Trading a Smaller Account | James Boyd | 6-11-21 | 4 Potential Strategies for Smaller Accounts
[Music] hello and good morning to you welcome to trading a smaller account my name is james boyd we welcome you here today annette orlando david cindy rocky gene jeff mia ah keith diego okay michael welcome to you we also have uh with us ken rose in the chat we thank you for being here and also yeah it looks like we got two guys from uh central salt lake murray utah representing okay and we welcome you here on this friday morning and there's the bell so let's go ahead and get started now you can follow ken or myself on twitter we do post educational content there daily talk about short-term long-term educational examples check it out just real quick as we're getting started i want to give us a quick reminder that the content today is provided for educational informational purposes only not an investment advice or recommendation of any security or strategy or account type when we talk about options here today or if we do remember that options are not suitable for all investors especially risk and heritage trading options and also remember that when we talk about demonstrating the function of the platform we're going to use actual symbols td ameritrade does not make any recommendations determine suitability of any security or strategy that is up to you to really decide what you want to invest in remember that all investing involves risk now just real quick as we're getting started here we'll take a quick look at the market open indexes and sectors etc we're going to talk about which strategies for smaller account maybe which stocks potentially for smaller accounts we're going to look at bullish examples and i did notice some bearish examples so i think it'd be fair to talk about both sides there but our learning outcome here today is really define for you a set set strategies that you want to focus on and i and i think that's the disaster is when someone's getting started or has a smaller account they never really decide what strategies they want to focus on and so then what we're going to do is to kind of talk about building a watch list that you might actually have as far as maybe something you might look at actively like a routine that you trade off okay so let's actually go ahead and actually take down uh the first step really the market open and by the way i love the market open because uh well it's uh just rang the bell so just real quick when we actually look at the s p s p did yesterday go to a brand new high today we're seeing the s p up about five more points okay to start the date not huge but when we actually look at let's say if the price were to close here if it did it'd be the highest close we've ever had for the s p okay it's an index that as of yesterday did get also above its resistance as well and by the way by quite a bit yesterday on the nasdaq we did see it was closed above the high of the low date for the nasdaq and what you'll notice is here is not much more room to go up to the old resistance about another 70 points on the nasdaq you'd be hitting that little double top area but so far bulls not really looking gun shy okay now if you like to trade maybe let's say russell stocks or small caps you're going to see that small caps have looked very strong and very consistent really bouncing off that blue moving average line which is the 10 period moving average sectors wise okay i spent this morning really looking at a lot of commodities and some doing better than others but if you look at basic materials basic materials kind of looks a little sloppy prices maybe getting down below the 30 period moving average maybe old support becoming new resistance so basic material stocks it's up to date a percent but you're going to kind of see that it's up right back into let's say the resistance area so basic materials maybe a little cautionary yellow flag here when we take a look at let's say the energy space which has been a little hotter we actually see that it's kind of neutral-ish up about a half percent we see that industrials percentage-wise they're kind of actually like base materials kind of sitting below that 30 period moving average we would also kind of make mention of let's say the financials that's going to be an area that we kind of discuss here today what is kind of interesting for me and maybe you as well is that you got the s p actually hitting a high or near there but then you see so many of these sectors that are actually at the 30 and some of them look like there's maybe some risk to maybe go down a little bit so that kind of begs the question as far as what is really driving the performance okay fair so when we actually take over the market index is actually still strong still strong okay some sectors doing better than others and one of the sectors we pulled up yesterday which we'll kind of re-mention again is health care now health care yesterday exploded higher we see today it's down uh three points or a quarter of one percent oh no it's bears well not none necessarily it looks better than really some of the other sectors we just pulled up and if you actually take a look at this it's not unusual to kind of see a big explosion day and then maybe a little soft pause okay and that's kind of what we're seeing here we're not even seeing a mid middle of the candle retest from yesterday we're we're not seeing that