Lessons I learned in my first year trading options | Join TD Options Education Month: td.com/OEM
[Music] hey there everybody welcome to today's webinar i'm your host brian rogers and when it comes to learning new things you've probably heard the adage starting is the hardest part well that's often the case when it comes to options trading you know there are many new concepts and strategies to understand and it may take a lot of practice before a trader starts to feel confident in their decisions so it's natural to feel anxious about making a wrong turn along the way or even knowing how to begin in the first place well take a deep breath we're going to walk you through some of those early steps in the journey so you can build your confidence in trading options joining us is bassam sahili a long time options trader who shares his experience on youtube he's grown his portfolio from from humble beginnings over the the course of about 12 years in large part thanks to options trading bassem is going to share some of his early experiences as he learned to trade options from uh getting ready to placing his first trade so taming his emotions which we all know that's that's difficult to do when trades aren't going his way and overcoming setbacks in his trading strategy so bassem thanks so much for speaking with us we're really excited to get the conversation going now before we dive in though here's a trivia question for our audience what percentage of options contracts expire worthless so don't worry about them you don't have to answer that now either and the audience don't worry we're not giving you the answer yet we're going to reveal that a little bit later but i do want to say welcome basm and welcome for joining us today awesome thanks for having me excited to be here oh my pleasure i'm glad you're glad you're here so let's get started so we're going to chat about some of the lessons you learned when you started trading options but you've actually been trading them for over around 12 years now so i'm curious why did you start trading options in the first place well i first learned about options um getting my accounting degree around like 12 um and i think it must have been 14 years ago now as part of your degree you get you have to learn about personal finance part of finance comes with options and as soon as i graduated i started applying my knowledge to hopefully grow my portfolio and maybe kind of try to retire early try to retire early so i started investing in stocks but i found the returns weren't up to my standards i wanted to know is there any way i can increase my return so i started diving into the wonderful world of options and i ended up i think after a year of research and maybe hesitancy i ended up selling my first covered call and that was my first option strategy nice i like that retire early part so you continued learning and improving your trading skills now you share your experiences on youtube what made you want to launch a channel and share your knowledge and perspective the there's two reasons for it one was um the constant aim for other sources of income so if you get enough views and subs on youtube you can get monetized and you get some ad revenue but i found from my friends colleagues and families i was getting the same questions over and over again like what is the tfsa how do i invest the stock market is risky so instead of answering the same questions i decided there's like a clear lack of education we have in our canadian education system at least when i went to school they don't teach us about taxes or investing or even what a mortgage is or what credit is so i decided to make a youtube channel just basically everything about canadian personal finance it ended up growing into let's say 50 personal finance and 50 options trading people were more interested in my trading so half of my videos is just every week i film my trades live and i just release it for the public just to watch what i'm doing and you know just to make it a little more easy for beginners and kind of ask their questions if they kind of want to jump in along with me options trading might not be for everyone as it does require a certain level of sophistication and risk tolerance so what sort of mentality do you think options traders need to be successful in your opinion what i found beginner investors panic sell they think the the world is ending stocks will continually drop um instead of panic selling and solidifying a loss or like realizing that loss and then not buying back in i believe patience is one of the most important things everything in my mind if you've done your research if you invested in the right companies if you made decent trades if you hold off long enough if you don't panic excel if you don't crystallize that loss if you have that patience it should come back you'll you'll be able to make a better decision when you're not stressed or when you're not um it's that self-fulfilling prophecy if everyone thinks the market will drop everyone continues selling and then the stock keeps going down and down you know taking us to zero but it doesn't it doesn't happen that way so for beginner investors patience is probably the biggest thing well that's a great match for bassem slow and steady often wins the race so now for anyone in our audience interested in learning more about what goes into trading options make sure you check out our on-demand videos in web broker so investors who aren't familiar with options trading often have the perception that it's too risky you know it's not necessarily the case if you invest you know the time to learn and understand the risks what are some other misconceptions out there that you think investors need to consider the biggest misconception is you don't need a large portfolio to start trading in options what i like to do is i'm a option seller i'm not interested in buying options i feel like my expertise is selling so if you're selling let's say a cash secured put you would just need the cash in order to buy a hundred shares of that stock if that stock is trading at forty dollars a hundred shares of forty dollars would you need four thousand dollars and the biggest risk the biggest thing that could happen to you is the stock goes to zero however if you've done your research if you've invested in a decent company i would say you know you you can start small and you can you don't need a large portfolio something the one criticism