Enhance Your Equity Positions using Options

okay good afternoon and welcome back everyone to our uh to our options education webinar series my name is tony zhang i'm the chief strategist here at options play and today we're here to talk about a topic that's really for those of you that are equity investors so for anyone here who buys or sells any or invests in stocks etfs or etns for the long run for your portfolio even if you hold them for relatively short periods of time these are the options strategies that you can utilize to enhance those stock and etf positions to help you buy those stocks that you want to purchase at a lower at a discount or at a lower cost basis and then as you hold on to those holdings think of your stocks and etfs as assets that you hold and you can utilize those assets to you to utilize options and extract more yields so stocks and etfs that you hold in your portfolio perhaps they pay you dividends on some of the dividend-paying ones but for some of them they may not pay you any dividends so how can you still extract yield from those equity assets that's what we're here to talk about so predominantly we're going to talk about two strategies selling cash secured puts and selling cover calls this is a great addition to the to the topic that we recently covered on buying versus selling options on that webinar we talked about the basics of buying versus selling options but we didn't talk about a specific strategy today we're here to talk about strategies that you can actually deploy in your portfolio in my opinion these are the two most actively traded strategies for most institutional investors is really selling puts and selling cover calls there's a reason why institutional investors utilize these two strategies to enhance their equity position so that's what we're going to go over here today now before we get started what we're going to discuss here today is purely for education and demonstration purposes it is not a solicitation or recommendation to buy or sell any specific securities so for the month of december another relatively short month because of the holidays today we're here to talk about enhancing your equity positions using options again this is a this is a webinar focused for those of you that are equity investors next week we're also going to talk about uh equity investments we're going to talk about longer term investing using leap options and this is really critical because on december 11th the following of day after next thursday we're going to be doing a members only thematic webinar where we're going to discuss longer term themes specifically within cyber security what opportunities in terms of longer term we see within cyber security theme and we're going to show you how you can utilize leap options to take advantage of it so really trying to weave what we're learning in terms of options education next thursday with some real thematic trades within cyber security the very following day on friday so looking forward to doing that here next week and then the last thursday of the month before the holidays we're going to do a 2020 review in terms of where we currently see the equity markets and what our preview for 2021 is to help set you up going into the holidays and the beginning of the new year so that's what we have coming up here for the month of december and if you're brand new to options play if you don't have access to any of the tools that we're going to be showing you here today you can sign up for a free trial at optionsplay.com i just post the link into the chat window for anyone who wants to sign up for their free 30-day trial so today we're going to talk about we're going to start off by talking about a strategy that's not actually commonly talked about as a beginner strategy but in my opinion is actually the most underutilized option strategy by most investors and that's buying stocks with a discount using a cash secured put a lot of investors feel that cash secured puts have a lot of risk they're concerned about the risk that they're taking on whether they're buying when they're selling a cash secured put but when you actually think about it versus buying the stock outright using a limit order versus a cash secure put which one has less risk it's actually selling the put that has less risk than buying the stock outright so when you compare the two you're going to see why you might want to sell that cash secured put next time you want to buy the stock because of the discount factor that provides you then we're going to talk about how to add yield to your existing investments think about your entire stock and etf portfolio how can we help you generate some income off of that that's exactly what the um the cover call strategy is designed to do that's a strategy that many of you are familiar with so we're going to do a quick review of that then we'll talk about what the optimal option strategies are meaning what are the optimal expiration dates and strike prices i want to show you the cover call and short put reports that options play publishes every single day that you can utilize to actually implement the strategies we're going to teach you here today we're going to go through some live examples before we open this up for q a here at the very end so those are the things we're going to go over here for today now the primary question that i want to help investors answer for today's session is really how can options be utilized to add yield to your existing equity investments so before we get started i just want to do a quick uh poll here of the audience if you could please bring up the chat window which is at the bottom of your screen and please type one into the chat window if you currently own stocks or etfs in your portfolio and please type two if you do not own any stocks or etfs in your portfolio okay so i pretty much see all ones i saw a few twos fly by um but i think the two number of twos meaning those of you that don't own any stocks or etfs are in the very small minority now if you don't own any stocks or etfs this may not be the right webinar for you unless you want to start buying stocks or etfs for your portfolio so this is again the vast majority of you this has really nothing to do with options trading we are using options as the tool or the vehicle to help our equity investments but for those of you that are just trading options or if you're trading mutual funds you're trading forex futures and you're not buying and selling stocks this might not be the right webinar for you just a quick warning before you um spend too much time on this okay but again if you're not if you don't own any stocks but you want to own stocks then stay put and we're going to learn a little bit as to how options can help you do that so my name is tony zhang i'm the chief strategist here at options play and i want to share with you what again what i believe is the most under utilized option strategy that i see large institutions using day in and day out that retail investors many times glance over because they're not very sexy they don't sound very you know they're not as sexy as iron condors or credit spreads they're very plain vanilla options but that really in my opinion is why i think they're most uh useful and they're very underutilized so let's go ahead and start with a stock purchase because every stock portfolio needs to first start with the purchase of some securities whether that's a stock or an etf that you want to own what normally as a stock investor the first thing that you do is you buy a stock now most investors will buy that stock using either a limit order or a market order to buy that stock on the open market so today what we want to show you is the difference between placing a limit order to buy that stock versus selling a put option to buy that stock and when you compare the two side by side you're going to start to see a clear advantage to selling puts as opposed to placing that limit order so the first example i'm going to give is gm stock now i've been talking about gm for those of you that have been following uh you know options play for the past few months since it's trading at about 30 dollars it's rallied up to 45 i still think this is a good stock to buy so this is a stock i'm going to use as an example gm you know earlier today was trading closer to 45 and let's say i want to purchase a hundred shares of this stock at 44 so i want to buy the stock a little bit below the current price and let's say i have a target price of 50 on this particular stock so what i want to do is i want to compare buying a limit order or buying the stock with a limit order versus selling a put option on this particular stock at the same price that i want to purchase the stock at which is 44 so if i purchase the stock using a limit order let's say i want to buy 100 shares of this stock then to place that limit order i would need to put up 4 400 in capital in order to place this limit order now that means that i'm risking forty four dollars a share if the stock if i buy the stock and the stock goes down to zero i'm risking forty four dollars a share my potential reward is six dollars for the forty four dollars worth of risk because of the stock rallies from forty four dollars to fifty dollars that's a six dollar potential reward and i don't actually have any exposure in gm stock until the stock declines from forty five dollars down to forty four dollars and triggers my limit order okay so that is the side that i think everyone here who answered number one is probably familiar with now what i want to show you here is the strategy here on the right which is selling a put option here what i'm going to do is instead of placing a limit order at 44 which is my purchase price i'm gonna sell a january 44 put option now for those of you that that have gone through your education you'll remember that selling a put up option obligates you to buy the stock at the purchase price or at the strike price of the short put now if you think about that the obligation to buy the stock at 44 what does that sound like it sounds exactly like a limit order that's exactly what a limit order is actually doing it obligates you to buy the stock at forty four dollars the second the stock drops below that forty four dollar level it triggers an order to purchase the stock at the price that you specified now a short put effectively obligates you to the same thing there are differences between the two right a limit order you can place for any amount of shares a short put has to be for at least 100 shares so there is that there are some differences this is not exactly the same but when the obligation that you have is exactly the same now the difference here is that when you sell a put option you get paid premium you get paid the premium of that short put and that premium goes to offset number one the amount of capital that requires you to sell that put versus placing that limit order to to sell this limit order i would need 40 roughly exactly 4 400 in cash in my account or this or the aluminum margin in my account in order to buy this to place this limit order but when i sell a put option i only need 42 dollars a share so i only need 4 200 in order to sell this 44 put which obligates me to buy the stock at forty four dollars so my risk is immediately reduced from forty four dollars a share down to forty two dollars a share because i collected that two dollar income on selling this