This is Not the First Time Bumble Has Hurt Me | What to do When Your Cash-Secured Put Turns Sour

remember when i told you this about bumble i i kind of want to do bumble it seems like a more interesting opportunity especially with a company with such a small market cap and then right after that i said this the deal is like if it's going to go down it's going to go down big okay and i'll just be wrong and i'll probably be rolling like crazy to avoid assignment uh if it doesn't go down it's you know if it's not going to be super bearish if it's not going to break this level of support then there's not much further it's going to go down at all so i'd rather just get in because either way i'll be eating my words here in a minute if it breaks through this level of support well you'll never guess what bumble is doing right now it's falling off a damn cliff okay leave it to your boy to do the perfect analysis to a t and then do the exact opposite of what the analysis was telling them okay so we need to discuss how i like to handle the wheel strategy when when my cash secured put is starting to get close to being in the money because the strike of my put is 55 the current stock price on bubbles 55 dollars and 18 cents so we need to talk about how we manage that strategy but first i gotta plug all my as always if you want to follow all my trades you can follow me on iris and mobile app the link is in the description below please use the link and not just go off to the app store because i'm affiliated with them also you can find a link to the app called options profit calculator where you can calculate your profit and loss given certain stock prices prices across time so it makes good it's a good tool to choose price targets and figure out how much you could potentially make or lose and lastly there's a bunch of free stocks down there primarily weeble if you deposit 100 bucks you can get two free stocks valued up to fourteen hundred dollars with all that said let's go ahead and dive in and catch you up on the stuff i've been doing while you weren't looking okay so we'll talk about how to handle the wheel strategy first but i wanna i wanna talk about a few other things i did while while you were away uh so here we're looking at all my positions amd and activision are the ones i want you to bring your attention to uh initially these had an expiration of january 2022 now they have an expiration of june 2022. the reason for this is because january is nine months away okay if i have a january expiration and i hold these options for any amount of time i can't hold them longer than january they expire in january so i have to sell before then right or exercise and if i do that and i make money i'm going to be paying taxes on those trades and they'll be taxes ordinary income which is going to be much higher than long-term capital gains tax if i hold these options for a year and a day or longer in software profit they'll be taxed as long-term capital gains which is a lower tax rate so that was my bad i open these leaps with too short of an expiration i should always be opening them with a year or more so i can anticipate potentially holding them for a year or longer to have preferable tax treatment so that was my mistake so i rolled these options out in expiration and now that i've said roll let's discuss what that means for those of you who aren't familiar because that will come into play a lot when it comes to the wheel strategy rolling an option is just closing your current option that you have and simultaneously opening a new options position with the same underlying out in the future it can be a different expiration and a different strike it's just on the same underlying and you're buying you're closing one option and opening another one simultaneously so in this case i sold to close the the leaps that expired in january and simultaneously bought to open new calls out in next june so i rolled my position out in expiration so you're rolling out with my amd call i actually raised it in strike by a little bit because the break even wasn't that bad and it would free up a little bit of extra cash it'll be a little bit cheaper than my current option so i rolled out an expiration i sold to close my current amd option and bought to open a new one simultaneously out in june and raised the strike a little bit higher so in this case i rolled out and up out in expiration and up and strike and by doing so while i gave myself a lot of extra time i gave myself preferential tax treatment if things go well fingers crossed and i made it cheaper i rolled it up in strike so it has less intrinsic value and the increase in extrinsic value of that option was not more than the decrease in intrinsic value so i actually freed up some extra money and i threw it into chegg i think i forgot to mention if you guys haven't seen the any of the previous videos of this series uh link to the first one's up in the corner okay and things are not going super great right now all right our profit loss here today is minus 400 bucks which isn't really that bad overall it hasn't been that long uh has it been a week it's been about a week okay so you know i'm always playing things through the long term that's that's the point of my trades it's to be longer term okay i don't give a uh a there i said it gosh dang it i don't give a what's happening right now i i just care that stocks go up over the long term okay with my shares if things go down i average down with my leaps if things go down i buy new leaps with my wheel things go down i get assigned i start selling covered calls okay i got a plan for everything no matter what happens i know exactly what to do when you're swing trading and you're doing day trading and all that it's just it's so cancerous your brain is constantly frying because you're constantly second-guessing yourself super hard and every decision determines whether you make or lose