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Everything You Need to Know About Covered Calls and Futures — Transcript

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0:00We got an interesting segment coming up.
0:01It's called um it is called how much of
0:04a role do Greeks play in your everyday
0:09trading? And I think you're going to be
0:10a little surprised by some of our
0:12answers here, but how much of a role do
0:15Greeks play in your everyday trading?
0:18So,
0:20they matter a lot, but probably not for
0:22the reason that you would think or that
0:24others would think. for me, excuse me,
0:27if I have an I'm thinking specifically
0:28about outright futures, so you know,
0:31MEES, um, MNQ, etc. I I have a number of
0:36futures that I'm willing to do, which is
0:37based off of the delta. So therefore,
0:40that's just outright delta where if I'm
0:42doing option strategies, I do try to get
0:45a certain amount of theta. So I'm
0:48looking again at delta. I'm going to
0:50always try to keep an eye on my delta
0:51because I don't want my delta to get too
0:53big. And then other than that, I'm
0:55looking for theta. But that's me. For
0:57me, it's really a delta. I am really a
0:59delta trade.
1:00>> So I wrote a couple of answers to this
1:02question. How much of a role did Greeks
1:03play? Because you guys are, you know,
1:05before we built Thinkerswim, there was
1:07no really such thing as Greeks on a
1:09retail trading platform. And then we
1:10kind of incorporated stuff that we had
1:12learned from being on the trading floor
1:14into a retail platform to make
1:16everything make more sense because if
1:18the person that if the counterparty is
1:20using Greeks, why shouldn't you use
1:22them?
1:23So first thing is
1:26how much of a role do they play in my
1:27everyday trading? Well, I wrote down
1:29moderate. So I mean they're they don't
1:32play a huge role. They don't play no
1:35role. The best term I could come up with
1:37was moderate.
1:38>> And your biggest Greek would be
1:40>> they're well you got to wait. They're
1:42important to me but they're not
1:44overwhelming. So, so they don't govern
1:47my trades, but they um again, the best
1:51term I could come up with was they play
1:53a moderate role.
1:54>> I'm going to I'm going to tie this back
1:55to the the question that somebody asked
1:58about tax and saying, you know, about
2:01making a trade for tax wash sales, etc.,
2:03why go into options? I'm going to say
2:04the same thing. I think people can get
2:06lost in the is paralysis by analysis. Oh
2:08my god, this a tax is etc. I think too
2:11many retail customers get lost in the in
2:14the Greeks and they try to overplay the
2:16Greeks important.
2:17>> That's why I said moderate.
2:18>> Yeah. I think most pe I think where I
2:20see most concerns from a from a retail
2:23side where I did see it in years past is
2:24that they're overengineering. They're
2:26overthinking it rather than just saying
2:27put the trade up and just watch your
2:28deltas. Watch your risk. I'm Tom Safi.
2:30Scott Sheran. Tony Batis is on vacation
2:32this week. 989 Lost Dog if you want to
2:35chime in and or write into the dog
2:38pound. Um, we'd love to hear from you.
2:41So, how much of a role do Greeks play in
2:43your everyday trading? I use delta and
2:47theta on every trade.
2:49>> Y
2:50>> and to monitor every position.
2:52>> Yep.
2:53>> So, there is no
2:56And when I say I use theta, I will I I
2:59monitor my theta, but when I'm actually
3:02entering a trade, I will select the
3:05strike by the delta. In fact, if you um
3:10I'm I'm about to do a video this week
3:12where we talk about um I I think you're
3:15really gonna like this one, too. It's
3:16talking about just kind of a lot of
3:19boring option strategies that we use in
3:21our everyday trading. And one of the
3:23things I talk about there is how
3:25important selecting the right strike is.
3:28Not because anything's not because
3:30there's a pricing advantage, but because
3:33there is there's a way to optimize
3:36for where in the decay curve you have
3:40the most amount of decay with the least
3:42amount of risk. And that's what we like
3:44to do is we like to optimize for decay
3:46and risk. So I select the options I'm
3:49going to sell or buy, whatever it is,
3:51um, based on delta. And then I monitor
3:54my delta and my theta on every single
3:57position that I have. And I do that
4:00multiple times a day by the individual
4:02position. Then overall I look at the
4:04beta weighted position.
4:04>> Yep.
4:05>> Okay.
4:06>> Yep.
4:06>> So the next one is
4:09how much of a role do Greeks play? I use
4:11beta weighted delta for monitoring my
4:14portfolio non-stop.
4:17>> Yeah. Because but again that's going
4:18back to your Greeks. So you really want
4:20to watch I'm sorry going back to your
4:22delta that's the most important Greek to
4:24you that's a 1 A 1 B 1 C. So that's
4:28going to show you what your delta is
4:30buying stock
4:32um more capital efficient
4:35>> ever more capital efficient than buying
4:37options
4:38>> specifically after an extreme down move
4:40when ball spikes to extreme levels and
4:42do longerdated options just get too
4:44expensive to buy?
4:46>> Sure the answer is sure. Yeah,
4:48>> there's plenty of times when I've looked
4:50at options and I'm like, there's no
4:51freaking way,
4:52>> right?
4:53>> But the other side to that is that means
4:55the puts, if calls are super expensive,
4:57that means puts are super expensive. So
4:58instead of getting long stock, if you
5:00want to just sell puts, it's super
5:01expensive inflated volatilities, you can
5:03do that, too.
5:05>> Yeah. You know, and and before we get
5:07into our other topics today, one more
5:09question from the dog pound n by the
5:11way, 989 loss dog. Do not be shy. No
5:14Tony's today, so you're gonna get real
5:16answers. I chatted with Lost Dog last
5:19night. Really? Lost Dog was out too last
5:21night reviewing my latest zero DT
5:24strategy. That AI soft that AI software
5:27is absolutely amazing. Felt like I was
5:30talking to Tom himself in person. Wild.
5:33I I don't think you were talking to me
5:35last night, but you you are going to be
5:38able to talk to our you can talk to our
5:40lost dog software now.
5:41>> That's really funny. like talking to it.
5:42Like, you know, when you go into these,
5:44>> it is really cool.