put option what that does is it increases my potential reward from six dollars to eight dollars so i've reduced my risk and i've increased my potential return because i've collected these to this two dollar and until the stock drops below four dollars just like the limit order i have to wait until the stock drops below forty four dollars i can actually continue to sell puts on gm stock until the stock actually triggers and executes or assigns me the stock at forty four dollars and i can continue actually collect income while i wait for the stock to to to decline to the price that i want to purchase the stock at so the net effect of all of this is the fact that by selling a put option i'm obligating myself to the same obligations as placing a limit order but because i'm getting paid to place that that short put that gives me a discount on the purchase in this particular case it's two dollars on a 44 dollar stock which happens to be about a 4.5 percent discount now that's a pretty sizable discount think and ask yourself now in this particular example i don't necessarily think that four and a half percent is typical meaning i think that the typical discount that you get is a little smaller than four and a half percent it tends to average between one to three percent in terms of a discount but ask yourself you can get a one to three percent discount on every stock and etf purchase in your portfolio what does that do for your portfolio the answer is that it's not going to make or break your portfolio it's certainly not going to be the difference between night and day but it is going to significantly improve your odds of performance on each individual trade and reduce your risk and increase your potential reward on your stock purchase if you're getting a two three four percent discount on every single stock or etf purchase does that make sense everyone please type two into the chat window if the comparison between placing a limit order and selling a put option makes sense to you okay so i i purposely started with a numerical uh or a real example first to help solidify kind of the opportunity so let's just review what a short put is a short put you know is designed to allow you to sell a put at the intended purchase price that you were going to place a limit order at you want to sell a put at the same price that you were originally going to place a limit order at and it obligates you to potentially buy the stock at the strike price upon expiration just like how a limit order potentially obligates you to buy the stock at this limit price here you have the potential obligation to buy the stock at the strike price now like i said the difference is the fact that when you sell a put you have to trade in 100 share increments so if you let's say you only wanted to buy 25 shares of gm then you're better off just placing that limit order but whenever you're trying to trade in multiples of 100 100 shares at a time selling a put option is the way that you might want to go now when you sell a put it does require cash or margin in order to sell the put the same way a limit order requires you to have the cash or the margin before you can place that limit order but this is a strategy that allows you to acquire the shares like i said on average about two to three percent in terms of a discount on your stock purchase per expiration so meaning if the first you know if i sell these january puts and the stock doesn't uh and i don't have the stock assigned to me i might sell a february call instead and maybe collect another two to three percent by february and total by the time that i actually own the stock i might have a five or six percent discount on the actual stock purchase that's really the key here as to how you can utilize a short put to generate some income for your portfolio so when you sell a put there are two possible outcomes either the stock is above the strike price at expiration or the stock is below the strike price at expiration if the stock is above your strike price so if this in this in this particular case if by january expiration gm is not below 44 it's 45 46 47 somewhere above 44 then basically i keep the income the two dollars that i collected on the short put and i can decide whether or not i want to sell another put if i do i effectively can rinse and repeat for additional income if i keep if i still want to buy the stock maybe i choose a different strike price collect more income and i keep doing this until i actually either no longer want to buy the stock or i've or i've actually owned the stock which is the second scenario if the stock goes below your strike price so if at january expiration gm is below 44 now i effectively own the stock at the strike price which is 44 dollars that i sold the puts for and i minus the premium that i collected i get the discount on the stock purchase so when you compare the the limit order to the short put you're getting a discount compared to placing that limit order so that's in essence what a short put is designed to do does that make sense please type three into the chat window if that makes sense to you perfect okay i see a lot of threes so now let's talk about the fact that you you've now owned gm stock it doesn't matter whether it was a limit order that that triggered your purchase of the of the gm stock or if you sold that put and now you own the gm stock but now you do own the gm stock or maybe you bought it 10 years ago and you just have it in your portfolio what can you do with that asset that you own in your portfolio and the answer is you can generate some yield and i'm not talking about the dividend that you're receiving you're still going to collect the dividend on the stock that you own but you can add yield to your stock by selling what we call a covered call now when you think about a cover call what does a cover call do it it obligates you to sell the stock at a specific price that's very similar to a limit order that you might put on it on a stock that you own at the price that you want to sell your stock ads so let's say i own 100 shares of gm it's trading at about 45 right now and i have a 50 price target i think it's going to reach 50 that's when i want to get out of my investment so as an equity investor you would simply place a limit order uh for to sell the stock at 50 and you would sit on your investment and wait right and during that time the stock can go up and go down and while it does that you can collect some dividends if it's a dividend paying stock now alternatively as a options investor you can sell let's say a january covered call at the same strike price that you were going to place your limit order for but now because when you're selling an option just like the put option instead of just obligating yourself to sell the stock at fifty dollars you get you get paid income to sell that call option so what that means here is that in the original example here if i bought the stock at forty four dollars using the limit order my risk remains the same if i buy the stock at 44 my risk is 44. my potential reward is still six dollars because if i buy it at 44 and sell it at 50 my potential reward is six dollars per share and i will have exposure to gm so if gm goes up i make money if it goes down i lose money i will have exposure to gm and i will collect dividends until gm rises to fifty dollars as soon as gm rises to fifty dollars i'm out of the trade i make my six dollars on my stock and i collect whatever dividends it took between the purchase and the sale of the stock so again for those of you that are equity investors that is i think pretty clear or pretty straightforward now when you sell a cover call you effectively obligate yourself to the same thing which is uh obligation to sell the stock at fifty dollars sometime you know by expiration but when you're collecting income for it what you're further doing is you're reducing the risk of your total stock investment because originally we wanted to buy the stock at 44 but we sold the puts for two dollars that brings our risk from 44 down to 42 and now if we sell a call option on top of that we've reduced that 42 down to 41. so we're further reducing our risk here from 44 dollars a share to 41 dollars a share and that has the inverse effect of increase our potential rewards because if now our effective rate of owning the stock is declined to forty one dollars and the stock does rise to fifty dollars that we expected to we now make nine dollars a share so what we've done here is we've reduced our risk and we've increased our potential reward and during this time we can continue to generate income each expiration so you know the thing about the stock rising from 44 to 50 is that that could take five months six months a year we don't actually know how long the stock's going to take before it goes from 44 to 50. it could take a week or it could take six months now as a as a stock investor if it does take six months you can collect dividends for six months now rather cover call investor not only do you collect those dividends but over those six months you can sell multiple cover calls every single month and maybe collect one dollar every single month and what you're doing is every single month you collect a dollar you're going to further decrease your risk here and you're going to further increase your potential reward the longer you hold on to this so you're going to collect dividends and you're going to collect cover call income and what this is going to result in is a lower breakeven price on the stock that you own and it generates at least in this particular example three dollars extra in profits by buying and selling using options versus using the limit order now three dollars on a forty one dollar stock is seven point three percent so your return on gm here is an increase by seven point three percent by using cover calls and cash secure puts versus limit orders now this is assuming that you get you get uh assigned on the short put on the first expiration and you only sell one cover call before the stock rallies up to that fifty dollar level now in reality it could take three four cover calls three four months of cover calls before the stock rallies from 44 to 50. so this could actually be closer to 10 or maybe even 12 in additional profits by using a cover call on top of your equity investment so as you can see here this is not uh this is not an option trading strategy this is really for your stock or etf investments that you own in your portfolio and leveraging the value the ability to sell options to to effectively create the same obligations that you have with a limit order to buy and a limit order to sell but getting paid to place those limit orders does that make sense everyone please type four into the chat window here um okay i see a couple of questions here let me see if i can answer a couple of questions um do you need to buy to close that call you sell uh so okay we'll talk about some of these questions here at the end but the question is really around well you know how to get out of these trades and that's something i am actually going to cover here at a later slide so just to review what is a cover call what you're doing is you're selling a call option at the target price that you have on your existing stock position when you do this you have the obligation to potentially sell your stock at the strike price upon the expiration date now to sell a cover call just like