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Okay folks.
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Welcome back.
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This is lesson five of the June, 2017.
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I see mentorship using options and stocks.
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Obviously we mentioned there are major
market turning points and timing for
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buy and sell programs for stocks.
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And we look for February to may for.
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Programs for buying
stock or stock options.
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And we look for may going into the
second half of September for our
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shorting of stocks or long put options,
which is the equivalent of going short.
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And then we look for again, around
the last portion of September,
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beginning of October, to the end of
the year, where we are bullish again
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on stocks, we look for reasons to
buy stocks and or long call options.
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When it comes to options trading,
uh, I like to keep it simple.
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Uh, I tried very hard early on in my
career to just delve into the Greeks,
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um, doing all kinds of exotic things with
options and immediately it became very.
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And I became over complicated and
some of you have gone through my
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content and your heads are spinning
sometimes with the depth of information
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and almost information overload.
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The idea is when we're using options,
I've found that the simplest is
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the best and I've always stuck to
tried and true options strategies,
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which is simply the, the long call
option and the long put option.
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Now, the first one to look at here is the.
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And this is your right, but not
obligation to own a hundred shares.
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So every option gives you the
right, but not obligation to own
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100 shares at a specific price.
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And that price is the strike price.
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Okay.
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And since theoretically their community
limit as to how high the stock price
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can go before expiration, because all
options expired have expiration date.
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There's no limit on how
far the stock can go.
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It's just a matter of how far
will it go before your option
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expires since there is no limit.
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And that means you have a
maximum profit potential.
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That's unlimited the long
call option strategy.
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Ideally if used in the February to may
portion of the year, end October to the
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end of the year, that's your primary.
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Go-to now in August, I'm going to talk
about doing covered calls and it's
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too much for this topic here, because
I got to go into a little bit more
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detail, all the things, but there's
another strategy that I do that.
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And I do both.
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So I don't talk about them also in
August content as separate topics.
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So in the month of August, when we do our
teachings, while you're only going to get
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really four lessons in detail, like we're
getting normally eight per month, you're
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only going to get four for the month of
July and four for the month of August.
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But during the live sessions and
during market commentary, I'm going
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to be talking about and giving
you information about other things
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that I've done as a trader in.
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Best of my ability believes that
it's a value to you or anyone else
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that would consider delving into it.
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So, but for now, I want you to just focus
on the two simple strategies here, that
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long call option and the long put option.
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So you're using the long call option.
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The maximum profit, obviously
again, is unlimited until expert.
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Then, how do you make money?
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Well, the call option, for instance,
uh, you had to be bullish on the
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market and if you buy a long call
option, the easiest way to remember
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is a call option is to call up leads.
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You want to see price go up
and put down is when you want
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to see the market trade lower.
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If the market moves in
your intended direction.
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In other words, a long call means
that you're bullish on price.
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If you buy a strike.
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And it's next to the, the
market price and it goes higher.
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Theoretically, your option can be
profitable, not always, but generally
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that's what we're looking for.
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The risk that's associated with
long call option strategies is
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limited to whatever the price
you paid for the premium and the.
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Commissioned costs.
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So whatever your commission costs
would be, maybe it's $5 per contract.
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I don't know.
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I have no idea what your option,
uh, commission would be based on who
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you're trading with your broker would
be, but it's not really expensive.
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It's not much money at all, but the, the
risk is limited to whatever the premium.
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No worries.
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If you're looking at a stock
option that has a premium of 2.5,
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every option gives you the ripe
and obligation to own 100 shares.
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So if it's 2.5 and the
multiple is 100 shares, you're
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paying $250 for that option.
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Plus commission, we'll say it's $5.
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Your total costs would be $255.
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That's the maximum you can lose.
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There's no other way, you lose money.
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You cannot lose any more money than that.
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Now the wonderful thing is, is you
have unlimited profit potential to
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me, that's worth weight and gold.
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If we know that we have a strong tendency
to see bullish prices in February into
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may and then in October, and then.
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It's a no-brainer we understand what
makes the seasonal tendencies work.
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We understand how to fair it out.
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The strong stocks, we know what this
smart money index SMT looks like to
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confirm all that we can find leadership
issues and index trading, and now
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valuation using canceling ideas.
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The world is your oyster.
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When it comes to treating those two times
of the year where the stock market, if
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the market's bullish, it's very, very
easy to go through and find a handful
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of stocks that could potentially pay
out well in terms of premium yield.
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So when we buy the call option,
we're looking for cheap options,
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not very expensive options, and
we're looking to either double
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our money or triple your money.
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So if we paid $250, we're
trying to make $500 or 750.
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Nothing, nothing more than that.
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If you do that consistently year
after year after year, you can do
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very, very well and compound your.
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Let's take a look at a
hypothetical example.
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And I suppose the stock of
ICT company is trading at $50.
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A share a call option contract
with a strike price of 50
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hours expiring in a month.
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Time is being priced at $2.
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So the premium is $2.
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You believe that the ICT stock will
rise sharply in the coming weeks.
