hey everybody good to be here today my
name is Brent Moors and uh it's getting
started with options today we're going
to talk about cash secured puts I'm
sitting in for Barb Armstrong who's out
this week and next week I'll be teaching
next week as well this week cash secured
puts next week we're going to talk about
short putut
verticals and uh great that's uh let's
get let's get into it I I am joined
alongside by my friend and colleague
Connie hill by the way who's helping me
out today in the chat so as you have
questions feel free to type those in
we'll try and get those between Connie
and myself and you can follow us on
Twitter at Brent Moors CS Connie Hill
Cs and just a reminder options carry a
high level of risk and are not suitable
for all investers information here today
is for General informational purposes
only we'll look at actual symbols today
actual specific symbols but they are not
recommendations we'll look at specific
options they're not
recommendations and Schwab does not
recommend the use of set technical
analysis as the sole means of investment
research all inves involves risk
including risk of potential loss short
options which is what we're going to be
talking about today they can be assigned
at any time up to expiration regardless
of the in the money amount the paper
money application is for educational
purposes only and stop-loss orders if
you do put a stop-loss order it does not
guarantee an execution at or near the
activation price yeah Barb is fine
everybody she's out on vacation I think
so I'm sure she's I'm sure she's fine I
have no reason to believe anything
otherwise this was uh just some time off
for her so uh I'm glad you're here
though I'm glad uh you know this is a
series that Barb's going through this
week we're on lesson six short puts and
we're going to talk about short putut
verticals next week um so what
specifically am we going to talk about
short puts I want to talk about every
think this is a more of a beginning
level class as you guys know it's
getting started with options I want to
talk about why You' use short puts what
they are of course um when you'd use
them how to use them those are kind of
the kind of the basics there on that and
you know when you're talking about
options here just remember there are
four basic things you can do with
options
everybody you can buy a call you can
sell a call you can buy a put you can
sell a put okay between all those those
four different things you can create all
these vast number of op option trades
you know you hear of Trades like
butterfly spreads or iron Condors or
short call verticals they're all built
through through those same four building
blocks it's like uh DNA DNA agct right
that's what life is built off of those
those four different uh bases uh you
know what options are the same thing
buying calls selling
calls buying puts selling puts today
we're focusing on the last one selling
puts I think I think it's a great way to
learn options is to consider this and
you can always paper trade these these
things now hey let's let's think of this
um I'm going to bring bring this up and
and let me just introduce you to selling
puts this way what if I told you and
let's say we're we're considering a $
stock so I'm going to I'm just going to
write down $ here this is going to be
our $ stock we make that just a little
bit bigger here for us at a $ stock
and I said hey I'm going to give you the
opportunity to buy a shares of that
stock for
$ okay for
$ uh on
or uh on or
before um on or before a particular date
we'll say that date is a month month out
and and uh and you you you are uh you're
going to obligate yourself to do that
okay does that sound like a good deal
well maybe it does sound like a good
deal but think about it this way what if
between now and then now and that
expiration date this is just selling a
put I'm I'm describing here right
selling to put you're you're obligating
yourself to buy a stock at a particular
price in this case I'm saying the the
price is
$ and uh but think about it between
now and a month from now that stock
could drop down to $ and you'd be
buying it at $ that could be a problem
right so is that a good deal well it
depends probably it depends on what you
get out of it and what if I said oh you
know what I'm going to pay you $ a
share or $ remember these areund
share increments so we're talking about
$, worth of stock right now we're
agreeing to buy it for
$ and I'm incenting You by saying
I'm going to pay you $ to do so is it
worth it well maybe maybe but uh but uh
it kind of just depends on the situation
what are the things that it's going to
be maybe maybe what it depends on is how
far in the future we're looking as to
whether it's worth it how much risk
there is in the stock how much stock
that tends to drop or go up may make a
difference
if it's just kind of one of these one of
like these steady steady stocks these
Blue Chip stocks that don't move as much
maybe it's more worth it for you okay
there's a lot of factors that go into
this so let's uh let's change this to
the real world scenario let me go over