money it's all happening right now and everything is very realized immediately ah hate it i hate that stuff with this it's like a simple formula i know what to do i can follow it i never you know uh i'm never at a loss so yeah we're not making money alright yet we're going to be making money don't worry and now that i've caught you up on what i did with those leaps i'm let's go ahead and talk about what's going on with my bumble put so as i said before you know i read this uh pattern correctly i just didn't want to do it on snap and i kind of had a hunch that it might break up but of course it broke down because it is a bearish pattern and i'm just eating my words now so now we talk about how to handle this position when things go against us which is probably preferable because if things go in our favor you know there's not a lot of interesting stuff that can happen you don't get to see how to handle positions that go against you which is probably the most important thing you want to learn out of this so it's diving off a cliff right we're hitting around 55 and 23 cents per share or the strike of our put is 55 so what should we do if our put gets in the money if the stock price drops below 55 what should we do should we close the put and open a new one out in the future well at some point if our put option does get in the money and it stays in the money we should definitely do that we should roll our put option what we should do is buy to close our current put and sell to open a new one with a further expiration and a lower strike for credit what that means is you buy the current put your put your own for a certain amount of money you pay to close that put okay because you sold to open it you received a credit when you first opened it now you have to pay money to close it and simultaneously we will sell to open a new put with a later expiration and a lower strike so it's further out of the money it won't get assigned and we'll sell that one for more money than we paid to close this one for so overall we're gonna receive more money than we paid we get a net credit uh we have more money coming in the door if we can't roll for a credit if i can't buy to close my current put and sell to open a new one for a credit i would probably just prefer to get assigned okay you can even roll it down and strike like out in expiration and down in strike and not get it out of the money that's entirely possible and that's still good because if you get assigned you'll be assigned at a lower share price they'll take up less buying power and you're just buying the stock for a cheaper price which is obviously great if you don't know that god help you but the question is when do we roll do we roll as soon as i think you know we think it could potentially get in the money do we roll as soon as it gets in the money do we roll when when our when our balls just feel right when do we roll with puts it's actually a little bit nicer because the odds of getting assigned as soon as your put gets in the money very slim very slim why is this well why do people exercise options uh there's a few reasons for puts there's really only two in my opinion that come to mind one the option is very illiquid it's hard to enter and or exit the trade maybe there aren't market makers there or they have a very wide bid ask spread and it might actually just be cheaper to exercise most of the time you don't want to exercise because you give up extrinsic value right if i have a put whose strike is 55 and the current stock price is 50 this put is in the money right how much intrinsic value does this option have well if you exercise if you sold 100 shares at the strike and bought the close 100 shares at the current stock price you would gain uh you would extract 500 of value so this option has five points of intrinsic value it will also have some extrinsic value and that could be something like 30 cents and premium that is extrinsic value this extrinsic value is given to the option based on time and implied volatility because there's more time and volatility ahead of this option there's time and volatility that could cause the option to get deeper in the money this option could be more valuable in the future and there's some value attributed to this option ahead of time because it potentially could get more in the money so the total value of this option is five dollars and thirty cents well what happens if you decide to exercise this option because it's in the money well you're gonna sell 100 shares at 55 you're going to buy 100 shares buy to close at 50 per share so you're going to extract 500 through exercising this option which is the exact same amount as intrinsic value and that's no coincidence because what you could extract through exercising an option has to be built into the options premium if the option is a ticket to 100 bucks this ticket better be at least worth 100 bucks otherwise you're getting free money out of it so the value you can extract through exercising is built into the option it's intrinsic value but this is all we get out when we exercise so we give up extrinsic value we threw away 30 this went bye-bye so why do people want to exercise options ever well with puts like i just said is if if the option is super illiquid super illiquid maybe you can't sell it or if you could sell it it's gonna be at a ridiculous price well then you would exercise you just exercise the option you probably extract more money or more value that way than selling at a ridiculous price another reason someone might do it is because they're stupid there are people out there that exercise options because they just hear the word exercise when they're learning about options and so they think they should do it and so that's another reason people are dumb maybe even a third reason is people fat finger click the wrong button another reason is if uh if you hit expiration at expiration day there is no extrinsic