Original subtitles

Okay folks.

Welcome back.

This is lesson five of the June, 2017.

I see mentorship using options and stocks.

Obviously we mentioned there are major market turning points and timing for

buy and sell programs for stocks.

And we look for February to may for.

Programs for buying stock or stock options.

And we look for may going into the second half of September for our

shorting of stocks or long put options, which is the equivalent of going short.

And then we look for again, around the last portion of September,

beginning of October, to the end of the year, where we are bullish again

on stocks, we look for reasons to buy stocks and or long call options.

When it comes to options trading, uh, I like to keep it simple.

Uh, I tried very hard early on in my career to just delve into the Greeks,

um, doing all kinds of exotic things with options and immediately it became very.

And I became over complicated and some of you have gone through my

content and your heads are spinning sometimes with the depth of information

and almost information overload.

The idea is when we're using options, I've found that the simplest is

the best and I've always stuck to tried and true options strategies,

which is simply the, the long call option and the long put option.

Now, the first one to look at here is the.

And this is your right, but not obligation to own a hundred shares.

So every option gives you the right, but not obligation to own

100 shares at a specific price.

And that price is the strike price.

Okay.

And since theoretically their community limit as to how high the stock price

can go before expiration, because all options expired have expiration date.

There's no limit on how far the stock can go.

It's just a matter of how far will it go before your option

expires since there is no limit.

And that means you have a maximum profit potential.

That's unlimited the long call option strategy.

Ideally if used in the February to may portion of the year, end October to the

end of the year, that's your primary.

Go-to now in August, I'm going to talk about doing covered calls and it's

too much for this topic here, because I got to go into a little bit more

detail, all the things, but there's another strategy that I do that.

And I do both.

So I don't talk about them also in August content as separate topics.

So in the month of August, when we do our teachings, while you're only going to get

really four lessons in detail, like we're getting normally eight per month, you're

only going to get four for the month of July and four for the month of August.

But during the live sessions and during market commentary, I'm going

to be talking about and giving you information about other things

that I've done as a trader in.

Best of my ability believes that it's a value to you or anyone else

that would consider delving into it.

So, but for now, I want you to just focus on the two simple strategies here, that

long call option and the long put option.

So you're using the long call option.

The maximum profit, obviously again, is unlimited until expert.

Then, how do you make money?

Well, the call option, for instance, uh, you had to be bullish on the

market and if you buy a long call option, the easiest way to remember

is a call option is to call up leads.

You want to see price go up and put down is when you want

to see the market trade lower.

If the market moves in your intended direction.

In other words, a long call means that you're bullish on price.

If you buy a strike.

And it's next to the, the market price and it goes higher.

Theoretically, your option can be profitable, not always, but generally

that's what we're looking for.

The risk that's associated with long call option strategies is

limited to whatever the price you paid for the premium and the.

Commissioned costs.

So whatever your commission costs would be, maybe it's $5 per contract.

I don't know.

I have no idea what your option, uh, commission would be based on who

you're trading with your broker would be, but it's not really expensive.

It's not much money at all, but the, the risk is limited to whatever the premium.

No worries.

If you're looking at a stock option that has a premium of 2.5,

every option gives you the ripe and obligation to own 100 shares.

So if it's 2.5 and the multiple is 100 shares, you're

paying $250 for that option.

Plus commission, we'll say it's $5.

Your total costs would be $255.

That's the maximum you can lose.

There's no other way, you lose money.

You cannot lose any more money than that.

Now the wonderful thing is, is you have unlimited profit potential to

me, that's worth weight and gold.

If we know that we have a strong tendency to see bullish prices in February into

may and then in October, and then.

It's a no-brainer we understand what makes the seasonal tendencies work.

We understand how to fair it out.

The strong stocks, we know what this smart money index SMT looks like to

confirm all that we can find leadership issues and index trading, and now

valuation using canceling ideas.

The world is your oyster.

When it comes to treating those two times of the year where the stock market, if

the market's bullish, it's very, very easy to go through and find a handful

of stocks that could potentially pay out well in terms of premium yield.

So when we buy the call option, we're looking for cheap options,

not very expensive options, and we're looking to either double

our money or triple your money.

So if we paid $250, we're trying to make $500 or 750.

Nothing, nothing more than that.

If you do that consistently year after year after year, you can do

very, very well and compound your.

Let's take a look at a hypothetical example.

And I suppose the stock of ICT company is trading at $50.