5:45>> These shops where they say you put your
5:47credit card in, it just knows what you
5:48take. But the reality of it is it's just
5:50a bunch of cameras and people are
5:51watching and they're just charging you
5:52for what they think they took. That's
5:54not what we have here. We do not have
5:55Tom working 24/7 behind the scenes
5:58answering your your trading questions.
5:59>> I do I'm behind on emails today, but I
6:01do answer a shitload of emails. I will
6:04tell you that. Anyway, so lots of lots
6:07of questions and we will get into them.
6:09Um, just in case you're wondering, CRM
6:13uh was up I think I think it was I don't
6:15have it right in front of me, but I
6:16think it's up about 20 bucks this
6:17morning or 25 something like that. And
6:19the expected move um was around I looked
6:22at the strat was around 14 or 15
6:25>> and Crowd Strike also exceeded expected
6:27>> 37.
6:27>> Oh, it's up 37 now. Okay. And the
6:29expected move was about 15. So, so crowd
6:31so CRM was outside the expected move and
6:34then um
6:35>> first of all that hurts. Pink shoes. No.
6:3954%. Yes. 46. Thank you to the 46%. I
6:43appreciate it.
6:43>> I I don't like them either.
6:45>> Yeah. I I didn't ask you.
6:47>> I know.
6:48>> I just threw my two cents in there.
6:49>> You You were the 54%.
6:51>> Yeah.
6:52>> Appreciate that.
6:52>> I agree.
6:53>> Thank you.
6:54>> Um All right. We have a bunch of
6:56different questions today. So, we're
6:57going to we're going to take you through
6:59these and I think you're going to like
7:00them. Um, first one, if you're looking
7:04to initiate a trade in any of these
7:06underlyings like um, you know, any of
7:09these uh, earnings plays, um,
7:15first, this really isn't a question.
7:17This is more of like if you're looking
7:19to initiate a trade in any of these,
7:21like we're talking about post earnings
7:23right now. First check the IVR and then
7:25see if the IVR has collapsed. What I
7:28would say is if you want to do a pro
7:29post earnings trade today in any stock
7:32that moved outside of its expected
7:34range, you usually have at least a day
7:38to put that trade on. So if you think
7:40Nvidia, which is just outside the range
7:42by about, let's say 30%. Crowd strike by
7:45about
7:47150%.
7:48And or sorry, CRM by 150% and Crowd
7:51Strike something by like 100%.
7:54any one of those stocks, you're going to
7:55have about a full day of inflated IVR
7:58just based on kind of historical
7:59performance.
8:00>> Move was expected to move across track.
8:01I think it's up more
8:03>> uh I think 16 or 17.
8:04>> It's up uh 29.
8:06>> Yeah. So it's almost two times.
8:07>> Yeah.
8:08>> So So in anything that moves like one or
8:11two times, I would say that you have at
8:13least a day before the IV really before
8:16the IVR collapses and the IV collapses.
8:19Okay. Um, if you're in a trade such as a
8:22strangle and it's been breached on the
8:24call side, can you also can you look to
8:28roll up the put side? And we're talking
8:30about now an an earnings trade. If
8:33you're in an earnings trade such as a
8:35strangle that's been breached on the
8:36call side, is it best to roll up the put
8:39side or is it best to reenter the trade
8:42or is it best to close out the trade
8:45post earnings?
8:52I think if you put an earnings trade on
8:54and it's for this week, you just got to
8:56move on. If you have something that's
8:57out further, then I would play with it.
8:59So, to me, it would depend on the
9:01duration. Yeah. Um,
9:06yeah. I mean, listen, based on based if
9:09you're if you put a trade on like a
9:11strangle and the stock moves outside of
9:12your range, the first thing I do is I
9:15roll up the put because that neutralizes
9:16my risk.
9:17>> Even if it's a couple days,
9:18>> no, no, we're talking about like 40
9:21days.
9:21>> Yeah. So, first thing I do is roll up
9:23the put because if I'm breached on the
9:25call side, I roll up the put because I
9:26want to neutralize my delta. But I don't
9:27leave that on for very long. And then I
9:30quickly decide whether I want to
9:31recenter or roll out in time. recenter
9:33in the same month or roll out in time
9:35for the next month. I mean, that's kind
9:36of how I approach these things. We have
9:38a bunch of callers, too. 989 Lost Dog
9:40Tokyo from Chicago. And guys, we can't
9:43see our full screen, so just move those
9:44little
9:45>> slide up a little bit to the bottom
9:46screen. The caller, too.
9:48>> Uh, somebody named Tokyo.
9:51>> I love that's a strong name.
9:52>> Tokyo.
9:53>> Tokyo.
9:54>> Tokyo. Love
9:56>> Tokyo from Chicago.
9:59>> Yeah. I I don't trade on the platform,
10:00but I have used the platform and it's
10:02it's um I like their mobile app. It's
10:05it's actually really good.
10:08Um
10:10all right, let's talk about Yesterday we
10:13covered getting started scalping
10:15futures. Today we will list the keys to
10:20scalping options. And like I mentioned
10:22at the beginning of the show,
10:24Scott and I have scalped options for
10:26longer than most of you have been alive.
10:28This is what we've done. So, here's my
10:31keys and take it for whatever you take
10:33it for whatever you think it's worth. If
10:35you're going to scalp options,
10:36>> number one,
10:38>> they must have tight markets.
10:40>> This is one, two, and three.
10:41>> This is this is Yeah, this is one. If
10:44you forget two and three, just remember
10:45one, they have to have tight markets.
10:47Things like SPY and SPX. SPX has
10:50incredibly tight markets. Even though
10:51they look a little wider on the screen,
10:53they're literally like the equivalent of
10:54a half a penny to a penny wide. Um, you
10:57cannot scalp illquid options. You just
11:00can't do it.
11:01>> There's just too much edge. You're
11:02giving up way too much edge getting in
11:03and getting out.
11:04>> If you're going to scalp options, they
11:06have to be tight. So on the stocks that
11:08we talk about like obviously SPY, QQQ,
11:11SPX, but if you're talking about
11:13individual stocks, Apple, AMD, Amazon,
11:16Google, um Meta, Microsoft, um
11:20>> Netflix is fine, Nvidia, you know,
11:22SpaceX for sure. Those are liquids
11:25stocks. If you want to trade options and
11:27those things, go right ahead and scalp
11:28them. Go right ahead.
