Options Trading Chat with Bassem Zahili
David jaffee with beststockstrategy.com on youtube at youtube.com/beststockstrategy and i'm here with bassem. Bassem would you like to introduce yourself all right hi everyone my name is Bassem Zahili i'm a full-time accountant part-time realtor part-time youtuber and options trader i usually um i have a youtube channel under my name Bassem Zahili where i talk half of it is Canadian finance and half of it is options trading where usually once a week i try to release on tuesdays where i just film myself trading and talk myself talk the audience through my trades and my plan for the week so thanks for thanks for having me yeah it's my pleasure can you discuss your your trading strategy and perhaps also touch upon some other strategies that you tried in the past okay nice so i prepared for this i wanted to make sure i do a lot so i wrote down a few notes which i'm going to read my main strategies cash secured puts strangles and my newest one is a poor man's covered call which i really like i've done it okay so i did it on tesla and obviously tesla is shooting to the moon so it's been working out pretty well but um my other strategies um i used to do zero date expiration spy credit spreads um i used to do that i started that in the pandemic when i was working from home but now that i'm back in the office i can't day trade i can't be on my computer all the time so um i went from zero day to expiration trades so now i'm doing monthlies just because you know i'm a full-time accountant i can't really show people i can't really let my boss see that i'm trading but i still try to do it on the side one of my favorite plays if it works out it's just earnings plays just hoping for iv crush even if the stock goes against you it still can work out i usually do it on amd apple and nvidia and when nvidia was a lot higher i know when videos kind of they did that stock split so my bearings are all off but um yeah but it's been working it's been working out really well how about yourself um i usually sell puts i use margin and when i believe that the market is oversold then i will then i'll sell a put if i think that the market is over bought then i'll sell a call option i tend to keep a very small watch list of about like 10 or 15 securities and then i get comfortable with their trading range and then when i believe that some of those securities are trading at their price extremes i'll then sell an option to fade the move usually with an expiration of anywhere from about like four to seven weeks and um what's good about waiting for the price exchange is that you're able to collect a significant amount of premium because it has relatively high implied volatility and the implied volatility rank is relatively high so once you get comfortable with the trading range and they're very large liquid stocks then you can sell an option and collect a lot of premium so um a few things that you mentioned in your intro which i found really interesting were how did you enjoy like zero dte were you very successful with that and can you compare that relative to your current strategy and what's your i know this is a bunch of questions um but also what's your like bread and butter tree uh because you mentioned i think three things that you that you primarily do with selling options right so the zero data expiration i tracked it religiously i have a giant excel which i share with anyone who requests it that shows i tracked over a thousand of my trades zero date expiration i was successful 102 out of 106 times the issue is those four losses were it took it wiped out a lot so every loss would probably wipe out 10 trades just because if it moves against you um usually i kind of wait till last minute to manage it because i'm like hey what if it comes back if i do a put credit spread and i'm like what if it hits my support and it bounces back up so usually my mistake with those four losses is waiting too long i implemented a new rule where i'll close at three times when my loss is three times my gain so if my credit spread gave me 500 my new rule is to close when i'm losing 1500. well in the past my first loss i was it was about like 10 times so when i made 500 i kind of lost 5 000 i wasn't too upset because i was i probably had 40 successful trades and then i lost that one which wiped out let's say 10. i really do i really did enjoy it it makes it more it's more active than
what i do now my bread and butter i find is just cash secured put so i've been trading options let's say for 12 years but i used to do my first eight years were just basic so i had dividend stocks and i would just sell covered calls on the dividend stocks just to double dip in my gains and then as i got more comfortable and when my portfolio size got large enough i started selling the cash secured puts my new new rule which started january 2021 is never to accept shares whenever i sell puts and i accept shares my timing is perfect it always ends up tanking and i end up losing so now i find i'm much more successful when i just sell cash secured puts and then i'll roll it down forever yeah yeah i agree with you i i think um the problem with the wheel strategy and actually i have an upcoming video that i recorded but i haven't posted it is that um even though you're able to accept assignment at a lower price than what it was previously trading at you are also going to participate in the downside as well as the upside on one to one ratio so not only is accepting stock less cash cash cash efficient although if you're trading cash secured then there's no buying power discrepancy between being long shares and then also um you know and then also selling options but additionally i think on the on the negative side the other negative is that you don't have that safety net because when you sell an out of the money put option you inherently are built in with that safety net between where the current market price is and where your strike price is however once you start accepting assignment then if the if the stock ends up um going down by an additional like five percent and that's immediately reflected in your p l so for me i don't accept assignment and i understand like the logic behind it like running the wheel you can sell out of the money call options etc but i would much rather not have the stress and because i use margin um i would much rather always have that