value left there is no time there's no time for volatility to affect whether or not the option's gonna get deeper in the money in the future so because of this there's no extrinsic value there's only intrinsic value left and if you hit expiration and you're in the money your brokerage is actually going to exercise that option for you to prevent it from expiring worthless okay so those are the for puts those are really the only reasons okay even with spreads if you get assigned a spread of credit put spread you should just you should close your your stock position and then just sell your option you wouldn't exercise it unless it's at expiration so three reasons one the option is very very illiquid two the person's an idiot or fat fingers and three it's at expiration there's no extrinsic value anyway so you might as well exercise the put option to collect intrinsic value and prevent it from expiring worthless okay so let's evaluate that from our perspective we have a short put okay here's our wheel here's our bumble put let's unfurl it it's a 55 strike put bumble is currently trading at 55.42 so it's not quite in the money but it's getting close what happens if our put option gets in the money well will someone exercise it will our counterparty exercise it will we get assigned will we have to buy 100 shares of the strike as soon as it gets in the money no probably not because this option number one is not a liquid here's our option over here on the right you can see puts at the top so we're looking at the put the put chain and you can see the option has 30 cents in the bid ask you can see the open interest is over a thousand and the volume today alone is 79. so this option is not a liquid in the slightest okay so someone probably would not exercise for it being a liquid would they exercise because they're stupid potentially but generally pretty unlikely that you're going to get a sign just because someone's stupid so we're not going to worry about worry about that so much and then the last reason is are we up against expiration is closing bell coming up uh is someone wanting to exercise to prevent this option from expiring worthless no because we have like a month until expiration so what does that tell us well tells us we don't have to roll this option quite yet even if our option gets in the money right now it's not something we have to immediately roll we can give the stock some time and see if it's gonna bounce and start rising up and then push our option out of the money that'd be preferable now if it starts getting somewhat deep in the money we may start getting concerned because it can be kind of hard to roll back out of the money once you get too far in the money so we don't want this option to start getting super deep in the money but if it's hovering around at the money you know we're just getting in the money there's no rush we can let the stock play out and see if it's going to bounce and push our option back out of the money again now it is totally possible to get assigned before expiration the odds of you getting assigned increase the deeper in the money your option is and the closer to expiration you are the reason for this is because the deeper in the money your option is the less extrinsic value your option is going to have if we go to our trade tab again go to all products look what happens when we get deeper in the money we're going to go over to extrinsic value as we get in the money and deeper in the money extrinsic value shrinks so if this option is super super deep in the money someone might decide well i'm just going to exercise this option eat the two cents of premium and just hold the stock position because there's only two cents in premium or let's say for this option that we're looking at right here it has six cents an extrinsic value but the bid ask is you know fairly wide it's like 30 cents wide would actually might be cheaper to exercise this option than to sell it because you might have to give up a little bit in the bid ask this is especially true if the bit ass is a little wider than this one you know if there's only six cents of extrinsic value then even a slight amount of illiquidity is going to be an issue it's not going to be worth selling so you just exercise right if i had one cent and an extrinsic value for a put option and the bid ask is a one point wide so 100 bucks i would rather exercise because i give up one dollar through exercising while trying to find someone to meet me in the bid ask i might give up ten twenty thirty dollars so when it's deep in the money to have a small extrinsic value that means that even if the bid ask is kind of wide someone might be more inclined to just exercise also the closer expiration you are the less extrinsic value your option is going to have so same idea applies the your counterparty will be more inclined to exercise because any any distance between the bid and the ask prices is going to seem cavernous it's going to seem like a the grand canyon and they're going to decide to exercise and give up less money that way so right now are we worried about assignment no if we start getting too deep in the money if it really looks like things are starting to bottom out or like tank i mean then we should probably roll because it'll be it'll start becoming difficult to roll out of the money and that's fine too okay so like if if the stock drops our option gets in the money and it drops really hard overnight 15 20 percent well what are we gonna do we're gonna buy to close our option we're gonna sell to open a new put option out in the future and lower in strike we may not be able to put push it out of the money so we will still be potentially facing assignment but the good thing is one we're not going to get assigned immediately two we if we do get assigned we're going to be assigned at a lower stock price so that's good we're going to be buying the stock at a cheaper price and