11:29>> Yeah.
11:30>> Okay.
11:31>> All those are fine.
11:33>> All right. Next thing.
11:36Ah, I'm break this thing after the
11:38close. Move to the next slide, guys. Um,
11:41>> well, I'm back.
11:43>> Yes. The next thing is that the
11:46underlying stock,
11:47>> it's not do it's
11:49>> the underlying stock must trade over 10
11:51million, not $10 million worth 10
11:54million shares
11:56>> a day.
11:57>> So, the underlying stock must trade over
11:5910 million shares a day.
12:00>> That's an absolute minimum. There are
12:02stocks out there,
12:03>> but it's going to be really really
12:05unlikely and unusual to find super tight
12:08option markets where you don't have a
12:09stock trading that
12:11>> there will be some like S&P that doesn't
12:13actually trade.
12:15>> So, so it's just an index. But if you're
12:17trading like the SPY trade 50 million,
12:21100 million, whatever.
12:22>> Yeah. Whatever. Nvidia will trade 60
12:24million. You know, Tesla will trade 40
12:26million. SpaceX will trade 100 million
12:28shares.
12:28>> Talk about this because I'm reading that
12:30book on the crash.
12:30>> Yeah. I think I have to go. I have to go
12:33look this up again, but I'm pretty sure
12:35the day of the crash in 29 I think like
12:3815 million shares traded.
12:39>> Oh, probably. Now you have stocks that
12:42do that within the first hour.
12:43>> Oh, yeah. Yeah. I traded some stock I've
12:46traded a stock cuz I know there's a
12:48question in the dog pound about SOXS.
12:52>> Oh my god, we're back to this one. We
12:53can't say.
12:53>> I I traded that stock.
12:55>> Where is this now?
12:55>> Cuz you're a buyer. You're a big buyer.
12:57It's like $4 and half dollars.
12:58>> It's like $35. I don't know where it is.
13:00$3. whatever. Three and a half. I I'm
13:01not sure where it is today. I have I'm
13:03long some of it. But it traded 700
13:06million shares the other day. 600
13:08million shares.
13:09>> That's insane.
13:10>> Yeah. So, the underlying stock must
13:12trade at least 10 million shares. Uh
13:14even if you're trading options, the
13:15underlying stock is
13:16>> 387 and it's already traded 373
13:22million.
13:22>> So, shares and and at le
13:26374 million shares.
13:28The next thing for if you're if you're
13:30scalping options,
13:33you have to have a profit target that
13:34just like I talked about yesterday, your
13:36profit target is a percent of the
13:39expected move. Usually around 25 to 35%
13:45of the assumed risk in this case. So, um
13:49I shouldn't have said expected move of
13:50of the percentage move. So, let's just
13:53say you bought an let's say you bought
13:55or sold an option for $2, right? If you
13:57bought an option for $2, you're risking
13:59$2. So your profit target in that case
14:01is going to be somewhere, I don't know,
14:02>> 50 60 cents.
14:03>> 50 cents to a$150, 50 cents to a dollar,
14:07somewhere in that range. Don't think
14:08you're going to make like $6 or $7.
14:10Things just don't move that way. I mean,
14:11occasionally you'll get lucky and
14:12something might move $5, but and if
14:14you're shorting an option, because I
14:15like to short options to to scalp them.
14:18If I sell some if I sell some, let's
14:20say, puts at $2 or I sell some calls at
14:22$2, I mean, I'm looking to buy those in
14:24at a buck 35, buck 40.
14:26>> Yep. Okay. So, you got to pick a target
14:29uh a profit target that is some
14:32percentage of whatever your assumed risk
14:35is. If you're long it, you know exactly
14:37what your risk is. If you're short it,
14:38it should be something.
14:39>> It's really important to have that in
14:42your head as you're making the trade.
14:45Don't don't go into this and say, "I'm
14:46just putting this on. I'll figure it out
14:47later." You need you need to This is
14:50part of having a you know, a discipline
14:53to the approach. You can use it as a
14:54percent of your buying power reduction,
14:56too. So, like there's a lot of different
14:57ways to look at it. Um, and I would just
15:00be, you know, just have that kind of set
15:02in your head. Like, like if you sell
15:03something, just an example, you sell
15:05something at $5. You're not buying it
15:07back at zero. Okay. And if you're
15:09scalping,
15:10>> you got hit in the head.
15:11>> Yeah. If if you're scalping it, I mean,
15:13$4 is great. Take a dollar out of it.
15:16Three and a half dollars would be
15:17amazing. $3 would be incredible. Y
15:19>> $450 would be awesome. Like, those are
15:21scalps. If you're buying something at $3
15:24or $4 or $5 and you can sell it at $6 or
15:27$7. Yeah, you do that until your hands
15:29bleed.
15:32Um,
15:34we rarely hold an intraday scalp
15:39and this is important. We rarely hold an
15:42intraday scalp into the afternoon
15:44session. What edge can we build into our
15:46trading instead of just selling premium?
15:48So it's I I think well edge is an
15:51interesting question. You know edge when
15:53we traded on the floor was very
15:55different than edge today. And for me
15:59I'd say edge today is you're looking to
16:02put a trade on and you just say try to
16:04get as close to midpoint as you can and
16:06go with it. And the edge to me as a
16:10retail trader is that you can pick and
16:11choose what you want to do when you want
16:13to do it as opposed to a market maker
16:15where you have to, you know, for the
16:16most part you have to make a market when
16:18the broker asks you for it. So, you
16:21know, edge to me has a very different
16:23meaning now than it did, you know, 20
16:25years ago.
16:26>> Okay. But the to answer your question, I
16:29don't think there is any edge for retail
16:32investors. I don't think there ever has
16:34been any edge for retail investors.
16:36what's what you have today is less
16:39negative edge than you've ever had.
16:41Meaning the markets are better. They're
16:42more liquid. They're more efficient than
16:44they than they've ever been. And you've
16:47never had any edge. And today, you just
16:50have um it's just a little more
16:53efficient than it's ever been in the
16:54past. Now, that's that's a good thing. I
16:56also want to say that the that if you
16:59want to consider edge for retail
17:00investors, the edge is is that the
17:03mechanics today are better. The
17:06technology is better. The mechanics are
17:08better. And so you don't have to worry
17:10about things like, you know, like it's
17:12easier to figure things out than it was
17:14in the past. There's more information
17:15available. So the edge is that you get
17:17to do whatever it is you want to do.