safety net while also realizing the capital efficiency while while trading on margin so i definitely agree and i think actually um when i was speaking to another canadian uh trader on my channel and i believe he's also um he might be a cfa or or an accountant as well from what i recall like one of the things that that he did um it was um one of the things that he did was he when a trade would get challenged i believe he would roll it over and extend the duration but then roll it over to the same strike and i remember i believe now what he's doing is when he rolls over and extends the duration he's then using that that additional premium to reduce and roll it to a more favorable strike price and i think that that by far is the better thing to do because you can roll and opt because i believe that once a trade is challenged your primary goal is to get rid of it because it's causing you stress and there's a little bit of increased risk so if you can roll it forward by one week by two weeks and pick up some additional premium you can then allocate that premium towards significantly reducing the strike price like if you're a short an 80 strike put and let's say that trade is getting challenged you can roll it forward by two weeks and then roll it forward to about like 75 something like that yeah but yeah so um it is interesting you brought up the wheel because like i am filming a video on why the wheel when it doesn't work my mistake the last time i got assigned was in january and it was on workhorse i know people are saying you shouldn't sell puts on garbage stocks and that is a garbage company which i learned the hard way so what workhorse was around 40 dollars and i was selling puts on it at 28. it and they ended up losing a usps contract they went from 40 to 28. so then i rolled from 28 to 20 and it ended up tanking it's now at seven dollars i decided to accept assignment at 20 and now i'm at a 13 000 loss it is impossible for me to sell like a lot of people say oh you just sell calls at the strike so you kind of break even what premium yeah you know i'll be earning a penny so um i've been selling covered calls just at like ten dollars i'm slowly trying to recoup my loss but i'm going to tax loss harvest and just sell it december 31st so i can use that loss just to offset some of my income so just so i can pay less tax but my new rule i'm just never going to accept uh shares again and you're right it's just more cash efficient or margin efficient because i am trading on margin more now as i feel more comfortable but that's good so so going back to that workforce example i guess and i don't know how long it took you to but i'm not familiar with that stock so i don't know how long it took but i would assume you know like 10 months or so but do you believe that if you had rolled that down from 40 to like 35 etc then you would have been able to rid yourself of that position before it before it collapsed or did it collapse like relatively rapidly and you think because remember like you accept assignment but even if you roll out a position then the position still has to expire worthless before the stock would then before the stock would trade below the strike price so in your opinion would you have been able to roll it and get rid of that position prior to it having fallen all the way down to below ten dollars yeah for sure so it was a little bit of greed on my part there was so much iv in that stock that i was able to roll it i could have rolled it from 20 to 18 to 16 but i was making a lot of premium by rolling it at the same strike which is what you mentioned shahab did so i got greedy i took the premium for myself because i was convinced it would come back and then you know i'm learning from my mistakes now just cut your losses and run you brought up a good point not necessarily if i broke even you know the money is important but then the stress it caused me i don't think it was worth it so the stress i like that you brought that up because it is an important factor that i kind of want to avoid in the future and i've been avoiding it since this lesson so two two really important takeaways for the viewer here is um you have some incredible canadian traders both of whom they they indicated that had they used the premium when rolling a position and allocated it more towards risk reduction by reducing the strike price on a challenge put option or if you're trading a call option and increasing the strike price so as opposed to being in the mindset of collecting as much premium as possible then you could simply allocate that premium towards rolling into more favorable strike price and the second important point is and i don't think that there are enough youtube videos on it that this their stress is real when you have a challenged position and i think that especially when you sell options your win rate can be incredibly high oftentimes it's over 95 percent sometimes even over 98 but the problem is that if you have a stressful position i believe that the goal should be to try to rid yourself of that position while also managing your your downside risk as much as possible and you know really not trying to play game i wouldn't say like play games but just try to do everything possible to rid yourself of that stress because you don't want to have a position you don't want to have a portfolio with 10 positions on and feel a compulsion to constantly check a position or i mean no offense you also don't want to be in a situation where you want to have where you're constantly reminded about a bad position for 10 months it's just not positive psychology to log into your account and then see a relatively large loss and be constantly reminded and having to always sell calls and then you know et cetera so i'm glad that you have an exit strategy for that as well yeah so it's not like you are right like most of my trades i think with selling out of the money cash secured puts and then managing them my trades are over 90 successful but then seeing this like negative 10 000 constantly for the last 10 months on my portfolio i always make jokes about it my viewers keep asking when i'm going to if i'm ever going to recoup my losses and i'm like no i'm not going to but at least it'll reduce my tax burden in the future so i'm trying to look on the bright side yeah definitely what um what else did you learn about have you changed at all because of that