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So you paid $200 to purchase a single
$50 ICT call option covering 100 shares.
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Now suppose the price of the ICT
stock rallies, a $60 an hour or
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an option expiration date with
underlying stock price at $60.
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If you were to exercise your call option,
that means you're telling your broker
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that you want to own those shares.
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Now that it's $10 in the
money, you want to own them.
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So it says basically, okay, now we're
going to say you bought them at 50,
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but you're not on the obligation
when you first bought the option.
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But when it's in your favor,
you can exercise that.
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And the strike price you bought
that becomes your entry price.
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In this case, if you were to exercise your
call option, you would invoke your right
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to buy 100 shares of ICT stock at $50
each, and you can sell them immediately
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in the open market for $60 a share, thus
giving you a profit of $10 per share.
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Now, as each call option
contract covers 100 shares.
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The total amount you would receive from
this exercising of the option is $1,000.
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Now since you had paid $200 to
purchase a car option, your net
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profit on the entire trade is there
for $800 less commission costs.
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And in this instance, if it was
$5 per a round turn where your
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commission, then it would be $795 net.
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Now, however, if you were wrong
and your expectation and the stock.
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Instead of dropped to $40, your call
option would expire worthless and your
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total loss would be $200 that you paid for
the purchase of the option plus commission
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costs, or in this case $205, five hours
was your round term commission costs.
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Okay.
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The second option strategy I
like is the long put option.
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And this is when we're
bears from the marketplace.
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We're directionally driven and
it's going to be between the months
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of may going into the half of.
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So for bears in the market
generally is going lower.
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We can expect to see lower prices
there, uh, index SNTs diverging,
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and showing stocks that are
found to make higher highs.
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All the things we talked about,
uh, previously, um, we could be
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looking at potentially a stock that
can go down to zero at experts.
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There's nothing saying that
it can't go down to zero.
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We've seen stocks that do that.
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So if we see the stock price in
theory can reach to zero by expiration
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date, the maximum profit potential
that's possible when using the long
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put strategy is only limited to
the strike price of the purchase.
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Put less the price paid for the option.
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So the maximum profit is.
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Um, unlimited in the scope that you
can make as much money as possible
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until the stock goes to zero.
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And the profit is achieved, obviously
by seeing the share price dropped
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below your strike price that you
bought for, for the put option.
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So if you think price is, are going lower
for a specific company, you buy as close
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as you can to add the money or whether
the price of the shares are trading at.
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And as the share price drops.
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As long as the price of the
underlying stock price is below your
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strike price on your put option.
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You are theoretically in the money.
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Now it doesn't mean you're seeing
profits because there's going to
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be times where you bought the wrong
stock put or you're in the wrong
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strike, or the options are overvalued,
which I'll give you reasons why.
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I think it's easy to find
undervalued stock options in our
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last slide on this teaching, but
the maximum loss is your premium.
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And the commission, you can
not lose any more money.
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The stock could go up a thousand
dollars per share from wherever
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you knew you bought your stock
price at doesn't make a difference.
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You can only lose what you
pay the premium of, plus your.
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But again, you have very,
very large potential profit.
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And if we've seen how many times we've
been able to call significant price moves
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in the stock market as a whole, and then
ferreting out, we can strong stocks.
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In this case, we're looking for
a weak stock in a weak market.
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And with downside potential, looking for a
long put option long put means that you're
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trying to make money when it's going down.
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Basically it's like selling short
the market with guaranteed, uh, risk.
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Set to a specific amount
that cannot ever be exceeded.
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There's no slippage
that's going to happen.
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That's the maximum, you can't lose
any more than the premium you paid.
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Plus the commission.
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That's the reason why I liked, I've
always taught that traders should
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be using a long, long puts and long
calls because it limits your risk.
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There is no other medium out there that
I think that has that much of a boat.
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There's no other investment vehicle, I
believe to has that much of a potential
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where we can go in predefined our risk.
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The sun could not rise tomorrow.
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In the worst thing you're going to
do is see the loss of the premium
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paid plus your commission costs.
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And it's very hard to find that
type of scenario outside of.
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okay.
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So we're gonna look at a
hypothetical example here.
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Okay.
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We're going to suppose that the
stock of trolls company, T R L Z.
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It's trading at $40 a share
and a put option contract with
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a strike price of 40 hours.
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Expiring a months time from
now is being priced at $2.
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So you believe that the TRL Z stock
will fall sharply in the coming weeks.
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So you paid $200 to purchase a single $4
trolls put option covering 100 shares.
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00:12:20,370 --> 00:12:23,070
Now suppose the price
of trolls stock crashes.
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The 30 day.
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At option expiration date with
the underlying stock price.
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Now at $30, your put option
will now be in the money with
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an intrinsic value of $1,000.
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And you can sell it for that much.
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Since you have paid $200 to purchase
to put option your net profit
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for the entire trade, therefore
is $800 less commission cost.
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Or in this case, again, it would be $795.
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If you're around term
commission cost was around five.