three since we've pushed it out in expiration we've given ourselves more time for the stock to bounce and potentially put our push or push our put out of the money okay so all that said we're not worrying about it quite yet okay we'll i'll keep my eye on it if it starts getting deeper and deeper in the money maybe i'll start rolling it out but even if we do get assigned it's not a big deal because that's part of the wheel strategy that's part of it is assignment it's going to happen okay well you might be wondering um adam how do you roll your position especially if you use uh think or swim other platforms are going to be different but with uh think or swim what you want to do is go to your monitor tab and on any position so like if i want to roll my leaps out into the future which the only reason i rolled this now is because i made a mistake i should have had further out expirations to begin with but if you wanted to rolling out push the expiration out a little bit you're going to be paying some money in extrinsic value but maybe you just decide well you know there's 30 to 45 days left i still want to keep this call option open on the stock but you know extrinsic the decay of extrinsic value is starting to ramp up exponentially as it does within 30 to 45 days so beta's ramping up i want to push my call option out further in expiration so data is not such a big factor not a large percentage of the value of the option well then you can right click your call option you can create a rolling order and hit buy calendar because you're basically buying a calendar even though you already have an option open so here you can see we're selling the option we already own and then we're buying to open a new option and we can change the expiration date and the strike and the limit price and all that jazz okay and that'll come into play when we roll our put option for the wheel strategy as well okay another thing people have been asking me is like adam why don't you run the poor man's covered call why aren't you selling calls against your leaps uh the reason for this is oh i definitely would be but i changed some of my i changed my net income on td ameritrade the website uh when applying for an upgrade on this account for options trading and they said since i changed my income value i cannot apply for an upgrade for another 60 days so i'm stuck with my hands tied i can't trade the poor man's covered call okay although i definitely would also something with bumble bumble has earnings coming up that little question mark right there that is earnings on 5 10 21. is this good or bad for us it's like kind of a mixture of the two it could be really good it could be kind of bad too but here's why as a lot of you know as you lead up to earnings implied volatility rises even if we look at this implied volatility chart down here it's decreasing but there is a portion of this implied volatility given to this earnings announcement because people anticipate the earnings announcement is going to cause a move in the stock price and that is volatility so the demand for these options start increasing so their premiums start inflating that is an increase in implied volatility and then right after earnings after the binary event has taken place things are good or things are bad demand for options suddenly decreases therefore implied volatility decreases therefore options premiums deflate particularly specifically extrinsic value deflates and that's called iv crush and that's good for us because as iv goes down as implied volatility goes down for options that we net sell we make money so if i can sell now and hold it through earnings and if the stock trades sideways i'll still make money by trading sideways i mean the stock stays within the same relative range i will still make money because implied volatility will collapse after earnings and that's good for me because i'm the option seller remember when you buy options an increase in implied volatility is good because it inflates premiums i don't want premiums to inflate as an option seller i want them to go down i want options values to decrease so i can buy to close at a cheaper price or just hope that they expire worthless at some point but particularly when extrinsic value decreases because of iv crush i'm looking to buy to close at a cheaper price right because i know i had expiration that extrinsic value is going to decay anyway regardless of how thick or thin it is so that's good right it's good that iv is going to go down because that's good for a short options position but what's not so good is it also means yeah there is going to be some volatility so it could really push my option deep in the money so if earnings comes up on may 10th and things really drop for whatever reason bad outlook whatever earnings not so hot well then i'll probably definitely roll as soon as possible a cool tool that uh td ameritrade has is if i go to the analyze tab see this mmm that stands for market maker move this is an implied move extracted from the inflation and extrinsic value so what it's basically saying is all these options traders are buying up these options there's an increase in demand for these options because of earnings how much uh volatility does this increase in demand imply people want these options a certain amount more because there's a certain expected move in the stock on earnings well you can actually extract that expected move from the inflation and options premium and give you what an idea of what options traders think the stock will move on earnings and that's exactly what this market maker move is it says plus or minus 4.9 so about plus or minus five points so if i go to bumble what that means if i draw my trend line here it means it's going to go up five points or down five points i can't go quite that far okay about seven percent of the upside eight or nine percent to the downside so we have an idea of what people