yet okay so don't don't think just because it's down three tenths of a percent that it's bearish it's not it's sometimes just exhaling after that strong run up over the last two days we're gonna keep an eye on that space okay now i want to go into kind of agenda item really number two which is uh which strategies okay if someone had a smaller account and when i first got started i mean i had dollars i mean that was 1996. bowling green kentucky warren road okay actually scottsville road what am i saying uh scottsville run and and uh you know i started to invest my high school teacher said hey you gotta get started young so i said hey i'm gonna take x amount of money and get started now recently i would say a couple months ago my son who's 24 said dad i want to get started and i have a smaller account what is your kind of uh what's your words of wisdom he said okay and i said words of wisdom don't have a smaller account okay you have two in life you got two seeds number one you got a cat you got your capital okay which is a seed plant it wisely your time okay is a seed plant that wisely you want to make sure that the capital and the time that you have is spent well or invested well because with the time you only have it once now the biggest actually thing is we want to make sure that when we talk about let's say strategies okay these would be some of the strategies that an investor might be thinking about okay now remember we said our learning outcomes we want to define the strategies which strategies could the investor focus on well could the investor let's hypothetically say they had 14 000 to invest and they said well can i really do stocks and the answer is yes if we were to bring up let's say the s p 500 and i looked at this uh earlier this morning if we were to look at the s p uh 500 okay one you know kind of stock uh price wise we would probably be thinking about stocks that are in between ten to forty dollars so is someone going to be able to buy hundreds of shares of stock no probably not but probably stocks that are between 10 and 40 dollars in the s p 500 list now you don't need to waste your time to look at stocks in the dow not as many stocks in the nasdaq as you would think that are between 10 and 40 dollars and there was only about four stocks that i really saw in the s p 100 that were between 10 and 40 that really had any type of trend so if we just looked at one list the s p 500 looking at stocks in between 10 and 40 there's probably about 20 stocks that are in that price range as of right now that are trending okay up and down now for example if so if someone said to me well what stocks could i look at well the paper money account would go look at the s p 500 stocks between 10 10 and 40 and that's where we would actually look now why would you focus on the s p 500 look at the s p 500 because they have volume requirements to even be on the s p 500 other financial other fundamental requirements as well so we would just be looking at those lists and by the way it does also has a greater chance to actually be optional okay now second what other type of strategy verticals okay i know barbara's talked about this but we would say long verticals debit spreads we would say short verticals credit spreads okay verticals okay doesn't take up as much capital and it's defined risk so we said stocks we might say the s p 500 stocks between 10 and 40 dollars second would be verticals be very familiar with those like the back of the hand like okay and then also cash secured put no yeah yes well we would say cash secured puts but we would be thinking more cash secured puts that are also like short put uh short put wide spreads so if the investor sells a put they're really buying a put out of the money to reduce how much capital they have to tie up to do the trade we're going to do that in just a sec that's the third strategy that i would be thinking about maybe the investor might consider and the fourth does anybody know what type of uh strategy that you might consider if you had a lower dollar account then i think people overlook well uh one of the strategies that i think many people overlook that they might not understand is really long synthetics long synthetics is a class of teach on wednesday that is a long call bullish and shorting the put okay when you combine those strategies you get two bullish trades so if some if you know go back to 1996 for me if the investor said hey what strategies might investor consider stocks yes could still do stocks it has to be lower dollar okay verticals might consider those cash secured puts and also we would say a short wide put spread to reduce the buying power we're going to show that and the last strategy that the investor might consider is really a long synthetic which is stock like three out of four of those strategies three out of four of them are very similar stock and long synthetic almost identical cash secured put is in the long synthetic so don't think oh my god these four strategies i'm never gonna get it well no three out of four of those are all uh very similar now let's take a look at this okay let's kind of just take a look at a couple of these stocks in the s p 500 uh that we could actually and again what i did is i brought up the s p 500 and i ranked them just by the price the last price so if i were just to kind of show you a couple of these stocks okay fti okay then we