1 00:00:00,840 --> 00:00:04,240 Speaker 1: What's up, everybody? Welcome to financial heresy, where we talk 2 00:00:04,280 --> 00:00:06,640 Speaker 1: about how money works so that you can make more, 3 00:00:07,120 --> 00:00:11,000 Speaker 1: keep more, and give more. Today we are going to 4 00:00:11,119 --> 00:00:15,320 Speaker 1: be talking about something called options. Some of you may 5 00:00:15,320 --> 00:00:19,279 Speaker 1: be familiar with trading options up to this point. Some 6 00:00:19,360 --> 00:00:21,919 Speaker 1: of you may have heard of them and thought, man, 7 00:00:21,960 --> 00:00:25,079 Speaker 1: that sounds a little bit too dangerous. I don't want 8 00:00:25,079 --> 00:00:28,120 Speaker 1: to ever get my hands dirty with something like that, 9 00:00:28,200 --> 00:00:32,640 Speaker 1: because I'll probably just lose money. The reality is that 10 00:00:32,800 --> 00:00:38,360 Speaker 1: options are a tool, and just like any tool, they 11 00:00:38,440 --> 00:00:42,720 Speaker 1: are useful for a specific task. And so if you 12 00:00:42,880 --> 00:00:46,199 Speaker 1: go into a job site with a tool belt that 13 00:00:46,400 --> 00:00:49,279 Speaker 1: just has hammers in it, you're not going to be 14 00:00:49,400 --> 00:00:52,839 Speaker 1: very effective if suddenly you need to cut something in half. 15 00:00:53,240 --> 00:00:56,639 Speaker 1: So you need to have as many tools at your 16 00:00:56,640 --> 00:00:59,600 Speaker 1: disposal as possible if you want to be as effective 17 00:00:59,720 --> 00:01:04,560 Speaker 1: as possible at accomplishing a task. So if the task 18 00:01:04,800 --> 00:01:11,160 Speaker 1: is let's say, increasing your total wealth maximizing your total 19 00:01:11,200 --> 00:01:16,280 Speaker 1: return over time, then even if you decide never to 20 00:01:16,440 --> 00:01:20,160 Speaker 1: use options, they are still a tool that it would 21 00:01:20,160 --> 00:01:23,160 Speaker 1: be wise to have in your tool belt, so that 22 00:01:23,240 --> 00:01:26,119 Speaker 1: if a situation comes up where that is the best 23 00:01:26,120 --> 00:01:29,240 Speaker 1: tool to accomplish your goal, you at least know how 24 00:01:29,280 --> 00:01:32,680 Speaker 1: to do it. The example that I always give for 25 00:01:32,920 --> 00:01:36,160 Speaker 1: options is that they are like, it's like a sharp 26 00:01:36,319 --> 00:01:40,319 Speaker 1: kitchen knife in the hands of a child who doesn't 27 00:01:40,360 --> 00:01:43,160 Speaker 1: know how to use a knife that is very dangerous, 28 00:01:43,200 --> 00:01:45,680 Speaker 1: like they're going to cut themselves or they're going to 29 00:01:45,760 --> 00:01:48,960 Speaker 1: cut somebody else. That's not smart. But you put that 30 00:01:49,040 --> 00:01:52,880 Speaker 1: same exact knife in the hand of a seasoned chef 31 00:01:53,240 --> 00:01:56,480 Speaker 1: and it will be, you know, beautiful, It'll be elegant, 32 00:01:56,600 --> 00:01:59,000 Speaker 1: They'll be able to use it extremely effectively, and it 33 00:01:59,040 --> 00:02:01,240 Speaker 1: won't be dangerous at all. They'll be able to accomplish 34 00:02:01,280 --> 00:02:03,440 Speaker 1: all of their tasks of cutting whatever they need to cut, 35 00:02:04,040 --> 00:02:07,640 Speaker 1: and it will not be used incorrectly. It'll be used correctly, 36 00:02:08,040 --> 00:02:10,160 Speaker 1: and they'll be able to accomplish their goal much better 37 00:02:10,200 --> 00:02:13,000 Speaker 1: than if they were given a dull like a butter knife. 38 00:02:13,720 --> 00:02:18,240 Speaker 1: And so that's exactly what options are. And throughout this episode, 39 00:02:18,440 --> 00:02:21,760 Speaker 1: I'm going to explain some of the basic mechanics because 40 00:02:22,120 --> 00:02:26,120 Speaker 1: I think that for most things in life, we fear 41 00:02:26,480 --> 00:02:29,520 Speaker 1: only what we do not understand. And the more you 42 00:02:29,600 --> 00:02:34,720 Speaker 1: understand something and comprehend how it works, then you understand 43 00:02:34,760 --> 00:02:40,000 Speaker 1: how you can control that thing. And so my journey 44 00:02:40,040 --> 00:02:42,920 Speaker 1: with options started when I became a stockbroker. I had 45 00:02:42,960 --> 00:02:46,600 Speaker 1: never even heard of them before, and I became a stockbroker, 46 00:02:46,639 --> 00:02:50,600 Speaker 1: and instantly it was just like number one, this sounds 47 00:02:50,639 --> 00:02:53,079 Speaker 1: like the most confusing thing I've ever heard. But number two, 48 00:02:53,160 --> 00:02:55,720 Speaker 1: this sounds like the most magical thing I've ever heard of. 49 00:02:56,880 --> 00:02:59,600 Speaker 1: And I heard, Okay, So there's these things called calls, 50 00:02:59,639 --> 00:03:03,120 Speaker 1: and there's these things called puts, and you can buy 51 00:03:03,120 --> 00:03:08,040 Speaker 1: and sell them to make money on what the stock does. 52 00:03:08,160 --> 00:03:10,160 Speaker 1: And so you're buying and selling the calls and the puts, 53 00:03:10,280 --> 00:03:13,040 Speaker 1: not the stocks, but depending on what the stock does, 54 00:03:13,160 --> 00:03:15,079 Speaker 1: you'll either make money or lose money with the call 55 00:03:15,160 --> 00:03:20,440 Speaker 1: or the put. And so I instantly was extremely curious 56 00:03:20,560 --> 00:03:25,000 Speaker 1: and spent a really decent amount of time learning about 57 00:03:25,040 --> 00:03:27,480 Speaker 1: them and trying to understand how they worked, and then 58 00:03:28,000 --> 00:03:33,160 Speaker 1: spent the next few months after that learning or I 59 00:03:33,200 --> 00:03:37,040 Speaker 1: should say, paying down the stupid attacks and instead of 60 00:03:37,640 --> 00:03:39,360 Speaker 1: you know, a lot of some people, if they want 61 00:03:39,360 --> 00:03:41,920 Speaker 1: to learn about something, they'll pay for a course, they'll 62 00:03:41,960 --> 00:03:44,320 Speaker 1: pay for somebody to teach them, they'll do someone on 63 00:03:44,320 --> 00:03:48,280 Speaker 1: one coaching something like that. Other people like myself, will 64 00:03:48,680 --> 00:03:51,680 Speaker 1: pay a lot more money to learn it but how 65 00:03:51,800 --> 00:03:54,080 Speaker 1: money will go towards just paying for all of the 66 00:03:54,160 --> 00:03:57,240 Speaker 1: stupid mistakes that you make along the way when you're 67 00:03:57,320 --> 00:04:00,320 Speaker 1: learning about how to do something, you know, like using offs. 68 00:04:00,920 --> 00:04:05,200 Speaker 1: And so that was my journey, journey with options and 69 00:04:05,600 --> 00:04:08,080 Speaker 1: UM eventually got to the point where you know, I 70 00:04:08,200 --> 00:04:12,720 Speaker 1: was I was training other stockbrokers on how to use 71 00:04:12,760 --> 00:04:16,880 Speaker 1: options for both themselves and for clients accounts, trading options 72 00:04:16,880 --> 00:04:20,279 Speaker 1: for clients and UM and so I have a long 73 00:04:20,400 --> 00:04:24,240 Speaker 1: history with these things. I love. I actually really enjoy 74 00:04:24,920 --> 00:04:31,039 Speaker 1: options because they are so uh what's what's what's the 75 00:04:31,120 --> 00:04:34,640 Speaker 1: right word? Um? You can you can do so many 76 00:04:34,640 --> 00:04:37,400 Speaker 1: different things with them if you really understand how they work. 77 00:04:37,760 --> 00:04:41,200 Speaker 1: You can combine them in ways to achieve uh, you know, 78 00:04:41,279 --> 00:04:45,320 Speaker 1: any outcome. So, whether you want to make money on 79 00:04:45,360 --> 00:04:48,599 Speaker 1: the stock market overall or individual stocks, whether you want 80 00:04:48,600 --> 00:04:52,240 Speaker 1: to uh produce income on a position that doesn't have dividends, 81 00:04:52,240 --> 00:04:54,919 Speaker 1: whether you want to head your portfolio, or whether you 82 00:04:54,960 --> 00:04:56,880 Speaker 1: think if the market's going to go sideways you want 83 00:04:56,880 --> 00:04:58,560 Speaker 1: to make money on that, or if it's going to 84 00:04:58,640 --> 00:05:00,800 Speaker 1: go down you want to profit off them going down, 85 00:05:01,120 --> 00:05:02,280 Speaker 1: Or if it's going to go up, or if it's 86 00:05:02,279 --> 00:05:03,960 Speaker 1: going to go down, and then up, or up and 87 00:05:04,040 --> 00:05:06,479 Speaker 1: then down, or you think that it's got a good 88 00:05:06,560 --> 00:05:08,560 Speaker 1: chance of going up, but it might go sideways and 89 00:05:08,600 --> 00:05:10,800 Speaker 1: it probably won't go down. It's like, no matter what 90 00:05:10,839 --> 00:05:13,200 Speaker 1: you think the market is going to do, there's a 91 00:05:13,240 --> 00:05:15,840 Speaker 1: strategy you can use that we'll be able to profit 92 00:05:15,880 --> 00:05:18,320 Speaker 1: on that. Not only that, but there are so many 93 00:05:18,320 --> 00:05:20,520 Speaker 1: different ways to structure each one of those. So like, 94 00:05:20,560 --> 00:05:22,440 Speaker 1: if you think the market's going to be, you know, 95 00:05:22,720 --> 00:05:25,640 Speaker 1: be going up, there's going to be you know, ten 96 00:05:26,000 --> 00:05:29,599 Speaker 1: different strategies you could use to make money on that, 97 00:05:29,640 --> 00:05:33,600 Speaker 1: and they each have their own risk and reward payoffs, 98 00:05:34,279 --> 00:05:37,680 Speaker 1: and so it's it's vital to understand how these things 99 00:05:37,720 --> 00:05:40,320 Speaker 1: work because you'll most likely, i mean, with the market 100 00:05:40,360 --> 00:05:42,560 Speaker 1: the way it is today. The market is, you know, 101 00:05:42,720 --> 00:05:46,039 Speaker 1: most people are losing money in their positions. They're they're 102 00:05:46,080 --> 00:05:49,280 Speaker 1: buying down and they're just averaging in and then once 103 00:05:49,360 --> 00:05:50,960 Speaker 1: they've lost a little bit, then you're going to sell 104 00:05:51,000 --> 00:05:52,640 Speaker 1: and move on to the next stock. And by the 105 00:05:52,640 --> 00:05:54,919 Speaker 1: time you've heard about that, all the insiders have already 106 00:05:54,920 --> 00:05:58,160 Speaker 1: started getting out. So it's like you're gonna realize there 107 00:05:58,160 --> 00:06:01,159 Speaker 1: are lots of situations where you could have the same 108 00:06:01,200 --> 00:06:07,520 Speaker 1: profit potential and minimize your total risk by using options instead. 109 00:06:07,720 --> 00:06:12,800 Speaker 1: So they're extremely powerful for any type of situation that 110 00:06:12,839 --> 00:06:16,039 Speaker 1: you want to go into. So let's get into this. 111 00:06:16,080 --> 00:06:18,360 Speaker 1: I'm going to kind of break down the mechanics and 112 00:06:18,440 --> 00:06:22,400 Speaker 1: how they work and some of the very basic strategies 113 00:06:22,400 --> 00:06:25,000 Speaker 1: and what you can do with them, and if you're 114 00:06:25,040 --> 00:06:28,400 Speaker 1: interested afterwards, I do have a new options course that 115 00:06:28,520 --> 00:06:31,600 Speaker 1: is coming out soon. It's available for pre order. There's 116 00:06:31,640 --> 00:06:34,600 Speaker 1: a bundle bonus if you use the link in the 117 00:06:34,800 --> 00:06:38,600 Speaker 1: show notes, or you can go to my website as 118 00:06:38,640 --> 00:06:42,640 Speaker 1: well to find these courses. In any case, though, we're 119 00:06:42,640 --> 00:06:44,960 Speaker 1: going to break down the mechanics and how they work 120 00:06:44,960 --> 00:06:46,560 Speaker 1: in some of the basic strategies so that you can 121 00:06:46,600 --> 00:06:49,960 Speaker 1: kind of get a handle on this. So options, there 122 00:06:49,960 --> 00:06:51,960 Speaker 1: are two types of options. There are calls and there 123 00:06:51,960 --> 00:06:55,320 Speaker 1: are puts. These are the names for them, and so 124 00:06:55,360 --> 00:06:58,840 Speaker 1: that's more of just a memorization thing. There's calls and 125 00:06:58,880 --> 00:07:04,279 Speaker 1: there are puts. Options are contracts. So just like any 126 00:07:04,279 --> 00:07:07,480 Speaker 1: other contract in life, if if you sign you know, 127 00:07:07,839 --> 00:07:12,480 Speaker 1: a marriage contract or an insurance contract, any contract, that's 128 00:07:12,480 --> 00:07:16,440 Speaker 1: what options are. As with any contract, there's one party 129 00:07:16,480 --> 00:07:20,320 Speaker 1: that has rights and there's one party that has obligations, 130 00:07:21,440 --> 00:07:25,480 Speaker 1: and so for instance, you've got you've got car insurance. 131 00:07:26,920 --> 00:07:29,800 Speaker 1: When you sign that contract and you and you and 132 00:07:29,880 --> 00:07:33,360 Speaker 1: the insurance company open up that contract with each other, 133 00:07:33,840 --> 00:07:36,000 Speaker 1: you are the buyer of that contract and they are 134 00:07:36,000 --> 00:07:39,200 Speaker 1: the seller of that contract, because you know, it's not 135 00:07:39,280 --> 00:07:41,720 Speaker 1: something that they bought beforehand that they're just passing along 136 00:07:41,760 --> 00:07:44,040 Speaker 1: and selling to you. Like you know, a grocery store 137 00:07:44,040 --> 00:07:46,120 Speaker 1: buys a banana from the distributor and then sells it 138 00:07:46,160 --> 00:07:49,920 Speaker 1: to you. Contracts are different. The contract is created at 139 00:07:49,920 --> 00:07:53,080 Speaker 1: the time of the sale, so they're selling this contract 140 00:07:53,080 --> 00:07:55,680 Speaker 1: to you as it's created, and you're buying it from 141 00:07:55,720 --> 00:07:58,560 Speaker 1: them as it's created, and that gives you certain rights. 142 00:07:59,520 --> 00:08:01,240 Speaker 1: One of those rights would be, you know, if your 143 00:08:01,440 --> 00:08:05,240 Speaker 1: car gets totaled in an accident, then you have the 144 00:08:05,360 --> 00:08:08,080 Speaker 1: right to have the insurance company pay for a new 145 00:08:08,120 --> 00:08:12,360 Speaker 1: car for you. And then the insurance company likewise has 146 00:08:12,480 --> 00:08:16,440 Speaker 1: obligations that they're taking on, which is, you know, there 147 00:08:16,480 --> 00:08:18,960 Speaker 1: they will be obligated to buy you a new car 148 00:08:19,040 --> 00:08:22,680 Speaker 1: if your current car gets totaled, and you're paying for 149 00:08:22,720 --> 00:08:26,440 Speaker 1: those rights because you're paying them that monthly premium and 150 00:08:27,000 --> 00:08:33,679 Speaker 1: that insurance company is receiving income in compensation for their obligations. 151 00:08:35,160 --> 00:08:38,280 Speaker 1: And so I want you to think about options in 152 00:08:38,320 --> 00:08:43,079 Speaker 1: that way. It makes the terminology make a little bit 153 00:08:43,080 --> 00:08:46,200 Speaker 1: more sense thinking about it that way. So we've got 154 00:08:46,240 --> 00:08:49,440 Speaker 1: calls and we've got puts. Those are the two types 155 00:08:49,679 --> 00:08:53,600 Speaker 1: of option contracts. So we're going to focus first on calls. 