and I'm going to bring up our thinker
swim desktop platform and uh just for
our example I'm going to bring up say
American Express let me bring up a chart
of American Express here's American
Express say you're bullish on this and
this is a bullish strategy we're talking
about selling
puts um where can we see how much should
be worth it right now American Express
is at
$ let's see this is how you can view
short puts you go to the trade tab go to
your option chain and in this case I'm
just going to look out oh we'll look out
about a month let's go to April th go
out about about a month here and I'm
going to look here and remember American
Express is about $ I'm going to look
for puts on the right side of the page
fact let me just shrink this down maybe
you could see it a little bit better
here and I can go here and I can look at
my puts and uh I can see how much I if I
agree to buy American Express between
now and a month from now for
$ a share I can get paid
that's the bid price is what
we're going to focus on there okay um
that's uh there you go so that that's
the deal or or if I go down to $ I'm
agree to buy it at a lower price which
sounds great I mean you know maybe maybe
if you think American Express is going
to go up or is going to stay the same um
then you get you get this income here
and even if it drops down a little bit
not not too bad but if it drops down to
maybe it's not such a great deal so
that's how you can view these you can
view and see what the premium here is by
looking at the bid price and just
multiplying that by because we're
talking about multiplier here on
this see that there that's what that
means that right there means it's
multiplier we're talking about
shares of stock but one thing I don't
want you to ever forget is you have an
obligation here to buy shares of
stock if you sell a put okay so
shares of a $ stock that's $,
plus
dollar a fair obligation there don't
ever forget the obligation in fact I
want to distinguish here between what we
call it cash secured put where you have
the cash on hand to buy that full
obligation if I let's say we sell that
$ put I'm agreeing to buy a
shares at $
$, I need $, in cash for this
to be a cash secured put now is it
possible to to sell this put agree to
buy this stock and not have the ,
yes in a margin account if you were
approved for it that's just a a short
put but that's a margin account if you
are approved for it today I'm focusing
on a cash secured put where you actually
have that cash in your account to
potentially buy it okay does that make
sense I'm hoping so hoping so okay
so there's some different things we can
see on this option chain here in fact
let me get just to make it a little
easier I'm going to shrink down the
number of strike prices we're looking
here here and some of the things that
you can point out I want to just point
out on this option chain is this number
one you can see the expiration dates
typically on these we're probably
looking oh maybe to days till
expiration well look somewhere in there
there's a th of April expiration
days till expiration oh here's of
April expiration days to expiration
okay so there you go that's um that's
that that's that's you can see those
expiration dates that are available for
you there now can you go out further
yeah you could sell a put out to th of
July if you wanted to out days
generally we teach I'm going to teach
you to days till expiration and
there's a reason for that and we'll get
into this a little bit more later but um
one of the benefits of these is you get
this time
Decay and generally the time Decay which
helps you in this case is higher as you
get closer to
expiration okay as it's higher as you
get closer to expiration so generally if
you're going out days days days
the time Decay that rate of time Decay
is less okay that's one thing also
you're you're loading up your you're
wrapping up your money
for a longer period of time that
obligation is a longer period of time so
if I have American Express right now and
and Let's Pretend We're bullish on this
maybe in this example um then uh well my
forecast may change between now and
days it's more likely to change between
now and then versus now and days
right so that's uh that's one thing you
can look at you see those expiration
dates uh other things you can see here
you can see the different strike prices
the different choices that you have
here uh you can see the premiums right
here in this column and the bid price is
typically we're going to look for those
another thing you can view is and I
would mention this is something we call
liquidity is generally when you're doing
these what's the is is how's the pricing
how easy it is to get in and get out at
a reasonable price a price close to kind
of that is available on the market and
uh and so one way to do that is you can
view that bid price you can view the ask
price and look and hopefully they're not
too far apart from one another here okay
so let's do this um let's just look at
this strike
that's a cent difference between
those two cent difference is that a
lot well I would say it kind of depends
on the price cents is not much on a