actually so and i'm even gonna uh we got another stock a.m okay and if we look at another stock and i'm just gonna type these in uh because i looked at them but if i look at a stock for example like what about marathon oil okay what about a stock for example like lumina okay or for example a stock like host these are all stocks that for example or k or kmi but if we actually looked at all these stocks first off getting a set watch list now i probably created a watch list of 20 stocks okay and so if someone said james i kind of want to be more of a stock investor i'd probably make a list of 20 stocks and the the list i made was just from the s p 500 of looking at the stocks between 10 and 40 dollars and i came up with a list of about 20 of them in five minutes or less that really like kmi had a trend and if someone said i like to focus on stocks there's an immediate list of probably something that has volume stock volume but also has option volume potentially as well okay now what i'm going to do is let's kind of take a look i'm going to go back now if we were to look at let's say a stock like let's say like kinder morgan okay earnings on this is really coming out on let's say july 21st so there's some time here there's really about six weeks here of time okay now let's hypothetically imagine that the paper money account had a 14 000 account okay now if we take a look at this and say okay kinder morgan it's kind of been going up a little bit okay there's been some opportunities and if we go to the trade tab and say well what type of stock volume does it have i mean well in the first 13 minutes okay it's traded a 762 000 shares okay so the higher the volume is the greater the chance that there's probably going to be option volume you have to go look okay so first off stock volume looks pretty interesting by the way yield is actually 5.68 and that actually kind of might attract someone to say geez maybe i might consider stock okay and in that case we'll come back to that but if we were to look go look at the options what you will notice is there's weekly options there's monthly options implied volatility kind of right around the mid 20 range so we're going to kind of just sample the liquidity when we have to just kind of take a quick gander at the liquidity just kind of like to take a look at the at the money strikes on the call and the put side and we just kind of like to kind of see how wide is the bid ass spread well five cents on the call side four cents on the put side and this kind of leads us to think that there's probably some liquidity else the spread wouldn't be that narrow now the second way we could kind of test liquidity is just check the open interest when you look at the open interest there's thousands there on the call side there's uh 500 on the put side 1000 right there or higher on the 18 so there is some liquidity now if if we said in this case hey i want to maybe do a stock trade okay and i'm imagining that not every person that has a small account is going to say i'm going to do options okay let's imagine they said one of the stocks that came across in the s p 500 between 10 and 40 was kmi and they said look i want to maybe buy the stock in our first example that is a bullish trade okay and maybe in this case they wanted to buy the stock okay so they wanted to try to benefit from the trend but they also maybe want to try to grab the dividend okay now in this case let's say the investor said look we see a longer term trend line okay like an upward trend and all we're going to do is we're just going to connect the bottoms so we're just going to look and see where did the stock go up and then pull back to up pull back two up pull back two and this line is where the stock pull back to here here and here and what you'll notice is lately we haven't pulled back okay so in this case what you're going to notice is we see on this chart that that 1818 is probably going to be that area of seaport now if 1818 was the support area okay 1818 less let's say three percent for support the first trade we're going to look at here is setting a stop at 17.63 now
i'm going to kind of say a kind of a comment here that i i think we need to kind of uh think about when someone has a smaller account number one it's almost it seems like people might be day trading i don't necessarily think that has to be the case number two they might be doing more swing trading that's fine but i think for example that's like owning from days to weeks but i think it makes sense to have some things where you're trying to hold some positions for some length of time the sometimes the bigger money is not getting in and out in and out in and out sometimes that bigger capital potentially can be in holding trends now i remember back in 2003 there was a small company called apple trading for 13 a share yeah that was before the split or before two of them i remember back in 1998 that amazon was 18 a share house well i won't say that how foolish it would have been probably to be getting in and out in and out in and out i remember microsoft never used to get above ford ever home depot too and so getting in and out and in and out i'm going to caution you on that because sometimes there can be some strong trends and the investor might want to try to expose themselves to those trends or companies they might think have a competitive advantage boy don't you wish you could go back