situation with workhorse have you changed the specific type of underlyings that you target are you now trading like larger cap companies or are you trading stocks which have more liquidity and more volume or is that pretty much because hey like part of it is just it could just be bad luck right like you said yourself had you rolled that position and not taken assignment then you would have made money on it so i i don't want to conflate that sometimes you know luck is a part of trading options so did when you um when you because you have a loss on workforce did that also modify your strategy a little bit regarding the underlyings that you're choosing to sell options on yeah definitely because a lot of the times i like high iv stocks because it kind of earns a lot of premium but then this is a new ev company where they just it's like a tesla competitor and like a neo competitor but they weren't proven yet they didn't have any income they weren't making money they could have it could have been a good bet but um i was chasing the premium instead of you know probably just selling selling puts on a company i believed in like amd or nvidia or apple i don't think fundamentals are the most important thing for selling puts because i'm not or like selling options because i'm not going to accept assignment ever again but it can't be like a fraudulent company like if you've heard of nikola or what happened with it last year it went from eighty dollars to i think it's now six or seven um i'm going to try to avoid those like wall street bets type hype stocks where it just doesn't really make any sense so i'm trying to i'm just trying to go with more legit companies that don't have those 30 40 a day or a week movement although it'd be nice if it goes your way but chances are you you might end up at a loss like i did i think that's one of my main criticisms of tastytrade and i think overall tasty trade have done they've done significant positive and added a tremendous amount of benefit to the option selling community but at the same time they are relatively um they kind of they're what are they they're like company agnostic where they primarily just sort and choose underlines based upon implied volatility rank and then whatever company has a really high implied volatility rank and a very high expected move because obviously you know the the estimated move is oftentimes more than the actual the problem is that when you sell only high ivr stocks than like you said you have a higher propensity for having like fraud or you just have a very high probability of you having like smaller companies which have larger outsides move which can move which can cause you a lot of issue for me personally i believe that it's much better to stick to strong brands and because i i'm selling options at price extremes then i actually don't even look at the ivr because inherently when i believe a company's at a price extreme then there is more available premium at that specific moment inherently so um i understand that from a tasty trade perspective they they indicate that hey like let's take as much subjective thought out of the process as possible if it has very high ivr then sell that because you collect a lot of premium and then the worst case example you can roll it the problem is that i always try to reduce stress and when you're dealing with very strong brands i don't even have to read any news clippings or anything like nothing that you read about apple or nvidia or amd is going to improve your decision making process because those companies are so large that everything is already priced into the stock so there's no informational advantage and that's why i love it and you're also protected um because it is a strong brand and also those brands it's pretty rare that um you know like workhorse you said went from i think like forty dollars to about was it like ten dollars or something like that seven right now yeah so figure that you know apple is not going um like apple's not going to drop from you know wherever it is like one 135 140 all the way down to like you know 35 i mean that would be pretty rare um yeah i mean i guess it could happen but it it's not going to happen during a bull market like uh like we've had in in 2021 yeah exactly like um i did learn my trading strategies from tastytrade so i i i imply apply tom saw snobs uh strangle method like just a modified version so he likes to do 45-day strangles i like to do 30 just in case i need to roll it or manage it i i don't find much premium after like 60 days so if i'm at 45 days and i need to roll it to 60 and what if i need to roll it again to 75 or 80 i like to start a little shorter so that if something bad happens i have that extra theta i can earn by selling that extra time so they they definitely help but you're right on the whole iv issue they like to choose the highest iv which um i take advantage of high iv sometimes like i've i do some very risky trades very rarely but just when i think it'll be like a 99 chance to win um i i don't know if you've been you've obviously been paying attention to the amc fiasco um when amc shot up from nine dollars to 72 i ended up selling naked calls on it sounds very dumb but i chose five day to expiration naked calls at 150. so amc needed to go from 72 to 150 in five days and that was a risk i was willing to take that i i think the iv percentage was like a thousand on that trade the only issue that i have with something like that is if you remember um with the other company game stock it actually went up from about like 80 to about like 300 in like a few weeks but also not only do you have the price risk but you actually run the risk of having the brokerages change their margin requirements on the stock and have it use up a tremendous amount of margin especially if it's going to be on the short call side um you know you mentioned a few interesting things which i think are valuable so i think that selling shorter dated expirations especially on positions which are a little bit more inherently risky is better than longer dated and part of the reason is that when you are selling shorter dated if that trade gets challenged it's significantly easier for you to manage and roll that position for example let's say you sell a 30-day dte and then let's say it gets it shows uh it gets challenged at about 14 days you can then roll that position out about two weeks and collect