What’s up everyone, It’s Cody
In this video, I will share with you step-by-step on how to sell put options like Warren Buffet. This has been my secret passive income source
that generates consistently thousands of dollars per month. I will walk you through my most recent trade
that has helped me generate an annualized return of 123%. Warren Buffet is known for being one of the
most successful value investors. What most people don’t know is that Warren
Buffet has also been selling put options to generate an income of 2.4 billion in 2018
and 968 million in 2019. If you feel like your stocks always go against
you right after you bought them. Or if you want to make money whether your
stocks go up, down or sideways, this video is for you! This type of video takes me a lot of time
to make. I want to make sure that you can also join
my journey of reaching financial freedom sooner. Smash the like button and subscribe to my
channel now to get your ticket to financial freedom! I will break down this video into 4 parts
to make sure it’s easy to follow. Part 1: Laying the groundwork: I will touch
upon how to increase Rate of Return & lower your risk
Part 2: The Lingos: Where i will introduce to you some basic terminology. Part 3: Walk you through of my most recent
trade that generated a 123% annualized Return Part 4: How to Make Money by Selling Put Options:
This is the part where I summarize my thought process before I sell any put options. Let’s get right into my Part 1: Laying the
groundwork You must first understand the importance of
your % rate of return This is like the speed limits to your destination. If you are driving to a destination and it
is 100km away and your drive at 100km/hr, you will reach the destination twice as fast
as driving at 50km/hr. It’s the same with investing, if you earn
10% per year, you will reach your destination much faster than if you are only earning 5%. If you can get your portfolio to grow faster,
you will see how your dividend income also grows more quickly. Once your dividend income equals the amount
you need to live on, you never have to work for money again. The long-term return on stocks is around 10%. Any investment that can make more than 10%
is respectable and will shorten your journey to financial freedom. Bonds, GICs and bank deposits might be good
for short time horizons, but not great for growing your wealth quickly. What about buying stocks that pay dividends? Dividend payments are much more reliable than
stock prices. They also let you sleep better if you focus
on the cash coming to you rather than the stock price fluctuation. But Cody, you just told me at the beginning
of the video to stop buying stocks! Yes, I did and it is still true. The put options selling strategy I am about
to introduce is more likely to generate a better return. The worst thing that can happen is that you
will get paid to own the stocks you want to own anyways at a cheaper price. Write this down: “you will get paid to own
the stocks you want to own anyways at a cheaper price”. Can you just look at the rate of return and
not worry about the risk? The answer is of course not. Last year people won more than one billion
dollars playing poker. And the casinos made twenty-seven billion
just by being around those people. Now, imagine that this strategy will allow
you to become a casino. You can open up virtual poker tables for speculators. All you have to do is to deal the cards and
collect the fee for every round of the game. This way, you might not take home millions
of dollars but you will earn steady income just like a casino. To make it even better, being a casino puts
the odds in your favour as long as there are speculators to deal the cards to. The selling put strategy is usually deemed
to be risky. But If you combine it with buying quality, recession-proof stocks with a history of dividend increase. This strategy increases the return and lower
risk compared to buying stocks outright. It might contradict ideas you already have
about investing. It goes against the standard dogma - but the standard dogma has people retiring in their 60s. Let’s don’t forget to look at this strategy
from a different perspective - in the lens of a casino owner. Now that I laid the groundwork, let’s get
into Part 2: The Lingos First thing you should learn is how to smash
the like button before selling a put option. Selling options for income is easier than
you might think. It’s one of the few strategies where you
can be wrong about the direction of the market and still win. Warren Buffett, one of the most successful
investors, actually uses this time-tested strategy to generate income. While this strategy is easy to understand
and execute, you should spend some time learning the basics before you execute your first options
trade let’s look at what an option is. If you are new to option trading, trust me,
learn the fundamentals. Just think of the word option. In our everyday lives, an “option” is
a choice. It works similarly when you’re talking about
investments. When you’re investing, an option gives you
the opportunity to buy or sell a stock at a certain price on or before a specific date. There are two types of options:
call options put options
If you buy a call option, you are expecting that the underlying stock is going to increase
in price. If you buy a put option, you’re expecting
that the underlying stock is going to decrease in price. You do not buy options with this strategy. You are going to be selling put options. In this case, You will make money whether the stocks increase, stay put or decrease in price. STRIKE PRICE
The strike price is the predetermined price that you can buy or sell the underlying stocks
for. EXPIRATION DATE
Option contracts don’t last forever. You need to exercise your option before or
on this date, or you can let it expire when you are selling options and just keep the
premium. Here comes the juicy part:
The premium AKA Time Value When you buy an option, you are buying time value for the stock price to move in your favour. The price you pay for that option is called
the premium. Each option contract consists of 100 shares
of the underlying stock. Now, If you are selling a put option, then
you are on the other side of the table. You are selling time value to speculators,
and you will receive the premium as income. Remember selling put options allows you to
be the casino now, you are just dealing cards and collecting fees as income. Are you still with me? I know this might sound confusing at first. Even though this video is explained in plain
English, you might need to go through the videos a couple of times to fully understand. Don’t get discouraged! The information I share is a lot easier than
high school subjects and it’s more valuable as well. My hope is that this video will allow you
to live a more comfortable life and have more time to smash the like button and support
my channel. Now Let me Walk you through my most recent
trade that generated a 123% annualized Return. I will first analyze the chart and share why
I made this trade, Then, I will walk you through exactly how
I took profit even when the stock price went against me. Kroger is the United States' largest supermarket
by revenue in 2019. And the Dividends Growth Rate has been growing
at 13.4% per year. I have been waiting for this stock to pull
back to add on more positions. I am not going into details about Kroger but
you can learn the detailed analysis about this company in this video. And this is exactly what happened on June
12th, Kroger pulled back below their 50 day and 200 day moving average. As I discussed in the technical analysis video,
50 day and 200 day moving average can act as major support levels. And I know that a good stock like Kroger is
very likely to bounce back up from this support level. So I decided to sell some puts right below
the stock price $32.35. I sold two put contracts on June 12. The quantity is showing -2 instead of 2 because
I sold the puts instead of buying the puts. KR is the Kroger’s ticker and The strike
price is at $31.5 expiring June 19 2020. The P behind strike price stands for put contract. If it’s a call it will be a C.