i get on my channel is um you know a portfolio size of half a million people say i'm big i'm swinging a big stake it's unattainable but people don't realize 12 years ago i started only with 4 000 when i when i first began my options investing journey well you mentioned something about margin can you give us a little bit of a maybe a 30 second to save the world answer in terms of what is margin well margin is when your broker kind of lets you trade more than the cash you have on hand i've seen a lot of brokerages offer a three to one margin so if you put in ten thousand dollars you can probably trade up to thirty thousand but you know you don't need to use margin obviously the the biggest investor the biggest investors some like their returns come off of margin but that is additional risk you don't need to trade off of margin because that's if you do get a margin call that's how you lose your entire portfolio but if you just play with the cash you have on hand let's say you buy you sell a cash secured put you have four thousand dollars but if you have a margin of 12 000 you don't have to use it all up you have that available to you in case something happens but i don't just because of the risks that could happen okay yeah for sure i know when i first started looking at options i thought you had to be a super sophisticated day trader and you had to be glued to your chair and you know looking at your screen 24 hours a day what would you think about that is that is there a major time commitment in trading options i it's more of a passive income source for me so i do have a nine to five as an accountant and i just trade at lunch i'm constantly in the market i'm always checking because it's part of my full-time job so it is constantly on my mind but selling options or trading options it could be weekly it could be monthly for you it doesn't have to be active at all it could be as passive as you want with options there are something called leaps where you can do a two-year option if you'd like it doesn't have to be as active as day trading i'm personally not an expert at day trading at all i like to do 30 day options so an example would be selling a cash secured put that expires in a month it gives me more leeway it gives me more like headspace to not be able not have to constantly think about it if i ever do want go on like a week's vacation i don't have to be monitoring my options trades on my vacation so it's as active or passive as you make it yes yeah we all need our vacations we know that more than than any time now so many novices this is a good segue into that like many novice investors feel that uncertain i should say or they don't really feel ready to place the first options trade how knowledgeable would you say you would need to be before you or were you i should say before you placed your first option trade and how do you how did you know that you were ready to start um to be honest i was pretty nervous even though i had the basics down so as i mentioned i learned about the basics in my university degree and then further research on the side but i found i was ready after joining a few like discord servers other communities of options traders i would do paper trades on my own just to see what would happen and see if my plays were correct if my options were profitable or not profitable but if you just find let's say the most basic which is what i recommend let's say a covered call if you already own 100 shares of a stock the biggest risk that could happen when you sell a covered call is you lose your 100 shares hopefully at a profit so even though i was pretty nervous i felt it was a relatively safe trade and i had you know a community of other investors kind of walking me through in case something bad happened oh excellent all right well now take us we're going to hop in the the delorean and the time machine take us way back to those first options trades you ever place so if you can go back that far how did you feel after placing them and how did you keep your emotions in check to be honest i actually didn't keep my emotions in check so um i think i mentioned earlier my first trade was a covered call so i had a 100 shares of a dividend paying stock it was earning me let's say six percent a year i can't remember exactly i just made that up so i wanted to turn that six percent into 12 and i found if i sold a covered call on this dividend paying stock i could earn a leather let's say 0.5 per month bringing my total dividend in quotes up to 12 the issue is when i first sold it i was checking every like 10 minutes what's happening to the stock it was actually uh it was actually more stressful than i thought because i wanted to be correct right away even though i sold a 30 day to expiration covered call i was constantly checking like every 10 minutes but um i ended up it ended up being a profitable trade so the trade did end up expiring worthless but my emotions were kept in check by that community of options traders i mentioned earlier they told me just to you know you made the trade feel confident in it just turn turn off the charts and we kind of let it ride oh excellent i just want to mention that some members of our audience who might want a more hands-off approach to training options can check out our webinar how to generate passive option income on a budget but for those taking an active approach like bassem it's important to develop and stick to a trading plan with realistic goals what did you decide was a realistic playbook to follow when you were starting out so my my initial research was showing anything above two percent was a little too risky two percent a month i wanted to invest in trade options so i could beat the s p 500 i consider that the market which makes 10 a year so if i can't beat the market then why am i trading options i should probably just invest in like a global index fund and kind of let it ride but um i felt it was safe to do one to two percent per month anything more i felt it was a little too risky so i would kind of avoid those riskier plays even though it is tempting to get three four five percent per month it's not what i felt was safe for my portfolio and my trading style all right well following a trading plan can certainly help take the emotion out of our decisions but that said we're all bound to make some mistakes along the way when learning to trade so i wanted to get into a few that you made early on in the lessons