$ options that's actually quite a bit
on a Cent option um there usually
what I'd say is the bid price and the
ask price you probably want them less
than % within
% of one another and what's even
better would be % within one another
okay all right
um so so look what's our difference here
to that's that's a cent
difference well what would a %
difference a % difference would be
about cents okay right so in
this case plenty liquidity plenty liquid
there okay we'll look at different
examples today but I just wanted to
start you off with this one here right
so that's the that's the those are kind
of the basics of selling it and if I
just want to sell it I can just go and I
can click on the bid price if you want
okay that'll bring up an order now I'm
going to come back to this in a sec but
that's a that's a short putut right
there okay now uh what are the things
we're looking for in in terms of the
stocks that we're considering here well
it it probably depends remember you are
obligating yourself to buy the stock so
one way to think of this strategy is to
say hey if this is a stock I'm
considering buying anyway if you were if
you were to think of that that way in
your head if it's a stock that that
seems like a reasonable buy anyway it
may not be a bad thing to do short put
you got to think about it there's Pro
and cons to this so if I agree to buy
American Express for
$ a share okay we're going to look at
this $ a share so if we did a
strike if it drops down to maybe
it's not such a big deal if you think
it's a good purchase at
to buy it at
but there's pros and cons and one of
the cons is this let's say you think
American Express is a good stock and so
you sell that put for and American
Express then goes up to
$ you're probably not going to end up
buying it because it's unlikely somebody
is going to exercise their option the
per person on the other side okay the
person on the other side of the equation
the buyer of the put is unlikely to
exercise a
$
put if the stock has gone up to or
or whatever so does that harm you it
doesn't necessarily harm you but you can
think of it as an opportunity cost
because if you sell that put how
much are you making well let's look
again in this case we'd be making
$ okay not bad maybe but how much
would you have made if you bought the
stock instead and it went up to well
if you bought it at
and it went up to $ there'd be
$, that you'd be making on that okay
so you got just be aware that there's
there's an opportunity cost if you sell
the
put the you give up the potential of it
going if if the stock goes way up you're
giving up some of that those potential
gains and sacrificing them for a smaller
gain so there is a downside to these
okay that's one of the downsides now the
other downside is this let me click on
that again let's click on confirm
and send let me just show you this okay
here's our short putut what's our Max
loss on
this that's a big number isn't it
$, on that that's a lot of money
that's a Max loss realize that Max loss
is a assuming that American Express goes
to zero because if it were to go to
zero what's going to happen well you
would be forced to buy it for
$ a share you've brought in a little
cash up front
$ but uh $ that's
$, worth of stock less that little
premium you brought in now is it likely
that American Express is going to go to
to zero it's probably pretty unlikely is
it possible it is possible okay it is
possible so I just want you to realize
the rest so in terms of the downside on
short puts I'm going to give you two of
them here two big ones one the
opportunity cost we just talked about
that if the stock goes way up as opposed
to buying the stock you're missing out
on potential gains okay if the stock
goes down you have basically the full
downside risk almost the full downside
risk of as if you just bought the stock
there okay so those those are the cons
of it leading with the cons the pros
well we get in that we get that premium
and as long as that stock stays well you
get that you get to keep the premium no
matter what you do okay you get the
premium no matter what you do the if the
stock goes up you get to keep the
premium if the stock stays at
you get to keep the premium it's
unlikely if the stock stays at
$ you would get assigned to the stock
shares of stock theoretically it's
possible but keep in mind uh if it goes
down to the your likelihood below
your likelihood of early assignment
increases there's always the chance of
early assignment there may not be such a
terrible thing but uh but there you go
okay all right now let me just stop one
sec here and check out in the uh check
out in the chat here what we got Connie
thank you for helping me out here
um uh let's see you're buying a stock
and you're buying the stock is yes okay
so Doug says hey look if the stock goes
down let's say we bought this and we did
this what do we say strike and the
Stock's at
two goes down to $ we're buying the
stock for bucks and the stock at
that point is going down okay so be be
careful on that okay um let's
see
uh is a good example for Contin okay so
let's that leads begs the question here