156 00:08:54,800 --> 00:08:59,400 Speaker 1: A call gives the buyer of the call the right 157 00:09:00,120 --> 00:09:05,760 Speaker 1: to buy a stock. Likewise, it gives the seller of 158 00:09:05,800 --> 00:09:10,560 Speaker 1: that call the obligation to sell that same stock. So 159 00:09:11,320 --> 00:09:14,400 Speaker 1: you're the buyer of this call. And let's say there's 160 00:09:14,400 --> 00:09:16,680 Speaker 1: a stock that you think is going to do well 161 00:09:16,679 --> 00:09:20,520 Speaker 1: over the coming months. It's a stock. Let's say it's Tesla. 162 00:09:20,600 --> 00:09:23,480 Speaker 1: Let's say you're an Elon Musk fan and you think, hey, 163 00:09:23,480 --> 00:09:25,160 Speaker 1: it's sold off a lot. I think it's going to 164 00:09:25,240 --> 00:09:27,640 Speaker 1: do well over the coming months. It's training out around 165 00:09:27,640 --> 00:09:30,200 Speaker 1: two hundred dollars right now, so you think in six 166 00:09:30,280 --> 00:09:32,640 Speaker 1: months it's going to be back up to three hundred dollars. 167 00:09:33,600 --> 00:09:35,719 Speaker 1: Now you're looking at this and you're thinking, Okay, I 168 00:09:35,760 --> 00:09:39,600 Speaker 1: could buy a hundred shares of Tesla and throw twenty 169 00:09:39,600 --> 00:09:43,760 Speaker 1: grand into Tesla, and then if it goes up to 170 00:09:43,840 --> 00:09:48,120 Speaker 1: three hundred, then it'll be we're thirty grand, and I 171 00:09:48,120 --> 00:09:53,240 Speaker 1: will make ten thousand dollars on my shares. You think 172 00:09:53,240 --> 00:09:56,520 Speaker 1: that's a pretty good that's a pretty good profit. Turning 173 00:09:56,559 --> 00:09:58,800 Speaker 1: twenty grand into thirty grand, you make you make ten 174 00:09:58,800 --> 00:10:00,679 Speaker 1: grand a profit off of a twenty one thousand dollars 175 00:10:00,679 --> 00:10:05,199 Speaker 1: position worst case scenario, because that is the proper way 176 00:10:05,240 --> 00:10:08,760 Speaker 1: to analyze risk, not in probabilities, but in worst case scenario. 177 00:10:09,320 --> 00:10:14,360 Speaker 1: Worst case scenario, it is in the future worth zero. 178 00:10:14,600 --> 00:10:18,880 Speaker 1: Tesla goes bankrupt, something happens, they can't sell cars, Global 179 00:10:19,000 --> 00:10:22,839 Speaker 1: lithium and cobalt get shut off, the subsidies, government comes 180 00:10:22,880 --> 00:10:25,720 Speaker 1: after them. Whatever. Let's just say they go bankrupt, Tesla 181 00:10:25,720 --> 00:10:30,319 Speaker 1: goes under. Share price goes to zero. So you're risking 182 00:10:30,360 --> 00:10:35,360 Speaker 1: twenty grand for a potential maximum profit of ten grand 183 00:10:35,920 --> 00:10:39,160 Speaker 1: if your price target is three hundred dollars per share 184 00:10:39,240 --> 00:10:45,120 Speaker 1: for Tesla. Now, let's say instead you look at the 185 00:10:45,200 --> 00:10:49,040 Speaker 1: choice of buying a call option on it. A call 186 00:10:49,120 --> 00:10:51,880 Speaker 1: option will give you, as the buyer of the call, 187 00:10:52,280 --> 00:10:55,240 Speaker 1: the right to buy Tesla. If you're going to buy 188 00:10:55,280 --> 00:10:59,040 Speaker 1: a call on Tesla. Now, as with all other contracts, 189 00:10:59,080 --> 00:11:00,720 Speaker 1: there's going to be an expert a date on this, 190 00:11:01,000 --> 00:11:05,559 Speaker 1: so let's say it expires in six months. If you 191 00:11:05,679 --> 00:11:09,440 Speaker 1: buy a call on Tesla that expires in six months, 192 00:11:10,080 --> 00:11:12,160 Speaker 1: you're going to have to say, okay, well, it'll give 193 00:11:12,160 --> 00:11:14,199 Speaker 1: me the right to buy Tesla. The question is at 194 00:11:14,240 --> 00:11:19,880 Speaker 1: what price. So let's say you say, okay, well, i'll 195 00:11:20,679 --> 00:11:22,920 Speaker 1: I'll buy a call that gives me the right to 196 00:11:22,920 --> 00:11:27,760 Speaker 1: buy Tesla at two hundred and ninety dollars per share 197 00:11:28,600 --> 00:11:32,360 Speaker 1: two hundred ninety dollars per share any time between now 198 00:11:32,760 --> 00:11:36,160 Speaker 1: and six months from now. And this call option it's 199 00:11:36,200 --> 00:11:40,440 Speaker 1: going to options are in one hundred share price multiples, 200 00:11:40,520 --> 00:11:43,760 Speaker 1: So it'll give you the right to buy one hundred 201 00:11:44,160 --> 00:11:48,240 Speaker 1: shares of Tesla at two hundred ninety dollars per share 202 00:11:49,280 --> 00:11:53,320 Speaker 1: any time between now and the next six months. Now, 203 00:11:53,320 --> 00:11:57,320 Speaker 1: this is a real option contract. This is not something 204 00:11:57,720 --> 00:12:00,760 Speaker 1: that I'm making up. This is something that actually exists, 205 00:12:01,280 --> 00:12:04,520 Speaker 1: and so I'm pulling it up right now. This would 206 00:12:04,559 --> 00:12:07,600 Speaker 1: be for September fifteenth, so it would be a little 207 00:12:07,600 --> 00:12:11,520 Speaker 1: bit longer than six months away. It's about two hundred 208 00:12:11,760 --> 00:12:14,440 Speaker 1: two hundred days. But if we look at the two 209 00:12:14,559 --> 00:12:18,320 Speaker 1: hundred ninety call, which means it gives you, the buyer 210 00:12:18,360 --> 00:12:20,719 Speaker 1: of the call, the right to buy Tesla shares at 211 00:12:20,720 --> 00:12:25,160 Speaker 1: two hundred and ninety right now, the cost of that 212 00:12:25,280 --> 00:12:33,160 Speaker 1: option is about a little under fourteen dollars um. So 213 00:12:33,240 --> 00:12:37,160 Speaker 1: it'll cost you one thousand, four hundred dollars to buy 214 00:12:37,200 --> 00:12:42,840 Speaker 1: that option contractum. That gives you the right to buy 215 00:12:42,880 --> 00:12:46,600 Speaker 1: Tesla at two ninety per share anytime between now in 216 00:12:46,640 --> 00:12:51,640 Speaker 1: the next six months. Now, that's that's a that's a 217 00:12:51,679 --> 00:12:55,200 Speaker 1: little bit of an expensive option. You know, that's not 218 00:12:55,280 --> 00:12:59,120 Speaker 1: the that's not the cheapest contract out there. But Tesla's 219 00:12:59,120 --> 00:13:02,160 Speaker 1: a pretty vaulatile I mean, it was just above three 220 00:13:02,280 --> 00:13:07,320 Speaker 1: hundred back in what like September of twenty twenty two, 221 00:13:07,720 --> 00:13:10,560 Speaker 1: so it's not really that far off to imagine that 222 00:13:10,559 --> 00:13:14,760 Speaker 1: it could get that high. So now you own this, 223 00:13:15,080 --> 00:13:17,480 Speaker 1: Let's say you buy that it costs you a fourteen dollars, 224 00:13:17,520 --> 00:13:19,920 Speaker 1: but it's for one hundred shares, so it's times one hundred, 225 00:13:19,920 --> 00:13:23,640 Speaker 1: so it's fourteen hundred dollars. You have the right to 226 00:13:23,800 --> 00:13:28,480 Speaker 1: buy test the shares at two hundred and ninety dollars 227 00:13:28,480 --> 00:13:30,920 Speaker 1: per share. You know what, instead, let's go to the 228 00:13:31,240 --> 00:13:33,280 Speaker 1: Let's go to the two eighty because this example will 229 00:13:33,320 --> 00:13:37,040 Speaker 1: work a little bit better. And I'm using real numbers here, 230 00:13:37,120 --> 00:13:42,080 Speaker 1: so so that that help that that's the reason why 231 00:13:42,120 --> 00:13:43,800 Speaker 1: this is sometimes what you have to do with options. 