now in this case we have let's say we looked at this trade and let's imagine the investor has fourteen thousand dollars well if we bought let's say a hundred shares of stock at for example let's say nineteen dollars this would really be nineteen hundred dollars of capital on a fourteen thousand dollar account this would represent about 13.5 percent of the account so if each one of the positions was like this okay that really means in this case the portfolio could really do about seven stock trades which is not bad considering the investor really has fourteen thousand dollars okay now if we take a look at this what you're now going to notice is if we go confirm and send there's a long trade bullish on the shares of kmi if the stock were to go down it would really lose about a hundred and fifty dollars on a fourteen thousand dollar account and which means they would lose about one percent of the account value okay so it's not bad and now what you're going to notice is there's a capital that's involved and there's the shares okay so i'm going to say something again and we're going to move to the next example that's an option trade i think maybe cons i'm going to kind of say the word foolish foolish might be to be a super active trader foolish potentially could be uh maybe just not trying to ride some some longer term type of trends and maybe foolish might be that the investor thinks they have to do all options we're kind of saying that's probably not necessarily true now what we're going to show match is an option trade so we're not we're just saying that it's okay to actually consider some stocks uh some stock trades or stock like trades so let's go ahead and send that order now one of the so we said stocks we said verticals cash secured puts or cash secured wide put trades and also really number four would be long verticals okay well let's go back let's say the investor said james i understand that about the s p 500 so first kind of checklist i have if i kind of ask you hey could you share with me a watch list of 20 stocks that you look at on a daily basis go ahead and send those to me could you because what happens is when you're investing you want to kind of really know some of these stocks like the back your hands okay if you say i'm not there yet that's assignment number one get a list of 20 stocks that you really like from a trend perspective and that you look at on a routine basis daily wait every day every day okay now let's go ahead and actually take let's go back to let's say the s p 100 list okay why are we choosing that well when we look at the s p 100 list what i'm going to do here in this case is let's say the investor said you know what james i want to maybe look at some stocks that are a little bit higher priced and so if someone said i have a smaller dollar account okay can they trade some of these bigger dollar stocks well yes that's what the verticals is all about okay or the short vertical put spreads or white put spreads now the example that i'm going to choose here is a small company called mickey d now you could also call the double top formation company let me get that later now if you look at this on mcdonald's what you're now going to notice is we see a stock that runs up stock to pull back in basis 206. then it broke out of resistance and what you're going to notice is we had a new basis support build at 228 so who cares did someone get in at 228 well paper money count has not gotten in yet well so if we take a look at this break out of resistance check pull back to the old resistance check bounce off potential support kind of looks like it's trying to do that now and those earnings are really coming up right in this area of about 728 now by the way i want to go back okay to some quick questions i think we can address right here can you start with five thousand dollars for doing options sure okay so on this next trade let's imagine that the paper money account had okay five thousand dollars a roof says kmi long synthetic well i didn't choose a long synthetic on that because number one is a 14 stock but the second reason was that yield was five point six three percent okay and i kind of said geez maybe we're going to kind of use some of the capital there which was about 13 of the hypothetical 14 000 account and maybe try to use the capital to a stock that had a little bit higher yield and do not be foolish to think that those yields don't add up because they can okay now if we take a look at this let's say the investor said i got a 5 000 account and i'm considering upon getting in options so first off remember what i kind of said to my son when he said dad do you have any words of advice for someone who's starting with a smaller dollar account and i said to him yeah my words of advice don't have a smaller dollar account what do you mean by that dad well first off is don't buy garbage okay you have two things your time and your capital make sure that you're saving and i know this is for some a lost art okay save some money okay if someone says well i work 20 hours a week we'll work 40 hours a week okay the biggest thing is you'll find that all the people typically that they accumulate money they work really hard and they take the two seat to to seeds they have time and capital and they use them wisely and what you'll find is when you actually really are a good steward of your time and your money you'll tend