Teaching My Friend How To Trade Options

okay we've got 500 in the account yeah all right okay 20 contracts purchased don't look at it oh check it we'll check it at the end [Music] all right what is up and welcome back to another video today uh Jack and I are gonna be teaching our friend Ace how to trade in the stock market he has no experience so this is gonna be fun we're actually gonna have him deposit 500 into a Robinhood account and buy whatever option contracts he thinks he thinks are gonna make him money so at the end of the video you're gonna see if he either makes money or loses money so stay tuned for that wait I almost forgot what give me one second uh now now you can trade now you can trade perfect yeah okay we've got 500 in the account yeah so pick a stock any stock all right I want to say the market closes in like 20 minutes 17 minutes so there's going to be very risky Whiskey's right yeah we're gonna make sure you close it by the end of the day probably end up teaching you after the market closes because we'll run out of time but it'll be at the end of this video so stay tuned okay let's talk um Microsoft I'll probably do Microsoft Microsoft and you're gonna buy option contracts so you can buy a put or a call put your bidding on the price go down and call your betting on the price go up okay basically let's see what it is right now it's Microsoft is uh it's up today three percent on the day so trade option um I think I want to say that it's going to go out I want to say I'm gonna buy a call you're gonna buy a call I think it's gonna go up why why are you buying a call well I think because like obviously people are voting tomorrow so I feel like they're trying to make you look at the market so I think it's going to go up the Market's up today okay so fundamentals you're taking a trip that's how I feel it's gonna happen so all right like that so okay this is how you do it go back yeah so you got to choose an expiration date so when are these contracts gonna expire Friday Friday okay so so 11 the 11th so the earlier you put it in the more volatile the contracts are going to be so how much are you trying to gamble here the earlier the expiration date you mean yeah I'm trying to gamble here it's like a okay okay then you give them the closer you go the more volatiles are gonna be yeah so it could go like upper like exactly so for example if you buy a contract that's like three months out if it the move is gonna affect the price of those contracts way less than it would if you buy a contract that's one day out okay okay and so okay these contracts these are contracts these are the price of the contracts so four dollars and forty cents means four hundred forty dollars yeah anything because it's called anything below any contracts below the current share price are going to be in the money those are safer and any contracts above the current share price are out of the money okay they're riskier so you can go all the way up to the top and I'm not going to tell you anything I'm just going to let you choose which one you want to buy yes let's go risky boys okay so those are 22 of contracts you could buy a bunch of those I I want to do what's to break even SP plus nine so I should probably be doing that's like all that so I'll do probably this one and two 320 cents okay so you can only buy one of those oh so you think I should buy we can't we can't tell you I'm just saying you could only buy it I'll buy I can get two of these right that's 147 you get three of those I'll get i'll get yeah I'll get 10 of these probably all right okay so click on that n is 240 oh she could do like 20. 20 there you go oh yeah there you go all right so should I actually do 20. it's up to be insane all right you can do less yeah I'll do no you got to put your whole portfolio on it that's the whole thing okay yeah do 20. okay we're doing 20 20 contracts all right review and then all right okay 20 contracts purchased don't look at it oh check it we'll check it at the end of the day see you 15 minutes all right so now we're actually gonna teach you how to trade okay okay that's what most people do they open a Robin Hood account they don't have any knowledge maybe some general knowledge about the market economy yeah um but you didn't look at any charts no okay so that's what not to do a little larger let's look at some real charts yeah and I'm gonna teach you some of the basics foreign to teach you how to trade because you took that last trade purely speculative right yep no clue as to why well you explained a bit yeah I just thought that it might have gone up just because uh the market was going up a little bit today just because of the political reasons okay so let's just pull up Microsoft because that's what you traded so you know how to read do not read candlesticks um I I I looked at one before but I don't really know like how to read them okay so each candle represents a time frame so each candle in this case is four hours okay I'm on the four hour time frame and the four hour time frame is good for swing trading and that's what I do mainly all by position say today and I'll sell it tomorrow or within a couple days from now yep and what you did was considered like a scalp okay or a day trade you know it was within a couple minutes or within an hour now when you look at a chart you want to look at the overall trend okay you typically want to trade with the trend trade with the direction of the chart yep so if you're looking at this chart you see the high here was at 316.19 okay yep the low is at 212.25 now the trend here what's the trend look like to you it's down it's going down yeah right so it's bearish so if it's going if the chart is