A share a call option contract with a strike price of 50

hours expiring in a month.

Time is being priced at $2.

So the premium is $2.

You believe that the ICT stock will rise sharply in the coming weeks.

So you paid $200 to purchase a single $50 ICT call option covering 100 shares.

Now suppose the price of the ICT stock rallies, a $60 an hour or

an option expiration date with underlying stock price at $60.

If you were to exercise your call option, that means you're telling your broker

that you want to own those shares.

Now that it's $10 in the money, you want to own them.

So it says basically, okay, now we're going to say you bought them at 50,

but you're not on the obligation when you first bought the option.

But when it's in your favor, you can exercise that.

And the strike price you bought that becomes your entry price.

In this case, if you were to exercise your call option, you would invoke your right

to buy 100 shares of ICT stock at $50 each, and you can sell them immediately

in the open market for $60 a share, thus giving you a profit of $10 per share.

Now, as each call option contract covers 100 shares.

The total amount you would receive from this exercising of the option is $1,000.

Now since you had paid $200 to purchase a car option, your net

profit on the entire trade is there for $800 less commission costs.

And in this instance, if it was $5 per a round turn where your

commission, then it would be $795 net.

Now, however, if you were wrong and your expectation and the stock.

Instead of dropped to $40, your call option would expire worthless and your

total loss would be $200 that you paid for the purchase of the option plus commission

costs, or in this case $205, five hours was your round term commission costs.

Okay.

The second option strategy I like is the long put option.

And this is when we're bears from the marketplace.

We're directionally driven and it's going to be between the months

of may going into the half of.

So for bears in the market generally is going lower.

We can expect to see lower prices there, uh, index SNTs diverging,

and showing stocks that are found to make higher highs.

All the things we talked about, uh, previously, um, we could be

looking at potentially a stock that can go down to zero at experts.

There's nothing saying that it can't go down to zero.

We've seen stocks that do that.

So if we see the stock price in theory can reach to zero by expiration

date, the maximum profit potential that's possible when using the long

put strategy is only limited to the strike price of the purchase.

Put less the price paid for the option.

So the maximum profit is.

Um, unlimited in the scope that you can make as much money as possible

until the stock goes to zero.

And the profit is achieved, obviously by seeing the share price dropped

below your strike price that you bought for, for the put option.

So if you think price is, are going lower for a specific company, you buy as close

as you can to add the money or whether the price of the shares are trading at.

And as the share price drops.

As long as the price of the underlying stock price is below your

strike price on your put option.

You are theoretically in the money.

Now it doesn't mean you're seeing profits because there's going to

be times where you bought the wrong stock put or you're in the wrong

strike, or the options are overvalued, which I'll give you reasons why.

I think it's easy to find undervalued stock options in our

last slide on this teaching, but the maximum loss is your premium.

And the commission, you can not lose any more money.

The stock could go up a thousand dollars per share from wherever

you knew you bought your stock price at doesn't make a difference.

You can only lose what you pay the premium of, plus your.

But again, you have very, very large potential profit.

And if we've seen how many times we've been able to call significant price moves

in the stock market as a whole, and then ferreting out, we can strong stocks.

In this case, we're looking for a weak stock in a weak market.

And with downside potential, looking for a long put option long put means that you're

trying to make money when it's going down.

Basically it's like selling short the market with guaranteed, uh, risk.

Set to a specific amount that cannot ever be exceeded.

There's no slippage that's going to happen.

That's the maximum, you can't lose any more than the premium you paid.

Plus the commission.

That's the reason why I liked, I've always taught that traders should

be using a long, long puts and long calls because it limits your risk.

There is no other medium out there that I think that has that much of a boat.

There's no other investment vehicle, I believe to has that much of a potential

where we can go in predefined our risk.

The sun could not rise tomorrow.

In the worst thing you're going to do is see the loss of the premium

paid plus your commission costs.

And it's very hard to find that type of scenario outside of.

okay.

So we're gonna look at a hypothetical example here.

Okay.

We're going to suppose that the stock of trolls company, T R L Z.

It's trading at $40 a share and a put option contract with

a strike price of 40 hours.

Expiring a months time from now is being priced at $2.

So you believe that the TRL Z stock will fall sharply in the coming weeks.

So you paid $200 to purchase a single $4 trolls put option covering 100 shares.

Now suppose the price of trolls stock crashes.

The 30 day.

At option expiration date with the underlying stock price.

Now at $30, your put option will now be in the money with

an intrinsic value of $1,000.