to notice that you don't typically have a smaller account okay that it grows with the potential appreciation of the trades but also is that your savings accumulates okay so just wanted to say that now if we go look at mickey d's we're assuming that we have a five thousand dollar account okay now let's say that the investor said james i want to do in this case maybe like when we think about a bullish type of trade we typically think and when it both type of vertical trade we typically would think about a short vertical put we'll start there but then we also might think about a long call vertical very similar but if we come over and let's say in this case said you know what james i want to do a short vertical put well first off what i need you to understand is what is the implied volatility like on mickey d's it's not very high okay now in my mind when i think about different levels of volatility in my mind i think like 15 to 24 is like probably low 25 to 34 kind of more like medium and if i'm thinking like higher i'm thinking like 35 in above so this would be in the lower basket and so what that really means is if someone says lower implied volatility equals what well what it typically means is if they try to go sell an option or do a vertical put spread they might make a comment like well there's hardly any money well we knew that because the implied volatility was lower so that might cause us to really change the type of strategy we do okay so in this case where it's a 10 wide spread and the credit is only a dollar 13. okay the investor might say that's not necessarily what i'm really looking for okay they might say lower implied volatility might mean more about buying of the option not a short put spread but a long call spread now let's guess a long call spread is covered call like okay what do you mean by that well instead of actually owning the shares the paid money account is really buying a call and that's the right to buy the shares at the strike price thinking that the stock could go up okay now wonder if the stock doesn't go up well in this case the investor is actually going to also try to sell a call above okay so the cover call the investor buys the shares and then sells the call okay cover call but here we don't have the shares we have five thousand dollar account well in this case if the investor said i'm going to buy the 230 call and in this case what i'm also going to do is just going to go to buy vertical now what you're gonna notice is the capital now remember if we had five thousand dollars okay if we had five thousand dollars to debit or how much we're actually paying per contract what i need you to really understand here is in this case okay what we now actually see in this case is we're investing or paying six dollars okay now how much could the investor lose 600 if it went to a hundred percent loss now if we did this trade how much we know what it's cut what's coming out of pocket but is there any little maybe details that we're missing well we pay six dollars and that buying power effect is not sixty thousand dollars or twenty thousand it's what the investor puts in okay now the max profit is just going to be the spread from 230 to 240 that's ten dollars but we're actually paying six okay so the max profit in this case is really 399 dollars and the max loss is just what the investor invested okay so let's imagine the investor had five thousand dollars trade number one was a long call spread on mcdonald's now wait why did the people paperworn account not do a selling strategy can anyone actually tell me why it did we did not do a selling strategy what was the reason there was two reasons just give me one of them okay now by the way when we do this it's going to go cost of the trade is 600 a dollar 30 because it's going it's buying a call and selling a call and the other thing to actually make mention of is the break-even okay the break-even expiration is really at 236.01
anything above that would be potential gravy okay now if the investor actually sends this order there it is so the reason why the paper money account did not do okay a selling strategy using implied volatility was so low it was really a credit of just a dollar but the risk was nine okay and that's what kind of happens was when that implied volatility is so low when the investor considers the selling strategies the numbers don't really work okay now by the way we talked so we're talking about stocks we said verticals cash secured puts with protection and then a fingers okay long synthetic it's kind of hard to hold up those four fingers now so we talked about stock okay we did the example there okay uh second example we did a vertical at long call vertical and the third one we're really going to do in this case is really a cash secured put but with downside protection okay so if someone came you know if i kind of went back and said geez what strategies do i wish i would have focused on well first off stocks are stocks stocks actually have dollar for dollar exposure some people want exposure to the trend they want the exposure to the dividend makes sense but when we actually look at vertical spreads it kind of gives a nice id nice way to play probability and it's not that expensive and there's defined risk now sometimes people like cash secured puts but with a lower dollar account they might say well i can't do that it's too expensive well