going from the top left to the bottom right it's bearish okay overall trend is going down if it's going from the bottom left to the top right it's bullish it's going up so you bought calls you were trading against the trend yeah okay the bigger picture you're trading against the trend looking at the day trading on a minute time frame you're trading with the trend yeah okay so that is not necessarily A Bad Thing uh because again you were taking a scalp but when we're looking at a chart first thing you want to do okay identify the trend second thing you want to do is look at the major support and resistance levels do you know what sport resistance is um no I don't really know so 316 is the overhead resistance like the highest point on a chart okay and then the lowest point is support but within this range okay within the 316 and 212 there are smaller resistance levels yep so say we you know zoom in here look a little closer and when I'm looking at charts I want to find a chart that's clear and clean and presents you know very clear movement within the candlesticks choppy charts are very hard to trade because the direction is Shifting so much it's changing a lot on Microsoft like last Thursday Friday it looks like we had formed some resistance here so I can go ahead I can draw a trend line of resistance yeah so we trade it up you know hit this resistance level test it a couple times we're not able to break above okay so we got rejected started selling off and then formed a support level right here you can see the two candlesticks okay both touching this level Yeah 218.95 the more attempts you get at either a support or resistance it will validate that level even further that it's a stronger either sport or resistance level okay yeah following along here you know we form some support started trading back up toward this resistance level we ended up slightly breaking above okay but pulled back below yeah so think about what most people are going to be doing right most people are aware that this is going to be acting as a resistance level the market likes to test these levels so it shakes people out of their position but then it often can retrace so what I like to do is wait for a couple uh candles to hold above that either support or resistance in this case resistance level to confirm that it really has been in invalidated okay yeah an invalidation of resistance okay not just a slight you know break above that level you know everyone gets shaken out and then it replaces yeah chart continues to pull back little rally pulls back more we drop below right we lose support right here okay yeah get a couple candles trading below support and then now we formed another sport level okay on the low 212 yep so this sport has been invalidated okay now we can just remove that right because we're just going back in time so we start trading upwards again if you're playing down okay just moving my mouse down here you can see pullback push Little Resistance pullback push Little Resistance here pull back push Little Resistance here so you can see how there's Little Resistance levels yep that start forming as the chart is either is moving in either direction okay pull back a little push so some resistance pull back so now we're working our way back up we know there's going to be a little resistance here at 231 uh 27 but that's only one little candle that's one little Wick yeah that was a very like volatile candle that's a big spike where it ended up closing if there were three tests of that you'd know that this was going to be acting as a very you know strong resistance level so if you're going to go long on this chart um the chances of this resistance being broken are like very high compared to if it hadn't you know if compared to if it had been tested multiple times yeah does that make sense yeah like generally um but when I'm looking at a chart like this again the trend overall direction is trading you know against your favor it's tread is down it's bearish yep so what I look to do is actually play a move back down to this level because you can see the chart has been forming you know lower highs lower highs this is a very choppy chart I'd like to say this is actually a chart that I wouldn't touch because of the volatility because it's choppy but if we look at another chart I'm actually going to have you go through and try to find a chart that presents like very clear Direction like a clean chart okay hit that arrow down so you're looking for that one or two charts within a hundred then I go back up on what was that this one looks pretty good yeah okay support we just formed that low today okay yeah and then we've got the high at 194 but you can see how since making that high we've been forming lower highs yeah more highs lower highs lower highs and now there we go we got the low but the problem is like we could expect a bounce here yep but it's only we've only tested this low twice now if you're thinking about going long on this chart there's a lot of risk there because inherently it can continue pulling back so I don't like touching charts that are sitting on the low like that I want to wait to see the chart continue to work from that support okay cool okay yeah let's keep going through okay so here's a chart yep where you can see if we're looking at the more immediate trend clear lower highs form that low at 54.57 it looks like I was doing some chart work on here now a trade I can take on here would be a breakup pattern so a break of those lower highs okay so you can see right here got some resistance we're kind of trading within this range but slowly making higher highs okay we're working our way up to that resistance level once we get