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Now, however, if you were wrong in your
expectations and the stock had instead
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rallied to 50 hours, your put option
will expire worthless and your total loss
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will be $200 that you paid the purchase.
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The option plus commission
costs or 200, $5.
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Again, it's commission
cost is around five.
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00:13:09,975 --> 00:13:12,675
So we've mentioned two things here.
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We've talked about intrinsic
value and there's an element
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of time that's necessary.
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Okay.
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We're looking at an option example
on both the long put and long
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call with about a month's time.
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I generally like to see a
little bit more time than that.
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And intrinsic value is what the
value of the underlying is in
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relationship to the struggle.
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The, there may be a difference
between where you entered the.
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Whereas, if you went short the
stock by buying a long put option
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at a strike price of $40, the
stock could be dropping to $25.
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00:13:54,375 --> 00:13:58,335
But if there isn't much time before
expiration, you may not be seeing profit.
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So the intrinsic value while it would
be otherwise good because of time
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decay, you're not making any money.
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So you have to beat the top.
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You have to beat the
clock and you have to be.
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That's the reason why you had to look
at times where we went through all the
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information regarding seasonal tendencies,
uh, SMT diversions with the major
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indices, and then looking for a leader in
laggard, uh, stocks in the index groups.
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So now having that understood,
let's take a close look on what you
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have to consider in terms of what
strike price and what expiration.
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So what options strike price,
and what explorations should you.
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Now the strike price is what
option price you're going to using.
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If I see a stock that I like that
these is going to be a mover one way
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or the other, whether it be bullish or
bearish, a little number one, I have
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a preconceived notion that paying more
than $350 an option is a stupid, okay.
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There's plenty of traders out there that
pay a lot more for options and they do
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all kinds of option trades and they can
do that and make their career out of it.
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I just don't like it personally.
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I want it.
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I'm going to find trades date.
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Out very well, very low cost to get in.
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And if I'm going to do the work and
go through all of the information
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that I've been sharing with you all,
I believe that I'm going to find some
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really good blue light special deals.
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So I like paying no more
than $350 per option.
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And this means the premium is
going to be 3.5 for the strike
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price that I want to purchase.
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Now, this is either call or.
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So ideally we can see premiums around
one to two per contract, or basically
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meaning 100 to $200 per option.
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Now, if I can buy close to the money
options, that means one to three strike
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prices away from the market price.
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That's a blue light, special
or cheap option purchase.
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I will load the boat in that condition.
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The option expiration I want to, I want
more than 90 days until expiration.
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Okay.
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I know that time.
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We'll build as we get under
75 days until expiration.
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So if I have about two weeks, I'll
be able to see whether this position
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is going to grow in its premium.
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Okay.
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In other words, what I paid for it
am I starting to see that premium
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increase in value because I'm going
to be fighting intrinsic values.
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Versus time to case loss of premium.
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So as it is a tug of war that's going on
here, I'm I want something that's over 90
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days, because once we get around 60 days
or 65 days of taught option expiration,
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the effects of time decay really take
a major toll on the premium of the.
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And that's why most of the options expire
worthless because of the effects of time
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decay and without knowing the things
I've taught in terms of directional and
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timing of the stocks, you can see why
that writing options or selling options is
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actually many times the better condition.
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But if you don't know what you're
doing really hurts selling options.
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So if I have about two weeks to
see by having an option that has
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over 90 days expiration until I get
around 75 days until auction expert.
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I can see the effects of whether
the market's going to start
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seeing that premium increase.
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00:17:11,474 --> 00:17:14,714
And if it doesn't, hopefully that'll
give you an opportunity that can sell
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direct before expiration and avoid a
major premium loss due to time decay.
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00:17:20,504 --> 00:17:25,034
When we go through the fall months,
uh, even post mentorship, I'm going
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00:17:25,034 --> 00:17:28,185
to actually do the fall top-down
analysis right in front of all of you.
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So you can see what options I'm
looking at, which ones I like.
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Uh, what options, um, for the call options
I'd like for the leadership issues, I
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think is going to be a buy in this fall.
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And even if the market does crash,
there's going to be opportunities
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for us to, to see long opportunities.
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Cause I think w you know, w we'll see
something of bullishness this fall, and
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I'm going to outline everything that we
can see the whole thing from top down
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to, you know, to, to expiration and the
strike price is that I'd like for you.
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Individual stock, but without having
an example of actually doing it, you'll
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learn better by watching me do it.
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But this is theoretically all
that I looked at it it's not hard.
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It's rather simplistic, but you
can actually go through, um, go
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to YouTube and watch a couple of
things on, uh, long calls and long.
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00:18:15,210 --> 00:18:17,670
And there's a lot of guys
that have done really well.
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Um, in terms of producing tutorials
that help you familiarize yourself
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00:18:21,420 --> 00:18:25,710
with more details about what makes
these two options, strategies simple,
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00:18:26,100 --> 00:18:27,840
but sufficient enough to make money.
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So until next time I wish you
good luck and good trading.
27596
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