let's go take a look at for example some of these stocks and i'm going to use an example let's go bring back up if you don't mind i'm going to bring up uh just real quick i'm going to look at my other screen here and i'm gonna look at stocks just today so if we actually took a look at let's say a uh i'm just taking a look at this other screen and let's say the investor said you know what james one of the stocks that we're actually seeing let's say it's oracle okay now let's now by the way oracle has been a stock that's actually been on a pretty strong trend okay now i'm actually doing this on purpose because the stock actually has earnings upcoming the stock is really ran up pulled back and then bounced how many investors wish they would have bought right there stock went up pulled back and some investors said geez i wish i would have bought after the pullback but the red candle scared me the stock went up pulled back and we don't know what's going to happen by the way they didn't know what's going to happen here they didn't know what was going to happen here either now if we take a look at this let's say the investor decides it's an 82 stock and they say look if we had a 14 000 account let's say the investor said i want to sell a put well selling a put by itself okay remember is the obligation to buy the stock from now until expiration at the strike price okay so it's not just an expiration at any time prior to expiration now wait what were let's let's talk about this okay let's say we had a 14 000 account and and all of a sudden someone put to me their shares what does that mean in english well that would mean that we would have a hundred shares of stock at 82.50 wait if i had 8 250 worth of stock and my whole account was 14 thousand dollars now i feel like i'm all invested in my account at or in oracle okay if that were to happen tell me what we could consider okay if all of a sudden if 70 of our money is invested in one trade all of a sudden boom prior to expiration nobody told me this yeah we did but let's say that you didn't hear it well if that were to happen the following day or that day or the following monday if this was expiration or okay on the weekend what we could actually do is we could just sell the shares on monday i kind of hope the shares actually went up on monday so you could sell those shares at a higher price you could sell none of the shares you could sell all of the shares you could sell some of the shares okay so if that were to happen it doesn't have to be like oh my gosh i can't do anything no they're your shares now you can do with them what you want sell all of them sell some of them sell none of them okay the investor doesn't have to freak out while it is a bigger percentage of that portfolio at that point in time yes just know that they're now your your shares and you could sell all none or some okay now let's say we go look at the confirm and send and the problem is actually here is if the investor sells off one contract the buying power ties up eight thousand dollars so if we had fourteen thousand dollars 8 000 would be put on the side that's really held like in a reserve for the potential ownership of these shares well a lot of investors with really fourteen thousand dollars would say i can't do that well can't do that until we actually think about how it works well if we knew about verticals with what we just talked about we might say hey whoa so maybe the risk isn't not down to zero okay well if we did this let's go back and change this let's say hey one of the things we know is could the investor in this case assuming let's say a fourteen thousand dollar account okay we're going to right click we're gonna sell and we're gonna go to vertical now hey this is like what we did before but it's going to be a little different now we know in a vertical you can change what strikes you pick now the investor by buying a put below the strike what does it do well it gives the investor a right to sell the shares so the risk is not down to zero the risk is down to where the investor buys the pet so example given let's say the investor said you know what i'm going to buy a put cheap okay maybe less than a dollar maybe they buy a put at 75 and if they buy a put at 75 and this is how simple just think of this okay whatever strike the investor sells that's where they have an obligation to buy the stock okay so they have an obligation to buy the socket 8250. wherever they buy the pack that's where they have a right to sell now wait if we bought an 8250 and we have a right to sell at 75 what is that difference well it's 7.50 but but you got a credit okay you got to credit and so that actually means that the max loss would not be about seven dollars and fifty cents the max loss and then the buying power would be 543 so if someone was in a 14 000 account and said well i can't do cash secured puts must be nice to have money you ever heard that before now where i live in kentucky they would say boy it must be nice must be nice to have some money honey okay so so here's the deal when you're talking to people that typically have a smaller account they don't really have set strategies that's why we said the learning outcome we gotta narrow in on some strategies number two when you talk to people that might have a smaller account they don't really have a set list of stocks stocks okay that are stock considerations we said