so Greg says look this is already at a
high is it really a good time I think
that the maybe the implication of the
question is if a Stock's at a high maybe
it's time it it's already gone up and
maybe it's just going to go down down
there okay so just be be aware that you
know there's there's different things
you may look for what are some things
that you may look for one one you want
to be bullish on the stock if you're
doing a short putut you want to be
bullish on the stock what's going to
make you bullish on a stock well you can
take a fundamental approach right maybe
you look for stocks with lower pees and
high earnings growth rates okay maybe
you look at analyst ratings third party
you know no guarantees there or anything
on that
I'm not saying these are exactly what
you should do but you can take more of a
fundamental approach on this and think
of it in from The Stance a longer term
stance of hey if this is a stock I want
to own
anyway you can take one of these
fundamental and you think it's a
fundamentally sound stock this may be a
strategy you consider okay uh you can
take a tech technical approach you can
look for a stock that's in an upward
Trend that's kind of a typical a common
technical analysis approach that some
Traders use there uh
this Stock's above a -day moving
average some Traders may find that
attractive okay for most Trend Traders
and this is going to Greg's question
okay for most Trend Traders what I would
say isn't I'm this isn't Universal most
Trend Traders say look if the trend has
been going up that's a good
thing um does it mean it can't go down
no if the Stock's at a high doesn't mean
it it's going to continue up but if the
trend's good that wouldn't
deter
uh all if you're a trend Trader that
wouldn't necessarily deter you okay but
you got to make your own judgment on
that all right um so that's a good great
questions everybody very good questions
so let me just uh let me do this I'm
going to switch over to our slide here
uh so cash convert puts okay Outlook
neutral to bullish right neutral look if
the stock goes sideways remember you
still bring in that
premium time frame I mentioned earlier
to days okay strike selection
let's talk about that a little bit more
in just one sec here position size
remember you're agreeing to buy
shares of the stock so you may position
size accordingly it's easy to say oh I
want bought one chair or I'm going to
I'm going to sell one contract and it's
bringing in a couple hundred bucks oh
maybe I'll do five contracts and bring
in a th bucks doesn't that sound
great well don't forget what your
obligation is okay that obligation of
buying shares and for our purposes
today I am not considering Commissions
in which you need to consider of course
what about that strike selection where
would you do that so here it says techn
you can use technical analysis okay or
you can use Delta well let's elaborate
here just a little bit okay right let's
elaborate so uh if our trend is up where
would we consider selling a put well you
you likely consider selling a put below
where you think the stock is going to be
so if you think oh maybe we bounced off
here and if it were to go down we'd have
to break the -day level we'd have to
break
here this is a support level that we
bounced off of maybe we'd sell our
strike in this area okay that way if it
goes down presumably from a technical
analysis standpoint at least it would
have a problem maybe going below that
level of course you know support levels
do break all the time so you do need to
be careful of that so just looking for
support levels may be one area but there
is another approach on this and I'm
going to change my columns here I'm
going to go up to layout right here and
I'm just going to bring up one that says
Delta gamma Theta Vega some Traders will
use Delta here okay and they'll say the
Del because the Delta kind of can give
you an approximation for the stock being
below this price by on expiration I
should say again I'm looking days on
this you can look at different
expiration dates so approximately
theoretically about a % chance that
the stock there so that means there's
roughly roughly a % chance it's above
that which means it's less likely to
get assigned early more likely to expire
out of the money in other words above
at
expiration it this this would be
worthless out of the money options
expire worthless at expiration okay um
and that's fine now you may be going out
of the money I mean worthless that's bad
no worthless is good here in this case
cuz we're selling it for bucks or
so the question is how much are we going
have to buy it back
for and if it goes down to zero we don't
have to buy it back for anything if it
expires worthless we don't have to buy
it back for anything so we get just get
to keep that money
okay um so there you go right there you
go so uh % chance roughly of that go
here's % chance so by going here
what's the advantage and disadvantage
there's not a right or wrong as to what
strike to do whether we choose the or
the in this case the brings in a
much bigger premium look I'd rather have
$ in my account than $ in my