a significant amount of premium and then allocate it to the strike price to roll that strike price to a much more favorable situation if you initially sell 60-day dte and then that trade gets challenged at about 45 days instead of rolling in two weeks you might have to roll that same trade by two months in order to realize the same benefit when you're rolling the strike price and as we said previously if a trade is challenged my goal is to reduce stress and get rid of it as quickly as possible another thing that you mentioned that i thought was really interesting i tend not to sell strangles unless it's opportunistic so if something is at a price extreme let's say i believe that it's oversold i will sell a put option and then usually if something's oversold it's kind of like a rubber band where it gets it it gets like um uh like you know snaps back relatively quickly and then so if i sell a put and then the underlying stock ends up appreciating value very rapidly over the next few weeks or rather over the next few days or the next week and then it becomes overbought i'll then opportunistically sell a call option and therefore i will have a strangle on so i i but i don't like putting on a position as a strangle because if it's a good time to sell put then inherently it's a bad time to sell a call at least with the way that i trade because i'll only sell a foot if i believe that a position is oversold however if there's an earnings play so let's say there's earnings coming up like this week what i will do sometimes is i will sometimes put on a strangle that expires for default for this let's say the earnings is on tuesday just hypothetically speaking i will sell a strangle with an expiration of this friday and then the day of earnings once it announces it or the day after i will close it out for you know hopefully a profit so usually during the normal course of trading i won't use strangles however i will use strangles if it's an earnings play and then i will go relatively far out regarding my strike selection and then close it out after the earnings announcement right yeah i like i love the earnings play because it's so it could even be a day or two where you could be that iv crash is just you know it can earn you like fifty percent just in within a few days i like to i usually sell strangles on slow moving stocks like amd and nvidia nvidia not recently so the strategy works until it doesn't so amd the reason why i like strangles is that you know you predict a range and then with 30 days to expiration if something happens you can move the you can you can move the whole strangle to follow it up or down right so amd i've been doing it for nine months and i've been following it from 50 all the way up to now it's like 110. um with no big issues so i think i've been selling 10 strangles um just for reference my portfolio size is 550 000 u.s it's taken me 12 years
to to build that um oh yeah this another i'm going to leave that for later i have another question i want to ask you just specifically to portfolio size but yeah i like the strangles i usually open them up 30 day to expiration 15 delta and then because amd and nvidia are relatively slow moving i i can move them i can follow them up or down just depending on what what happens with the stock i think nvidia recently has been relatively slow moving where it's it's been kind of like a sideways market like over the past month or so but yeah um up until about six weeks ago it was it was appreciating like pretty rapidly and it was hitting new highs but over the past like five or six weeks it's been like some there's been some two ways access to two ways actions which are amazing for selling options because the stock doesn't really move that much yeah like uh so once they announced their stock split that's when it started it went up like 25 um i ended up because i sold such a short-term expiration strangle uh the pre if you look at the previous six months it was before the split it was trading between 475 and 600 for six months it was bouncing off that range perfectly so again a strategy works until it doesn't two days before the expiration of my strangle i knew i was going to close it out just to allocate my buying power somewhere else i just covered the naked portion and i got the shares called away and then it ended up mooning like uh i wasn't expecting like a 25 increase but i i guess like any time a stock splits i've noticed people just jump in they think it's going to be worth more it's funny you know it doesn't really make sense if you think about it like the value of the company doesn't change when the stock splits but more people are interested in it because all of a sudden it's cheaper so that's psychology i need to i need to incorporate that more into my place yeah oftentimes you have like added liquidity and then you oftentimes additionally have like the retail investors that couldn't previously afford the stock and then they jump in uh during his stock split and um they bit it up um one thing that i was really curious about was you were previously selling cash secured but now you've moved over to margin can you touch upon that like what was the impact what was the motivation behind that change and are you only now trading on margin or are you are you mixing it up between cast security margin or what are you what are you doing using for margin so uh so questrade provides a three to one margin um which is which is pretty good i know like i think interactive brokers offers like six to one which you know that's interesting i won't touch on that but as i got more comfortable with selling options i realize there's almost like if i if i choose the right companies and if i just manage it if i'm not on vacation or something i don't have access to my phone i don't see anything that can go wrong the worst thing i experienced was march 2020 um i lost 20 000 i didn't believe the pandemic was happening um i just you know i didn't think we'd see this black swan event i've been investing since 2010 so i've never experienced a recession like i graduated university in 2010 um everything i did from 2010 to 2020 worked it's like the longest bull run in history i think and everything i did worked so i didn't believe that we were gonna lose and even even though we like the worst thing that could happen to portfolio my portfolio did i only lost 10 percent um and like i'm just not worried