selling a cash secure put does require you to own at least 100 shares of the stock before you can sell a cover call because each call option you sell obligates you to deliver 100 shares of that stock at that specific price so you must own at least 100 shares before you can sell this cover call so this is a strategy that allows you to take profit as a stock rally significantly and i have a double asterisk up here and i'm going to show you why as we go through the examples as to how do you actually go about selecting your strike prices and your expiration dates for the cover call and the cash secured put but just like the cash secured put you have two possible outcomes when you sell that cover call the stock can either be below the strike price or it can be above the strike price now if the stock is below the strike price effectively the call option will expire worthless and you can rinse and repeat meaning you can sell another cover call so let's say the january by january gm is still below 50 then what you might want to do is you might want to sell a february 50 call maybe collect another one dollar or maybe a dollar fifty and that's what i mean by rinse and repeat right and if let's say by february the stock's still not above fifty dollars you can sell a march fifty dollar call maybe collect another fifty cents or a dollar a dollar fifty depending on where the stock is that's what i mean by rinse and repeat until maybe by march the stock does rally above fifty dollars now you've sold your stock at fifty dollars but maybe at that point you've collected five six dollars in income so now instead of just making five dollars a share i'm sorry six dollars a share in profits you might be making ten eleven twelve dollars a share in profits because you sold cover call uh you sold the cash secure put and you sold multiple cover calls before the stock reached your target price now once the stock reaches your target price what's going to happen is you're effectively going to sell your stock at your profit level at the level that you um obligated yourself to which is the strike price and you're going to collect the premium of the stock of the calls that you've sold so those are the two possible outcomes that you have when you sell a cover call does that make sense everyone please type 5 into the chat window if that makes sense to you so i see a couple of questions about what are the optimal expiration dates and track prices and that's what we're getting to next so when we talk about these cover calls and cash secured puts a lot of questions around so how do you choose expiration dates how do you choose strike prices and those are great questions so first of all when we talk about expiration dates the process for selecting expiration dates for both cover calls and cash secured puts are identical the optimal expiration date is about 45 days to expiration for both cover calls and cash secured puts so you're going to use the same expiration dates for both strategies but when it comes to strike prices this is actually where it differs quite a bit so when you're selling a cash secured put you generally want to choose strike prices that are relatively close to the current stock price so if we're looking at deltas we're looking at about a 30 to 40 delta close to the current price of the underlying stock when you're selling cover calls you actually want to sell cover calls that are further away from the stock price so about a 15 to 25 delta now the reason for this is because when you're selling a cash secured put your primary motive to sell that cash secured put is that you want to generate i'm sorry you want to own the stock right so you can you can increase your probability of owning the stock by choosing strike prices that are close to the current stock price because the closer that the strike price is to the current stock price the higher the probability of you owning that stock and the additional benefit here is that when you sell a cover a cash secured put that's close to the current price you're going to collect quite a bit of premium that's where you get the most premium is that at the money strike or strike prices that are close to at the money so not only do you increase your probability of owning the stock but you also increase your potential discount factor so when you're selling a cash secured put always choose strike prices close to the stock price does that make sense everyone please type six into the chat window if that makes sense to you and when you're selling cover calls you want to do the exact opposite you want to choose strike prices that are further away now why is that a good question a lot of a lot of questions a lot of users ask you know why do you want to choose strike prices that are far away and the answer is because most of the risk that you're taking with a stock position is the underlying stock itself okay so let's say i own this uh you know gm stock at 42 because i sold the put and i think the stock is going to go to 50. a lot of people you know will mention well if i sell the 50 call which is pretty far away i'm not collecting a lot of premium but here's the thing when you're selling a cover call what do you think is your primary objective is your primary objective more income or is your primary objective to sell your stock at a higher price and the answer is very very clear when we do back test of this type of strategy you know we see a lot of investors will say no i'd rather sell the 45 option because for that i'm gonna collect let's say two dollars in income versus the 50 option i might only collect 50 cents and someone will say well i'd rather take two dollars in income than 50 cents in income but that in my opinion is a very short-sighted way of thinking because what you're giving up here is five dollars worth of upside in exchange for a dollar fifty in income and that again is something that i get questions from all the time from investors saying i sold a cover call the stock shot up through that through my my cover call strike and now i'm not participating on any of the gains if you relate to that please type seven into the chat window if you've ever been in that situation where you've sold the cover call and the stock shoots through the roof and you realize that you know you for an extra couple of bucks in income you gave up four five maybe ten dollars in stock upside and remember where is the biggest risk that you're taking the biggest risk is here you know for a hundred shares of a stock at 42 and 42 dollars that's 4 200 worth of risk that you're taking in order to to account for that risk in order for to make sense to take on to that risk you better have a lot of upside that's the whole reason that you own the stock is because you think that stock is going to go higher do not give up that upside for an extra one dollar or a dollar fifty in income that's a very short-sighted way of thinking and unfortunately i see it so often from investors who sell cover calls too close to the current price giving you know thinking that i want an extra buck or two in income and exchange gave up four or five dollars in an upside don't do that so when you're selling cover calls always choose a strike price that's pretty far away you gotta you gotta ask you have the strike prices if it doesn't feel too far away you probably didn't go too far enough it really should feel like a strike price and the stock has to really shoot through the roof before it can hit that level by expiration once you feel that that's when you've kind of hit the right sweet spot because the income that you receive is secondary to the capital appreciation of the underlying stock always prioritize the capital appreciation of the stock because that's where it's going to hurt the most when you figure out that you sold the cover call that was too aggressive and you gave up a lot of upside that's going to hurt a lot more than giving up a dollar a dollar or two in additional income okay so does that make sense everyone please type 8 into the chat window if that makes sense to you because that is probably the hardest lesson to learn from cover call investors you know when you when you learn about cover calls it's been it's been taught to you as an income generating strategy so you think to yourself let me generate as much income as possible don't do that don't get don't get don't get caught into that that income trap you know think about the upside of your underlying stock so a few tips on top of that number one generally speaking you want to avoid selling cover calls or cash secured puts going into an earnings event these are things that pretty much provide a shock to the system you don't necessarily want to sell cover calls or cash secured puts going into earnings i generally avoid them if there's an earnings cycle coming up you know either buy it back before the earnings event um or start selling it right after the event and the second uh you know tip that i want to give you is try to sell cover calls immediately after acquiring the shares now i get uh the second most common question that i get with cover calls is someone will tell me i bought a stack at a hundred dollars it's dropped to 50 now it really didn't go my way you know how can i sell cover calls to recover my my loss and the reality is that you know the one dollar two dollars in income that you're going to pick up in income is never going to offset the 50 loss that you took on that portfol on that stock there's no chance in hell that that cover calls selling cover calls when you're down 20 30 50 is a good strategy you have to start selling covered calls immediately after purchasing the stock for this to be a viable strategy for you if you wait for the stock to drop 20 30 percent and then think about trying to generate a little bit of income because you're desperate to try to get back to break even that is too late because by that time once the stock has dropped from let's say a hundred dollars down to i don't know seventy dollars the only cover calls that you're gonna generate any income on are probably in the 75 80 range which means that if the stock even rallies significantly to eighty dollars you still obligated yourself to lock in a 20 loss on that stock so when you're down 20 30 not a good time to sell cover calls do it when you first get into the trade that's when you have the highest chance of starting to build that buffer of that stock so that you are continuously lowering the cost basis from the very beginning if you wait too late if you wait too long you might find yourself in a position where it's too late okay so just to remind everyone options plague publishes a daily report of all s p 500 stocks and all of the very liquid etfs where we show you the um the opportunities where you can find the largest discounts on stock purchases using our short put report so this can be used as an opportunity report to see where can you find the biggest discount factors on a stock purchase now i've been getting a lot of questions on neo right now neo because of the crazy implied volatility on it it's a forty six dollar stock if you sell the forty six dollar puts you're collecting seven dollars that's a fifteen percent discount on that stock purchase so for those of you that are you know interested in thinking about buying neo this might be a better alternative than trying to chase this the stock at the current price now you know that's if you think neo is a good