SHORT STRANGLE OPTION STRATEGY 2021 | ROBINHOOD INVESTING

hey what's going on YouTube and welcome back to tech conversations as always I'm the host Guillermo and as always I'm not a financial expert nor licensed professional yeah if you plan on investing and the stock market please consult with one first and then best at your own risk so I hope you're all having a better day than I am it is June 24th in the stock market completely crumbled today let me know in the comment section below how you guys are doing after today I know there were some people in my discord who mentioned that they were down 10 20 even 30 percent today as far as for me I'm down about 3% today and so you know I'm not I'm not afraid to share that with you I'm not gonna hide things like that I you know I try to be as transparent with you guys as I can now with that being said I also want to remind you guys that even though it says I'm down you know over $1,000 keep in mind you you haven't actually lost that money and you don't lose that money and tell you sell once you sell that money is completely gone there's no chance of getting that money back okay and so hopefully that can you know convince you guys to stop panic selling without doing further research okay because you can't let your emotions get the best of you when you're trading in the stock market the people who trade with emotions are usually the ones who end up losing the most amount of money and if that being said this is this is this is the opportunity for the the wheel strategy to come in hand for those of you who do utilize it because even with the stock market the stock market being down right now I can continue to start keep selling calls with the different stocks that I want a hundred shares of and keep making money every single week right so that's the beauty of the wheel you can make money whether the stock market is up or down or sideways or whatever right and so if you're new to trading options or you have not heard of the wheel concept before covered bull I've covered both of these topics and detail I'll put links to those videos in the description below go ahead and check those out and as always guys I remember smash that like fun and subscribe it really helps on my channel and as far as how old I am from yesterday's video I turned 23 thank you all keep to all of you who wished me a happy birthday I know some of you thought that I was about 30 40 50 years old so thanks I guess for that compliment but anyways let's get right into this so today I want to talk about the short strangle also known as the cell strangle and the reason it's known as the cell strangle is because this involves selling a call and selling a put there's also the different the opposite of that which is buying a call and buying a put and so I'll make a video for that one at a later time but today let's talk about the short strangle and so again for this demo I'm gonna be using American Airlines simply because I've used the stock for my other previous videos on different training options strategies so let's continue American Airlines so let's go over to trade American airline options and let's see what we need to do here so again the short strangle or the sell strangle is gonna involve selling and how do the money call okay and so if you got a sell call so what would I mean by out of the money I mean that by out of money I mean that the strike price needs to be higher than the share price okay and so we would have to pick a contract up here where the strike price is higher than the share price and then we're gonna sell another money put and so if we go to selling a put what that means is that the strike price is lower than the share price of the stock and so we'd have to choose one of these contracts below down here okay and so you're gonna see by selling these two contracts you're gonna receive credits from both of those contracts right and that's actually gonna end up being your max profit well let's let's head on over to the options profit calculator and again if you have not used this yet I highly recommend it because it's a really great way to visualize what could happen and you know depending on what trading strategy you're using and as you can see it pretty much has anything that you can think of right it has the basic stuff from just you know selling call selling puts has neill spreads and it has these advanced strategy so keep in mind the strangle is a more advanced trading strategy and so I recommend that you have not watched my previous videos on spreads or just on cleaning options in general let you do so and also please you know please have experience doing these before you want to be more advanced topics but uh and you know at the end of the day that is up to you I can't tell you what to do or what not to do but please be careful and do your research so I'll put a link to this in the description below go ahead and check it out and so once you're here all you got to do is go to this Advanced section and find the strangle which is right here so you click on that and it'll take you to a strangle calculator as it calls it here right and so like I mentioned before there's two types of strangles and today we're looking at the short string or cell strangle and so we're not gonna buy a call when I'm gonna buy it but we're gonna sell or how its set here right so we're gonna write a call I'm gonna write a put now all you got to do here is you know whatever stock you're thinking of you know treating the strangle with you go and you get the symbol from it and so reasonable hairlines little symbol for that is al I always click on here just to check what the prices right now foots thirteen dollars and so let's start you know writing this up so we're gonna sell call so you're gonna click on the select option right select the call that you want and so I'm sure you guys have seen this before but anyways you can choose the expiration date up here so let's just choose July 2nd right and just at random and so we're gonna sell call and out of the money call right and so what that means is that the strike price of this call needs to be higher than the current price of American Airlines and so according to this the share price is 1301 right now so let's just choose the next whole number after thirteen which is fourteen okay and so keep in mind calls on the left and then puts on the right so we're gonna go on the Left four calls and we're gonna select $14 strike price call and so we're gonna ask for 60 cents per share okay and each contract is a hundred shares and so 60 cents times 100 is gonna be $60 so for selling this or writing this we're gonna get $60 credit to our County and so then we're gonna do the same thing with writing up a foot right so you're gonna select the option we're gonna choose a or we're gonna have the exact same expiration date of July 2nd and then we're gonna be on the right here for foots and so there's gonna be a nautical money put so again strike price less than American Airlines so let's go with the the next whole number under 13 which is 12 and so we're gonna ask for 55 cents per share on this one or 55 dollars right and sold for selling this call we're gonna get sixty dollars for selling this foot we're gonna get $55 and so in total we're gonna receive one dollar and fifty cents per share times 100 shares or a hundred and fifteen dollars for this strangle and you're gonna see that's actually gonna end up being what your max profit is but you might be surprised that what your math max risk is here and so uh that might