232 00:13:43,800 --> 00:13:46,920 Speaker 1: You have to kind of mess with things a little 233 00:13:46,920 --> 00:13:49,760 Speaker 1: bit to look at the not mess with things, just 234 00:13:49,800 --> 00:13:51,680 Speaker 1: like look at the pricing and see which one fits 235 00:13:51,679 --> 00:13:53,160 Speaker 1: your goal is better. So we're gonna look at the 236 00:13:53,160 --> 00:13:55,760 Speaker 1: two seventy five call. You have the right to buy 237 00:13:56,040 --> 00:13:58,600 Speaker 1: Tesla at two hundred and seventy five dollars per share 238 00:13:58,679 --> 00:14:02,320 Speaker 1: anytime between now and September fifteenth, So in about six 239 00:14:02,360 --> 00:14:06,720 Speaker 1: months now, that's one hundred shares at two hundred seventy 240 00:14:06,720 --> 00:14:09,240 Speaker 1: five dollars per share, and that's going to cost you 241 00:14:09,520 --> 00:14:16,160 Speaker 1: fifteen dollars. So let's fast forward and look at this 242 00:14:16,240 --> 00:14:20,040 Speaker 1: through the lens of a couple different potential scenarios. Let's 243 00:14:20,040 --> 00:14:23,280 Speaker 1: say Tesla goes up to three hundred dollars per share. 244 00:14:24,880 --> 00:14:27,520 Speaker 1: Tesla goes up to three hundred dollars per share in 245 00:14:27,600 --> 00:14:32,520 Speaker 1: six months, you now have a contract that gives you 246 00:14:32,680 --> 00:14:37,840 Speaker 1: the right to buy Tesla at two seventy five. That 247 00:14:38,000 --> 00:14:41,400 Speaker 1: is twenty five dollars under the current price. Now, because 248 00:14:41,560 --> 00:14:43,920 Speaker 1: Tesla's at three hundred, you have the right to buy 249 00:14:43,920 --> 00:14:49,040 Speaker 1: it at two seventy five, So that is twenty five 250 00:14:49,320 --> 00:14:53,720 Speaker 1: dollars per share. Under what the current stock price is, 251 00:14:55,880 --> 00:15:02,600 Speaker 1: that contract then would be worth twenty five dollars. How 252 00:15:02,680 --> 00:15:07,560 Speaker 1: much did you pay for that contract? Fifteen dollars, So 253 00:15:07,600 --> 00:15:12,080 Speaker 1: you made ten dollars on that contract. But remember that's 254 00:15:12,160 --> 00:15:19,479 Speaker 1: ten dollars times one hundred shares, and so that contract 255 00:15:19,840 --> 00:15:22,440 Speaker 1: is worth twenty five dollars because it gives you the 256 00:15:22,560 --> 00:15:27,120 Speaker 1: right to make twenty five dollars per share. And so 257 00:15:27,360 --> 00:15:31,960 Speaker 1: you buy shares at two seventy five, you sell them 258 00:15:32,040 --> 00:15:35,600 Speaker 1: on the open market at three hundred dollars per share. 259 00:15:36,240 --> 00:15:39,160 Speaker 1: You just made twenty five dollars per share times one 260 00:15:39,240 --> 00:15:42,440 Speaker 1: hundred you made twenty five hundred dollars. Times you're in. 261 00:15:42,880 --> 00:15:45,840 Speaker 1: When you subtract, you minus out. You subtract your initial 262 00:15:45,920 --> 00:15:49,080 Speaker 1: cost of the contract, which is fifteen You made a 263 00:15:49,160 --> 00:15:53,320 Speaker 1: thousand bucks. Now you made a thousand bucks profit. That's 264 00:15:53,360 --> 00:16:00,280 Speaker 1: your net gain. How much did you spend on that 265 00:16:01,080 --> 00:16:07,520 Speaker 1: You spent fifteen hundred dollars. So percentage wise, if you 266 00:16:07,600 --> 00:16:12,880 Speaker 1: make a thousand dollars off of a fifteen hundred dollar investment, 267 00:16:13,720 --> 00:16:20,400 Speaker 1: percentage wise, you're up what sixty percent? Your alternative was 268 00:16:20,440 --> 00:16:23,360 Speaker 1: to put up twenty grand to make ten grand, which, yeah, 269 00:16:23,400 --> 00:16:27,640 Speaker 1: ten grand would be a larger profit, but you're only 270 00:16:27,680 --> 00:16:31,880 Speaker 1: going to make thirty percent off of that trade. If 271 00:16:31,920 --> 00:16:36,000 Speaker 1: Tesla does the exact same thing. Not only that, but 272 00:16:36,200 --> 00:16:39,920 Speaker 1: you are risking a much larger amount of capital. You're 273 00:16:39,960 --> 00:16:44,520 Speaker 1: risking twenty grand instead of fifteen hundred. So let's say 274 00:16:44,520 --> 00:16:47,960 Speaker 1: we still want the potential to make ten grand off 275 00:16:47,960 --> 00:16:50,080 Speaker 1: of this move, Well, then all we have to do 276 00:16:50,200 --> 00:16:53,960 Speaker 1: is increase the number of contracts that we buy. So 277 00:16:54,000 --> 00:16:56,920 Speaker 1: instead of buying one contract at fifteen hundred dollars to 278 00:16:56,960 --> 00:17:00,640 Speaker 1: make a thousand dollars, we buy ten contracts at fifteen 279 00:17:00,720 --> 00:17:05,040 Speaker 1: hundred dollars to make ten thousand dollars. And so if 280 00:17:05,040 --> 00:17:09,439 Speaker 1: we buy ten contracts at fifteen bucks apiece times one 281 00:17:09,480 --> 00:17:13,760 Speaker 1: hundred times ten, we're going to spend fifteen grand. Fifteen 282 00:17:13,800 --> 00:17:16,960 Speaker 1: grand to make ten grand is better than twenty grand 283 00:17:17,160 --> 00:17:20,680 Speaker 1: to make ten grand. Now you might think, Okay, well 284 00:17:20,680 --> 00:17:24,200 Speaker 1: that's actually not that good of a deal. Those options 285 00:17:24,240 --> 00:17:28,040 Speaker 1: are pretty expensive, and sure, you might be right, and 286 00:17:28,080 --> 00:17:30,840 Speaker 1: so in that case, you would say, I'm glad that 287 00:17:30,880 --> 00:17:33,960 Speaker 1: I know how to use these options, because given the 288 00:17:34,119 --> 00:17:39,280 Speaker 1: expense on how expensive those calls are, maybe I maybe 289 00:17:39,320 --> 00:17:41,880 Speaker 1: I think that the market is already pricing in that 290 00:17:42,000 --> 00:17:44,720 Speaker 1: movement and it would be safer for me to buy 291 00:17:44,720 --> 00:17:48,359 Speaker 1: the shares, or maybe there's too much speculation that Tesla 292 00:17:48,400 --> 00:17:50,560 Speaker 1: will go up. So I'm going to be a contrarian here, 293 00:17:50,760 --> 00:17:52,760 Speaker 1: and now I want to see what the pricing is 294 00:17:52,800 --> 00:17:57,280 Speaker 1: like for Tesla to fall. So let's now look at 295 00:17:57,560 --> 00:18:00,280 Speaker 1: let's look at the opposite. There's a contract called to 296 00:18:00,359 --> 00:18:03,240 Speaker 1: put and it put you can think of as crash 297 00:18:03,400 --> 00:18:07,800 Speaker 1: insurance on your shares. So you let's say you still 298 00:18:07,880 --> 00:18:11,040 Speaker 1: think Tesla's gonna go up, so instead of doing the call, 299 00:18:11,480 --> 00:18:14,880 Speaker 1: you buy the shares. But you're not as sure as 300 00:18:14,880 --> 00:18:17,879 Speaker 1: you were before. So now instead of using calls in 301 00:18:17,960 --> 00:18:19,879 Speaker 1: place of your shares, you're just going to buy the 302 00:18:19,920 --> 00:18:22,840 Speaker 1: shares like you were going to originally, but you're going 303 00:18:22,920 --> 00:18:28,080 Speaker 1: to buy some protection on these shares as well. So 304 00:18:28,280 --> 00:18:33,200 Speaker 1: that's what puts are puts our crash insurance. So let's 305 00:18:33,240 --> 00:18:37,040 Speaker 1: take a look at what the pricing is for puts 306 00:18:37,600 --> 00:18:42,639 Speaker 1: on Tesla. Let's say we think that you know, there's 307 00:18:42,720 --> 00:18:47,399 Speaker 1: no way Tesla goes below one eighty in between now 308 00:18:47,760 --> 00:18:51,320 Speaker 1: in the next month, and so we're okay if it 309 00:18:51,480 --> 00:18:54,119 Speaker 1: bops around in between two hundred and one eighty. We 310 00:18:54,200 --> 00:18:56,200 Speaker 1: just don't think it's going to go below there, and 311 00:18:56,320 --> 00:18:58,840 Speaker 1: we want to cover our shares for the next month. 