long-term investment now remember selling put options are only for stocks that you want to purchase because that's what you're obligating yourself to do you know we also talked about american airlines the other day you know when it's trading at 14 you know right now it's trading at 16 if you sell the 16 put option you're collecting 1.60 that's a 10 discount so this is a report that's sorted for you based on annualized return and what we do is we show you i'm sorry it's sorted by the the raw return meaning how big of a discount are you receiving on your stock purchase so what you can do is you can use this as a list of potential stock opportunities to research do you want to buy neo do you want to buy american airlines do you want to buy tesla do you want to buy whatever this is maybe you really like the gaming stocks the the the um the sports betting stocks like pen gaming and you like this stock so this is telling you exactly what expiration date what strike price how much premium you're collecting whether it's a liquid stock or not very important uh what the iv rank is as well so for those of you that like to sell stocks with high iv rank you can use this as a filter uh it'll tell you when the next earnings date is and we have an earnings flag to tell you if there's earnings between now and the expiration date what the current stock price is number of days to expiration and the actual discount factor that you're receiving this annualized return is a good idea to give you a sense for how much yield are you getting on your cash that you have to put aside to sell this put but this is a report that if you're interested in selling put options or if you're interested in buying stocks you should always look at this report the next time you're thinking about buying a stock find the stock that you want to purchase on this report see what strike price we're telling you to potentially sell and see how big of a discount you're actually receiving now this this is the s p 500 stock uh s p 500 list and from what i can tell looks like uh let's just look at three percent right so three percent is right here so there are about 300 roughly 380 stocks in the s p 500 that if you instead of placing a limit order used a short put you're gonna collect at least a three percent discount on the purchase of your stock so that's one way to potentially utilize this report to help you purchase or fund this you know purchase the stocks that you want to buy at a discount now this is a report that's available for all members here we actually send you an email every wednesday monday wednesday and friday that's in the market observation email that's gets sent out at 11 a.m there's a link in that in that email that gives you a link to this report that goes out to all members every single monday wednesday and thursday and we also have a cover call report this is again similar type report that tells you exactly which stocks gives you the largest downside protection and the highest yield on on the same list of stocks so the cover call report looks like this it looks almost identical but it tells you exactly how much of a downside protection that you actually receive on the cover call now the cover call report is more for stocks that you own so you can just quickly look for the stocks that you own in your portfolio uh maybe let's say you won pfizer in your portfolio because you're you're you think it's going to take off on vaccines um so this is telling you that pfizer is currently trading at forty dollars we're selling the january 45 dollar call option which will give you a three percent downside protection now here's the thing you know think about the fact that you know pfizer if you own pfizer maybe you think the stock's going to 60 or you know i'm just saying this as an example because you know for some people you own pfizer because you really think it's going to take off with a vaccine so maybe you don't want to sell a 45 call option because that obligates you to get out of the stock at 45. if you think the stock's going to go to 60 don't sell the 45 option does that make sense think about the strike price that you're selling and ask yourself if i had to sell my stock at this particular price would i be happy at the end of that because the questions that i get all the time from investors that say hey i sold the cover call the stock a shot you know has gone significantly past it what should i do the answer is you know are you happy with the with the with the stock price that you were originally obligating yourself to sell it at if you are happy with it let it go you've made a profit maybe not as much profit as you could have made but at the end of the day you're never going to be able to make the maximum amount of profit on a stock position you have to be satisfied with a profit sometimes so you know 40 to 45 not a bad profit but if you think the stock's going to go to 60 don't sell the 45 put i'm sorry 45 call but maybe on a different stock maybe i don't know let's take a look at some stocks here um what's one let's look at uber right uber is trading at fifty three dollars we're telling you to sell the 56 60 call option maybe you're thinking to yourself well i'd be happy to fight if i you know the uber stock that i own from 30 40 bucks if i sold it at 60 i'd be really happy to do that and here i'm getting a 2.4 percent um uh sorry a 2.4 percent uh um downside protection and a 22 yield on my cash i'm happy with that or maybe peloton that's trading at 115 right now the cover call that we're telling you to sell is 145. maybe you're selling to yourself i'm really happy selling peloton at 145. so just ask yourself real quick before you sell your cover calls am i happy letting go of the stock at this price only sell a cover call if you say to yourself i am okay if i sold the stock at this particular price otherwise you're going to send me emails you know saying hey i sold the stock too early what can i do the answer is there's not much that you can do at that point you can buy back the call option and sell another one but at the end of the day you're obligating yourself to sell your stock at that price so be okay with that when you do when you place that trade so lastly what i want to cover before we open this up for q a is the three scenarios that you'll find yourself in after you sell a cover call now the reason i'm not talking about cash secured puts because from my perspective when you sell a cash secured put there's really nothing that you have to do you basically hold it to expiration and either ends up expiring worthless or you end up owning the stock those are your two possible scenarios that's what you want to happen right you either want to expire worthless or you own the stock when you sell a covered call now here's the thing about a cover call there are three scenarios that you might find yourself in and different people will do different things so i want to discuss it so when you sell the cover call there's three things the stock can either go significantly higher it can move sideways or it can decline significantly so in the first example when the stock rallies significantly this is where a lot of people will send me emails saying hey you know i bought a stock at a hundred dollars i sold the 110 cover call the stock's now at 115 what do i do um the answer is do you are you okay selling the stock at 110. if the answer is yes you do nothing you just let the stock get called away you made your 10 profit plus whatever income that you received on the cover call and you move on you take the cash and you sell a put on a stock that you want to purchase instead but if let's say you've used let's say you bought a stock at one 100 you sold a 110 uh whoops you sold a 110 call and now the stock's at 115 and maybe and this is a reasonable scenario where now that the stock's at 115 maybe you're rethinking to yourself maybe you think that sometime in the future the stock can keep going higher right maybe this is like zoom right maybe zoom when it was trading at 100 uh it's at 115 you're thinking to yourself hey i think this thing can go to 130 or 150 or 200. if that's the case you can hold on to your cover call and you simply want to roll your cover call two to three weeks from expiration what that means is you buy back the 100 call the 110 call that you sold and you sell a higher call uh later that expire later maybe a 120 or 125. but what you want to do is you want to buy back the call that you've sold and then you want to sell a new call at a higher strike price okay so if the stock rise higher that's what you can do now in the second scenario if the stock goes sideways this is really kind of your best case scenario you don't really have to do anything you can hold that cover call until expiration and just simply let it expire worthless now in the third scenario when the stock drops this is the only scenario where it from my perspective it makes sense to potentially do something much earlier so let's say you buy a 100 stock uh whoops let's say you buy a 100 stock you sold the 110 puts and instead of going higher the stock drops so when you when the stock drops like this the calls that you sold up here maybe you sold these for let's say two dollars they're going to be worth very little by the time the stock is down at let's say uh i don't know 95 or 92 dollars as a stock drops this call option will drop very close to zero so this is really one of the few scenarios where you can roll down your position fairly early and the rule of thumb as to when you might want to roll down is if you can buy back your cover call for 20 of the premium that you originally sold it for so if you sold something for originally for two dollars and you can now buy it back for let's say 40 cents that is a general that's a good time to simply buy back the cover call that you sold take the dollar 60 in profits and maybe at this point roll it down to a lower put a lower cover call maybe at this point now sell maybe a 105 cover call maybe at that point you'll collect another dollar or two dollars or something like that and what you're doing is you're taking the dollar 60 that you've earned very quickly and now you're selling another cover call maybe for another dollar or two and you're increasing your income that you're receiving in a short amount of time so those are generally the three scenarios that you'll find yourself in and how you should handle a cover call so with that that covers what i wanted to share with you here today now but i just want to do a quick reminder before we open this up for q a tomorrow morning we're going to do the members only rapid fire session this was a very popular session from two weeks ago so we brought it back and you guys have submitted over 500 symbols so i'm really excited to do this i was actually putting this uh you know some of the things together here before this session and we had over 500 submissions in terms of symbols we're going to prioritize the ones that multiple people submitted i think baba was the one that most people submitted to to look at baba tesla apple there was a few palantir riot also uh names that came up that came up with a lot of requests but we had over 500 symbols i'm going to prioritize the ones that you guys uh that multiple people submitted and then the rest that were if we can get to them we'll sort by market cap and we're going to go through them i'm obviously not going to be able to go through 