BEST $5 STRATEGY TO USE IN THIS VOLATILE MARKET! | TRADING OPTIONS

what's going on youtube welcome back to tech conversations i am your host guillermo it is august 19th hope you're all having a great day today as you can see it is a red day for me down 730 today or about 0.6 the last few weeks have been rough in the market especially for growth stocks and small cap stocks a lot of them are down quite a lot and so because of this on today's video i want to talk about one of my favorite strategies to use when stocks are read or when you're in a very volatile market which again is what we're seeing with a lot of stocks right now so before i get into that all i ask is that you guys hit the like button down below and subscribe guys it really helps out the channel check out the discord link to it in the description below 51 000 members completely free to join you can also become a premium member on here for seven dollars a month you'll get access to a bunch of great resources one of them is our alerts here's an example i'm going to learn from a couple days ago this was a call option on j we paid 62 we sold for 186 so we made a 124 dollar profit per contract on this alert so check out the discord link to it in the description below so let's get right into this video guys now remember before you ever enter any options trading strategy make sure that you know how to close the options trade i made multiple videos where i show you guys step by step with real examples how to exit any options trade so make sure that you know that now let's briefly talk about our goal here so our goal is going to be to benefit from either a market correction or just when stocks are falling or just very simply in a very volatile market which again i think right now we're in a very volatile market a lot of stocks dropping and then recovering the next day and then dropping again so this strategy will carry limited risk okay and it can actually also be constructed to be very cheap as i'll show you guys here with an example so the ideal situation then you want to place an options trade on a stock but the market has been very volatile let's say you think the stock will drop but it might also pop at any moment because of how much it's already dropped maybe it's already uh very uh oversold right so it's kind of like you want to play both sides here you want to be able to make money if the stock drops but in case there's a uh you know huge pop and it you know pushes back up you also want to be able to make money there so what i'm going to do is i'm going to use ticker symbol f which is ford motor for this video here so let's take a look here at ford so here is ford currently at 12.76 so ford's been very volatile right i mean in the last week it's down eight percent as you can see it's kind of been all over the place uh and again you know let's say maybe you're bearish on it maybe you think it'll drop even more uh but it might also just recover since it's already dropped so much uh so let's see what we can do here right so uh the first thing of course you want to do here two things you want to do here is number one you want to check commission fees for your broker because we are going to be opening and closing various contracts and so we go to robinhood's uh you know trading fees documentation of course we know robinhood is commission free uh we don't have to pay any commissions to open or close a contract however on different brokers there are different rules some of them do have commission sometimes they're pretty big so make sure that you know how much the commission fee will be make sure that that doesn't eat away too much at your potential profit the other thing we need to do with ford motor is you need to take a look here if it has a dividend now if i take a look here on robinhood it does show me that it has a dividend now of course i know that it's been suspended but we should still check nonetheless and the reason we need to check the dividend is because we are going to be selling options remember anytime you sell options there is risk of assignment and early assignment is generally related to the x dividend date so we want to check uh if the stock has a dividend when the ex dividend date is we want to avoid selling options expiring that week or if you do sell options expiring on the ex dividend date we want to sell or we want to close those options two days prior to the ex dividend so again what i like to use is nasdaq.com we can come on here i will go ahead and do a ticker symbol f which is forward motor and then we'll go ahead and take a look here at ford motor and on the left we can take a we can click on this dividend history link this will show us uh all the information we need to know about the dividend for ford and as you can see last time they had a dividend was january 29th 2020 because again they suspended it due to the pandemic uh so they're currently not giving out any dividends so we don't have to worry about x dividend date or being early assigned because of it but anyways once you've done those two things we'll go over to the options now for ford so let's take a look here again our goal here benefit from when a stock is going down or when we're in a very volatile market you really don't know which way the stock is going to go so you maybe you want to play both sides here so here's what we're going to do first thing we want to do here of course is choose the expiration date i'll just leave it as august 20th all right that's still enough time for this so i'll just leave it as august 20th now we're going to be focusing strictly on call options here today so the first thing you need to do is you want to sell or actually you want to buy one at the money call option so remember at the money basically means where the strike price is as close to the share price as possible uh it's hovering at 12.75 i'm just going to choose the 1250 uh because i mean it's basically the same distance from these two but i'll just choose 1250 so we'll say that this is the at the money option here we're buying one at the money option so again or the strike price is as close to the share price as