potential stock position and they're trying to spread the ways to benefit not just from time not just from stock appreciation so i want to kind of take that little ball of i hope that's my stop just keeps going up is that really realistic i don't think it is and so that's why the investor says look it's fine to do stocks but might there be some basic strategies to go beyond a stock position now let's kind of see are there any questions we can really address okay now heinz actually says how do we find stocks that are gaining volatility now so first off uh there is so you could actually go to where it says uh market watch and you could actually go to for example you could right click on it on the column go to where it says customize and if you actually said james i want to kind of really look at let's say stocks like where the implied volatility is now so first off if you said i want to search by stocks that have rising implied volatility well number one is if the vix was increasing many stocks would have rising implied volatility if many stocks had earnings coming up many stocks would have rising implied volatility so but if you actually kind of said look uh so that's two things but if you said i want to actually maybe look for stocks that have high on high implied volatility to start and i want to look for let's say stocks that are actually increasing volatility you could actually kind of even visually look for them now gals remember rising volatility typically means the stock is going in what direction though if someone says i want rising volatility rising volatility is typical to stocks going down okay so if you ask me does that do i look for stocks with rising volatility i don't okay we look for the trend first if the trend is going up that probably means the stock has lower in implied volatility if the investment said let's kind of show an example to stop going down we're gonna look for train but if that stock was going down kind of the addition part of that would be probably rising implied volatility so we're kind of like you're putting implied volatility here and then trans second and what i'm actually saying is our examples put trend first and implied volatility second we we go the opposite direction okay now the other question from vj is can one use the roi custom column in the option chain to see the options quick yield for puts that is an option okay so if we actually went down or the investor said can you show me click on the drop down they could actually go down to option theoreticals and greeks and if you went to a return on risk this is going to give you something very close to what i showed you now vj here's my comment to this i have no problem with this okay but if someone doesn't really know what that is i would go back to what we showed which is kind of writing it down but if you said james i've done it a hundred times i know what it is can i quickly get a gauge of it that roi is i think there is there's uh it's helpful to do the practice to understand where the number's coming from if someone says i don't even know what that 3.5 percent of 3.57 is then they need to do more practice and just kind of do that process over and over again if you said i know how that number how that percentage is how how the investor comes to that then they could just look at that but that's not going to tell break even that's not going to tell you what the percent discount is so even still despite i'd go back to for example uh what we've talked about before now i'm out of my time here today try to answer some questions in the end i want to thank you so much for your comments and your participation we said today we're going to talk about the indexes and the vix we said we're also going to talk about management we did we also talked about stocks to maybe considering a covered call stock and adjusting a stop and then we also talked about also what that is doing two new examples we did our rcl we also did valero thank you so much for your comments and your participation with that said i wish you a great day stay tuned for

2022-04-02 20:49

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