think will happen on earnings statistically this represents about a 68 chance that the stock will go up or down five points and not outside that range of course this is just implied by options demand so what will happen in reality could vary quite a bit from what is shown by the market maker move but it gives you at least some idea of what people are thinking so if things go up on earnings that's great if it goes up by five points that's gonna be great for my cash secured put and as it goes up five points implied volatility is also going to come down um because of that iv crush we talked about which really influences options that expire shortly after earnings which is my option so i'm going to make money as the stock price goes up and as implied volatility goes down or if the stock price goes down implied volatility is also going to go down so it's going to hedge some of these losses okay so selling options around earnings is you know it kind of sucks because sometimes when it really moves and it gets you assigned at not the best price ever but a lot of times it doesn't move as much as people think and iv crush happens and you make some quick money overnight and i could buy to close and sell the new sell to open a new put option that's maybe higher in strike for more premium whatever okay so right now what are we doing we're doing nothing we're holding on to our butts that probably looks like i'm holding onto my crotch actually but i'm holding on to my butt and yes i'm down you know 500 bucks a year to date and if things keep doing going down i will just buy more leaps obviously that doesn't work for everybody okay because uh leaps for some people maybe you are higher risk than for me because i have plenty of money set aside so that i can easily deposit more funds to to buy more leaps if things go down and that's the important thing with leaves that's how you uh increase the probability of success dramatically is by averaging down or at least buying another leaps when the stock price drops making your current leaps like borderline worthless if you can't buy another leaps in the stock price plum it's really really hard and like basically just destroys your call option then you should at least buy some shares of that of that stock so as things rise it'll recoup some of the losses of the the leaps okay i'm going to start i'm going to stop saying leaps because it sounds poor i'm going to say leap okay i know it's not really right because it's supposed to be long-term anticipation security not long-term anticipation but i can't because when i say leaps it just sounds like i'm saying it plural is breaking my brain okay so if it goes down really hard and your leap dies hard and it's below your strike and you don't know what to do you don't have the money to buy another leap well what you can do is buy some shares okay at least when you buy shares of a company that is going to be successful in the long run even if it goes down you know over the next eight months and your leap dies and then you buy more shares with the company's still a good company it's going to increase some value over the long term so you'll recoup the losses or at least some of the losses of your leap option if you can't buy another leap option when the stock price dies that is riskier your trading leads that it's going to be a little bit more risky for you because if things go down really hard you're going to lose quite a bit of money and it's going to take a while for just a handful of shares to recoup those losses okay it'd be way quicker if you just buy another leap and then the stock goes up it's gonna recoup your losses quite quickly but it's better than nothing okay it's okay to take this is better risk than than than fds let me tell you okay ridiculous ridiculously low break even ridiculous uh time horizon you're putting all the probably like probabilities in your favor except for when things go really really against you and that's when you have to be buying the stock or buying more leaps but we'll touch on that when we come to that if that ever happens it can totally be possible that the stock market just keeps ripping upwards and all i'm doing is just buying more leaps because i want to keep leveraging to the upside not because i'm trying to like average down although this isn't really averaging down but just buying more positions to recoup any losses so it's totally possible that every single leap i have here the amd activision i bought a second activision leap by the way because they are a cash cow i mean you can just like eyeball these fundamentals and it's just crazy they're making so much money especially because of uh coronavirus well it's entirely possible that all these uh these options make money and i never have to buy a new one to recoup any losses ever and that's uh entirely likely with such a low break even in far out expiration but of course but if things do go against me it requires uh that i fork up more capital recoup losses and not out also doge huh you know i was thinking about doge and i was i was like uh i think like why why do people want to buy this so bad like there's no value really in doge where's the value in doge i don't get it it's like very arbitrary and then i was like wait a second isn't that what the dollar is isn't that we just give value to the dollar is the dollar doge can doge be the new dollar it's just it's just attributed value screw it dodge the new global currency all right thanks for watching guys uh remember all the things in the description below okay that's the stuff that you know this stuff makes me money that stuff makes me a lot of money so if you learned something go check out the free stocks all right win win situation there love you catch you later [Music]

Channel: InTheMoney

Views: 49,949

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Id: fKSRDLx71uw

Length: 24min 11sec (1451 seconds)

Published: Wed Apr 21 2021