I got paid $212 dollar as premiums. This is the fee casino collects from the speculators. Remember what I said earlier about “If you
feel like your stocks always go against you right after you bought them?” It happened to me as well! The stock price kept dropping from June 12
to June 15. The stock price recovered back above the 200
day moving average before it plummeted down to below $31 dollar on June 18. The strike price of these two puts was at
$31.5 and the stock price was then sitting below my strike price. You might be thinking” uh oh , Cody Messed
up, now let’s see what he is going to do” Since I am selling put options, I am selling
the time value to the speculators on the other side and receiving the premium as income. Each day that passes while the stock price
is above my strike price, there is less and less probability that I need to buy 200 shares
of the underlying stocks. The time value will decay. As time value decays everyday, I can buy back my contacts at a cheaper premium to close the positions. A good example would be: Imagine you are an
insurance company. You provided a 7 days travel insurance plan
for $212 dollar. Your customers never made the claim during
the first 6 days. On the last day, you offered your customer
$60 to cancel their travel insurance. And they say yes because they don’t think
they need it anymore. And this is exactly what I did to close my
two put options. Right after the market opened on June 19,
The stock price recovered to $31.66, which is above my strike price of $31.50. I took the chance to buy back these two puts
for $60. By closing the positions, I realized $149
as a profit. Because I might need to buy 200 shares of
KR at $31.5, I set aside $6,300 to make $149. This is roughly 2.36% return and it is annualized
to a return of 123%. And you just witnessed how I made money even
when the stocks went against me. Selling puts allows you to win whether the
market moves up, down, or sideways. If you trade options using this strategy,
it can be less risky than trading stocks. The worst thing that can happen is that I
will get paid to own the stocks I want to own anyways at a cheaper price. According to the Chicago Board of Options
Exchange, selling options is one of the few strategies that outperforms the buy and hold
strategy over time. If you want to learn more about this selling
put options strategy, join my private fb group to view my past trading positions and bounce
ideas with like-minded investors. Click on the link in the description. Part 4: How to Make Money by Selling Put Options Here is my thought process before selling
a put: Find good quality dividend growth stocks that
I want to own for the long-term. I will decide on the strike price that I would
be comfortable buying those stocks for. Based on technical analysis, I will find the
major supports for those stocks. I don’t need to know where the stock is
going but instead I am trying to predict where the stock price will not be at by the expiration
day. I will check the Volatility Index (VIX). VIX measures the level of fear, or stress
in the market. When the fear is high in the market, I will
get paid more premium as an insurance seller. Imagine if you are selling umbrellas. Would your customers pay more for the umbrellas
on sunny days or rainy days? I will give you three seconds to think 3-2-1.Yes,
you will get paid more on rainy days because of the fear and stress that the rain is costing
your customers. The average VIX price for the past 10 years
is around 16-20. So when the VIX is lower than the 16, I will
sell less puts and keep cash on the sideline. I will wait until the fear in the market built
up again before selling more puts. Capital Requirements. This is by far the most important point. Before you sell one put, make sure you have
enough money to buy 100 shares of the stocks. Or else, you are using margin. This means that you are actually borrowing
money from your broker. Do not use any margin, especially when you
are starting out with this strategy. Using margin is a double-edge sword. You can make more money. However, when you lose you could wipe out
all your gains and even more. And you will wonder why you put in so much work to earn these incomes and you gave them up so easily. I will dedicate a video to margin usage in
the future. For now, stick to the rules. Don’t use any margin
Thanks to all my passive income sources. If I really want to, I can retire today at
the age of 29. The more important question is - why am I
able to retire so young while most people work into their 60s? How can you also achieve early financial freedom? I’ve thought about this question and came
up with the reason. The reason is because of “financial literacy”. I can choose to retire early because I have
financial literacy. Most people spend years acquiring the skills
they need to excel in their careers - and this is a good thing. However, spending just a little more effort
learning how to manage your money better will shorten your journey to financial freedom. Good job on staying until this part of the
video and you all are my true supporters! You all deserve to smash the like button for
yourself. If you enjoy this video, support me by destroying
the like button if you still haven’t done so already, subscribe, and click the notification
bell and change it to “ALL”. Thanks for watching and see you in a couple
days!