17:18That's your only edge. And if you want
17:19to consider that, some people say that's
17:21not an edge at all. Okay. Other people
17:22say that is my edge. I get to do
17:23whatever I want to do and I get to do it
17:25at efficient prices,
17:26>> which was my comment. You get to pick
17:27and choose what you want to do.
17:29>> Yes.
17:30>> And this next question from the dog
17:32pound. I love these dog pound questions.
17:34If you have them, just type them in. We
17:35had a whole team there. If I have a
17:37small IRA account, say like $2,000. What
17:40underlying assets would you recommend me
17:42to trade for defined risk trades?
17:48>> Well, you don't have a lot to work with.
17:51So, you know, I would say you're looking
17:54to either do verticals, iron condors.
17:56>> No, they're asking you what assets.
17:58>> Oh, which which assets? I'd say I would
18:00go to an index. I'd look at Q's spy, you
18:02know, maybe maybe pick a, you know,
18:05medium-sized price stock. Um, but it's
18:08not, you know, you don't have a lot to
18:10work with.
18:10>> Well, it's you have $2,000 and you have
18:13defined risk. So, it doesn't matter
18:15what. Here's the thing. Don't get conf
18:16Don't get hung up on what asset because
18:19if you're doing defined risk, you can
18:21trade a $5 wide, you know, $1,000 stock,
18:26$7,000 index. It doesn't make any
18:28difference. There's no difference
18:29between trading a $700 stock and a $70
18:32stock or a $20 stock if you're trading
18:35defined risk. So, don't think about just
18:37find the trade that you like. It's going
18:39to be a defined risk trade anyway. It
18:41doesn't matter what underlying you use,
18:43so don't worry about it. If you're
18:44trading undefined risk, then it matters.
18:46If you're trading defined risk, it makes
18:47no difference at all. Trade whatever you
18:49want. Like, don't worry about the asset.
18:51>> My question is a strategic one. I've
18:53only rolled I've only written about a
18:55100 contracts so far. Um, and I've only
18:58rolled a few. Um, but I have one
19:00particular position, Nvidia, that's way
19:02overbalanced in my portfolio. So, I've
19:04been wanting to sell and um I have a a
19:08contract tomorrow that would um for 220
19:12that would execute and stock is above
19:15220.
19:16>> So, it's deep in the money. So, I guess
19:17strategically,
19:19>> how do I uh best take advantage of
19:22getting my best?
19:23>> It's not deep in the money. It's only $5
19:24in the money. So, and and which and
19:26there's plenty of premium in Nvidia. So,
19:28if it expires tomorrow, you just you in
19:30a single trade,
19:31>> you got 39 cents left to make. So, so
19:33it's basically full profit.
19:35>> Yeah. So, so
19:36>> it's it equals stock right now,
19:37>> right? So, what you want to do in there,
19:38cuz I'm sure you want to keep your
19:40stock, right, Nvidia, you want to keep
19:41the stock.
19:42>> No, I actually want to rebalance and
19:45take an assignment at some point around
19:48220 or 230. So,
19:49>> Oh, so just do nothing.
19:51>> Yeah, do nothing. You're long the call,
19:53right?
19:53>> No, you're you're long the stock short.
19:56I think,
19:57>> but for example, right now, um, it's 220
20:00is the call, but it's selling at 225.
20:03So, wouldn't I have a chance to pick up
20:05that extra 500 somehow?
20:06>> Hold it. Let me just make sure we have
20:08the same thing. You You own the stock
20:09and you're short the call, right?
20:11>> No,
20:12>> correct.
20:13>> Oh, right. You have a covered call on.
20:16>> Correct. I have a number of covered
20:18calls on video. Most of them are way out
20:20of the money. This one happens to be now
20:22in the money schedules.
20:25You have your max profit,
20:27>> right? But if you want to continue with
20:28the position, you buy back that 220 call
20:31right now. It's trading 30,
20:34>> whatever you Yeah. Just
20:35>> and you sell another call at the money
20:37or just out of the money in another
20:39weekly option or monthly option.
20:41>> You you can roll the call forward if you
20:43want to keep the position, but if you're
20:44willing to get rid of it, you just do
20:46absolutely nothing and it will disappear
20:47on Saturday morning. But I think he
20:49wants to keep I think he wants to keep
20:50the stock. No, he says he wants to get
20:52>> and here's
20:53>> Yeah, here's the rub. I would like to
20:55have that money by next week for a
20:58particular purpose.
20:59>> You will have that money. You'll have
21:00that you'll have that money on Saturday,
21:01>> right?
21:03>> Okay.
21:04>> Yeah, you'll be it'll just disappear.
21:06There's nothing you have to do as long
21:07as stock closes over 220 and you've
21:09already maximized your profit. Like Tony
21:11said, there's only 30 cents left to
21:12make. You do absolutely nothing. And
21:14then on Monday morning, you know, you'll
21:16have that money will hit your account.
21:18If it's a hundred shares, it'll be
21:19another, you know, $22,000, right? And
21:22you're done. And then that money will be
21:24freed up. You would have maxed profit on
21:25that on that covered call.
21:26>> Good job out of you.
21:27>> Okay.
21:28>> Okay. One final quick question. Now,
21:30that is the most I want to sell on
21:32Nvidia this year for tax purposes. I
21:34have a number of other uh calls that are
21:36at 230, 235, 240. I don't want Nvidia to
21:39all of a sudden shoot higher and take
21:41those calls. Have this big tax bill.
21:42roll those calls forward. No, no, no.
21:44You want Nvidia to go to 230
21:48tomorrow even.
21:49>> Just roll those calls forward out to
21:50like September, October, November,
21:53whatever you want. Just roll those calls
21:54forward. Then you have no assignment
21:56risk for the rest of this year.
21:57>> But you could wait until the stock
21:58rallies or you could do whatever.
21:59There's there's no there's plenty of
22:01premium in Nvidia on further out
22:03duration. You don't have anything to
22:04worry about.
22:04>> You don't have any stock uh tax issues
22:06until expiration,
22:08>> right?
22:08>> So you could do this anytime between now
22:09and expiration depending on what price
22:11Nvidia is.