312 00:18:59,760 --> 00:19:03,640 Speaker 1: You can buy a put, just like a call. When 313 00:19:03,680 --> 00:19:06,399 Speaker 1: you buy a put, you get rights, but this time, 314 00:19:06,440 --> 00:19:08,480 Speaker 1: instead of getting the right to buy the stock, you 315 00:19:08,520 --> 00:19:11,640 Speaker 1: get the right to sell the stock. So if you 316 00:19:11,680 --> 00:19:15,840 Speaker 1: buy this put and you think that Tesla won't go 317 00:19:15,920 --> 00:19:18,560 Speaker 1: under one eighty, you're going to buy the right to 318 00:19:18,560 --> 00:19:22,680 Speaker 1: sell Tesla at one eighty because you think, to yourself, Okay, 319 00:19:22,680 --> 00:19:24,679 Speaker 1: if I'm wrong, it could go down to one hundred, 320 00:19:24,720 --> 00:19:27,560 Speaker 1: it could go down to thirty whatever, it could go 321 00:19:27,600 --> 00:19:29,760 Speaker 1: to zero, and so I want to make sure that 322 00:19:29,800 --> 00:19:32,320 Speaker 1: no matter what happens, my worst case scenario is that 323 00:19:32,359 --> 00:19:36,040 Speaker 1: I can sell shares of Tesla at one hundred eighty 324 00:19:36,080 --> 00:19:38,960 Speaker 1: dollars per share. And you can do that. By buying 325 00:19:38,960 --> 00:19:41,479 Speaker 1: this put. You can guarantee that you can sell your 326 00:19:41,480 --> 00:19:43,920 Speaker 1: shares of Tesla anytime between now and the next month. 327 00:19:44,560 --> 00:19:46,800 Speaker 1: You can sell your shares of Tesla at one hundred 328 00:19:46,800 --> 00:19:49,320 Speaker 1: eighty dollars per share. Guess how much you're gonna pay 329 00:19:49,359 --> 00:19:55,159 Speaker 1: for that right. You're gonna pay five dollars again times 330 00:19:55,160 --> 00:19:57,680 Speaker 1: one hundred, because you've got one hundred shares, but that's 331 00:19:57,680 --> 00:20:00,639 Speaker 1: still only five hundred bucks. You're spending twe any grand 332 00:20:00,800 --> 00:20:03,439 Speaker 1: on the shares. Might as well spend another five hundred 333 00:20:03,440 --> 00:20:08,840 Speaker 1: bucks to guarantee that you can't lose any money past 334 00:20:08,920 --> 00:20:13,040 Speaker 1: one eighty in the next month. Let's say Tesla goes 335 00:20:13,080 --> 00:20:15,600 Speaker 1: to zero. Well, guess what you get to sell your 336 00:20:15,600 --> 00:20:18,320 Speaker 1: shares at one eighty. Let's say Tesla goes to one hundred, 337 00:20:18,840 --> 00:20:21,080 Speaker 1: you get to sell your shares at one eighty. Let's 338 00:20:21,080 --> 00:20:23,439 Speaker 1: say Tesla goes to one sixty, you can sell your 339 00:20:23,480 --> 00:20:26,800 Speaker 1: shares at one eighty. What if Tesla goes to three hundred, Well, 340 00:20:27,920 --> 00:20:29,880 Speaker 1: you just made a ton of money, so you don't 341 00:20:29,880 --> 00:20:33,000 Speaker 1: care that you spent five hundred bucks to ensure your 342 00:20:33,080 --> 00:20:38,119 Speaker 1: stocks against a loss pass one eighty. Now, since you 343 00:20:38,160 --> 00:20:39,919 Speaker 1: have to, you have to keep in mind you're paying 344 00:20:40,000 --> 00:20:42,439 Speaker 1: for this contract. You paid five hundred bucks for it, 345 00:20:42,760 --> 00:20:45,800 Speaker 1: so you have to calculate that in mentally to what 346 00:20:45,840 --> 00:20:47,919 Speaker 1: the Tesla shares have to do for you to start 347 00:20:47,960 --> 00:20:51,280 Speaker 1: making money. Right, So it's Tesla has to go up 348 00:20:51,320 --> 00:20:53,960 Speaker 1: five bucks from here for you to pay for the 349 00:20:54,000 --> 00:20:56,600 Speaker 1: five bucks that you spent on that contract per share, 350 00:20:57,440 --> 00:21:01,320 Speaker 1: because you're out five hundred dollars now by buying that insurance, 351 00:21:01,480 --> 00:21:03,639 Speaker 1: so you need to make another five hundred dollars on 352 00:21:03,680 --> 00:21:07,679 Speaker 1: the Tesla shares to compensate yourself for that loss. But 353 00:21:07,720 --> 00:21:09,520 Speaker 1: as long as it goes up by five bucks, then 354 00:21:09,640 --> 00:21:12,159 Speaker 1: now you're breaking even. And if it goes up past that, 355 00:21:12,359 --> 00:21:14,280 Speaker 1: you're making more money all the way up. And if 356 00:21:14,280 --> 00:21:17,600 Speaker 1: something crazy happens, you know that you have ensured your 357 00:21:17,640 --> 00:21:22,399 Speaker 1: portfolio against a loss. So these are two very very 358 00:21:22,880 --> 00:21:28,159 Speaker 1: simple examples of trading options. And we saw there that 359 00:21:28,280 --> 00:21:31,720 Speaker 1: buying the call on Tesla did not have a good 360 00:21:31,960 --> 00:21:37,439 Speaker 1: risk to reward payoff scenario there. But let's look at 361 00:21:37,480 --> 00:21:41,560 Speaker 1: something that might have a really good risk to reward profile. 362 00:21:41,880 --> 00:21:46,000 Speaker 1: Let's look at SPY. Most people they invest in the 363 00:21:46,160 --> 00:21:49,600 Speaker 1: SMP five hundred. Basically, you might have a couple different 364 00:21:49,680 --> 00:21:51,560 Speaker 1: mutual funds in your four one k, but for the 365 00:21:51,600 --> 00:21:54,520 Speaker 1: most part the correlation to the SMP five hundred. You're 366 00:21:54,560 --> 00:21:56,520 Speaker 1: basically investing in a bunch of different mutual funds that 367 00:21:56,560 --> 00:21:58,200 Speaker 1: are all investing in the same stocks that are in 368 00:21:58,240 --> 00:22:02,520 Speaker 1: the SMP five hundred anyway, and so that's what most 369 00:22:02,560 --> 00:22:04,760 Speaker 1: people are investing in, so you've got you know, your 370 00:22:05,280 --> 00:22:10,880 Speaker 1: let's say forty grand in a brokerage count or an 371 00:22:10,880 --> 00:22:13,520 Speaker 1: IRA or a four O one K, and it's all 372 00:22:13,560 --> 00:22:18,040 Speaker 1: invested in basically the SMP five hundred. An alternative would 373 00:22:18,080 --> 00:22:20,320 Speaker 1: be to say, okay, well can I do this with 374 00:22:20,359 --> 00:22:24,840 Speaker 1: a better risk profile by using call options? Because if 375 00:22:24,840 --> 00:22:28,040 Speaker 1: you own one hundred shares of let's say Spy that's 376 00:22:28,040 --> 00:22:30,560 Speaker 1: an ETF that tracks the SMP five hundred, then you 377 00:22:30,640 --> 00:22:35,600 Speaker 1: have forty grand in the SMP five hundred, and that 378 00:22:35,640 --> 00:22:39,479 Speaker 1: means that you're one hundred percent invested. So worst case 379 00:22:39,520 --> 00:22:42,800 Speaker 1: scenario is that goes to zero. Now, what are the 380 00:22:42,800 --> 00:22:44,200 Speaker 1: odds of that? What are the odds of the entire 381 00:22:44,240 --> 00:22:47,920 Speaker 1: stock market every company going to zero? Probably probably pretty low? 382 00:22:48,320 --> 00:22:52,000 Speaker 1: But it is it zero? No, it's not. I mean 383 00:22:52,040 --> 00:22:56,880 Speaker 1: we've seen ETFs and investment vehicles go to zero even 384 00:22:56,920 --> 00:23:00,440 Speaker 1: if the assets that they hold technically still will have 385 00:23:00,680 --> 00:23:05,200 Speaker 1: some value, and so it's it's not. It's not something 386 00:23:05,240 --> 00:23:09,560 Speaker 1: that is entirely impossible? Is it very very very improbable? Yeah? 387 