actually you know sway you guys from trying this the short strangle so we cancel so it's actually visualize this now okay so we're gonna calculate it before we do that I'm just gonna add some ranges here I'm gonna go from 5 to 20 and then I'm gonna click on calculate and so here's what the graph looks like for a short strangle and so again anywhere you see green you're making a profit and anybody see red oh you're losing money on this again this is really nice because right it gives you the share price and then it gives you buy dates right and so it's really nice to just coming you know visually see you know where you need to be on what day to be making a profit so let's go up here though right and this always gives you some really really useful information here in this estimated returns section and so as you can see here your magic turn like I mentioned is $115 okay and then it also gives you your break-even point now keep in mind this is on expiration date okay so this is this is taken into account that you're waiting until expiration date obviously if it's before expiration date you know it might be it'll be different for sure so you just kind of have to look like that keep in mind that you know you can always this contract before as well you know what people already made a profit and you just want to exit it you can certainly do that or even if you're you know losing money and you know you want to prevent yourself from moving even more money why you can do that as well but let's take a look at the maximum risk infinite on upside okay that's not good this is why I mentioned that some of you might stay away from this because that can be very risky right so what this is saying is if American Airlines shoots up your risk can potentially be an infinite amount of money and we'll take a look at how that is right now you there definitely is a it's definitely kept going down because you know the price can only go down to zero dollars right and then it stops but unfortunately on the upwards trend right a price can keep going up and up and up so much that needs to and there's an infinite amount of risk going up but let's take a look here and see what is going on so we're gonna focus on expiration date only but again I I really recommend you guys come and you know look at this to see what's happening on the days before expiration so as you can see right the 115 that you are getting right that's because that's your max return you're gonna get that on expiration date if the share price ends up between the strike prices of both of your contracts right and so remember we sold a put a de $12 strike price we sold a call out of $14 strike price and so if it stays between there that's what you're making your your biggest profit later 115 right and so if you go below that robbed of that you start to lose a little bit of money right and so let's kind of understand what's happening there so keep that in mind the goal here the best thing that can happen is that you know it the share price ends up being between the two strike prices of the contract that's what you want to happen now let's say for example that it starts to fall down right so let's say on the expiration date and at 11:50 right according to this you're making $65 so let's just try to visualize and think of how that you know where that number is coming from so so the call you sold would expire worthless here right so we don't have to worry about that however the put that you sold would be exercised right and so when you sell a put you're basically buying 100 shares at that price and so what happened here is you would be forced to buy a hundred trip a hundred shares at twelve dollars a share so it'll be twelve hundred dollars but then you could potentially sell them at eleven fifty right and so since you bought them for twelve hundred but you're selling them for eleven fifty you'd lose $50 there but you did get paid one hundred and fifteen dollars and so one hundred and fifteen minus 50 is the $65 that you see here right and then you would do the exact same thing going down and like I mentioned this can only go down to zero right and then it can't go down any further so your risk is definitely capped but keep in mind as long as it keeps going down and down you're gonna keep losing money until it hits zero now let's look on the upside here it's basically gonna be the same thing right so let's let's imagine it ends up being 1450 on date of expiration so the same thing here right $65 why well because when you sell a call you're saying that you're gonna sell 100 shares to the buyer right and so if it ends up being 1450 what's gonna happen is you're gonna be forced to buy a hundred shares at 1450 then you're gonna be forced to sell those right back to the buyer at 1400 right and so since you purchased it for 1450 but you're selling it for 1400 again you're losing the $50 but again you you received 115 so 115 minus 50 ends up being the 65 right and then as you can see it keeps going down and so you can actually see that these are the you can pretty much like draw a line here on the date of expiration and it's kind of like a mirror of the of itself right you know 85 135 185 you're gonna see the same thing here right as it goes down goes up but unfortunately if it keeps going up and up you're just gonna keep losing you know more and more money and again you know American aliens could shoot up to whatever pison wants right and so theoretically your risk is an infinite amount of money on the upside and so again it's important to you know visualize this take a look and weigh out your risk versus your rewards on you know string will here and you know find out if this is what's best for you or not but let me on the comment section below if you guys have ever you know treated with short strangles or sell strangles kind of curious to find out how many people are actually utilizing this and so I want to actually go back and show you guys how to you know set this this purchase up I mean it's very straightforward you just you sell a call you sell a foot I remember they got to be out of the money and so you know before you do that thought I do recommend coming into this trade and options calculator and uh you know plugging in the numbers and just to visually you know see what your potential risks are when your potential profits are okay so anyways that's all I had for you guys today let me know if you guys have any questions in the comment section below if you want to get a hold of me more directly you can certainly message me on my discord I'll link to it is in the description below also if you plan on using Robin Hood in the future feel free to use my referral link in the description below as well if you sign up using my referral link you and I will both receive one free stock which is free money and both of our pockets so let's help each other out and as always guys I hope you enjoyed the video

Channel: TechConversations

Views: 4,596

Rating: 4.8904109 out of 5

Keywords: passive income investments, dividend growth investing, passive income dividends, passive income 2020, dividend investing robinhood, dividend yield, market crash, passive income, stocks, robinhood, robinhood app, how to trade stocks, how to trade, robinhood stock trading, robinhood stocks, dividend investing, robinhood options explained, robinhood options, robinhood investing, money, wall street bets, options, dividends, top stocks, passive, stock market, trading options robinhood

Id: 1chbqDhwu5U

Length: 15min 2sec (902 seconds)

Published: Wed Jun 24 2020