Cash Secure Put Options Explained | How To Trade & Sell Options On Robinhood

what's up guys welcome back before I even knew about YouTube I used to use an investing strategy that made me a bunch of passive income weekly now that I'm onto youtube I see that it gets a lot of flack and people just don't like it for whatever reason and what that is is selling cash covered puts and covered calls as well now because there's a lot going on with options and things like that I'm just gonna break them down into two different videos this one is just gonna be a cache covered put I'm actually going to make a trade right now for you guys to see live and I think right now the way it's looking is I'm gonna make between twenty-five and thirty dollars for doing absolutely nothing as always guys there are risks associated I'm gonna talk about each one of those risks and then you can decide for you if it's something that you might want to do more research on and then possibly do so I think the best thing to do is just to dive down into Robinhood look at exactly what's going on I know can seem confusing you know an options chain can just look totally daunting I'm gonna take one thing at a time I promise you guys will completely understand it and you'll kind of be thinking yourself at the end of this video wow this seems too good to be true and for a lot of people it is but for me it's not too good to be true okay so here we are in my Robin Hood right now it's forty seven seventy one with a little bit of buying power now the one downside I'm gonna right off the bat is you need to have cash to cover the tree that you're about to make and they call it collateral this is very different than selling a naked put where if you get assigned you are going to have to go into margin to pay that back or put money in and Robin you have to have the money in to do it so you have that cash collateral and that is the one downside because you do need a good amount of cash to even set this up so if you have a smaller account it's a little tough for me what I've done is I've looked and I've ranked all of my stocks from lowest to the most expensive and you'll see why that's important because I have a relatively small account and I can really only do this cash covered put with a few of the stocks in my portfolio so if we want to make a cash covered put we are going to choose a stock that we want to do this with now first disclaimer this needs to be a stock that you want to own this is going to help make it a win-win because you're either going to just get some passive income that we're gonna call premium which I'll show you in one second or we're gonna get premium and 100 shares of this particular stock so it's a win-win if you're chasing premiums guys that's just gambling don't do that okay pick the stocks that you want I eventually want a hundred shares of Wells Fargo in my portfolio so I have no problem making this trade because if it gets a sign and I need to buy it but that's okay I want to buy it and because of the type of trade this is I get to pick the price at which I buy it it's essentially like picking a limit trade but you also get the premium from the buyer as well so let's look at that I'm gonna click Wells Fargo and we're gonna go right into this so we see Wells Fargo is actually shooting up a little bit today and for shooting up guys that's that's not really that big it's pretty much ranged right in this twenty seven to twenty eight dollar drop down to twenty six thirty currently right now my cost basis is twenty seven twenty seven I'll have six shares of it I'm potentially gonna be buying 100 shares more but I used my average cost basis as kind of like a benchmark of where I might want to make my trade because when I make the trade I essentially want to lower that basis right I don't want to pay necessarily more than my average if I can I want to lower the average cost of each one of my shares I'm gonna come over here and I'm gonna say trade Wells Fargo options now this is where things can get really confusing looking guys this right here is just called an options chain and an option what it is it's an agreement between up here the buyer and the seller and there's risks and rewards for both the buyer and the seller in my opinion you need to know a lot more and it's a lot more information to understand to be a buyer I'm not comfortable being a buyer yet I know people are very very profitable for me personally I'm just not that ready to be a buyer yet because more things need to happen that are outside of your control but through word is much greater but we're gonna be doing is selling an option another way to say that is writing an option you might hear somebody say oh I wrote that option writing and selling you're gonna be the same so we are gonna sell now there's two more options we have a call or a put this video we're gonna talk about puts and then depending on what happens with this trade I'll do a cache covered call as soon as I get assigned to my cache covered put once I'm set to selling and put you are going to see the share price right here and this word vocabulary starts to come in at the money in the money out of the money things like that don't get yourself too concerned just understand where the share price is currently right now it's trading at 2793 over here on the Left we see the strike price now the strike price is essentially when that share gets to this price this option can be exercised by the buyer now we look over here expiration is going to affect a couple of different things it does not affect a strike price strike price is going to say the same but what it does it affects this over here and this is a premium that the buyer puts up to make this trade with you and depending on the expiration date the further out you go the higher the premiums are gonna be so for example it's forty four cents per share right now if I make the expiration date say June 12th it jumps up to 83 cents so almost doubled for going one more week but now an option contract is 100 shares so we take this 85 cents and we multiply it by a hundred because it's 85 cents per share so for doing absolutely nothing I am at least going to get 85 cents if I make this trade right now with an expiration date of June 12th I personally like to do this weekly so I'm gonna set it for the next expiration date which is June 5th now they're further away from the current share price you get the premium goes down because the likelihood of that share price dropping down to these strike prices is lower so there's not as many buyers out there that are willing to put up a premium for it to go that low as we saw just a second ago it's pretty much been bouncing between like 26 50 and 28 so the chances of it going to 25 are really really low so it has a really really low premium of just $5 and people always ask this and it's a really good question about taxes guys premiums are taxed according to a short-term capital gains tax so essentially your regular income tax so you will be taxed on these premiums but these premiums are yours to keep regardless of whether the option is executed or not so once again what effects is premium well what affects it is the strike price and how far away we are from the actual share price and also the expiration date and you might be thinking soft well wouldn't I want to go way down here so maybe it doesn't get executed yet some people want to do that but like I said I want to own the stock I almost