and the lessons you learned from them as well about some so one of the mistakes i know you and i have talked about previously was letting greed get the best of you what did you learn in that situation i think that's the most common mistake i see investors make so what what happens with greed is let's say you sell a 30-day covered call and the next day it ends up being let's say 90 profitable so 29 days left you only have 10 percent of profit left to make and you're like hey what could happen this possibly this can't possibly go against me i'm already 90 profitable so what i would do in my early days i'd let it ride instead of closing it early and then i found something that happened let's say they release results says let's say there's some macro economic event that causes all stocks to increase or decrease so when i wouldn't follow my new trading plan when i would just get greedy and try to get 100 profit out of my options i found that most of the time i would end up losing so the day before or two days before it expires something happens and i end up in a losing position what i found helps me most now is closing my trades at 50 profit and then rolling it out further in time so instead of getting greedy and aiming for 90 or 100 profit if you get 50 you should be happy that's my goal that's my new rule so i close that 50 and then maybe i enter in a new trade or maybe i roll out further in time yeah it's like that old adage that uh you know any profit is better than none right that's true no one ever went broke taking profit is that the thing [Laughter] well we'll make it official i like it okay and along similar lines another mistake you made was not having a specific exit strategy so something you had in mind for your trade how did you learn from those experiences so i try you know i try to learn some stop losses or exit strategies from more experienced traders and what what i found was most successful for myself and my group of friends or other traders was setting a stop loss at three times the premium earned so let's say i open a credit spread and i made 500 of premium on that spread my stop loss would be three times the premium earned so 1500 if the trade goes against me and i end up in a 1500 loss that is my stop loss i close the position at a loss and i move on or i live to trade another day one mistake i found was holding on for too long and letting it go to five times your loss or ten times your loss believing it'll come back and trying to be a hundred percent profitable not every trade your trading is not going to be 100 profitable so if you end up losing on a few you kind of have to cut your losses and run just basically to live to trade another day so one of my rules now is three times the premium earned if that makes sense yeah i like that i like the uh the same too that's pretty memorable live to fight another day uh sometimes novice traders take on more risk than they might realize you know and this can cause them to you know face significant losses like you said you know you want to be able to continue on uh they happened to you during the market crash at the start of the the coronavirus pandemic can you share you know what happened in the lesson you learned from it so that that was a particularly rough time i started trading in 2010 so everything i've done from 2010 to 2020 was successful it's the longest bull run in history i believe 10 or 12 years so i looked like a genius i felt like a genius everything i did was right and then when the market started to turn my biggest mistake was not believing it i would see stocks go down and i kept saying it'll come back i kept saying it'll come back i was at a five thousand dollar unrealized loss then ten then i ended up at a twenty thousand dollar loss um i kept thinking it'll come back and that's when i realized you know when when the who declares like a global pandemic and you you i thought i was smarter than them i was like no it'll come back this isn't real um i ended up cutting my losses and you know basically what i said earlier is to trade another day so kind of yeah you have to realize that at some point since i was successful in the last 10 years you can't be profitable forever it was a big hit to my portfolio i believe that was a 10 loss in just a few days i believe in two weeks the market had gone down almost 50 and i kept thinking it'll come back i constantly want it to roll i want to be profitable i want to show all my trading friends or all my family like hey like i can still make money even though the market goes down but you kind of have to realize when you should just cut your losses and run so accepting a huge 20 000 loss was uh was a big learning lesson for me in march 2020. and i know i've experienced that too you use the same approach for a while and it may work for quite a bit of time and like you said with that bull run it did give you that false sense of security you know oh this works all the time well then you have to be able to adjust once that that does change right yeah it was it was hard like everyone has to you know everyone has to experience a a bear market or a session once in their trading life because when everything goes up it's not you making the right decision it's hard to make a bad decision when when all stocks just you know just increased for 10 straight years yeah yeah for sure well now for the folks out there if you're interested in learning about other ways to limit your risk so now we're just talking about that risk factor so when you're trading options you can limit your risk and uh there are some different ways to do this so tune into our webinar on how i minimize risk as an options trader the last mistake we're going to touch on is trading options on speculative stocks that you didn't actually want to own because the premiums were a little bit high how did this backfire and what did you learn from it uh so if if you started trading in in 2020 you would have seen a lot of specs these like highly speculative companies there's a lot of new like ev vehicle companies that are starting to come out my big mistake even though i said earlier that i don't do this like i ended up doing it you know i ended up trading i ended up selling puts on a highly speculative stock it was a small cap stock i think it was worth it was under 10 billion i think that's what qualifies as small cap and it was i think it was earning me over four percent per month the the premiums are just