00:23:09,600 --> 00:23:12,040 Speaker 1: But okay, let's not even say go to zero. Let's 388 00:23:12,040 --> 00:23:15,520 Speaker 1: say you're risking forty thousand going down to being worth 389 00:23:15,560 --> 00:23:17,800 Speaker 1: thirty thousand or being worth twenty thousand, or being worth 390 00:23:17,840 --> 00:23:20,520 Speaker 1: ten thousand. You've got all of your cash in that 391 00:23:20,600 --> 00:23:22,880 Speaker 1: investment vehicle. Even if it's spread out between a number 392 00:23:22,880 --> 00:23:25,520 Speaker 1: of funds, it's still invested in the same stocks at 393 00:23:25,560 --> 00:23:27,840 Speaker 1: the end of the day, and so you've got all 394 00:23:27,880 --> 00:23:32,720 Speaker 1: of your money at risk of systemic collapse of large 395 00:23:32,760 --> 00:23:35,840 Speaker 1: stock market losses. So is there a way to do 396 00:23:35,880 --> 00:23:40,560 Speaker 1: this with a better risk profile. Let's see, Let's look 397 00:23:40,600 --> 00:23:46,360 Speaker 1: at spy calls for the next two months, and so 398 00:23:46,440 --> 00:23:49,760 Speaker 1: these will go out to, uh, you know, the end 399 00:23:50,000 --> 00:23:54,440 Speaker 1: of April, let's say, and we want to we want 400 00:23:54,480 --> 00:23:58,280 Speaker 1: to make money if the stock market goes up, but 401 00:23:58,480 --> 00:24:01,840 Speaker 1: we don't want to We don't want to risk forty 402 00:24:01,840 --> 00:24:06,879 Speaker 1: thousand dollars if the stock market crashes. So if we 403 00:24:06,960 --> 00:24:11,520 Speaker 1: look at the cost for an SMP five hundred a 404 00:24:11,680 --> 00:24:16,640 Speaker 1: spy spy call, that gives us the right to buy 405 00:24:16,640 --> 00:24:20,720 Speaker 1: the shares at four hundred ten dollars per share. Right now, 406 00:24:21,000 --> 00:24:25,119 Speaker 1: spy is trading at three ninety six, so a little 407 00:24:25,200 --> 00:24:28,560 Speaker 1: under four hundred. This gives us the right to buy 408 00:24:29,000 --> 00:24:32,040 Speaker 1: shares at four ten any time between now and the 409 00:24:32,200 --> 00:24:36,760 Speaker 1: end of April. Right now, that will cost us five bucks, 410 00:24:37,920 --> 00:24:41,720 Speaker 1: so five times one hundred is five hundred dollars. Then 411 00:24:41,760 --> 00:24:45,000 Speaker 1: we control one hundred shares, so that's forty grand worth. 412 00:24:45,720 --> 00:24:48,399 Speaker 1: So we are getting exposure to forty grand worth of 413 00:24:48,400 --> 00:24:51,639 Speaker 1: the SMP five hundred by only spending five hundred dollars. 414 00:24:52,240 --> 00:24:54,440 Speaker 1: So let's play this out. Let's say the SMP five 415 00:24:54,520 --> 00:24:59,200 Speaker 1: hundred goes up to four thirty in the next month 416 00:24:59,240 --> 00:25:01,600 Speaker 1: and a half. If it goes up to four hundred 417 00:25:01,680 --> 00:25:04,120 Speaker 1: thirty dollars, well we can buy the shares at four ten. 418 00:25:04,800 --> 00:25:06,560 Speaker 1: And then if we can buy one hundred shares at 419 00:25:06,600 --> 00:25:09,000 Speaker 1: four ten and immediately sell them at four hundred thirty, 420 00:25:09,400 --> 00:25:13,439 Speaker 1: that's twenty dollars per share times one hundred shares is 421 00:25:13,480 --> 00:25:18,440 Speaker 1: two thousand bucks. Instead, if we had invested our entire 422 00:25:19,080 --> 00:25:24,240 Speaker 1: forty thousand dollars in the SMP five hundred in spy 423 00:25:24,320 --> 00:25:27,600 Speaker 1: and it goes up to four thirty, we turned forty 424 00:25:27,600 --> 00:25:31,880 Speaker 1: thousand into forty three thousand, So we can either make 425 00:25:32,160 --> 00:25:35,160 Speaker 1: two thousand with one call, or we can make three 426 00:25:35,160 --> 00:25:40,640 Speaker 1: thousand with investing our entire portfolio. So we can turn 427 00:25:40,720 --> 00:25:45,640 Speaker 1: five thousand into into two thousand dollars, or I'm sorry, 428 00:25:45,720 --> 00:25:50,119 Speaker 1: we can turn five hundred dollars into two thousand dollars, 429 00:25:50,240 --> 00:25:52,879 Speaker 1: or we can turn forty thousand dollars into forty three 430 00:25:52,960 --> 00:25:57,280 Speaker 1: thousand dollars. Now, let's say we want that profit potential 431 00:25:57,320 --> 00:26:01,159 Speaker 1: to be similar, so we buy two calls instead of 432 00:26:01,160 --> 00:26:05,080 Speaker 1: buying one call. So we spend a thousand dollars and 433 00:26:05,200 --> 00:26:08,240 Speaker 1: we turn that thousand dollars into four thousand dollars. So 434 00:26:08,280 --> 00:26:11,040 Speaker 1: our net profit is three grand. So what is better 435 00:26:11,640 --> 00:26:15,920 Speaker 1: to risk losing a thousand dollars for the profit potential 436 00:26:15,960 --> 00:26:19,560 Speaker 1: of three thousand total or to risk losing forty thousand 437 00:26:19,640 --> 00:26:24,199 Speaker 1: dollars for the profit potential of three thousand dollars. The 438 00:26:24,280 --> 00:26:26,960 Speaker 1: profit potential in either case is the same. If SMP 439 00:26:26,960 --> 00:26:29,080 Speaker 1: five hundred goes from where it's at right now up 440 00:26:29,080 --> 00:26:33,159 Speaker 1: to four hundred thirty dollars per share. In that case, 441 00:26:33,720 --> 00:26:37,240 Speaker 1: if that movement happens, both of these trades profit the 442 00:26:37,280 --> 00:26:41,240 Speaker 1: exact same. But the worst case scenario, if the SMP 443 00:26:41,280 --> 00:26:44,960 Speaker 1: five hundred drops from here, you could lose up to 444 00:26:45,280 --> 00:26:49,240 Speaker 1: forty grand by buying the shares, but with option you 445 00:26:49,240 --> 00:26:52,359 Speaker 1: could lose only what you spend on it. You spent 446 00:26:52,800 --> 00:26:56,200 Speaker 1: a thousand bucks, you could lose a thousand bucks. Now 447 00:26:56,440 --> 00:26:59,120 Speaker 1: you do sometimes have to ask a question, Okay, what's 448 00:26:59,160 --> 00:27:02,320 Speaker 1: the likelihood of this happening? Because if you spend forty 449 00:27:02,359 --> 00:27:04,359 Speaker 1: grand and you buy the shares and then the SMP 450 00:27:04,440 --> 00:27:07,960 Speaker 1: five hundred does nothing, then you still own the shares 451 00:27:08,520 --> 00:27:12,119 Speaker 1: even after a month from now. Shares don't expire, contracts do, 452 00:27:12,640 --> 00:27:15,000 Speaker 1: so you have to know that there's that risk there. 