22:11>> Yep. Exactly.
22:13>> All right. I appreciate it, guys. I've
22:15held this video for so many years that
22:16it's been way outsized as
22:18>> far
22:20you trade.
22:21>> Yep.
22:21>> Thanks. Thanks, man. Thanks.
22:23>> You ready for my trades of the week?
22:24>> Yeah, let's do it.
22:25>> All right. Apple sell a put. This is not
22:27going to be there right now because
22:28Apple's up $2.40, but sell a SE 280 put
22:31for $2. Stock on its low 80% pop. It
22:35doesn't have the greatest IV rank from
22:37what I remember.
22:37>> No, it's it's all the IV rank
22:39>> was in the 30s. one of the better ones.
22:41>> They're all kind of
22:42>> 35. Um,
22:44>> yeah, listen. 80% pop. I'm getting $2
22:46for my money and a margin account's a
22:48couple hundred.
22:48>> Yeah. Unfortunately, you're not going to
22:49get it this morning, though.
22:51>> No, I unfortunately,
22:52>> but Apple has been a PIG pick compared
22:54to everything else.
22:55>> On its butt.
22:55>> Stocks on its on its cycle lows.
22:58>> Yeah. All right.
22:59>> Yep. All right. Good.
23:00>> Uh, Meta, uh, Meta right now is up $9.
23:03You're not going to be able to do this
23:04either. Uh, put ratio spread for the big
23:06dogs. These are for the larger size
23:08account. buy the SE 525 put one time.
23:11>> Is learning futures options the natural
23:14next step or would you recommend getting
23:16comfortable with straight futures first?
23:20100% futures options because it just
23:23fits. It's a it's to me a natural
23:25progression from trading equity options.
23:27Then you could jump to futures options.
23:29Trading futures is a very different
23:30animal. You should try it, but I would
23:33first get comfortable trading futures
23:34options as we've talked about using the
23:36same types of strategies that you're
23:38using on the equity option side. Just
23:40cutting back your buying power. You
23:42know, we talked about this yesterday,
23:43Thomas, cutting back your buying power
23:4430 35% when you're trading, you know, in
23:47this world. But absolutely trade futures
23:50options before you jump straight into
23:52futures. Yeah. I mean, if you want to
23:54scalp some some micro futures, we talked
23:56about it yesterday as a good way to get
23:57an introduction to futures, that's cool.
23:59But I 100% agree with Scott. The best
24:02way to introduce yourself is through is
24:05through like some uh futures options
24:07trades and we talked about this
24:08yesterday like some of the underlyings
24:10that you should start with and or or the
24:11day before and things like that. And I
24:14mean the strategies are all the same,
24:15the approach is the mechanics are the
24:17same, the optimization is the same. So I
24:20would start with futures options as the
24:22next natural step. Um just remember
24:24they're a little bit bigger. So say
24:25super small and I think you'll be really
24:27comfortable and you're really going to
24:28like span margining. Next question.
24:33This came from uh from a listener who
24:35who um uh who I interact with a lot.
24:38What's the most common mistake you see
24:41beginners traders making compared to
24:44experienced traders?
24:47>> I would say size, you know, allocation.
24:50So they don't use they don't stay, you
24:54know, mechanical to say you're going to
24:56use x% across this many trades. It's
24:58like, well, I think this is a good one.
25:00And they go five or 10 times on the one.
25:03Why? Because they had a feeling. And
25:04that usually doesn't work. It's I'm
25:06going to lean into size.
25:07>> I I think I think that's the most
25:10dangerous mistake that a new trader
25:13makes compared to an experienced trader.
25:15And sometimes experienced traders like
25:16us, we make the same mistake. Just so
25:18you know, we're not immune to trading
25:20too big size. But there's no question
25:22the most dangerous mistake is size. I
25:25would argue that the most common mistake
25:27>> for beginners is number one, thinking
25:30that you know something
25:32>> because the most dangerous thing you can
25:35do in the trading world.
25:35>> That's why I said based off of your gut.
25:38That's exactly
25:38>> the most dangerous thing in the world of
25:40finance is is starting with the
25:43assumption that you know something. You
25:45can start with an assumption that this
25:46is what you want to do
25:48>> or that you you believe something. Well,
25:51you can believe something.
25:52>> Yeah, you can believe something. You can
25:53create a narrative. And it was great.
25:55Tony and I had this conversation.
25:57Whatever. He saw something as being
25:59bullish. I saw something as being
26:00bearish. And we're looking at the exact
26:01same thing. So, you could create a
26:03narrative just with the understanding of
26:05nobody knows anything. And the and the
26:07last thing I'll say, a common mistake
26:08that people make is they they get too
26:10hung up on like a specific strategy or a
26:13specific underlying. You have to be open
26:16to where the best opportunity is based
26:18on implied volatility, based on buying,
26:20based on lots of different things. Don't
26:22don't be locked in to like a single
26:25underlying or a single strategy.
26:27>> We call that being agnostic.
26:29>> We do we call it kind of open to
26:31everything. Yeah. Um, we're gonna take a
26:34quick call from Steve in central Texas.
26:37>> Steve O.
26:38>> Steve O.
26:39>> Not just Steve.
26:40>> Steve, what's up, brother?
26:41>> That's right, guys. Morning, guys. You
26:44rocking it. I'm air back in my balloon
26:47after you came back on.
26:49>> Thank you.
26:50>> I've been trading uh roughly three
26:52decades and don't know anything.
26:55>> There you go, brother. There you go. The
26:57the more you trade, the the more you
26:58realize you don't know anything. Yep.
27:00>> That's right. And uh life teaches us
27:03this. I have a question on a iron condor
27:08on a micro futures NASDAQ position.
27:13Expiration is July 31. Um it's been on
27:17for 22 days. Short strike is at 28. Long
27:22strike is at
27:243100. The question is, do I roll it or
27:27just hang in there?
27:29Um, well, you're getting near the you're
27:31getting you're getting close to that uh
27:3320, you know, you're the end of the
27:34month. You're getting close to that 21
27:36days right now. I mean,
27:40here's what I would say. Um, because
27:43it's an iron condor, you don't have to
27:45take it off at 21 days. You can wait a
27:47little bit longer. So, like, you're
27:48right in between right now. So, you're
27:50like what we say, you're on the dance
27:51floor. If you want to try to squeeze out
27:53a few more pennies and wait another week
27:55or so or wait till the middle of next
27:56week, I'd be totally fine with that. But
27:59there is no such thing as really rolling
28:00that iron condor. It's more like, you
28:02know, at what point are you going to
28:04close it out?