500 symbols but we're going to get through as many as possible tomorrow morning so really excited and looking forward to that session here tomorrow morning and that's for all of you that are members to join us here tomorrow morning so with that i want to thank everyone for taking the time out here this afternoon i really want to thank our members for supporting us and allowing us to continue to do this and build on all the education that we provide and build the tools and the resources that you guys are looking for and membership is just 75 or 500 or 500 a year so if you're currently on a free trial i hope that you consider supporting us it's going to give you access to the members only sessions like the one we're going to host tomorrow morning and like i said next friday we're going to be doing longer term thematic research we're going to provide more fundamental research on some thematic themes next friday we're going to be talking about cyber security we've been doing some analysis on the cyber security theme we've identified multiple symbols or companies within that theme and we want to show you which ones we like for that particular opportunity and we're trying to find these themes that we think are going to do quite well from a fundamental perspective over the next few years everything from clean energy to cyber security to electrical vehicles we want to do a deeper dive into each one of these themes that you guys have been asking us a lot about you know so many questions over the past couple of weeks about electrical vehicles so we want to do a deeper dive of that theme show you the companies that are currently in that theme and which ones you might want to focus on and it's going to do a work really well in my opinion for the leap options one that we're going to talk about here next thursday taking advantage of some of those themes that we have specific companies and how to leverage longer term options to play those themes so with that thank you so much at this point what i'll do is i'll open this up for q and a so um we do have the chat window and we have the q a window i am going to ask because there are so many questions that please submit your questions in the q a window that's where i'm going to answer your questions um here today so please if you've submitted a question here in the chat window please just type them into the q a window and i will try to get through as many as i have time for here today so jacques is saying great work tony i've initiated a cover call on two stocks that i can't afford to get rid of both cover calls are getting in the money i don't see any choice but to roll them since i am at a big loss with both cover calls i don't see any choice but to wait at expiration to roll for the next expiration date do you have any suggestions so jock so jock's saying you know is again is in a position that i think many cover call uh sellers find themselves in now jack what i don't really understand in terms of uh stocks that you can't afford to get rid of if that if you mean that stocks that you want to hold on to number one i don't suggest that you sell cover calls that you don't want to get rid of right cover calls are really for stocks that you're okay with letting go of that's number one number two as far as you know you you say that you're at a big loss with both cover calls now that's not an actual loss because the loss that you have on the cover call is a gain in the underlying stock so it's a paper loss but it's not an actual loss in your portfolio but it is going to cost you some money in order to um to sell those cover to buy back those cover calls so the only way to do it is if you can roll them to a further call and collect quite a bit of premium that offsets the debit that you need to buy back those calls you know at the end of the day there's no magic bullet that can lower the cost of buying those puts those calls back the thing that you can do is let the calls expire um let the stock get called away and simply buy back the stock you know the following monday that is one way that you can potentially avoid having to buy back those calls because again it's not a real loss it's just a paper loss that's offset with the gains that you have in the underlying stock um talia is saying i bought a cover i bought a cover call and cash secured put against ddd that i have in my portfolio meanwhile the stock shot up a lot i'm now at one a negative 1000 unrealized gains since the date to exercise is tomorrow i need to decide whether to exercise and keep or and keep dvd stock or let someone buy out the shares how would you be playing this so you know the question as to whether or not you should let this a cover call expire worthless or if you should um uh you know uh i'm sorry the question is whether or not you should let the stock get called away or if you should buy back the calls is really dependent on whether you think if if you think the stock's going to continue moving higher and it's perfectly reasonable that you think the stock's going to keep moving higher if that's the case you know you can buy back the call and sell another cover call but it really is contingent upon whether you think the stock's going to continue moving higher or not wayne is saying hey tony i took a position on a cover called the buy right and a 53 day expiration the stock rallied quickly okay so i'm starting to see basically you know the same questions being last over again and and this is fairly common i can and this is why i keep going back to this point um how how important that i say when you're selling cover calls find strike prices are far away it should be a it should be a strike price where you say hmm i don't think the stock's really going to get to that point because that's how the cover calls should be um you know don't pri every investor i keep finding this investors prioritize income over capital appreciation and when the stock rallies they're kicking themselves because they lost out on a lot of opportunity that's why whenever we're selling covered calls i actually prefer selling you know 15 delta 10 deltas something that has a very low probability of getting called away because yes i'm going to collect less income but i rarely find myself in this position where i'm you know at a huge loss on a short on a short call because that's why i'm selling calls that are very far out of the money um so you know wayne uh talia you know everyone's asking i think very similar questions and the way to avoid this number one is the cell cover calls that are far away don't sell cover calls on stocks that you don't want to sell okay that's that's number one that's number one don't sell cover calls and stocks that you wanna don't wanna sell sell cover calls that are really far away ten to fifteen deltas in my opinion if it's a stock that you don't want to get called away and you know if you do find yourself in a position where the stock did jump and you think the stock's going to continue moving then then buy back the call and sell another call option at a further dated option uh when doing a cash secured put is it advisable to put a stop order to short the stock in case it drops too low you can jock yeah absolutely so let's say you sold a put option for two dollars you can put a stop order at let's say five or six dollars so that if you get a big drop in the stock you at least stop yourself from doing that and you absolutely can do that david is saying when gm was at 30 in october i sold the december 38 call how badly should i feel about that from my perspective i don't think you should feel bad at that at all that's an eight dollar move in the underlying stock in two months you should feel good about that that you were able to capture that and and take profits and at the end of the day you're never going to be able to buy at the very bottom and sell the very top that's just unrealistic and unfortunately that's just how life works you know you're never going to be able to catch the top and dave i think you know buying at 30 and selling at 38 for a two-month uh trade is really not bad you're talking about you know a 20 a little over um 25 return in two months what is the delta and time frame best for selling puts i think that's exactly what we talked about here uh 45 days to expiration about 30 to 40 deltas for puts can you not sell a cash covered call uh no there's no such thing as a cash covered call because a cover call a naked call has unlimited risk you can sell a naked call um that so so that's effectively what uh what a cash covered call is is you have to put up margin in order to sell a a naked call uh harley's saying could one also carry a stop or limit order while having sold a stock on uh could you i think harley's harley's question is can you have a stop or a stop limit on the stock that you sold a cover call on um harley that's a great question um i think what you can do is you can put a stop limit on the full position the buy right position so let's say you own 100 shares of the stock and let's say you've sold the call for a dollar that means your net is 99 you can put a limit a stop on the on the two positions combined so if the stock drops that you basically exit both the stock and the end up on the long and the short call in one order so you should be able to do that harley ashanti is saying is it okay to sell cover calls if there's an earnings event in that month so you can but that's a risk that you're taking that the stock then drop sharply sharply increases goes through your strike price and now you've obligated yourself to sell your stock at a price below where the stock is trading so i generally don't advise doing it but you can there's nothing that stops you from doing it maybe explain that the trade is called covered because you must own the shares as opposed to naked so yes when we talk about a cover call it's covered call because you own the stock but you can also sell a naked call but i don't advise selling a naked call i don't really see a great reason to sell a naked call and take on unlimited risk i think you're better off selling a credit spread in that particular case in my opinion talia the price was much above the strike price but it still is an exercise fourteen hundred percent of unrealized a lot of unrealized gain talia i think you're going to have to expand a little bit on that if that's in regards to the first example i'm not exactly sure what you mean by that mitch is saying did you cover rolling over the expiring cover calls when is this a good optimal strategy that is something i did cover at the end there mitch christine is saying if a cover call causes the stock to be called away will this affect the cost basis of the stock um if so does the broker firm typically adjusts this at the end of the year for tax purposes uh so just to be clear the cover calls that you sell will not adjust the tax lot of the stock that you own it will simply just change the effective owned uh cost basis but it will not change the tax the cost basis from a tax perspective christine jeff is saying if i sell a put but the stock price falls afterwards what's the strategy i could take other than buy back the put if i do not want to buy the stock at the strike price jeff the only thing that you can do at that point so the question is if you sell a put let's say i sell a 44 put on gm and the stock drops after i sold the put to let's say 35 and i no longer want to buy the stock because