a break Above This resistance that would confirm a shift in the direction in the trend so that is going back to your question how you know when the overall direction of the chart has shifted when it breaks that pattern of your eyes all right that makes sense now so if there's like very clear resistance levels okay lower highs and then the chart Works back up and breaks that previous resistance level that's a shift in direction that lets you know that okay now I can take a long position on that part because people don't realize support and resistance is so important and it's not just important when it comes to you know figuring out if you're going to go long or short how you're going to take the trade when you actually enter the trade you need to know when you're wrong and when you're right and you do that by figuring out where these levels are yeah so if you enter a trade and you're long but then it starts pulling back you need to know where that support level is and you need to know when you're going to cut for a loss okay does that make sense this one looks similar to the last one yeah very similar okay hold back from 94.79 lower highs you know little bouts here you can see we formed some resistance okay pull back try to push up toward resistance pull back again a couple more little rallies pull back again tried to push back up toward resistance okay so trend yeah okay got this large pullback that's earnings so after earnings the company's earnings came out the earnings report sold off if we want to see the percentage it sold off you go to drawing tools click on this little trend line and we can draw from say pre-market highs drag this down to that Wick right there so that was one day it sold off it sold off nearly 20 percent wow so you can see this is pre-market okay the light okay is pre-market and then the dark is Market hours during the day oh a good bit during yeah pre-market and then continue to sell off throughout the day I didn't know that yes now pulled back you know found some support started trading range bound little Wick down made a new low okay confirming those lower highs continuing to form lower highs overall directions still bearish now we're starting to work our way back up now what you want to do is look at if you're looking for a breakup pattern to let you know that overall direction shifted okay you're going to look at the next resistance level ahead like these are very small tests within the day say this is a very like volatile chart as far as daily price action yep as you can see within a day our range is very large like we're moving this day price moved three percent and then the next day we got you know five percent rally but you can see there is resistance here and then we've got our support here so this and then you could go like this okay this would have been you know support no it was broken that would have been resistance right there okay resistance right there so if it was here say we tested it nope and then we just broke above so it looks like is this when you would put on call so now well looking at this chart now that it broke through yes but that's nearly 20 up to that next resistance level yeah that's a large gap to fill which does present a lot of opportunity yeah but what's too much opportunity like typically I'll look for three to five percent margin and it's never like I want to reword that it's never that there's too much opportunity it's that what is actually realistic to happen Okay is it realistic for a charge to Rally 20 no probably not right um let's find a chart and I'll have you identify some support and resistance levels here's a good chart okay e s s tick assemble ESS so draw on this chart where you see Sport and resistance okay so we have resistance right here yep it's where it was right yep and then this was the support yep and then or this is a support and then it rallied it out of it and then broke the support oh well I guess yeah bring to support then this is resistant I mean it tried to Rally again but it doesn't hit this yeah support So then that resists then it broke this resistance and uh support I mean I mean oh yeah broke the support and uh so this is the new it's hard when you're going back and yeah because you see where it works bro yeah I know so this is the new uh support level coming to help yeah I'm just I'm like the principal in the back of the class yeah yeah and then you know try to rally again but then it uh broke it keeps breaking the support level so it's on a downtrend yeah so okay a new support and it keeps you know goes up it doesn't tries to break the support goes up again and then it breaks the support again it just keeps going down so so now you can see that the trends are very clear here let's go ahead remove those support levels because they've all been now invalidated yeah and now say you want to go long on this chart so let's draw the resistance levels so say we got a rally price started moving yeah back up where is the chart going to face resistance um you're asking like when like if you could draw it so say it starts trading back up looks like we've got some resistance right here yeah yeah so there's yeah there's resistance okay if we get a break through this resistance okay next then it has to get better resistance yeah yep and then it really looks like again that's not gonna provide much resistance maybe a bit Yeah but I wouldn't even wouldn't even include that I didn't even include that and then we've got pretty large margin here up to the next resistance yeah what is the percent about 11 yeah resistance so we can go ahead and draw that looking at this chart how would you know when overall direction has shifted um if it breaks