28:04>> Yeah. And then reopen
28:05>> and you can reopen it the next month if
28:06you want to. But you're right in
28:08between. I mean, you're probably up a
28:10small amount of money, right?
28:11>> Um
28:12>> Yeah.
28:13>> Yeah. I mean, I'd probably wait till
28:14after the weekend and uh early next week
28:17and then and then I'd probably take it
28:19off and move on to August.
28:21Cool. Appreciate that, guys. Rock on.
28:24>> Thanks, man. Yeah. And uh we got one
28:26more question from the dog pound. We'll
28:28clear our screen off and then get to the
28:29rest of the questions. This is from
28:31Rober. Your covered call strategy works
28:33so well that your shares keep getting
28:34called away. How do you decide whether
28:36to roll the call, buy the stock back, or
28:38just move on to the next trade?
28:41Well, I mean, this is the dream
28:43scenario. I mean, unless you're selling
28:46covered calls against stock that you've
28:47had for so long that you have tax
28:48issues, assuming this was just a trade,
28:51I would just say, "Great trade. Move on
28:53to the next one."
28:54>> Yeah. I mean, listen, this is uh
28:58somebody wrote to me last night. I'll
29:00tell you a good email I got last night.
29:02They said, "Tom,
29:04I don't know if I should do covered
29:05calls anymore because every time I do a
29:06covered call, the the stock blows
29:08through the upside." And I'm like, "And
29:11your issue is exactly what?" Like that's
29:14a high class problem because when your
29:15stock blows to the downside every time
29:16you do a cover call, that's when you
29:17should be concerned, right? But when you
29:19go when it blows to the upside, it's
29:20like,
29:20>> isn't that funny? I'm sorry. Psychology
29:22says, "I would do this. Just keep the
29:24stock. What do you sell calls?"
29:25>> Every trade you're making is a winner. I
29:27I didn't realize there's anything wrong
29:28with that. Um,
29:31when your covered call strategy works so
29:32well that your stocks get called away,
29:34first of all, you don't have to roll
29:36this. You don't have to roll the call.
29:37You don't have to buy the stock back.
29:39I'm you could just let it you could
29:40either what I do is I'm gonna tell you
29:42the exactly what I do every single time.
29:44>> Either I close the trade out and take my
29:46profits. The best thing to do is close
29:48the trade out and take your profits.
29:49>> But if you still want long deltas in
29:53that stock, close the trade out, take
29:54your profits, sell an out of the money
29:56put. By doing that, you reduce your
29:58capital requirement from 50% to 20%. you
30:01improve your probability of profit from
30:03from about 60 or 65% all the way up to
30:0680% and you still keep a little bit of
30:08long delta which makes you happy and you
30:09short some premium again when you have a
30:11covered call strategy that's working too
30:13well take your profits and you take it
30:16at once close it out as a spread sell
30:18the stock sell the stock buy the call
30:20back and then you at the same time you
30:23can sell an out- of- the money put
30:25>> so I have two positions uh one is in
30:29spacex which is I Sell the naked put 140
30:33July uh 31st and break even is 133. Uh
30:38what is the risk of early assignment in
30:40this case?
30:41>> Zero.
30:42>> I would do zero.
30:44>> I mean zero risk of assignment now. I
30:46mean if the stock gets under if the if
30:48the stock gets you know the stock has
30:50>> I mean there's no
30:52>> there's no there's no right now your
30:53risk is zero.
30:54>> Is this it's
30:56>> Yeah.
30:56>> No your risk is zero. There's no risk of
30:58assignment. The stock would have to go
31:00the stock a month from now. When when's
31:02your expiration for you?
31:03>> July.
31:04>> Oh, July 31st.
31:05>> July 31st. So at when we get to the end
31:08of July, like around July 25th, the
31:10stock would have to be, you know, the
31:11stock would have to be under 125 to have
31:13any risk of assignment.
31:14>> No, he's short the 1340s.
31:17>> Yeah.
31:17>> You have no risk of assignment now.
31:20>> As soon as I get assigned, what you
31:22suggest? Should I sell a covered call
31:24150 or
31:26>> you're not sure that you're first of all
31:27you have no you don't know that you're
31:29going to be assigned and second if you
31:32do get assigned yes I would sell
31:33whatever the at the time that you get
31:35assigned we call that kind of the wheel
31:37strategy you know you sell a put then
31:39you wheel it into a covered call I would
31:41sell whatever call is the closest to the
31:4430 delta so if the 30 delta call just
31:48look at the deltas and so if the 30
31:50delta call is the 150s sell the 150s if
31:52It's the 160s, sell the 160s. If it's
31:54the 140s, sell the 140s. So, just do it
31:56based on delta. We introduced beta
31:58weighted delta to the retail investor
32:01back in 2001. It's been 25 years now. It
32:04didn't exist. It was an idea that t Tom
32:07Preston had to put on the platform and
32:08thicker platform and then we've refined
32:10it over the years to make it even
32:12better. Um, but we've used beta weighted
32:15delta. Um, and we've we've played around
32:18with lots of different ways of, you
32:19know, how much, you know, how we're
32:21going to actually create beta and how
32:23how we're going to weight everything,
32:25what we're going to weight it against.
32:26And in its most simplistic form, beta
32:29weighted delta essentially converts
32:32everything to a single like if you had
32:35apples, oranges, bananas, grapefruits,
32:39it just puts everything in peaches.
32:42Okay, that's essentially how it works.
32:44So it gives you kind of the best. It
32:47really gives you the best kind of idea
32:49of what your position is. It is so
32:53clean. I wish I had this kind of my
32:55entire career and I don't even think we
32:57had it as professional traders. N
32:58>> we had per underlying, but we never had
33:00kind of like portfolio beta weighted
33:02delta.
33:03>> It's unbelievable. I I just can't
33:04believe there's still firms out there
33:06that don't offer this to their
33:07customers. I use this all day long for
33:10my entire overall position because I
33:12might have like you know 50 or 60
33:14different positions on. So I use beta
33:15weighted delta for monitoring
33:16everything. I use the individual
33:18underlyings for each individual
33:20position.