maybe some news comes out that's changed my outlook on gm and i want to i no longer want to buy this i no longer want to buy the stock the only thing you can do is to buy back the put that's the only thing you can do and get yourself out um you know you know can you trade it afterwards because you think it's going to bounce higher you think it's going to keep going lower you certainly can but you're taking on more risk then uh the only thing to do is simply buy back those puts and move on why avoid why avoid selling going into earnings usually price drops around three percent prior to earnings tell you i've never heard that statistic i'm curious to see as to where you've heard that statistic or where you've found that statistic because i certainly have never seen anything that remotely resembles that jack is saying is it relevant to do cover calls if the stock has a low implied volatility so jock you know low implied volatility does not mean that implied volatility can't get any lower um so that's that's a common misconception that people have with implied volatility you know people just think that if it's a low that you gotta buy vol if it's sell high you got to sell fall just because of all is high doesn't mean they can't go higher and just because vola is low doesn't mean it can't go any lower so or just stays stable right because as long as evolve doesn't spike up selling vola is a perfectly reasonable um strategy so i don't think low vol is a reason to not sell in my opinion what happens when you have a cover call and the stock pays a dividend nothing you get paid both the dividend and the income from the cover call our note is saying if you own a cover call does that mean you cannot sell your stock until expiration or no that is true unless you buy back the call option then you can sell your your stock before expiration uh peter you can't currently you can't access a report from the website at the moment you can only access it through the email that we send out to you on monday wednesday and thursday chris is saying if we prefer selling put spreads is the optimal short put report so helpful for that purpose chris um yes it is because you can still use the strike price as your short put strike so let's say you want to sell put spreads on baidu the 140 strike price is still a suitable strike price for you to sell you just have to buy back roughly the 25 delta after you sell the uh close to the at the money strike price as you have here in this report um hi tony can where can we find this list on the platform so raheem we're currently in the process of adding this this report to the platform but right now you can access it through the email that we send to you on monday wednesday and friday that we send out to members at 11am how would you handle a cover call on tesla given it is about to be added to the s p 500 i see it on the cover call list at an 800 strike for the january 15th expiration jeffrey i from my perspective adding to the s p 500 is not uh in in reality it should not be a real event here i mean we do expect some buying here on december 18th which is the day before the stock is added to the index we expect portfolio managers to be buying about 100 million 120 million shares of tesla on that specific date so that obviously is going to likely cause some uh some volatility but a lot of investors have pre-run a front run that particular trade and i think some investors are going to try to sell on that date so i mean i think you know december 18th is just going to be a volatile day for tesla to be perfectly honest we've never had a stock join the s p 500 as number six in the list they usually jump they usually join much much lower when they're when they're still in the 400 300 range where they're much smaller weight and the and the amount of buying of that stock is relatively small we've never had a stock joint this late in the game or our stock that has rallied so much in terms of market cap before it was it was joined we don't really have a template as to what's going to happen on december 18th from my perspective i think you're going to likely see a lot of volatility you might end the day you're likely going to end the day up higher in my opinion because you have to buy so many shares um but i also expect a lot of investors to be selling on that day to those institutional buyers that have to buy the stock on that date so um it's just going to be a volatile day in my opinion michael's saying what happens when the strike prices realize before what happens when the strike price is realized before expiration i'm not sure what that means when it bounces higher expiration the opportunity is gone michael i'm not sure i understand your question if you don't mind clarifying i'm happy to answer that question um i don't see the spreadsheet you shown earlier on your website so bernard it's not on our website currently this is something that we're currently in the process of adding a members only website where all of this will be embedded into that website but we're still about a couple of weeks away from launching that website uh members of taken analytics you know you don't have access to these reports unfortunately you only have access to the options play tools embedded into check and analytics thomas is saying in cases of selling a cover call and strike prices in the money at expiration do you recommend to let the exercise complete on the broker platform i.e sell the underlying stock assuming you're still happy to exit the stock in the selected strike thomas yes um that's what i would do i would let this i would let the stock be called the way um and then you've effectively sold the stock at the strike price that you that you were looking to sell your um your stock at david is saying tony thank you for the excellent as education i have learned my lesson using cover calls when i found the stock moving over the strike price and realizing unfortunately i didn't want to sell at the strike what i did was quickly purchase an extra 100 shares at the strike price and let these new 100 shares be called away my question is what are the pros and cons of this process assuming i have the money um david i don't know what you mean by the pros and cons of that process i mean at the end of the day the two are equal whether you let the stock get called away um and buy more stock on monday or you um buy back the call option the two are net from a p l perspective equal they're not one is not beneficial than the other in my opinion the question is just it comes down to transaction costs right meaning number one what price can you buy the stock back at on monday morning or whether if you buy it on friday night before because you have the cash like you said it really just comes down to you know the actual execution if you can buy the stock at a lower price than what you sold the stock price for then you know in my opinion you can potentially um get a little bit of an advantage but that advantage in my opinion is fairly small angela's saying when is the earliest and latest date from expiration you would want to buy back and roll for a cover call so the earliest is probably about three weeks the latest is probably one week before expiration keith is saying how do you access the reports directly through my options play account um so again keith that's currently we're in the process of building a members only website where all of your members only content will live but like i said we're about two weeks away from launching that um yes this with this webinar is recorded uh pardon my complete ignorance but can you walk us through exactly how you acquire shares by selling puts um jay bell um i i recommend that you go back and watch the recording um you know this is a short put it is once you sell a put as long as the stock goes below your strike price you will own the shares i mean you don't have to do anything your brokerage firm will actually deliver the shares into your into your account if that's your question um you know as long as the stock is below your strike price at expiration if you do nothing your brokerage firm will purchase the shares for you share what are your thoughts about chinese stocks that are trading in the u.s considering what congress is planning about financial visibility is it worth selling puts or cover calls so share i don't know that selling puts would be the right strategy here because any concerns that you have would drive the stock price down so selling puts on a stock that you think the stock's going to price is going to go down is not a good strategy you don't want to buy a stock that you think is going to go down nor selling cover calls in my opinion the best strategy either i think that if you're really trying to play for potential downside here of chinese companies being delisted or you know having to have to go through a different regulatory process to be listed you know you're likely going to see downside you know you might want to buy puts or sell some some some credit spreads in my opinion uh how are you calculating that annualized return great question um eric i don't have time to write math formulas out right now so i think if you send me an email at info optionsplay.com i'm happy to share with you how we calculate an annualized return a wayne is saying for iv crushes there are a few stocks reporting earnings at this time with weekly options however there are more with monthly options our monthly is okay to trade anything special to be aware of versus weeklies um wayne i'm not sure i really understand your question with respect to you know you know weeklies reporting earnings versus monthlies i mean weekly and monthly options are identical options it's just weekly options are listed more often so from a trading perspective they're identical there's no difference um so there's no advantage to training weeklies or monthlies sandra is saying on the gm purchase screen is the right side supposed to be declines to 44 as the left side uh yeah because both both uh sides are effectively triggered when gm uh oh sorry you're right this should say 44. good catch sandra you're absolutely right um this is until a gm declines to 44 not 42. uh ron is saying is there a pdf version of the cover call slash slash short put report um it's not big i'm not big on the spreadsheet view well the spreadsheet view is so that you can filter and sort that's why it's in a spreadsheet form but you can download it in a pdf format if you'd like you can go to file you should be able to download in a pdf document if you'd like to download as a pdf but i don't recommend that because then you're looking at hundreds and hundreds of rows you're better off just filtering if you want to see it by a specific symbol or if you want to sort by liquidity you can do that just on the spreadsheet um ellen uh you know if you have a request for a symbol please type him into the request for tomorrow morning for the rapid fire session um right now i'm not taking requests for individual symbols to look at that's what tomorrow morning session is for harley is saying with either cover call or short puts should one consider a yield floor as part of the selection criteria uh generally yeah i would say that on cash secured puts you know i don't like to sell cash secured puts for under two percent on cover calls i usually don't like to go below you know volatility right now is pretty high so it's pretty easy to find cover calls that