not everything has to be cash secured for me anymore like i know the worst thing that could happen i can manage it if i have to take a loss losses are guaranteed eventually not everything can be 100 win so i don't mind taking that at risk and if anything i can just what i like about margin and selling puts is that when you roll down your margin requirement decreases you know if i rolled apple from 100 to 70 to 50 that dollar amount decreases so i'm just more comfortable and i'm not afraid what could happen people think it's risky just given my experience and just being able to manage it i'm an accountant i work at a computer all day so i'm always able to check um and also i want to increase my uh my return right i definitely think for for traders who are disciplined i actually think that using margin can um improve their returns overall and the reason is that when you use margin and especially when you usually use it effectively because it is a double-edged sword but when you leave adequate buying power and enough safety net then it protects you because if you're only using cash secured you might be more inclined or more motivated to trade more aggressive strike prices because you want to maximize your amount of premium collection however when you're using margin then it affords you the opportunity to go further out of the money and even though you're not collecting as much premium you can make up for it with increasing your size a little bit now you don't want to overdo it there's always going to be a sweet spot so that'll protect you against very large drawdowns like march 2020 or december 2018 or even you know i think in february 2018 from like february 5th to like february 8th or you know that that following week there was a large volatile expansion but um yeah i definitely think that using margin correctly can actually be a way of decreasing the portfolio volatility that that you experience are you using regularly you know i'm not sure if like how canada does it but do they offer like um portfolio margin or spam margin or something similar or no or yeah so they do yeah they do offer a portfolio margin um the the part of the frustration with canada i don't know how it is in the us but our retirement accounts and our tax deferred accounts you're only allowed to do level two options you're only allowed to do covered calls you're not allowed to do any other options so when i like i guess like it's a little deceiving when i say i never accept shares because if you open my retirement accounts i have shares which i sell covered calls because i have no choice but with my in the same quest trade account i do have my regular margin which does take advantage of the tax deferred amounts and they give me an increased base and uh all you have to do is just leave enough like you said leave enough room to to manage in case something goes wrong don't use 100 of your margin but it definitely helps increase the return and part of the thing i was kind of worried if i didn't use margin was i beating the market like was i beating spy if i didn't use margin um and i think margin really helped me at least i think i'm doubling the market which which i'm uncomfortable with and yeah it just uh it gives you more opportunity more and more reason to manage and like you said less stress and you can trade safer how many positions do you usually have on at one time oh god i have 20. um i think that's i think that's too much i mean whatever works for you i i can just say that for my in my opinion i feel like um because not every position do you have the same confidence in so there might be like like 10 positions which you feel like very strongly and you log in and then you're like okay yeah i don't even have to worry about that position maybe i'll let it expire or maybe i'll close it out like with i'll set like a buy to close gtc limit order and then it'll automatically close out but then you might have like two or three positions which you're like okay like let me watch those positions um and i feel like when i trade too many underlines not only does it become a little bit overwhelming at least for me then it also i from my experience i've done better by being more heavily concentrated and trading anywhere from like four to seven positions which i feel highly confident in and just simply increasing their size now i'm not saying that if you're gonna trade like seven that you trade like nvidia amd apple you know just all highly correlated underlyings like i think that you should have like some type of diversification in the underlyings in your portfolio but i do think that having like 20 might be a little too much although i mean tom salon he has like 80 to 100 usually i i don't know how he does it and doesn't doesn't show i mean it's um yeah but i don't think that for many retail traders especially if they're working full time i think that less is usually more in keeping it as simple as possible right like a lot of people the reason why i you know i i knew that would be too much everyone tells me it is too much but one of my issues is um i i like to trade sometimes i'll just get that itchy finger and i just want to do something so when i do 30 day to expiration options and it's like i don't want to wait another month to do another trade so if i have some buying power then i'll just start making a trade just because uh my goal if i could trade full-time i'd be the happiest person ever like i'm trying to i would retire not retire i'd quit accounting if i could get my portfolio to 1 million i'd feel more comfortable living off that income um until then i i just yeah i really like trading if i could do it full time i think that's why i have so many trades open it's just uh you know i'm you know still learning like i've been doing it for 12 years but aggressively for four so i was just doing covered calls in the first eight years and now i'm doing naked you know i'm trying to do iron condors which i don't like but then now just the the other side of it which is strangles which is the same thing just more risk uh but also more return yeah if i remember and i think that my uh my call was shihab was was a while ago but i think you know he also keeps like a spreadsheet and he had about like 20 um 20 underlines as well and then i believe he expressed the desire to like to mitigate and like winnow down like some of the underlines that he was trading on i think