33:22The next one and this is a very
33:25important trick. How much of a role do
33:28Greeks play in your everyday trading?
33:30Well like I said they play a moderate
33:33role but what plays a really important
33:35role is your BPR. your buying power
33:38reduction because your buying power
33:41usage
33:42keeps all your other Greeks like gamma,
33:45your gamma risk and everything else in
33:47check. So the back of the envelope says
33:49whatever your buying power is for a
33:51trade is essentially your measurable
33:54risk on the trade. Again, this is a this
33:58is a really fun discussion that we've
34:00done in many seminars over the years and
34:02and many lectures that I've given. But
34:06using buying power reduction as a back
34:08of the envelope way of keeping your
34:10gamma risk in check, keeping your theta
34:13risk in check, keeping everything your
34:15all your other Greeks in check is a
34:18super cool way of also being able to
34:22quantify your risk on a trade.
34:26I mean, just think about that for a
34:27second. How much money you have to put
34:28up to make the trade is essentially your
34:30risk. Y
34:31>> and that we when that's your two
34:32standard deviation approximately, that's
34:34your two standard deviation risk. But
34:36this is a very mathematical business and
34:38that's essentially how you look at it.
34:40So when somebody goes, well, like the
34:43last woman that called in said she sold
34:44the 145 puts in in uh SpaceX, she's not
34:48selling those puts thinking the stock is
34:50going to zero because theoretically the
34:52risk is the stock goes to zero. But
34:54stocks are not going to go from 145 to
34:57zero. The real risk is whatever that
34:59buying power reduction is for those
35:00puts. So let's say the buying power
35:02reduction for those puts is is I'm just
35:04going to ballpark at 20%. Or the buying
35:06power reduction for those risk is
35:08$29,000. What's your real risk in that
35:11trade? $29,000.
35:13>> Okay.
35:14>> Out of one lot.
35:15>> Out of one lot.
35:16>> Yep.
35:18But that's it. I mean that's how to look
35:21at
35:21>> and SpaceX is now down. Yeah, which does
35:25not surprise me because I thought this
35:27morning, you know, it it looked a little
35:29heavy and then today's one of those days
35:31when everybody's just, you know, let's
35:33just buy MU, let's just buy um Micron
35:36and that's about it. I'm surprised
35:37they're not buying Nvidia.
35:38>> Well, it's a dollar 30. Okay. And I
35:41think the last one here is
35:44how much of a role do Greeks play in
35:46your everyday trading?
35:49I find that implied volatility, your IV
35:54or IVX and IVR
35:58are just as important as your
35:59traditional Greeks. So if your
36:02traditional Greeks, you know, are delta
36:06delta, gamma, theta, let's just say
36:08those are are are the three main ones.
36:11Delta gamma theta and forget about
36:13second order or second level Greeks. We
36:15don't need those. I find BPR and implied
36:19volatility or and or implied volatility
36:21rank just as important in the trading
36:23world from
36:27to clarify this when you're putting a
36:28trade on and when you're taking off you
36:30don't watch it necessarily it'll give
36:31you ideas to get it in and get out like
36:34right
36:34>> there are lots of things that are super
36:36important when you're trading like for
36:37example liquidity your how much volume
36:39is trading how much option volume how
36:40much stock volume you know what the IVR
36:42is of the underlying what the implied
36:44volatility is of the underlying to make
36:45sure it's something that you want to
36:46trade that it's going to move around and
36:48and of course you know knowing your beta
36:50weighted delta knowing your buying power
36:52reduction on trade all those things are
36:53important. Now, just to put some context
36:55around this, you can look at all of
36:58those things and you can get to a
37:02satisfactory kind of conclusion or a
37:05quick overview or summary of IV, IVR,
37:10buying power reduction, delta, and
37:13theta, which is like five different
37:15things in less than two seconds. This is
37:19not something that requires like writing
37:21it down, figuring it out. After you've
37:23looked at this stuff enough, you're
37:25talking literally one to two seconds.
37:29That's how fast if if you're screen is
37:31set up right and you just and you're
37:33monitoring things kind of the way you
37:35just should be looking at it. You're
37:37talking about instantaneous. It might be
37:39sub 2 seconds. Maybe it's 1 second.
37:42That's how because all those numbers
37:43just blend together. You'll see them. If
37:45something stands out, if something looks
37:46weird, you'll pick that up. But it's 1
37:48to two seconds. So this is not something
37:50that's like overwhelming.
37:52>> In fairness, it's muscle memory for you.
37:55Somebody knew it's going to take you a
37:56little bit longer, but it's fast. But
37:57it's fast.
37:58>> Historically, have earnings been good or
38:00bad for the benchmark indexes like the
38:02S&Ps, NASDAQ, whatever.
38:06>> Okay. Well, to me, the obvious answer is
38:09that they've been good because the
38:10market just continues to rally. But
38:12you're saying it's a trick question. So,
38:14I can't wait to hear if you know the
38:16answer. Let's hear what the research has
38:17shown.