account so you get a bigger premium but
there's 's more chance this goes in the
money and it there's more risk on that
okay so think of it this way here's
another way and Paul said what's the
what's the option what risk is here on
this let me do this I don't know if we
really do this in this class A lot but
let me I want to show you on the analyze
Tab and I'm going to be super quick on
this and if you don't if you're not if
you're not familiar with the analyze tab
actually a Shameless pitch here I'm
going to be doing I'm going to be doing
a tutorial of the analyze tab in my
exploring thinker
swim class later today : Eastern time
if you want to learn more about the
analyze tab but let's look at this uh
look at this trade here on American
Express and on the analyze tab just to
kind of show you so you can kind of
visualize the risk because I don't want
you to miss that risk here let's look at
that
strike actually let's look at both
the and the I'm going to go the
risk profile here
and one quick sec let me just shrink
this down a little bit let's look at
that
okay I want you to just pay
attention to this green line here okay
I'll kind of draw over it a little bit
just so you can see this is what the
risk profile looks like this is profit
or loss here on our y AIS okay here's
our break even right there okay here's
our underlying stock price here's the
current stock price right now it's right
there remember we're looking at this
green line I'll draw over it it's going
to be I'm going to draw over it in this
kind of pink dashed line
here here's our break even right here
okay what happens if the stock goes down
if the stock goes down over here we lose
money and if it goes down we lose more
and more and more money and I could
scroll over if I if I wanted to and you
would keep on losing money the lower
American Express goes the more risk
there is in the trade because remember
if I sell this put I'm agreeing to
buy the stock shares of stock for
$ so that risk could be pretty pretty
sizable on the upside well I'm limited
upside okay it's not getting notice the
higher American Express goes up we're
not making more money here it's we
flatlined here now we flatlined at a
positive level okay we Flatline making
approximately on that but uh so
there's your pro so big risk compared to
the amount you gain but why would
somebody do it here's why somebody would
do it because if the stock stays where
it's at we're at our Max gain at
expiration even if the stock goes down a
little
bit we still are making
money okay we're still making money on
that so it's a higher probability trade
higher probability trade but as with any
any option strategy pretty
much there's trade-offs right any
strategy stock or option there's
tradeoffs the higher probability you
give up something in this case it's that
reward to risk ratio that we give up
there okay now what do you do if it does
go in money oh by the way you could CH
change it and look at the the uh
strike it's a little bit different this
looks a little different doesn't it
going with strike but number one our
distance between our the amount of our
gain is a lot less about
$ but remember our current stock
price is here we have a lot more
downside it can go before we hit
negative territory negative territory
starts right there okay
so that's uh reward to risk isn't very
good but your probability is even higher
there on that okay so let me get out of
this let's go back here and talk about
what if it goes against us let's say we
do this on American Express in fact
let's throw this trade in uh how do you
do the trade you select your expiration
date you select your strike you click on
the bid price I'm going to do this
here and um remember these can be
assigned
early uh you can adjust the price if you
want
bring in
$ on this I can confirm and send make
sure you read through
this and let me send this order okay I
just sent that order I have a sell it
hasn't filled yet it says sell and we'll
see if it fills okay there you go now if
I get oh it just failed there we go okay
so uh um let me pull this up and let's
look and see what it looks like here's
American Express I've got a put this
gives me the expiration date the strike
price quantity minus one short puts
short options are going to show as a
negative quantity there days to
expiration hopefully we we sold this for
if this Mark goes down it'll show us
as a profit if it goes up it'll show us
as a loss it will tend to go up that
Mark Price will tend to go up if the
stock goes down which is not what we
want it will tend to go down if the
stock goes up let's say it does go
against us we sold this put Let me
just kind
of let me remove that let's draw on our
chart here this is the where we the put
we sold right there on this American
Express chart let's say the stock goes
down okay so here's a stock and it goes
here
what's our choices well one choice is we
could say look the reason I sold the put
on American Express anyway in this
example this is an example trade it's
not a recommendation you can say to
yourself the reason the reason this
trade was done in the first place is