collect one one and a half two percent um but when things are really low like in january you know six tenths of a percent seven tenths of a percent that was on the low end of the cover call what are the risk or downsides of selling cover calls i would say the downside is that you choose a strike price that's that's too conservative i'm sorry too aggressive and the stock shoots through your strike price and you miss out on those games but there's no there's no downside in my opinion there's just lost opportunity on a cover call selling or buying which is better in the money at the money or out of the money whenever you're buying options we're talking buying calls buying puts you always want to buy near the money so at the money slightly in the money is where you generally want to start eric is saying fell out of the webinar a couple of times this is recorded yes this is recorded eric tara uh terry is saying how to tran transfer transaction from platform to profile shared transaction how to transfer transaction from platform to profile terry i'm not sure i understand your question could you possibly re um write that uh naeem is saying i have sold cover calls two years out on palantir at 35 with my buying at 35 this is a good scenario naeem you should never ever sell cover calls that are two years out there's no advantage to doing two year options because if we look at palantir all right it's trading at twenty four dollars you sold the 30 uh january uh two years out which means that you sold this is a good question i think this is a good example for everyone right so you sold the 35 call options you collected nine dollars right so that's you know 24 to 35 that's about 10 11 bucks in potential income potential upside plus another nine dollars in the um in the premium that you collected right that sounds pretty good but that's nine dollars in two years let me show you this in 45 days if i sold the 30s um let's see 24 right let's say i saw the 30s um that expired in january right so so you proposed 35 two years away i chose the 30s less than two months away i'm collecting two dollars and fifty cents if i do this just four months in a row i'm already collecting more money in four months than you are going to collect over the next two years this is why you never ever want to sell cover calls much longer than 45 to 60 days out because you're just not getting much income you're getting here two or two dollars and fifty cents for every 43 days you're collecting nine dollars for a full two years you're severely underperforming on that so naeem my suggestion to you buy back those two year calls get out of those calls sell january 30 calls that gives you um in this particular case uh and you can even go a little higher right you can go to 32 uh collect two dollars and five cents in this in this particular case in my opinion that's far better you know this gives you a lot more upside almost as much upside here and and the stock it doesn't have to run uh you know has to run in this particular case basically almost 50 percent in the next month and a half and you're collecting a fifth of what you were going to collect over the full two years in just a month so i would highly highly recommend that you buy back those calls and sell shorter data calls michael you're very welcome michael's saying is it a good strategy to sell cover calls if you're concerned about a downside coming or you should take profits so michael that depends on how big of a downside you're concerned about if you think there's a major correction coming down don't sell cover calls either buy puts or get out of the stock if you think there's going to be a mild downturn then yeah selling cover calls in my opinion is a suitable strategy do you think you could ever use these strategies for cryptos obviously bitcoin is too expensive now or could you sell a put so from my perspective the amount that the stock is trading at doesn't really matter right so you you can do this on on amazon stock that's trading at three thousand dollars you can do it on you know any stock that's trading the the difference is the fact that just how many contracts you can trade so you know from my perspective it really doesn't have anything to do with the uh the price if you will it just has to do with the volatility of it bitcoin's extremely volatile which means that you're going to collect a lot of premium for it look for a strike price just above the expected resistance line so keith you can also use um resistance do that but my persp from my perspective if we use back testing you want to use a probability based approach to selecting your cover calls that's why when we use strike prices we use deltas to choose our strike prices um there's another question dean is asking about unity and he's sold a february 2021 put collects a nice premium um so i don't think february is too far out um but i do think that you're going to collect more premium if you sold the january call i put and did it more often um if but you know and here's the thing is that the reason that you don't want to sell a long-term put is because if the stock declines to your strike price um you sold the 100 put so here's the thing is that selling a 100 put in february has very little probability you know 100 put is a 17 delta you have a 17 chance of owning the stock that's not a probability that i want to take right you're taking on uh only nine dollars and 20 cents in premium which sounds like a lot but on a stock that's this volatile in my opinion you're better off if you really want to own the stock sell maybe a 130 you're gonna collect twenty two dollars in premium it's a fifteen percent discount on the stock purchase from my perspective i'd rather get a 15 discount and a 30 of owning the stock rather than a uh in this particular case a six percent discount with only a uh 17 chance of owning it you get a smaller discount and a smaller chance of owning it so don't sell long dated puts because of that reason and don't sell really far out of the money puts as well michael's saying are you saying it's better to sell a losing position and buy another stock than try to get the stock back by selling cover calls yes that is what exactly what i'm saying michael sometimes i see spread expirations further out that are i see spread expirations further out that are priced at the same or even lower than those about 45 days out intuitively they look like a better deal are they um why would a spread further out if you're talking about a um if you're talking about a debit spread like when you're buying a spread that's priced lower at ones that are further out i i would be weary of those prices because that's just not possible that longer dated options cost less i think what you're talking about perhaps is an option that's not very liquid and you're comparing a weekly option that's not very liquid to a monthly option that's more liquid and the weekly option looks more expensive but it's not really because the spreads are really wide because they were just listed that's the only reason that i would see that if if you see a longer dated option that's cheaper than a shorter dated option something is wrong talia thank you for the answer if i feel the stock has much more room to grow wouldn't it be better to just buy calls again um yeah well not necessarily because call options can be very expensive right so here look at unity the 145 calls will cost me 2500 so you know that's that's that's another thing that i think most investors kind of glance over and don't really spend too much time to learn and i think it's one of the most important things to learn is that buying call options is not a bullish strategy buying call options is is a bullish by a certain amount strategy and what amount is that it's the amount that the call the call options cost right so this call option costs a thousand dollars then the stock would have to go to 155 in order to break even but because this costs 2500 unity has to go to 170 just to break even so you have to ask yourself do i think unity is going to be above 170 by january if you think it's going to be at 170 don't buy it because you're not going to make any money you're only going to make money if unities above 170 so 180 190 that's when you're going to make money so ask yourself do i think unity is going to get from 145 to 180 or 190 if you do think it's going to be there then buy the call options so just buying calls because you think it's bullish is not a good idea but as you say talia you think there's much more room to grow so you know ask yourself do i think it's going to exceed the break-even price so on this particular it's 170 do i think by january the stock's going to be above 170 if the answer is yes then buy that call option if the answer is no don't buy that call option um kevin to your question about you know do members of chicken analytics get a discount to your services they do so if you send me an email at info optionsplay.com i'm happy to set you up with that ron is saying my credit card were my my covered call were 45 days out on low delta and still became a problem you haven't mentioned wanting to keep high dividend stocks as opposed to expecting a rise of stock ron i'm not sure what you mean by i haven't mentioned wanting to keep high dividend stocks as opposed to expecting a rise of the stock um ron if you don't mind clarifying i'm happy to answer your question but if you selected a 45 day option at a very low delta then you did very well on the underlying stock that means the stock has rallied significantly especially on a high dividend paying stock you should be happy about that rally i mean that means that the stock had to have rallied significantly for it to reach your low delta strike price that's that's an outsized move the underlying stock those are the opportunities that you want to take profits on and move on to the next trade you know you can buy back that that stock if you want but take advantage of that take some profits lock in those profits buy back the stock if you really like it in canada we have a 30 days of superficial low tax loss tax low which prevents to take tax advantage um anil i'm not a tax specialist or a tax professional i certainly don't know anything about canadian taxes so unfortunately i don't have anything to comment on that christine is saying is it ever advisable to sell puts further out in time than 45 days so christine just like that example i just showed you in palantir in terms of that person who sold the two-year call option it's not advisable in my opinion because number one you're lowering your your your potential of owning the stock right so if let's say i sold this even if i sold um let's say it's all the january of 130 versus the february 130s now if the stock dips below 130 let's say by january and then starts the rally after that guess what if i sold the february puts i don't participate in that because the stock has to be below 130 on february 19th so the further out you go in time the less certainty you have as far as whether the stock's going to be below that strike price and think about it you're buying stocks on you're selling puts on stocks that you want to own generally speaking stocks that you want to own are stocks that you think are going to go higher so you don't want to sell something really far out because what if the stock goes lower and starts to move higher you're going to miss out on those because you're sold