453 00:27:15,080 --> 00:27:18,119 Speaker 1: If the SMP five hundred doesn't move, then your contract 454 00:27:18,160 --> 00:27:21,200 Speaker 1: eventually becomes worthless and it becomes worth zero and then 455 00:27:21,200 --> 00:27:24,680 Speaker 1: it expires. So you do have to be aware of that. 456 00:27:24,880 --> 00:27:27,440 Speaker 1: And the nice thing about options is you can play 457 00:27:27,480 --> 00:27:30,920 Speaker 1: both sides of the ticket here. You could be a 458 00:27:30,960 --> 00:27:36,920 Speaker 1: seller of options as well, and that's where that's where 459 00:27:36,920 --> 00:27:40,800 Speaker 1: the power really comes in. Here where you start pairing, 460 00:27:41,760 --> 00:27:45,800 Speaker 1: buying calls and selling calls, and buying puts and selling 461 00:27:45,840 --> 00:27:48,919 Speaker 1: puts so that you can say, Okay, if the market 462 00:27:49,080 --> 00:27:51,720 Speaker 1: does nothing, then I'll make a little bit of money, 463 00:27:51,960 --> 00:27:54,439 Speaker 1: but if the market does something crazy, then I'll make 464 00:27:54,480 --> 00:27:57,560 Speaker 1: a lot of money. Like there are so many different 465 00:27:57,600 --> 00:28:01,200 Speaker 1: ways to pair these options together so that each one 466 00:28:01,240 --> 00:28:03,800 Speaker 1: of them it'll have a little bit of a you know, 467 00:28:03,840 --> 00:28:07,280 Speaker 1: its own risk to reward profile. But when paired together, 468 00:28:07,840 --> 00:28:11,359 Speaker 1: you structure a trade to say, Okay, if the market 469 00:28:11,400 --> 00:28:14,280 Speaker 1: does nothing, then you know, I'm just gonna, you know, 470 00:28:14,320 --> 00:28:16,159 Speaker 1: make a little bit of money, which is nice, like 471 00:28:16,200 --> 00:28:18,639 Speaker 1: you don't have to have to worry about, you know, 472 00:28:18,760 --> 00:28:21,160 Speaker 1: losing a lot. Or you can say, if the market 473 00:28:21,200 --> 00:28:23,760 Speaker 1: does a lot, if it just goes crazy up or 474 00:28:23,800 --> 00:28:28,200 Speaker 1: crazy down, then either my calls or my puts will 475 00:28:28,640 --> 00:28:32,119 Speaker 1: will provide a ton of profit. But if it doesn't 476 00:28:32,160 --> 00:28:35,240 Speaker 1: do anything, then I've only spent a very small amount 477 00:28:35,280 --> 00:28:37,560 Speaker 1: total on this trade, so I'll lose a very tiny 478 00:28:37,640 --> 00:28:42,320 Speaker 1: amount because you've paired it together with selling some options. Now, 479 00:28:42,320 --> 00:28:44,240 Speaker 1: you never just has a big warning here. You never 480 00:28:44,280 --> 00:28:47,520 Speaker 1: want to sell puts or calls just by themselves. That 481 00:28:47,560 --> 00:28:51,160 Speaker 1: would open you up to significant loss. Because let's say 482 00:28:51,160 --> 00:28:53,560 Speaker 1: you took the selling side of this call and you said, okay, 483 00:28:53,560 --> 00:28:55,920 Speaker 1: I'm going to sell this call to you. That means 484 00:28:56,000 --> 00:28:58,040 Speaker 1: that I have you know, if I sell this call 485 00:28:58,040 --> 00:29:03,880 Speaker 1: to you, I have the obligation to sell you shares 486 00:29:04,600 --> 00:29:07,720 Speaker 1: at this price during this timeframe. But if I don't 487 00:29:07,760 --> 00:29:09,720 Speaker 1: already have those shares, then I'm going to have to 488 00:29:09,760 --> 00:29:11,760 Speaker 1: go out to the open marketplace and get those shares 489 00:29:11,800 --> 00:29:14,920 Speaker 1: at some point. So if the stock price skyrockets, and 490 00:29:15,000 --> 00:29:17,120 Speaker 1: you want to buy and you want to exercise your 491 00:29:17,200 --> 00:29:19,160 Speaker 1: right to buy shares for me at two hundred, but 492 00:29:19,200 --> 00:29:20,880 Speaker 1: I have to go out and buy them at a thousand. 493 00:29:21,440 --> 00:29:24,800 Speaker 1: I'm gonna I'm gonna take a bath. That's just there's 494 00:29:24,920 --> 00:29:29,040 Speaker 1: unlimited loss potential by selling options by themselves, just by 495 00:29:29,080 --> 00:29:31,120 Speaker 1: doing like you know, selling a call or selling. It's 496 00:29:31,120 --> 00:29:34,600 Speaker 1: called naked selling, naked options, and it's a strategy that 497 00:29:34,760 --> 00:29:37,680 Speaker 1: is extremely dangerous. It's playing with fire. It's called picking 498 00:29:37,720 --> 00:29:39,760 Speaker 1: up pennies in front of a steamroller. You make a 499 00:29:39,760 --> 00:29:41,720 Speaker 1: little bit of money and you expose yourself to massive 500 00:29:41,760 --> 00:29:45,640 Speaker 1: blow up risk. So I do not recommend doing any 501 00:29:45,680 --> 00:29:49,680 Speaker 1: of those types of strategies where you are risking more 502 00:29:50,160 --> 00:29:53,480 Speaker 1: than what you stand to gain, because at the end 503 00:29:53,480 --> 00:29:55,320 Speaker 1: of the day, you can never know the probability of 504 00:29:55,360 --> 00:29:58,840 Speaker 1: something happening. Yes, the odds might say, oh, well, the 505 00:29:58,880 --> 00:30:01,120 Speaker 1: odds of that happening are you know, a billion to one. 506 00:30:01,400 --> 00:30:04,920 Speaker 1: But people still win the lottery all the time. And 507 00:30:04,960 --> 00:30:09,040 Speaker 1: so if the lottery company was not able to structure 508 00:30:09,040 --> 00:30:13,200 Speaker 1: the odds in their benefit, and that lottery payout could 509 00:30:13,240 --> 00:30:15,840 Speaker 1: be way more than they ever made on selling tickets, 510 00:30:16,120 --> 00:30:18,440 Speaker 1: that'd be a bad business to be in because yes, 511 00:30:18,520 --> 00:30:21,080 Speaker 1: the odds are super low that something like that happens, 512 00:30:21,480 --> 00:30:25,320 Speaker 1: but it still always happens. People still always win the lottery, 513 00:30:25,680 --> 00:30:28,200 Speaker 1: and so they're gonna have to make that payout. So 514 00:30:28,280 --> 00:30:31,120 Speaker 1: with options, you never want to take a trade that 515 00:30:31,240 --> 00:30:35,200 Speaker 1: your maximum loss could be you know, a large amount, 516 00:30:36,120 --> 00:30:39,920 Speaker 1: especially an undefined large amount, because that could wipe you out. 517 00:30:41,600 --> 00:30:45,360 Speaker 1: So that's a little primer on options. You can use 518 00:30:45,480 --> 00:30:50,960 Speaker 1: them in place of buying the shares. So if you think, oh, yeah, 519 00:30:51,000 --> 00:30:52,840 Speaker 1: this this stock, I think it's going to go up, 520 00:30:52,840 --> 00:30:55,400 Speaker 1: but I don't want to spend a couple thousand dollars 521 00:30:55,400 --> 00:30:58,120 Speaker 1: on buying a few shares, so I'll spend you know, 522 00:30:58,640 --> 00:31:01,800 Speaker 1: twenty dollars, you know, fifty dollars. We looked at some 523 00:31:01,840 --> 00:31:05,240 Speaker 1: expensive options, but for most stocks you can, you know, 524 00:31:05,360 --> 00:31:07,760 Speaker 1: even when you have to multiply it buy one hundred, 525 00:31:08,000 --> 00:31:10,040 Speaker 1: you could buy a call or buy a put for 526 00:31:10,200 --> 00:31:14,040 Speaker 1: twenty bucks or for you know, fifty bucks, significantly less 527 00:31:14,040 --> 00:31:16,840 Speaker 1: than you have to spend on the shares. And then 528 00:31:16,880 --> 00:31:19,080 Speaker 1: if the move happens that you think was going to happen, 529 00:31:19,480 --> 00:31:22,160 Speaker 1: you can still make the same in some cases, far 530 00:31:22,320 --> 00:31:26,160 Speaker 1: more than you would have made on the shares, but 531 00:31:26,240 --> 00:31:29,000 Speaker 1: your worst case scenario is that you lose a lot less. 532 00:31:29,840 --> 00:31:34,520 Speaker 1: And so for portfolios where you want to preserve your 533 00:31:35,360 --> 00:31:38,440 Speaker 1: purchasing power or your total net worth of your portfolio, 534 00:31:39,160 --> 00:31:41,200 Speaker 1: you throw the whole thing into stocks, and then the 535 00:31:41,240 --> 00:31:46,280 Speaker 1: market crashes. Everything crashes. Diversification doesn't protect you against a 536 00:31:46,360 --> 00:31:49,720 Speaker 1: market crash. It only protects you against one stock crashing. 