you you said that you had a question about like uh 500 like the 550 000 like portfolio yeah um i have i'm having trouble this just for me i'm having trouble allocating it somewhere so let's say um you mentioned that you have you have buying power and you sell a put when something's at an extreme but then do you just have buying power sitting around in case it hits the call side so you end up with a strangle because like what if you end up sitting around for four to six weeks with unused buying power and you know you could have been earning for four to six weeks what if that call side never comes my issue is i'm having trouble allocating this 500 000 somewhere even with margin i could probably allocate 750 or 800 um do i increase my size so i increa i went from one amd strangle to 10. do i take it up to 15 like i don't know like it sounds too much so um like out of my trading group i have the largest portfolio so i don't know someone with more experience who has a large portfolio that's like okay just start trading on amazon or try to start trading on google um do you have it yeah so my question long-winded question um how do you go about allocating large portfolios or buying power okay so i think it really only it really comes down to size where it depends upon the quote-unquote universe of underlyings that you trade so for me i have a watch list of about like 15 or 20 and i can tell you that at any time there are usually always some opportunities available so you know over the past few months even like right now um there's a decent opportunity in mastercard with um and recently there have been opportunities in like paypal um facebook is also an incredible opportunity where it's trading relatively close to its 52-week low um so i think that as long as you and these are like very large cap companies with market caps of like hundreds of billions of dollars so even if you track like some of the largest like 15 or 20 companies there should always be opportunities if there aren't opportunities available then that usually means that the vix is trading really low with a vix of anywhere between like 14 and 16 or 14 and 17 at which time you really don't want to be trading and it's completely okay for you to i wouldn't necessarily say sit on the sidelines because i always have positions on and i'm sure you always have positions on i think it's more a question of that during times of low iv and low vix that you might have more available buying power sitting on the sidelines that you want and you feel a little bit of like a fear of missing out like hey the market's going up like every day and i'm sitting on a lot of money and this i might as well be long stock at least i can participate in the upside i from my experience i never have those thoughts like i'm missing out because i do know that when the vix is really low it's only a matter of time until the vix rapidly increases at which time i will then aggressively deploy my capital and what i'll usually do let's say the vix is trading at 16 and then you know the vix can go up like 20 in one day that's happened i mean even in in september two weeks ago yeah yeah yeah it happened like a few times just in september so if let's say the vix is trading at about like 15 or 16 and then it goes up to about 20 i will allocate a portion but i always want to have fear of what happens if i'm wrong because if the vix is at 20 that doesn't mean that it can't go up to like 35 you know and the higher the vix gets the more aggressive i'll become because once it gets over 30 once it gets to like you know and actually i think just like two weeks ago i think it like briefly touched 30 like intraday but then intraday like fell fell back to like you know around like 25 or 26 but the higher the vix is the less risk you have so i so for me i allocate capital and my aggression levels based upon how high the vix is but when the vix is trading at 15 or 16 to me or no okay i i think that having the vix trade at 15 or 16 now is comparable to having the vix traded about 13 prior to march 2020 because just like in 1987 when there wasn't much put call parity and calls and puts were trading at similar prices but then after the crash in 1987 puts started trading significantly more expensive from a premium perspective than calls because the velocity of risk is to the downside i think that because the violence of the move in march 2020 was so extreme where the market fell like 36 percent in 33 days i think that i think that that the viewers should not consider a vixa 15 or 16 now similar to how they considered a vix 15 or 16 back in like 2019 i think that a vix now with 15 or 16 is comparable to a vix of about 12 or 13 back in like 2019 so i think that when you do have a low vix that's the most dangerous time because you're seeing the stock market go up like every day you're thinking oh man i should just be long stock i have a lot of money sitting on the on the sidelines but also when the vix is so low it has all that potential energy where you know i'm sure from all science classes we have like the teacher like hold the ball up and stuff and say oh this is potential and this is kinetic energy and that's your greatest risk when you have a low vix because you're anxious to put money to work but in just a few days the vix can increase from 15 to like 30 35 and that's how that usually happens like twice a year like maybe maybe from 15 to 35 it happens like maybe once a year um but still i mean hey if you're short premium and you've allocated a significant amount of your portfolio when the vix is very low and then the vix spikes up from 15 to even 25 which happens a lot that happens maybe like three or four times a year but even if it spikes from 15 to 25 or 15 to 30 which happens a little bit less frequently you're going to have to defend all those positions and all your existing positions are going to be showing you a loss so i would say just be much more aggressive when the vix is high and it's actually in my opinion the most dangerous times for option sellers to trade when the vix is low because not only do you feel like you're missing out but also the amount of premium that you're collecting is is not that much so you want to inherently increase your size and it's just a very it's a very challenging time where you just want to put money to work and that's actually the wrong time to put your money to work yeah so like when i remember i think 2017 2018 i think vixx might have been 11 or 12. it was so low you have to go closer to the money to sell something