because in your
estimation it's a good stock I'm happy
to buy shares of stock of at $ a
share it's cheaper than it is now and
therefore I'm willing to let this get
assigned to me and I buy shares of
this stock $ $, Worth right yeah
so that's certainly one approach it's
certainly a a a a popular approach that
people take on
that now what if you're looking at this
and the stocks goes down and you go uh I
don't want to buy shares of American
Express
you can look to buy it back okay you
sold it up front you can look to buy it
back there's no absolute guarantee of a
market on it but it is a this is a
pretty liquid stock and it is important
to do liquid stocks but if the stock is
gone
down it's going to cost you if you want
to buy this back right now how much can
we buy this back
for well right now we could buy it back
for approximately approximately the
amount that we sold it for we sold it
for
the price the current Mark Price is
about approximately and so um we
could uh we could buy it back for that
but if American Express goes down a lot
what you'd see is that Mark would go up
quite a bit and we'd basically have to
pay close to what that Mark says so if
it goes down a lot you know this could
be any amount this the it becomes bigger
the more it goes down so you have to ask
yourself this if the stock is going down
do I really want to pay that much money
to get out of it it makes everything
easier if you enter the trade with the
idea that it's a stock that you like and
you wouldn't mind owning there okay
so there we
go um let's look at some other examples
here we just did an American Express
example let's look at this here's
actually here's American Express I want
to just peek here at our implied
volatilities so here's our implied
volatility over here this is basically
telling us how expensive these are the
higher the implied volatilities for the
same strike that you a higher premium
you're getting okay the higher premium
you're
getting so do you just seek High implied
volatility stocks let's look at smci
here for SEC smci this is super micro
computer okay look at these implied
volatilities super high okay super high
implied volatilities here this is what
the chart looks like it's been a crazy
chart right you can go down and say oh
it's an expensive stock too but I can go
look the Stock's at
$ I could sell an
$ option on this let's see what we
got here look at this let's go out a
month let's look at that eight I need
more
strikes let's go down the $
option I could get paid almost
$,
$, to agree to buy this stock for a
$ a share more than $ shares less
than it currently is yeah now that seems
crazy that seems like a large amount but
look it's an expensive stock it can move
a lot and look at that implied
volatility so I'm not advocating this
I'm just showing you that if you seek
higher employed
volatilities you'll get higher premiums
I mean look I can go down to
$ that's
like you know the Stock's at $ $ I
can still bring in a couple likely a
couple hundred dollars in terms of the
premium there but remember there's more
risk more volatility so that's
implied volatility let's look at co*ke
here for a sec Coca-Cola you guys are
familiar with Coca-Cola look at our
implied volatilities that's %
that's very low okay very low implied
volatilities what's the consequence on
that the consequence is
this let's say we're looking at co*ke and
we say oh you know hey here's co*ke and
there's a strike let's see what strikes
we have available here we got let
me go and see if I can get some other
strikes um I'll go out days a little
more time
here we have got more strikes here I can
go to a
$ option $ strike okay so we're
looking at co*ke we're looking right here
I'll draw a line right there okay
right below
where kind of kind of where a support
level would be probably I think a lot of
people would identify this as kind of a
support level fair enough okay you go
well that's not that far away I mean
that's only
a a from where the current stock
price is
furthermore um we've got a full days
to go till
expiration
okay uh what's our premium
$ for that's that's not that much
okay that's just not that much why it's
their implied volatility implied
volatility is
lower now is co*ke likely to move as much
as super micro well probably it's less
likely probably who knows I mean co*ke
could go to zero tomorrow for all I know
but it just by as a measured by the the
implied volatility the markets are are
deem it to be less risky than super
micro computer so don't take that as a
recommendation of co*ke it's a point that
because the imply volatilities are lower
the premiums you're going to get are
lower on that so you got to decide now
is how much is enough let me just kind
of give you
one uh one kind of rule of thumb here
and question from Jody said so higher
implied volatility bigger moves that's
what the Market's pricing in is bigger
moves with higher implied volatility no
guarantee of course you know no
guarantee and could more likely to move
away from you yeah that's what the
market is saying there Jody so
absolutely so keep an eye on that
implied volatility a lot of Traders you