537 00:31:50,160 --> 00:31:52,880 Speaker 1: And so if you have the ability to then take 538 00:31:52,920 --> 00:31:55,600 Speaker 1: eighty percent of your portfolio and put it in something 539 00:31:55,720 --> 00:31:58,400 Speaker 1: very stable like cash or even if you like treasuries 540 00:31:58,480 --> 00:32:00,600 Speaker 1: or bonds, so you're in a little bit of interest, 541 00:32:01,040 --> 00:32:03,560 Speaker 1: and you put the majority of your money in something 542 00:32:03,680 --> 00:32:06,720 Speaker 1: very safe that doesn't really move and just kind of 543 00:32:06,760 --> 00:32:08,800 Speaker 1: stays the same. Then you take a little bit of 544 00:32:08,800 --> 00:32:11,520 Speaker 1: your money and do these little speculations, so I think 545 00:32:11,520 --> 00:32:13,600 Speaker 1: this one's gonna drop. I think this one's gonna pop, 546 00:32:13,640 --> 00:32:17,160 Speaker 1: And you only need one to hit every once in 547 00:32:17,200 --> 00:32:20,520 Speaker 1: a blue moon, and you make way more than you 548 00:32:20,600 --> 00:32:23,280 Speaker 1: ever lost on all those little trades put together. And 549 00:32:23,280 --> 00:32:25,480 Speaker 1: then you get a little bit more sophisticated and you're like, Okay, 550 00:32:25,480 --> 00:32:27,720 Speaker 1: well I own these shares and I want to protect 551 00:32:27,720 --> 00:32:29,400 Speaker 1: them against a drop. So I'm going to protect them 552 00:32:29,400 --> 00:32:31,640 Speaker 1: by buying a put, but I also want some income 553 00:32:31,640 --> 00:32:33,800 Speaker 1: on it because I own Amazon and it doesn't pay 554 00:32:33,800 --> 00:32:36,480 Speaker 1: a dividend. So I'm going to sell a call on this, 555 00:32:36,800 --> 00:32:39,160 Speaker 1: and if it goes up and I have to sell 556 00:32:39,240 --> 00:32:41,160 Speaker 1: my shares while I already own the shares, But if 557 00:32:41,160 --> 00:32:43,480 Speaker 1: it doesn't go up, then I keep the income that 558 00:32:43,520 --> 00:32:45,640 Speaker 1: I got from selling the call, So it's a win win. 559 00:32:46,080 --> 00:32:48,400 Speaker 1: And so there are tons of little strategies that you 560 00:32:48,440 --> 00:32:54,680 Speaker 1: can employ with options that even if you never use them, 561 00:32:54,720 --> 00:32:57,760 Speaker 1: it is such a powerful tool to have in your 562 00:32:57,800 --> 00:33:02,360 Speaker 1: tool belt just in case you recognize the situation that 563 00:33:02,440 --> 00:33:05,840 Speaker 1: would call for that, because if you don't know how 564 00:33:05,920 --> 00:33:08,720 Speaker 1: to use them, then you might run into a situation 565 00:33:08,760 --> 00:33:11,600 Speaker 1: where it's like, oh, that'd be a good idea to 566 00:33:11,880 --> 00:33:15,280 Speaker 1: do the strategy right now, but I'm just not educated 567 00:33:15,440 --> 00:33:17,880 Speaker 1: enough on how to do them or how to use them, 568 00:33:18,040 --> 00:33:21,320 Speaker 1: and so the opportunity slips by and you're not able 569 00:33:21,320 --> 00:33:24,400 Speaker 1: to take advantage of it. And so I'm a huge 570 00:33:24,440 --> 00:33:28,520 Speaker 1: proponent of education of not just options, just like you know, 571 00:33:28,560 --> 00:33:32,000 Speaker 1: in general, most skills in life, because there might be 572 00:33:32,040 --> 00:33:35,960 Speaker 1: an opportunity that comes up that you would be able 573 00:33:35,960 --> 00:33:39,240 Speaker 1: to profit off of by taking advantage of it, only 574 00:33:39,280 --> 00:33:41,440 Speaker 1: if you're prepared. That's why they say luck is where 575 00:33:41,480 --> 00:33:47,280 Speaker 1: opportunity and preparedness meet, because you build the skills beforehand 576 00:33:47,320 --> 00:33:50,400 Speaker 1: and then if, by luck you happen to run into 577 00:33:50,520 --> 00:33:53,920 Speaker 1: that situation, well then now you're able to take advantage 578 00:33:53,920 --> 00:33:56,440 Speaker 1: of it. So, like I said, I do have an 579 00:33:56,440 --> 00:33:59,160 Speaker 1: options course that is coming out that goes into a 580 00:33:59,160 --> 00:34:02,600 Speaker 1: lot more of the advanced strategies, the mechanics, the pricing 581 00:34:02,880 --> 00:34:06,040 Speaker 1: there is you know, as you might imagine a lot 582 00:34:06,160 --> 00:34:09,759 Speaker 1: that goes that goes into this. There are plenty of 583 00:34:09,760 --> 00:34:12,440 Speaker 1: free resources out there as well that you can piece 584 00:34:12,480 --> 00:34:16,120 Speaker 1: together yourself kind of that. My goal with this course 585 00:34:16,239 --> 00:34:18,120 Speaker 1: is to provide a one stop shop that gives you 586 00:34:18,120 --> 00:34:21,839 Speaker 1: literally everything you'd ever need in order to trade options successfully. 587 00:34:22,800 --> 00:34:25,319 Speaker 1: And so if you're not looking for that, you know, 588 00:34:25,400 --> 00:34:29,080 Speaker 1: convenient one stop shop, then obviously there's tons of other 589 00:34:29,120 --> 00:34:31,640 Speaker 1: places where you can get all that information for free. 590 00:34:31,880 --> 00:34:33,840 Speaker 1: And that's what I did in the beginning when I 591 00:34:33,840 --> 00:34:36,719 Speaker 1: was learning about this, I did mostly free stuff, and 592 00:34:36,760 --> 00:34:40,719 Speaker 1: then I paid for paid for my education in losses 593 00:34:40,880 --> 00:34:45,000 Speaker 1: on bad trades, and so really you pay for your 594 00:34:45,080 --> 00:34:47,600 Speaker 1: education no matter what. But it's down there, and like 595 00:34:47,680 --> 00:34:50,640 Speaker 1: I said, if you are interested in pre ordering it 596 00:34:50,760 --> 00:34:53,040 Speaker 1: right now, because it's available for pre order, I'm finishing 597 00:34:53,040 --> 00:34:57,280 Speaker 1: it up soon. During this pre order period. It has 598 00:34:57,600 --> 00:35:00,200 Speaker 1: a bundle attached to it so that you can ad 599 00:35:00,200 --> 00:35:04,760 Speaker 1: access to my Portfolio Allocation course as well, which talks 600 00:35:04,800 --> 00:35:08,680 Speaker 1: about other portfolio allocation strategies, so they pair really nicely 601 00:35:08,680 --> 00:35:11,880 Speaker 1: with each other actually, so you have your your portfolio allocations, 602 00:35:11,840 --> 00:35:13,239 Speaker 1: so you know, okay, this is how much I put 603 00:35:13,280 --> 00:35:15,600 Speaker 1: in stocks, it's how much I put in gold and 604 00:35:15,640 --> 00:35:18,399 Speaker 1: bitcoin and real estate and things like that. And there's 605 00:35:18,440 --> 00:35:23,920 Speaker 1: a whole section in my Portfolio Allocation course about using options, 606 00:35:24,239 --> 00:35:26,719 Speaker 1: and so then this options course goes deeper into using 607 00:35:27,239 --> 00:35:31,440 Speaker 1: using options more effectively and more the advanced strategies. So 608 00:35:32,120 --> 00:35:34,279 Speaker 1: those are bundled together just for the price of the 609 00:35:34,320 --> 00:35:36,799 Speaker 1: options course, just during pre order, and then once I've 610 00:35:36,800 --> 00:35:39,400 Speaker 1: published the course and once it's live, then that bundle 611 00:35:39,440 --> 00:35:43,399 Speaker 1: goes away and it's just the options course by itself 612 00:35:44,840 --> 00:35:46,839 Speaker 1: with the same link there, so you can you can 613 00:35:46,880 --> 00:35:50,520 Speaker 1: go check it out if you are interested. If not, again, 614 00:35:50,560 --> 00:35:52,960 Speaker 1: I just highly recommend at least getting familiar with how 615 00:35:53,000 --> 00:35:56,640 Speaker 1: to use them and how they work. From any source possible. 616 00:35:58,200 --> 00:36:00,760 Speaker 1: That's all for today, really a pre shte you guys, 617 00:36:01,400 --> 00:36:03,719 Speaker 1: Thank you so much for listening, and we'll see you 618 00:36:03,760 --> 00:36:05,680 Speaker 1: next week on another episode.