to make anything worth it like i'm not gonna sell for pennies like it just wasn't worth it so you write about low vix being the most dangerous for option sellers what do you think about this i don't know if this is like if people do this often but i don't usually buy calls but what i've been doing every time vixx hits a new low i've been buying vic's calls just like 60 day i don't do more than 60 days on like i do vxx or uvixi which is like a three times yeah you think yeah yeah just anticipating that expansion um is that something you dabble with because you kind of mentioned every time vix is low inevitably it will receive a pop so would you buy calls or is that not are you more into selling options yeah i will sell options okay so uvxy is interesting i don't trade like uvxy or svxy primarily because there is significant decay in the option when they roll over the futures for the um when they roll over like the vix futures it's problematic because even if it's trading at the same vix level then ub xy and spxy will lose they will lose money now that will then lend us two viewers to say okay so then why don't we just sell calls on it the problem is that you have that quote unquote takeover risk where if you have a large volatility expansion and you sell calls on on some you know it can increase from like 15 to about 60 although um from my understanding i believe that around like february 5th of 2018 or maybe it was february 18th the um uv xy or svxy like they kind of like went out of business and then they changed um how the how the underlying was calculated so now it's going to be a little bit less volatile than it used to be prior to february 2018 but a long story support i don't trade volatility um and the primary reason is that i don't believe that the i think that volatility is priced pretty well and the takeover risk for volatility makes it so that i would much rather be involved in selling options in stocks so i used to sell volatility and i ran into like a few a few issues where the trades were challenged and um i just felt that i did better when i was trading stocks as opposed to selling volatility products however if i did if i was going to like buy calls or like trade volatility um then i would use more of a slower moving underlying such as v x x and i probably would not touch like u v x y or s v x y um just primarily because i think that those products are inherently they're meant to go to zero like they're trading products and i understand what you're saying where you know short term you can realize a significant gain from it but timing the market is not something that i would want to do so if i was going to trade um vxx and volatility i would probably buy like one or two in the money options for calls when i felt that vix was trading at an extreme so let's say if vix trades below 15 or even around like 14 like 1450 that would be a time where i would feel comfortable buying like a call option that is one strike in the money and then you know maybe with an expiration of about probably 60 days like you know because you want to go a little bit longer uh maybe even yeah about 60 days maybe max 90 but my gut feeling is about 60 and then when it pops up you know you can take probably a quick 30 or 40 percent gain in that during the first pop in volatility that would be the way that i would play it if i if i was going to do that yeah so i've only done this five times and it has worked all five times but i am relatively new to buying options like i've been selling the entire time i'm not interested in you know hoping for like the lottery win it's more likely to make money selling options but sometimes when the vix does get too low like you mentioned like right now i'm looking if vixx hits 14 i will buy vxx calls like 60 days i find the 90 days like it'll decay too much and i i don't want to pay for that much time because i do want like relatively short term but um yeah yeah you i think we're on the same thinking along the same lines like if fix it's 14 i will buy like a 60 day just waiting for that expansion just to try to try to take uh some some advantage of you know when when vix is high you want to sell options but when vixx is low i guess buying would be a little better just just to get that that increased iv but 99 of my trades are selling selling options i i think that's good um i would yeah i mean i tend to stick with what works and um like i'm kind of weird like i i just like to keep things as simple as possible and not change anything that's working so i know that there are things that i can do to you know make extra money because it's pretty easy to recognize when volatility is trading in an extreme i mean you can just look at a chart and you can see that hey anytime the vix trade starts closing like below 15 or it gets to about 14.50 so any time since the crash since march 2020 um you can see that it pretty much like clockwork it's like spiked up so you know obviously like the past doesn't dictate the future but there's probably a very high probability of profit in making that trade right right and that's why i've been kind of doing it like everyone kind of mentions that same every time it hits like this new low you'll get like a short-term pop so i've kind of been been playing that i guess i'm a little different i'm always worried there's something i don't know i don't consider myself an advanced trader i think like right now i'd be intermediate so i'm always researching new strategies that i could do because what if it does work so recently my newest strategy is just the poor man's covered call it's just very capital efficient so when tesla was at tesla hit a low of like 550 dollars in march and instead of buying fifty five thousand dollars of shares i bought i spent thirty thousand dollars on an in the money call and just selling weekly uh week weekly covered calls i guess on tesla ever since and and you know tesla went up from 550 at that point so now it's like eight eight thirty i think and it's it's been really well it's my first time doing the poor man's covered call and obviously it only works if the stock goes up but very happy with how this new strategy has worked out for me yeah tesla has actually been great um i think from like january 7th and january 8th