possible now we're going to do is we're going to go over to sell we're going to sell one in the money call options so in the money for calls is where the strike price is less than the current share price so it's going to be these down here it's also basically going to be the ones that are more expensive so basically i'm going to go ahead and i'm just going to go and sell this call option at the 12 strike here now as you can see we're getting a credit of 46 or so so what i'm going to do now is i'm going to buy last thing i'm going to do is i'm going to buy one out of the money call option however we want to be sure that the amount we pay here is less than the total credit we're gonna or or we're still receiving a credit right so my total credit so far is 46. i still want to be able to receive a credit after buying this out of the money call option so this column buying needs to be worth less than 46. uh so remember out of the money is where the strike price is above the current share price i'm gonna go and do 13.50 here right as you can see this is going to cost me 40 oh and it's not going to cost me 45. i'm going to get a credit here so uh you should be receiving a credit by doing this okay and make sure that you know you kind of mess around with different strikes to take a look at how that changes your profit losses break evens things like that uh this is basically how it would look like and as you can see we're gonna be receiving a credit so you should be receiving a credit for this and you already kind of see what this is gonna look like here uh but of course you will have to put up some collateral about fifty dollars here i believe uh if we take a look here collateral fifty dollars or so okay so anyways uh so now forty six dollars right so that's pretty cool if we take a look here our max loss is actually going to be four dollars and guess what our max profit is unlimited so let's take a look here at what this would look like then so let's go over to the options strat and again we're going to be able to make money here both sides which is ideal in a very volatile market uh or if it's just a bit you know very bearish market you're also going to be able to make money on the downside so that's what i really like about this so we're going to build this is called the bear call ladder so let's take a look here at this uh strategy so again we're using ford ticker symbol f we're choosing the august 20th expiration date again it's always important to use this to visually see what this trade will look like so remember we went ahead we bought an at the money call option uh we chose 1250 for that because that's the closest to the current price of 1274. then we sold an in the money call we chose the 12 strike and then we went ahead and bought a call at the 1350 strike and so this is what it's going to look like here so let's take a look here so again you should be receiving a credit for this forty five dollars max loss five dollars here that's the most we can lose is five dollars max profit is infinite on the upside on the downside it's going to be the credit you received right so this is why you want to open this for a credit so that on the downside you still make money and so since we're receiving a credit of 45 on the downside that's the most we're going to make here okay so this is what it's going to look like as you can see my breakevens would be 1245 and 13.55 so if it continues to drop down you know when it goes under 12 let's say it goes to like 12 20 or something i make 25 bucks goes to 12 10 35 bucks goes to you know 11 90 45 bucks on the other hand uh because it's already dropped a lot and let's say it bounces back up let's say it goes back to i don't know 13 you know 1380 or whatever 25 bucks right even 1360 will make five bucks which you know percentage of max risk these are some pretty big returns here right you know if it goes back up to 1390 700 return if it continues to drop it goes to 12 20 500 percent return so ultimately what you don't want to happen here right is for the stock to trade sideways uh but again if you're in a very volatile market uh you know stocks are moving up they're moving down they're moving up they're moving down so again that's what i really like about the strategies you can make money both ways here now the other last thing i want to quickly mention here is you know depending on what implied volatility is and how it changes of course it's going to affect this and keep in mind there's always this slider down here on the bottom right that you can slide left and right to kind of take a look at what's going to happen depending on what happens with implied volatility so let's say implied volatility drops you know this is what it would look like implied volatility goes up this is what it would look like right and you can you can go back to profit loss so you can take a look at that right so this is what it would look like implied volatility drops is what it looks like if it goes up right so make sure you're always checking to see you know what happens when implied volatility changes but basically this is what it looks like again max profit can be infinite on the upside on the downside it's going to be limited to the credit received max loss of five dollars here so anyways if you have any questions feel free to leave them in the comments section below check out the discord link to it in the description below i hope you enjoyed the video well let me know what you guys think and i will see you guys next time

Channel: TechConversations

Views: 11,809

Rating: 4.9553428 out of 5

Keywords: robinhood investing, robinhood stock trading, day trading, robinhood app, stock market, robinhood trading, option trading, robinhood options, robinhood challenge, small account, swing trading, trading options for beginners, robinhood options trading, selling options robinhood, robinhood, trading options, options trading, cheap options, cheap options trading, cheap options trading robinhood, cheap options to buy right now, cheap option strategies, options, stock market crash

Id: ANUKj0wgoCg

Length: 11min 25sec (685 seconds)

Published: Thu Aug 19 2021