the resistance if it keeps breaking the resistance that's when you know it's changing direction because it's just it's like a trend it changes Trends the change is Giants if it starts you know if it breaks it once I don't think that'd be a changing Trend really I think if you if it keeps breaking through if it tests it shakes the buyers out that's when I leave uh it's a change in Trend yeah so say you know it breaks this resistance level you might want to wait to see if it can hold above and even break this next one before making a decision yeah I wouldn't do it right away I would wait to see if it tests and if it's keeps breaking the current resisting uh resistance level then that's probably when I wanna go along yeah okay so you understand yeah when we're you know when it was pulling back and kept breaking those Sports breaking those supports and then once it starts breaking those resistances there you go Direction has shifted yeah yeah that makes sense I didn't understand really any of the charts until like now that you're explaining it so I was trying to get a little bit of understanding okay let's make a theoretical um scenario here yeah so let's say we you know chart rallies okay yeah uh you know pushes back up breaks through this resistance level okay it's trading you know around in 243 yeah in the middle pushing back up toward this resistance level yeah okay let's look say we have like a three percent margin for profit so now that's what you try to look for right three to five percent three to five percent and so let me preface this I have a series of setups that I trade yeah and there's setups all have to do with so when you look at the trend I'm trying to identify the trend within the trend there are patterns okay and using those patterns I apply moving averages which we can get into and using those moving averages I'm able to manage the trade and again using the support and resistance yeah be able to figure out where I'm wrong where I'm right okay yeah does that make sense okay I know it's hard without looking at it and we could sit here for like five hours yeah and you know work our way there yeah but just the basics so theoretically okay say you know we're trading around here or work our way back up to this next resistance level what are you gonna what Are You Gonna Wanna Do buy a call oh yeah I mean I wouldn't I would just I wouldn't buy a call unless I noticed a change in Trend so say we did they did then yeah I'd buy a call at that point if the change in trend is upwards at that point yes I would buy a call okay so thinking back to when you entered that trade in the beginning I didn't understand I didn't even look at the chart I saw that it was up I I said that was up what was it like three percent so then I was like I was like well the Market's like up today I was you know I didn't have any knowledge I was just you know just shot in the dark yeah so how did you choose your contracts because I want to go into options well I just I chose my contracts because I had no idea what I was doing so I just picked randomly they were very far out of everything yeah it was like 20 bucks a contract yeah so then I bought like 20 of them and um yeah I didn't know what I was doing at all so okay I bet I bet if I I bet now going back and if I went and looked at Microsoft now and like saw the trend and looked at an accident looked at an actual chart probably would not have taken it taken I wouldn't have I wouldn't have taken anything I wouldn't have done it in general because I think the chart was like this yeah it was just kind of and you were trading against yeah yeah I don't think I would have even taken a trade there if I like went back okay well that's good so you're definitely learning something I'm gonna show you how these option contracts work yeah kind of the basics yeah I have no idea uh we're gonna look at just say this is the option chain okay now these dates are the expiration dates okay yeah you have to choose a date and upon that date the option contract is going to expire so some people think you have to hold them until the day yeah but you can sell them whenever once you enter we want to go with a safer contract now I'm going to look so is that more like a long term as far as a time frame it's within you know one to two months is what I'm going to look at long term and that puts me in a position where I my position can go through the volatility of a chart within a couple days without you know getting hammered yeah because say I plan on swinging a position over a couple days but I'm buying you know contracts that expire say tomorrow or at the end of the week yeah that I put myself in a position where the swing overnight upon open the volatility could just Crush those contracts yeah so looking at a contract say a month or two out the December 23rd contracts if I was going to go long on Apple how much charting do you do like do you do a lot of driving like do you just go through like a lot of different audiences chart let's see what yeah see what you're most confident with yep yep okay I mean so all my training is based off technicals which is all charts yeah it's not based off news I will like I always want to be aware of like what's happening like if there's a CPI report coming out or the FED speaking something like that you got to be aware that there's going to be increased volatility during those times in the market but I'm not dictating or I'm not choosing a trade based off of like that information if that makes sense yeah okay so let's look at these contracts okay so we're gonna go to the December 23rd contracts now blue it's way better how it's displayed on here than Robin Hood I always uh Robin Hood