know when the implied volatility starts
to get above they're going wow
that's a pretty high implied
volatility and so more conservative
Traders often will avoid those higher
implied
volatilities but if you go to the Other
Extreme and you know Koke is probably a
pretty is pretty low there um you're
gonna you're GNA you're just going to
have to you're not going to get as much
premium here on this
okay all right here's our bid price okay
here's what I want you to think
about um the stock price is $ what's
% of
$ it' be cents right % of $
Math's easy enough there just move the
decimal point over okay some
Traders it's not a recommendation but
it's just kind of a a guideline some
Traders will consider is compare compare
the premium you're
getting and to a % premium some Traders
will say if I can't get % on that I'm
going to question for about a month
we're going to say about a month okay
about a
month if you can't get
% maybe just maybe that's not enough
premium um now if I go out a month
approximately and I see a premium that
is we'll say
we'll say % okay if I look out at a
premium that's % over a month that
tells me one of two things probably one
either our implied volatility is very
high or it tells me we're going right at
the money okay you can sell options that
are right at the money I you know co*ke
is at I could sell a
$ and this isn't even a good example
because this is still just barely over a
percent that tells you the implied
volatilities are pretty low but remember
you know you can look out of the money
and we said you can look at that Delta
and if we look at a Delta say of
if I look at that
Delta okay
um then and I'm looking out a month
then you know maybe somewh about a %
return maybe a little bit over and a
half% maybe two% return on that higher
than that that's telling me that the
implied volatilities are very
high okay
if now can can you sell at the money
yeah you can sell at the money let's do
let me pull up another example here let
me go let me just check time okay we're
losing time quickly here let me let me
go to Microsoft this is a company that
you guys all know here's Microsoft great
Trend look if you don't want to get in
near a alltime high then you definitely
this would not be for you because this
stock is pretty near its alltime high
but uh what's our implied volatility
implied volatility is about % so
that's uh that's
more more in line well you know a little
that's H that's between what we were
looking at with co*ke and and one of the
higher implied vol ility ones but look
if you're going to this and saying hey
if your attitude is and I'm not saying
it
is um I'm not
saying I have no idea what Microsoft is
going to do but if your attitude were I
love this stock and I am happy to buy
this stock could you sell something
that's at the money yeah if we did went
to a strike here go to that
strike a look that's about a a %
return here on this right because the
Stock's about
so about would be about %
return so we're close there so you can
go out of the money but realize if
you're going at the money right at the
money it is
um it is you're more likely to get
assigned the stock okay that's fine okay
it's fine now question on Theta Theta is
typically going to be bought higher for
the at the money contracts so one
benefit of going closer to the money
instead of going to Delta going
something closer to the Delta is your
Theta will typically be higher short
puts Theta is always going to help you
if it's just a single short putut okay
um tends to be a little higher so that's
that's it's a balancing act isn't it
every bu pros and cons so just check it
out um so F let me wrap up I need to
wrap up here
um
uh just remember we have potential
benefits
um you generate the income it's a a way
to buy stock at a lower price and you
can do it over and over possibly you
have the possibility of doing it that
way uh you have limited upside
gain they can be asside at any time and
expiration and remember you're on the
hook to buy shares of stock per
contract on a standard contract so be
aware of that
there probably more often than not
Traders are not using stop losses on
these could you theoretically you could
theoretically you could if you wanted to
put a stop loss say on our American
Express trade I could just rightclick on
this create a closing order
to buy it back and I could this goes up
to
$
cents good till canell I want to get out
but just remember it doesn't guarantee
we're going to get out at okay
there's no guarantees on that some
Traders do avoid earnings on these by
the way some Traders do a avoid
earnings and uh there's one other thing
and I'm going to wrap up with this
um some Traders go look I like the idea
but I I don't like that huge downside
risk well there's another thing you can
do and that's called a short putut
vertical we're going to talk about that
next week same bat Time same bat Channel
next week short put verticals thanks
Connie for helping me out in the chat
thanks Chris and Andrew for helping me
out in the production thank you all for
joining me have a wonderful rest of the
day everybody
byebye
for