want it to be exercised you guys have to go into this trade expecting assignment and hoping for it to go worthless and buy worthless meaning if this share price does not drop to the strike price that I choose by the expiration date then it'll just be worthless you get to keep that premium and all of your collateral gets returned to you to repeat over and over again so I'm gonna make this trade right now and then I'm gonna talk about all the possible outcomes and possible dangers that come with this I showed you just a second ago right now my basis is 27 dollars and 27 cents per share that is less than 27 50 but more than $27 so I have two choices I can raise up my cost basis a little bit 25 cents and I can receive 17 dollars more or I can lower my cost basis and take thirty dollars that's the choice that I'm currently going to do so what I'm gonna do is I'm gonna click plus so right now I am selling a twenty seven dollar strike price put for an expiration of June fifth my total credit is going to be 30 cents per share now as I just said one contract is 100 shares so I would just type in one there is the credit that I am going to receive which also is going to help me lower my cost basis now as you see guys this cost me 2,700 of collateral to put up to make this options trade if I didn't have 2700 hours I could not make the trade and that goes along with the strike price if I would have chose the strike price I would need 2,750 so like I said you do have to save up some money to be able to make this but I just made $30 which is in one week which is more than the dividend of Wells would have paid me for the entire year so here's where we can start to increase our income every single week this expiration days is Friday if it doesn't get a sign I'm going to do the same thing next week and next week until it gets a sign and then I'll start selling covered calls on it which would be that video when it happens but you can essentially make $30 every single week and it actually just jumped to 31 I'm gonna press submit now we'll go out for a bit it would be good for a day just like placing any order I'll press done so if we jump into Wells Fargo now we will see this put order right here it has been placed once it goes through I will be credited with 31 32 dollars now 32 dollars and that will be mine to keep forever so here are the scenarios here's the possible scenarios and the risks that come along with this so scenario one is that Wells Fargo does not drop to $27 by the fifth if that happens I keep my premium I get my collateral back and I repeat that's called the contract going worthless and for a lot of people that do this on a regular basis that's the ideal scenario right they get to keep their collateral they get to keep the premiums and they get to do it again and they don't have to purchase 100 shares the second scenario is that it is at $27 or below on the fifth and then I will be required to buy 100 shares of Wells Fargo and that's okay with me because like I said I want to hold this stock it's a stock that I don't mind having 100 shares of so it's not that big of a deal so I'd get 100 shares plus the premium then we're going to use those 100 shares and we're gonna do something called covered calls which would be another video when this eventually gets assigned now the downside okay people say well what happens if Wells Fargo's tanks and it goes to zero yeah that that could happen likelihood not so much but here's essentially the pill that you might have to swallow if it goes to zero they go bankrupt there they're done and the fifth comes I still have to buy a hundred shares for $2,700 so the dangers are I might have to buy a company that's worth zero for $2,700 not very likely but that is a major risk let's be more realistic let's say instead of 27 it drops to 25 well I just now had to buy a $25 share for 27 so I just lost $2 essentially per share so that's a $200 immediate loss for me that happens and how do I mitigate that loss well like I said these are stocks that I won't mind buying and holding for a long time if it dives to 25 I'll just hold on to it the price will eventually start to climb back up one day it'll get back to 27 and I'll be fine the other thing I can do is I can sell covered calls collect premiums lower my basis and get back to even that way so the only real big problem if it dives is if you didn't want to hold on to the stock then you're stuck with this $25 stock that you paid $27 for that might suck right that but for me I don't care I'll hold on to it for a year to year I don't care eventually it's going to get back up to 27 now if something monumental happens and it went to like $5 gonna take a really really long time yeah sometimes you lose in the stock market guys that those are the risks that we take for these rewards and other people say you put up $2,700 to get 30 to 33 dollars back it's not like putting it up I was gonna have to buy those shares anyway so yes then I put up 27 or have to have 27 in collateral to make $33 yes but at the end of the day that $2,700 is still mine or I'm gonna have a hundred shares worth of stock so it's not like I'm losing it to get $33 so guys even just now recording that video people say how long to place that order in the time I took the core this video it's already been placed if we go back out to my portfolio it shows all your options at the top above your stocks so essentially I won't even look at this it's not going to be a big deal until the fifth once we get to the fifth if it executes then I'll make a video about cash covered calls if not I'll let you know exactly what happens but as right now I got $32.00 placed in my account which is pretty much one free share so I got one free share of it awesome news so I really only have to buy 99 because I got one for free options can seem really confusing guys and just because they might seem confusing doesn't make them any more dangerous or risky as buying individual stocks as it is it's not the options that are dangerous it's a lack of education so please remember before you do any of this stuff make sure you're educated and confident of what you're doing know the risks and the rewards do not under any circumstances ever be greedy and do things with inside your means just like the old phrase things are not scary people are scared options are not dangerous the lack of education and dealing with them is what's dangerous guys if you learned something from this video please I beg you give the video a thumbs up let YouTube know that this was valuable content and other people might want to watch it for more videos like this if you are new to the channel consider subscribing and until I see you on the next one guys stay positive work really really hard always be kind to other people hope you have yourself an amazing day got an even better tomorrow [Music]

Channel: Brad Finn

Views: 92,423

Rating: 4.9706845 out of 5

Keywords: Brad Finn, selling put options on robinhood, selling put options, selling puts on robinhood, selling puts, how to sell puts, how to sell puts on Robinhood, options trading, robinhood puts, robinhood app, dividend portfolio, stocks to buy now, theta gang, selling options the wheel, cash covered put, what is a cash covered put, selling cash covered puts, cash covered put options, how to trade options on robinhood, trading options on robinhood, robinhood trading options

Id: Ls0dGPoe3rg

Length: 15min 3sec (903 seconds)

Published: Fri Jun 05 2020