okay Blues in the money yeah so if you look up here we've got calls we've got puts okay so these are the calls blue in the money calls yeah puts blue and the money puts okay now if I'm gonna go along say I'm going along on Apple now what you did you chose contracts that were far out of the money they would have been in the in the black here yeah I'm gonna look at a contract that's you know say two to three spaces in the money so let's say let's just go with these so the 136 dollar strike this is Strike price right you click on those okay Market's obviously closed when you go to place an order you were just getting filled at market price yeah so you get the worst fill so when I place an order I want to choose the limit price so there's the mid and then that so this is the range okay yeah okay 920 9 30. so is that 920 yep nine hundred twenty dollars not 100 contract I want to get filled at the lowest price I can yeah okay and if price is moving fast okay if it's pushing up these are calls you might not get filled there and it's gonna be moving the depending on the volume the or the volatility of the stock on the day the spread is called the spread okay is going to be uh is going to be moving but it can make a huge difference if you're trading with a lot of volume oh yeah and the 10 difference per contract would be a couple thousand dollars yeah um so you're gonna go ahead send that through if Mark was open what I like to do whenever I'm trading is I look at the volume and I look at the open interest okay I want to know how many people are trading these contracts yeah that'll give you insight to whether you're gonna have a hard time even getting fell yeah or getting out of the contract based on how many people trading them right and if you're looking at a stock like what was it ESS some stocks only have monthly contracts okay where you can only buy contracts like a month out some have weeklies like spy like uh typically most have weeklies okay every Friday they expire and the ones with weeklies are gonna have higher volume okay the heavily more like the mid cap stocks yeah like I'm not ever gonna trade a small cap stock on options because there's no volume and then what that means is that the spread is huge there's a huge spread so say you get filled on the low end all of a sudden what will happen is the spread will shift and I'll even be down or up like yeah like 600 but then you're not going to get filled you're not gonna be able to get filled you might buy you know get filled on the low end yeah all right and then all of a sudden it's like oh you're a thousand dollars you're gonna try to sell it no one's gonna buy them from you because yeah that would make sense yeah stock market is an exchange you're exchanging in this case your contracts from you to someone else okay yeah so if you're selling something you need someone else on the other end to buy it so it's like a game like you're competing with other people yeah that's what it is you're competing with other people I never really like knew that that like someone else has to fill it like it's like kind of crazy it has to get filled yeah so the more volume you know you have a better chance of getting filled and the spread's not as wide so there's less risk like inherently yep oh yeah there I I mean I hear you guys talk about it like sell the contract stuff but I never knew like what you really meant by it yeah so if you were gonna say like go back to Microsoft all right which contracts well I'd probably do like a longer than expiration for yeah a long restriction because it's like less risky and um so I don't know I'd probably do like two weeks two weeks out yeah okay so two weeks out are they're fairly risky all right but it depends if you're day trading or swing trading if you're day trading two weeks out that would be fine yeah but if you're swing trading I'd go that's what you know you like the sweet dream yeah and when it comes down to it once you really build up a database of Trades and you have your expectancies you know your outcomes yeah your win rate or your strike rate right then you could be like all right there's a setup that I win whatever 80 of the time on yeah it presents a good risk to reward you know like say um yeah trade and the risk reward is a one to one so I'm risking a thousand to make a thousand I'm not gonna take that I could yeah you could take that if you have a 51 win rate you could still take it you're still going to make a little bit but you're going to be pretty much trading flag yeah so I like going for one to twos if you find a one to five like that's you know obviously there's inherently more risk that comes yeah that it's gonna actually happen yeah because what I did it was super risky super super dumb yeah like I knew it was I knew it was like dumb kind of but it's just like let's see what happens yeah you're learning yeah yeah I didn't know anything so I was just like well to gamble yeah you know what I mean I'm gonna know yeah one more thing I want to note was uh you know when you buy a contract there's Greeks the one Greek I'll go over is called Theta and theta's time Decay so every day you're pretty much paying to play okay so it costs to hold the contracts so even if you bought 10 contracts say Theta is 18 cents so 18 yeah say you bought one contract you know you pulled it overnight stock opens tomorrow flat you're going to be down eighteen dollars okay yeah so you you want the stock to you know it has to open up if you're long to offset the Theta yep then if it opens down you're down to 18 plus the contract and so holding contracts over a series of weeks if they have a close expiration date every day data is going to increase