And you can sell it for that much.

Since you have paid $200 to purchase to put option your net profit

for the entire trade, therefore is $800 less commission cost.

Or in this case, again, it would be $795.

If you're around term commission cost was around five.

Now, however, if you were wrong in your expectations and the stock had instead

rallied to 50 hours, your put option will expire worthless and your total loss

will be $200 that you paid the purchase.

The option plus commission costs or 200, $5.

Again, it's commission cost is around five.

So we've mentioned two things here.

We've talked about intrinsic value and there's an element

of time that's necessary.

Okay.

We're looking at an option example on both the long put and long

call with about a month's time.

I generally like to see a little bit more time than that.

And intrinsic value is what the value of the underlying is in

relationship to the struggle.

The, there may be a difference between where you entered the.

Whereas, if you went short the stock by buying a long put option

at a strike price of $40, the stock could be dropping to $25.

But if there isn't much time before expiration, you may not be seeing profit.

So the intrinsic value while it would be otherwise good because of time

decay, you're not making any money.

So you have to beat the top.

You have to beat the clock and you have to be.

That's the reason why you had to look at times where we went through all the

information regarding seasonal tendencies, uh, SMT diversions with the major

indices, and then looking for a leader in laggard, uh, stocks in the index groups.

So now having that understood, let's take a close look on what you

have to consider in terms of what strike price and what expiration.

So what options strike price, and what explorations should you.

Now the strike price is what option price you're going to using.

If I see a stock that I like that these is going to be a mover one way

or the other, whether it be bullish or bearish, a little number one, I have

a preconceived notion that paying more than $350 an option is a stupid, okay.

There's plenty of traders out there that pay a lot more for options and they do

all kinds of option trades and they can do that and make their career out of it.

I just don't like it personally.

I want it.

I'm going to find trades date.

Out very well, very low cost to get in.

And if I'm going to do the work and go through all of the information

that I've been sharing with you all, I believe that I'm going to find some

really good blue light special deals.

So I like paying no more than $350 per option.

And this means the premium is going to be 3.5 for the strike

price that I want to purchase.

Now, this is either call or.

So ideally we can see premiums around one to two per contract, or basically

meaning 100 to $200 per option.

Now, if I can buy close to the money options, that means one to three strike

prices away from the market price.

That's a blue light, special or cheap option purchase.

I will load the boat in that condition.

The option expiration I want to, I want more than 90 days until expiration.

Okay.

I know that time.

We'll build as we get under 75 days until expiration.

So if I have about two weeks, I'll be able to see whether this position

is going to grow in its premium.

Okay.

In other words, what I paid for it am I starting to see that premium

increase in value because I'm going to be fighting intrinsic values.

Versus time to case loss of premium.

So as it is a tug of war that's going on here, I'm I want something that's over 90

days, because once we get around 60 days or 65 days of taught option expiration,

the effects of time decay really take a major toll on the premium of the.

And that's why most of the options expire worthless because of the effects of time

decay and without knowing the things I've taught in terms of directional and

timing of the stocks, you can see why that writing options or selling options is

actually many times the better condition.

But if you don't know what you're doing really hurts selling options.

So if I have about two weeks to see by having an option that has

over 90 days expiration until I get around 75 days until auction expert.

I can see the effects of whether the market's going to start

seeing that premium increase.

And if it doesn't, hopefully that'll give you an opportunity that can sell

direct before expiration and avoid a major premium loss due to time decay.

When we go through the fall months, uh, even post mentorship, I'm going

to actually do the fall top-down analysis right in front of all of you.

So you can see what options I'm looking at, which ones I like.

Uh, what options, um, for the call options I'd like for the leadership issues, I

think is going to be a buy in this fall.

And even if the market does crash, there's going to be opportunities

for us to, to see long opportunities.

Cause I think w you know, w we'll see something of bullishness this fall, and

I'm going to outline everything that we can see the whole thing from top down

to, you know, to, to expiration and the strike price is that I'd like for you.

Individual stock, but without having an example of actually doing it, you'll

learn better by watching me do it.

But this is theoretically all that I looked at it it's not hard.

It's rather simplistic, but you can actually go through, um, go

to YouTube and watch a couple of things on, uh, long calls and long.

And there's a lot of guys that have done really well.

Um, in terms of producing tutorials that help you familiarize yourself

with more details about what makes these two options, strategies simple,

but sufficient enough to make money.

So until next time I wish you good luck and good trading.