it went up like like 18 because i remember i was like short calls like short like 900 calls or something and then it went up like 18 percent in like two days and then i had to manage the position and then i think it fell down to about like the 5 20 like 5 30 and then since that time it you know you spent a lot of time in like around like the 600 level um and then recently it's been it's been going up tremendously last year it was incredibly volatile but this year um even though there's slightly less premium available it's been it's been amazing and um yeah i think so have you been selling options for for 12 years yes um just part of being in accounting you have to learn finance um when the 2008 crash happened my finance professor told us to buy apple's shares told us to buy google and i didn't have any money at the time but he showed us what he did with trading and buying stocks and he's like a recession's the best time to start investing um i never wanted to be the person who had all this financial knowledge and never used it so um i i i would buy let's say one of our banks we have td bank which pays a six percent annual yield i would just sell covered calls so that i could turn that six percent to 12 and that's my that's the first option i ever sold just like a td bank covered call yeah i think that's amazing that to have someone who's been trading for 12 years yet consider themselves like intermediate that humble nature and that desire to learn is something that i believe is going to serve you extremely well um yeah i think that's amazing i actually used to work at cibc like as an investment banker oh there's cibc in the u.s you weren't in canada you're in the u.s yeah so in cibc in canada cibc has like a very large retail presence and in the united states they don't have any retail prices but they have an institutional presence where they they like do investment banking and like trading and things like that so there um i worked at their office was at 420 lexington and they moved over to like 300 madison in new york city so i worked at that office in their industrials group so yeah i have some connection to canada as well is there anything else i think that this is a very valuable call for for the viewers um there's nothing else on my mind um are you are you uh filming on your phone right now i i'm not because uh no i think you're you're oh yeah i am on my phone okay yeah yeah i'm just wondering i was wondering if you'd be able to see it'll probably be too small if i shared my screen um but yeah maybe i'll save that for later but uh i just wanted to share my screen just on show people like how i track it and you know some of the trades i've been doing a lot of people have been interested they want to see what i've been doing since the last year so i've only been tracking my trades on excel spreadsheet since i started filming my trades on my youtube channel last year i'm at like 1300 lines now which is all my trades i haven't been caught for like in in canada they can they can turn your trading income into business income and your tax would double i haven't hit that yet but it's always it's always a worry of mine but yeah is that the thing that's discretionary based on the auditor is that based upon like having your trading income via a certain percentage of your right or your overall income so it's purely discretionary so what the canadian government does they never want to give you a rule where you can work right below it they always make it a gray area so that even if you're yeah so you because a lot of people just want to sneak by so if it's okay a thousand trades you're day trading i'll do 999. so there's no hard fast rules it's always just gray areas and i'm i think i'm just skirting right right below that thankfully i think my uh my captions are allowed or no i know i can see okay that's great all right all right awesome so um yeah thank you so much i think that this call was um was incredibly valuable and uh yeah i really appreciate your time especially uh having this call with me on like a sunday night it shows the dedication considering that it's really late and we're talking we're like geeking out and talking about options trading it's amazing so um yeah i i just want to let you know that i have tremendous amount of respect for you i've watched a bunch of your videos i love the fact that um you've been trading for so many years and you're still like extremely humble and like open to learning and new experiences you're tracking your trades i guess my last question is um do you believe that true that tracking all your trades in a trade journal is something that has definitively improved your trading or do you think it's more an exercise of helping your viewers like does it help you as a trader to track all your trades or is it more so to like help your viewers because for me personally since i maybe have like like maybe four or five challenge positions like like a year or so then i feel like if i can just mentally review those like four or five and say okay is there something that i did wrong to help avoid this in the future then that would be enough but maybe i'm missing out by not putting together a spreadsheet and tracking all my trades what are your thoughts on that um i i started tracking it mainly for my viewers they wanted to know a breakdown of the income because initially i was just showing them trades but now i just do monthly income of how much i've made but it really helps me see because i also break it down by strategy which has been my best strategy and no matter what i do every single month it's always puts that earned me the most and it's what i feel most comfortable with i don't think it's 100 necessary to track everything but i think just the accounting nature i like numbers i like seeing everything on a spreadsheet um it's it's mainly 50 for me because i like to look at it i also track my let's say my tax payable come end of the year based on it but a lot of the times i'll say i started it i'll say 60 for the viewers 40 just because i'm uh i'm a numbers kind of guy awesome all right thank you so much for your time i really appreciated this call i um yeah i love your content uh in the description the video that i post i'll post your your channel as well and um yeah i hope that in the future we're able to do this again sweet that's awesome thanks for having me thank you so much
2021-11-03 01:26