the s p 500 stocks might maybe between potentially ten and forty dollars if you get above forty dollars it's probably going to be tougher to buy let's say a hundred shares a star that's why we said 10 to 40 now why did you say 10 why can't we do stocks that are less than 10 well if you go less than 10 probably it might not be on the s p 500 list and the other reason we want 10 is we want some uh if you think from an institutional point of view we typically want some institutional interest stocks that are like four dollars don't typically drive institutional interest now harold says be careful jb well you gotta remember uh my wife was down in louisville yesterday at the cattle farm and uh by the way i love kentucky i've lately uh my wife uh she wants to move and uh i i would thoroughly love to go back to kentucky i really would harold i don't know i might be coming back to bowling green okay love it okay parents still live there my kid's there right now so it's if you haven't been to kentucky good place now if we take a look at this let's say the investor sends the order okay now if we do this in a fourteen thousand dollar account now it it is really a cash secured put but it's really buying a put for safety below so if someone said wow buying a cash security or selling a cash secured put is risky well it really is the buying of the potential stock and what the investor is also doing is they're actually kind of just putting a safety net just right below okay now uh the comment is why not sell two options okay well we're just kind of matching them we're selling one option and then we're buying one now when we buy an option what does that do to the initial credit it lowers it okay but it's not necessarily that bad because it does free up the capital okay to do other things with and speaking of that let's so we talked about a stock we talked about a vertical trade a long call vertical we just did a long excuse me a cash secured put that really uses a wider strike to try to play in that space or strategy of cash secured puts okay but it's kind of like a vertical and then what you're going to notice in this case let's tackle that last strategy okay now when people have a smaller dollar account they might say well what i'm going to do is i'm going to do like long calls okay well the con about that is if they had a 14 000 account and they bought a whole bunch of long calls yeah they they're less expensive the con about that is it's negative time decay they can do that okay but wonder if they said james i kind of want to not be on the negative theta side i want to try to maybe collect time decay or numb the time decay and i just want to get exposure really to the trend okay now that actually makes sense okay now what i'm going to do is i'm going to go back first of all i'm going to tackle what we just did but i'm going to ask you to guide me through the strategy so wonder let's let's kind of we just took the step of doing a short wide put spread okay let's start with that and then we're going to do is take the next step okay so if i told you let's practice a short wide put spread on microsoft a 258 stock if we did that tell me what strike you might consider go ahead and tell me what strike might you consider harold i've been thinking about old scottsville road uh i can't remember exactly that uh little subdivision out there but off old scottsville road that's what i've been thinking about yeah or old scotty lived out there now what you're gonna see is if we look at the delta okay we're kind of looking at that column first delta's 40 then you actually have a delta of 29. if the investor said james i want a lower probability of maybe being below the strike at expiration not higher they might sell the 250s okay now remember what we said before is maybe the investor buys a put maybe less than a dollar or another way you can look at that maybe they're just going to buy a put with a delt of 10 or less why that why not even lower just goes back to the good old liquidity so first step we're going to do here is we're going to sell the put at the 250 with a 29 delta and then number two okay we're gonna buy a put that's maybe less than a dollar or another way you could look at it is maybe with a delta 10 or less well that would in this case really be the 235 now remember when the investor buys the put it does take away from some of that credit but it doesn't make it where we have to tie up as much money okay so if we had a 14 000 account you got 250 235 that's 15 and if you go look at the confirm and send what you're going to notice here in this case is how much money is it tying up well the buying power effect in a ira account it's thirteen hundred dollars so that would be about ten percent okay of really the capital now this right here is a max gain type of trade okay the problem with this is if microsoft keeps going up if it would i'm not saying it's going to but if it did okay this does not allow for unlimited upside well what we're going to do in this case is the paper money account is going to go over and maybe buy a call now if an investor was bullish on the stock if they were they might choose an option that is more at the money or slightly or one strike out of the money the paper money account in this case is going to choose the 260 which is the strike price closest to the current stock to do that we're just going to say first trigger is seq okay first get in that short put widespread and then we're going to take step number two just buying the long call now if we buy that long call what is this strategy well it's like a long synthetic strategy okay where you have a long call that's what's on the bottom check but then you kind of have that short put that we talked about as well that's trying to reduce the debit okay and lower the break-even and numb more so the time decay okay how many people do you know they had smaller dollar accounts that entered long calls where time decay really hurt them okay so be careful of that okay now if we take a look at this if we go to confirm and send how much money is it tying up remember if we had a 14 000 account okay capital coming out of the pocket well collecting 1.92 but paying