so hard to ignore i saw the stock drop 40 in a few weeks and i was like okay i'm going to call the bottom i'm going to sell cash secured puts at another 20 discount it can't possibly go down that much can it well like obviously my luck is perfect if i sell a cash secured put on a stock it's going to drop the next day the stock ended up losing one of their major revenue sources like a major contract and the stock ended up dropping 50 and then another 10 another 10. i ended up at a huge unrealized loss near the end of the year and i was pretty i was pretty unhappy i ended up filming a youtube video about it if you want to watch um i think i was down fifteen thousand dollars in just a few weeks so even though i was chasing those four percent premiums i lost i lost weight more than that so back to one of the earlier points just don't don't get greedy don't get greedy yeah it always goes back to that right yeah like i you know one of the rules i think yeah i probably should have made a list at the beginning that says you know only sell only sell options on stocks you'd want to own so i like starting off with the cash secured put and the worst thing that could happen in cash security is you own the shares if you own the shares second worst thing that could happen i guess would be the stock going to zero and i wasn't comfortable holding that stock i only wanted the four percent premium so lesson lesson learned nice nice great lesson learned for sure and thank you so much for sharing your early options trading experiences with us bassem you know i think your perspective might help some novice traders get a little more comfortable starting out with options and on that note it can sometimes be intimidating to place that first order ticket so let's hop into web broker our td direct investing platform for a moment and show everyone how to fill out a that options ticket all right before you get started with trading options you're going to need to know how to place a trade so i'm going to walk you through how to do that in our web broker platform so as you can see i already have spy pulled up as a quote and i've already clicked on the options tab that's where you're going to want to go to get the pricing and i've already selected our expiration date so you can see you want to look at what is the expiration you're looking for so i've selected june 30th and now what i want to see is what are the prices so i can see on the bid and the ask normally like a stock you buy at the ask and you sell at the bid so these two columns are where i'm going to want to focus right here and then you have a little symbol there's a hyperlink this is going to help you place that trade when we get to it and you have your strike price right in the middle so you want to select your strike price either for the call or the put whichever one you choose i'm going to take a look at a call option today so we're going to scroll down and we're going to find the strike we're looking for remember you can filter up at the top here but i do like to see everything it gives you much more selection sometimes when you use these filter features it does give you a limited number of strike prices so do whatever you like there but typically for this example i'm going to leave it wide open and we're going to scroll down so you just want to remember the the headers on these columns we have the symbol the bid ask the last the change and so on but primarily we're going to focus on these two right here so as i scroll down we can see that the green line that shows up is going to show us where the etf is currently at so it's in between 410 and 411 dollars we remember on the left hand side is the calls and the right-hand side is the puts so if i decide to choose this 411 dollar strike it's a an at the money call option if we want to buy that we would just click on the spy symbol here on the left it's going to open up a little dialog box where now i can press buy so it's automatically going to populate that order ticket with that particular option so you can see there's spy the june 30th 411 call option and it already has buy to open so i'm set to go where i just have to put in my quantity remember this is in whole quantities this is one contract i can enter multiples of you know 2 3 10 whatever i like remember one contract represents 100 shares so this is one option and i'm going to select limit you want to be careful on using a market because they do move so quickly and then i'm going to enter in my limit price so i can refresh right over here on the right hand side i can see the etf price at the top but i can also see the current option price and every time i refresh it that's going to give me a real-time look so right now it's at 11.52 i'm going to type that in and you can put your good till day or a further time i usually recommend doing it for the day and then you're normally going to click on preview order you can put in your trading password if you do have one and then on the next screen it's going to give you a summary and say that you are buying the one contract of the spy june 30th 411 call option is this correct do you want to place this trade you select yes i want to place and then it will go to the market and hopefully you're going to be the new proud owner of this call option okay so hopefully that clears things up a bit now it's just about time to head over to our live audience q a but before we do let's answer our trivia question from earlier so as a refresher the question was what percentage of options contracts expire worthless and bassem do you want to venture a guess so i'm going to say 90 okay well yeah that's a pretty high number for sure and you're not that far off but uh the answer is data from the options clearing corporation so the occ in the us suggests that about 23 percent of options expired in 2017 so we weren't that far off in the sense that you know you said 90 might expire but when you add in the other aspect that's 70 percent were sold to close the transaction so i think that might have been what you were thinking there was only seven percent total that would have uh would have been exercised so i think you were probably thinking of that sense right probably yeah that's exactly what i was thinking yeah i'm not just bad against no you were really good yeah very interesting information and i hope you guys enjoyed that trivia question so let's let's head off to the live q a you
2022-06-06 07:23