yeah it's going to be more and more expensive each day to hold those contracts yeah so keep that in mind if you see a like a chart that has a large margin and you know you think it's going to get filled it's five percent but it might take a week well you don't want to buy contracts that are two weeks out yes bar in two weeks you want to go a couple months out to allow you to have that time now I want to know like for everyone starting out it's not smart to trade options because they have a lot more risk yeah because your leverage you're leveraging your money yeah um if you're buying a share you're buying one share of say a Microsoft for 200 if you're buying one contract of Microsoft you don't have one share you have 100 shares yeah okay yeah so that makes sense yeah it does yeah it's tough trading definitely isn't like if you're gonna do it like day trading or something I feel like you have to invest a lot of time yeah it's not just like yeah it doesn't just come easy no it doesn't and that's that's what I say it's like you know we offer the mentorship group and yeah if people want to learn and take the time they can because I you know have all these videos explaining all this my system like way more in depth oh yeah about moving averages so you can take the time to learn and like it's a lifelong skill you'll have obviously the market changes and you have to develop your strategies like it's ever evolving but once you learn how to trade you know how to trade yeah no it's I definitely want to learn more like I'm sure we you know we can talk more about it another time but I definitely want to know more just like I kind of there and I can you know maybe take some trades here and there yeah and just slowly get in and figure it out but definitely I mean I've done a tiny bit of like trading with paper money because I set up the PD Ameritrade account okay that's great and that's a great way to start out so I'm glad you mentioned that yeah um and I also like in our group I post my trades like my entries and exits so if people don't have the time to invest they just want to see what I'm doing yep then that's an option too because it takes you know I entered all my trades between three and four o'clock at the end of the day oh really trade yeah yeah so it's Power hours when I enter all my positions and swing them into the next morning I typically don't hold Beyond a week yeah it's within like three to five days you know whole time and so you I'll get you in the group and you can have access to that as well okay great yeah cool definitely all right thank you awesome yeah let's go let's go we're going to check it out all right let's see it is 356. you gotta click back here to look here it's changing down sixty dollars okay if you're down ten percent when you're gonna cut your losses are we gonna let it run to the market Club are we gonna wait four minutes wait like yeah a couple minutes we'll wait a few minutes hey hey hold on it's coming back a little bit come on do something for me you just gotta be ready to get filled how do I do that so click on here and then you're gonna go trade sell and then you're gonna type in how many contracts and you're gonna push review and then swipe up so those are your contracts you're down forty dollars thirty seconds what do I do here you gotta read it I can't tell you so just do this no I can't tell you you can't say it you have 20 seconds I'm just gonna take the law and swipe up I'll record 15 seconds and see if you can get filled oh Phil what do you scroll up all right took a 38 loss that's not that's not that bad it could have been way way worse yeah yeah all right we're cutting back uh obviously Ace had to close the trade earlier before the market closed but yeah did you learn something oh I learned a lot actually I didn't really know anything about like the charts and stuff but um now going back I would have done things a lot differently um obviously I honestly wouldn't have even taken a trade there because it's so up and down that it's like unpredictable yeah um don't want to trade against the trend yeah I think a lot of people they don't realize is that you can either buy something sell something or not trade at all like there's a third option it's not the trade yeah like the situation that you were in like the option probably would have been um not if you didn't take anything because you don't know what's going to happen or think you know what's going to happen don't even train at all right so yeah I mean those I enjoy just like watching you risk your little portfolio yeah trade that was funny so yeah it's just blind shot in the dark yeah maybe we'll do it Part Two where you actually now you know what you're doing yeah that'd be cool yeah and you can teach them some more yeah I'd love to do some more all right awesome well I hope you guys did enjoy don't forget to like comment and subscribe we post a video every week and we have a podcast uh I'll put a discount code below if you're interested in joining the mentorship group I mentioned it earlier and we'll make sure you get in there yeah sweet all right thank you guys see you in the next one [Music]

Channel: The Daily Traders

Views: 102,368

Keywords: robinhood, gold, instant, day, trader, entrepreneur, daily, profit, investing, 101, warrior, tim, sykes, how, to, invest, beginner, clay, ricky, gutierrez, market, wolf, of, wall, street, getting, started, how to make money, how to day trade, ivesting for beginners, how to find the best stocks, robinhood app, robinhood gold, day trading, best stocks, how to investing in the stock market, how to buy a stock

Id: E13zYcTLLSw

Length: 34min 47sec (2087 seconds)

Published: Wed Nov 09 2022