five dollars so the debit here is really going to be about 308 dollars okay plus about two dollars in commission so it's about 310 bucks that's coming out of the pocket the buying power effect or the collateral is really in this case eighteen hundred dollars okay now in this case what you're going to notice if that's fine the investor can send the order now this might have been taboo for some people i can't believe you did that didn't even set up a stop well first off the paid money account likes those orders to fill and it's just gonna set the stop on the long call and then the stop on the short put that's it okay but i like those orders to fill first and then just have an exit for the long call and the short put okay now so what is the trade call i still think of this really as a long synthetic but what it's really doing is it's really just the extra step there if you will harold it's just really using a bought put to help reduce the buying power or the collateral because the investor is selling a put okay now what i just showed you these four strategies stock long call vertical cash secured put and a long synthetic these are probably four pretty realistic strategies now wait stock and a long synthetic those are very similar and i would absolutely agree isn't a cash secured put in a long synthetic yes it is so kind of similar there as well isn't that cash secured put the potential to buy the stock yes it is so why the why someone thinks that there's they're actually in their mind four different strategies three out of four are very identical okay not so much different as we thought stock and cash secured put stock is you actually buy the stock now cash secured put is you have the potential to buy the stock those two almost identical cash secured put is half of what a long synthetic is okay so that's what's kind of nice is when you start to realize wow they're not four different things there's really like two main strategies okay that we talked about even though it looks like there's four slight differences but not much okay now also real quick as we do this i want to give us a quick reminder i got to wrap it up here the trades so we did the microsoft trade we also did for example the kmi trade and the oracle trade and the other trade that we actually did here today was mickey d the double top formation company okay all right so okay good so how many trades do we do we do four now by the way uh okay we got that just going back to see if we missed any questions that order of microsoft just filled okay now i want to go back just real quick to any questions i see if i can't answer i think i got as many of those uh yeah harold actually the screen when i looked at the s p 500 and we just kind of looked at we just looked at the stocks based upon the price level okay from 10 to 40 dollars okay so i'm out of my time here today now uh today we spent more time on bullish examples than four examples there we talked about defining a set some set strategies okay and realizing we're not trying to become the master of everything three out of four of these strategies were similar if not almost identical okay what we also want to do is really practice creating a stock watch list we might use the s p 500 and might look at stocks between the 10 to 40 that way if we wanted to buy some stocks okay we have some potential there that are probably liquid on stocks and also on the options as well okay now if you notice i'm not barber i grew up in ithaca in new york barbara spent a lot of time in toronto so we might have a similar accent okay we were six hours away from each other but uh hopefully you enjoyed today's session we talked about four uh defining set strategies using a lower dollar account value we did four trades different variation i will tell barbara which ones we did that way she can actually follow through on my as well next week now also remember i want to kind of make mention that uh coming up right at the top of the hour let's kind of just verify this and we'll kind of wrap it up but uh coming up let's say uh at the top of the hour not in 10 minutes getting started with uh the td ameritrade website so check that out right at the top of the hour connie hill will be doing it at 12 eastern getting started with stock investing okay so thank you so much for your comments and your participation if you enjoyed today's session just reach out and just smash that like button subscribe to the trader talk channel and investor insights that way you could see all of our videos right on your mobile device all right with that said take care thank you so much bye
2021-06-15 23:37