something that's too far out so don't sell something that's far out on on cash care puts what about selling the put and simultaneously selling a call so that's a selling a strangle and that's a completely different strategy than what we're talking about here today eric strangle's really for a stock that you think is not going to move very much especially a stock at a relatively high implied volatility that you think is going to come down that's really more of a neutral strategy and does require a lot more in terms of [Music] and it does require a lot more capital to do so if your call is deep in the money with a lot of time left how often or how many days left should you roll it patrick usually about two to three weeks before expiration is a good time to roll a a cover call that's now deep in the money is this strategy rih ira friendly so jq um great question it is an ira friendly strategy the only downside to this strategy in an ira is that sometimes when you sell if let's say you don't have a lot of extra cash in the account and you have most of your your ira invested in stocks you may find yourself in a position where you want to buy back a cover call and sell another one but you actually don't have the cash to do so because you can't deposit more money into an ira as freely as you would on a regular brokerage account in that particular case you're forced to basically sell the stock but because you don't have any capital gains consequences in an ira that generally speaking is okay and then what you do is you simply buy back the stock the following monday but that is one of the limitations of doing this in an ira what does it mean but buy back your put it's exactly that so when you when you sell a put you sell to open when you buy back the put you buy to close this is something that i actually cover on my video if you follow us on youtube i will send you a link here we have a video on entering option orders on our youtube channel i highly recommend that you take a look at that i just posted a link into the chat window to our youtube channel and like i said there's a video on entering and exiting option position and orders so please take a look at that but you know you sell a put a sell to open a put to enter you need to buy to close in order to exit that if you don't know how to do that call your brokerage firm have them walk you through placing that order um james my greatest learning from you is trading free i love assignments and always making money as it gets called away you know james i i completely agree with your sentiment you know a lot of a lot of questions here today were around not wanting to get assigned on a short put or not wanting to get assigned on a cover call but you should really think about assignments as a positive thing because if you got if your cover calls assigned to you that means you made a profit on the stocks that you owned the stock reached your target price granted the stock may have exceeded your start target price but that doesn't mean that you didn't make a profit so i know it feels uncomfortable to to miss out on gains right because that's just who we are as human beings we have this fear of missing out but when your stock gets called away that means the stock reached your target price you were able to make a profit on that trade be happy about that that shouldn't be a sad moment so james i completely agree with your sentiment eric is saying uh how are you calculating the annualized return so eric again send me an email i'm happy to to write you the formula here uh would a straddle make sense on tesla given the unknowns with vol uh i don't believe so because i simply think that tesla vol already is very high i think it's i mean it's no secret that that you know what's going to happen so it's not like you're the only one who knows and no one else knows and you expect vol is going to expand everyone already knows this everyone expects volatility to be high on that day so i don't particularly think that um it's a great idea to buy straddles on tesla um tesla wouldn't what did institutional buyers be buying now no they have to buy the date before it gets added to the index because they only they are or else they're going to have tracking errors they want to buy as close to the actual time that tesla's is added to the index so that their tracking error is as close to zero as possible you look at s the actual addition to the index itself which is going to be on december 21st which means that they have to buy near the close of december 18. iran is saying taxation is the difference in the last guy's question um i'm not sure i remember that question um naeem regarding your question i have answered that question name um if you sell cover calls you need to pay the dividend and it will cancel out your dividend gain on your holding stocks if you sell cover calls you need to pay the dividend um i no it's not cancelled out um i'm not sure where you read that cc uh please let me know where you read that you think that the cover call cancels out your dividend payment because it definitely does not um say gm short put 44 happens before expiration but at expiration gm's at 50 how can i own the stock then you don't own the stock if the stocks have 50 at expiration if the stock's at 50 then all you keep is a two dollars that you keep that you collect on the short 44 dollar put michael do you have broken wing butterfly lessons on youtube sanjay i do not have broken wing butterfly uh lessons on youtube um but that is something that you know tom and i have talked about on our on our sessions so you can look up on our youtube channel we i have done sessions with tom sosnoff or we have talked about broken wing butterflies it's during our strategy session if you look up at the strategy session on youtube channel with tom sasenoff we did cover that strategy monthly and weeklies are different when buying calls or puts on indices like spx how are buying calls or puts on indices like spx different between monthlies and weeklies jay miller you can i don't really understand why you think that's different um luv trade to trade today due to layoffs do you think it will go down should we exit um generally speaking layoffs are not generally seen as a negative for most stocks they're generally seen as a positive because it's a cost saving metric it's certainly not great for the people who are laid off but for the company layoffs generally speaking are net positive because the cost savings for the company any idea on a leap covered call i'm not sure what you mean by any ideas on a leap cover call if you don't mind clarifying do members need to register for the rapid fire session yes when you log on to your options play account you'll get this pop-up here you can click on register now so just log into your options play account and click on register warren is saying in your experience is owning the underlying better than leap options when writing cover calls um so owning the underlying when you're selling cover calls just makes it a little cleaner because when you own a leap and the stock goes above the strike price of your cover call your call is not actually technically covered because you don't actually own the stock so you can either buy the stock and then deliver it or you exercise your leap in order to deliver it but it never makes sense to exercise a leap early because you're effectively giving up the extrinsic value that you paid on that leap so it's not as clean when you sell a cover call on a leap versus if you actually own the underlying stock is it better to sell cover calls four times using weekly options versus selling a monthly option so jb this is a great question the answer is that if you just if you just think about the income amount the answer is yes but what you're not considering is the fact that when you sell weekly options so let's say i go to apple um you know and this is that concept before right that when you sell a two-year leap cover call that i showed you before when you sell that two-year leap versus selling the one-month leap one month cover call you collect a lot more income if you sell one-month calls every single month for the two years than you if you do for a two-year option um you know jb's question is just what if you took that to the extreme level and sold weekly options can you can you collect more income selling weekly options than you can doing the monthly options and the answer to your question is that if you're focused on just income alone the answer is yes you're going to collect more income but you're going to give up a lot more upside when you're doing those weekly cover calls because you're going to get called away a lot more often you're going to constantly have to figure out how to buy back the call the stock that you own so when you add the to the two net together you actually end up in a worse position than if you sold the cover call that monthly option so that you know the answer is yes you'll get more income but you're going to add a lot more headache you're in a lot more transaction costs you're going to have a lot more opportunities to potentially miss out on gains on the underlying stock if you sell weekly options and when we back tested this strategy over the long run the two roughly net out to be equal once you add in all the transaction costs and what your lost opportunities are when your stock gets called away you know maybe like two out of the four weeks or one out of the four weeks once i choose a trade from the platform how do i save it on my how do i save it so great question so if you choose a trade on options play let's say you're looking at this january call option here and you want to save it um what you have to do is you can you can click on the blue share button and we have this a link button here you click on the link and what that will do is that will save the link uh and this will save the link for your for your for your profile and you go to the options play link here in the upper right hand corner you click on profile and it's all under save trade so you'll see all of the trades here right here under your save trade section under your profile um okay i've really tried to get through as many questions as possible i unfortunately cannot get to all of them we've already spent almost 45 minutes answering questions here but i really appreciate everyone taking the time here participating here today asking questions i enjoy doing this as much as you guys enjoy watching this so i really appreciate you taking the time out i'm really looking forward to tomorrow morning's rapid fire session i hope that for those of you that are members you're able to join us for that a lot of you have found a lot of value in that which is why we brought that back and if you're not a member right now please consider supporting us and you'll be invited to the members only sessions like the one we're hosting tomorrow morning and the one we're hosting next friday on our uh you know cyber security thematic investment research so we want to share with you that i'm really looking forward to sharing that with our members thank you so much i hope you have a great trading day these are recorded so you'll be able to have access to them uh starting later this afternoon so thank you so much have a great evening and i'll see you guys tomorrow morning

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Length: 93min 46sec (5626 seconds)

Published: Thu Dec 03 2020