38:18>> Well, first of all, the first part of
38:19the question is I mean nobody knows
38:21could strong second quarter earnings
38:22actually disappoint the market. And the
38:24funny thing about earnings and and this
38:26is something that we have studied this
38:28because I always thought there was some
38:30kind of like a little bit of maybe not
38:32necessarily an edge in earnings, but I
38:34always thought there was something to
38:35earnings and from a trader side and
38:38really all it is is is kind of an even
38:40money crapshoot. It's it's almost like
38:42rolling the dice. earnings over the last
38:46I want to say the pretty much over the
38:47last 20 years if you trade earnings they
38:51have been literally a tossup they have
38:54been almost within 1%
38:57of of up or down so like either it's 51%
39:01up 49% down after earnings or 49% up and
39:0651% down within 1% of 50/50 it has it
39:10has been the literal flipping of flip of
39:13coin um to trade earnings. If we're
39:16going to talk about outlier moves, I
39:18would say the majority of outlier moves
39:20have probably been to the upside because
39:22we've been in a bull market. So, I would
39:23say the worst the worst earnings moves,
39:26meaning the earnings moves that that
39:28went outside of whatever the um expected
39:32move was or moves that went into
39:35unquantifiable territory like three to
39:38seven standard deviations have the
39:40majority of those have been to the
39:41upside. probably like threequarters of
39:43them rel as opposed to the downside. Um
39:46I think when you see that shift and the
39:48surprises come to the downside, you will
39:50start to see maybe a little bit of flip
39:52in the market. But historically, have
39:54earnings been good or bad for benchmark
39:57indices. Now you would probably
40:00think that okay, you know, everything's
40:04going to be essentially a coin toss
40:05because in the end it's results are
40:07pretty random. But essentially markets
40:10have gotten nervous around earnings
40:13times as measured by the increase in
40:15volatility. So when volatility goes up,
40:17that's a fear index. That means that
40:19earnings kind of, you know, they they
40:21scare the marketplace a little bit. Even
40:23though people expect good earnings
40:25because firms like to lowball their
40:27numbers and they like to put out, you
40:28know, estimates that are that they they
40:30know they can easily beat. The the
40:32simple answer is that earnings scare the
40:34market. That's why volatility goes
40:35higher because it's represented in the
40:38higher implied volatility in the front
40:40month earnings.
40:42That said, in a bull market, you would
40:46think that that has been exceptionally
40:48good for indices. And the simple answer
40:50is that it has been because because
40:54>> I was going to say that's not what I
40:56said, but you said it was a trick
40:57question. So, it was a trick of a trick
40:59question. because volatility spikes
41:01before earnings, the expectation is that
41:03the fear is up because there could be a
41:05big down move. But what has historically
41:06happened is there have been more big up
41:08moves and so because volatility spikes
41:11so much um it's actually been good for
41:14benchmark indices and it's helped propel
41:16the markets. Earnings have definitely
41:18helped propel the markets to new record
41:20highs. I think if you see a situation
41:24where volatility doesn't spike or
41:27volatility already is high, then it's
41:29much more difficult for earnings to
41:31outperform to the upside. I think that's
41:33why you have to closely watch the VIX
41:35here. And I would put the VIX right now
41:36in kind of that middle ground, you know,
41:39that that neutral area. So it's
41:40interesting because for you know
41:43somebody that's again if you're
41:45relatively new to this over the last 10
41:46years you're going to look at this and
41:48somebody might say well obviously it's
41:49not 30 or 35 which we've seen that a
41:51couple of times but we were in the 12
41:53range you know a bunch of years ago and
41:55just sat there for a while. So yes I
41:57agree with you but for some people it's
41:59like interest rates. You have a lot of
42:00people saying interest rates are
42:01insanely high right now. No they're not.
42:02They're historically normal and I think
42:04this is historically normal you know for
42:06volatility. So I'm going to agree with
42:07you. So over the last couple of decades,
42:09earnings earnings because the
42:11expectation has been for heightened fear
42:14have actually been very good for
42:16benchmark industry. kind of had a more
42:18general question around like net worth
42:21allocation because I know you guys have
42:23taken some big bets in your life whether
42:26it's you know with your businesses or
42:27with trades or whatever it was how how
42:30you were allocated in different in
42:31different times of your life and you
42:34know over the years I basically have
42:35like cash trading account NASDAQ Bitcoin
42:39gold like those are kind of my buckets
42:41and obviously the Bitcoin bucket has has
42:44you know really overcome all the other
42:46ones
42:47And from a riskmanagement standpoint, it
42:49really makes sense to trim that bucket.
42:52Um, but you know, it's also kind of the
42:54bucket that got me to the number of net
42:56worth that I have today. And I do think,
42:59you know, crypto might be going on
43:01another run here. I feel like I kind of
43:02held through the hard part a few times
43:05and this last hit was the hardest
43:07because it was like, you know, the
43:08biggest monetary one from a dollar
43:10value.
43:11>> Yeah.
43:11>> And I'm just wondering, you know, how do
43:13you think about that in different times
43:15of your life? like kind of betting the
43:17farm versus, you know, being a prudent
43:20risk manager and really trimming the the
43:23part that's really going to make or
43:24break you,
43:25>> you know? That's a that's a really fair
43:27question. I mean, I think for us, you we
43:30give it a certain like it depends how
43:31long your run's been in crypto. Like, if
43:32you got a 10-year run going, I'd
43:34probably take something off the table.
43:36If it was like a three month, six month,
43:38or one or two years, I could see holding
43:40on to it. But I got this decade rule.
43:43The decade rule says, "Hey, at the start
43:46of the next decade, I got to move on and
43:48do something else and I got to keep, you
43:50know, I got to keep fresh." So, that's
43:52kind of how I look at it. But, I I think
43:55that Bat and I are both in the camp of
43:58we're okay taking some money off the
44:00table.
44:00>> Yeah, I probably ring the register a lot
44:02quicker than you do, but yeah, I agree
44:03with you. I don't I don't mind taking
44:05money off. I don't mind patting myself
44:06on the back.
44:06>> Yeah. I mean, you rode that horse, man.
44:08You did amazing. Great job.
44:09>> I remember talking to you. It feels like
44:1115 years ago or whatever it was um when
44:14we were in the old studio. And um uh
44:17listen, you know, you killed it. That's
44:19awesome. But I we'd probably take
44:20something off the table.
44:21>> Mhm.
44:23>> Probably reload too early.
44:26>> Yeah, exactly. That's what I'm scared
44:28of. But I remember talking to you guys
44:30literally like 15 years ago on the
44:32phone. I was just proving concept with
44:34like defined risk spreads and naked
44:36premium. And I remember saying to you
44:38like, "All right, what's the next step?"
44:40because I'm broke. I'm like 22 years
44:42old. Like
44:43>> Yeah. You were speaking to us in broken
44:44Rhode Island. That's what I remember.
44:46>> Yeah. Yeah. Yeah. I'm actually in
44:47Charlotte, North Carolina now. But I
44:49like, you know, I like to say Christo's
44:50from Rhode Island with you guys. But I
44:52uh but you know, I was asking, hey, I
44:54just proved concept here. I'm starting
44:56to learn Premium. Things are going well.
44:58I I just need some money now to
45:01actually, you know, put it to work. And
45:03you told me you were mailing me a check.
45:05I
45:06>> No, I told you. I told you. I told you
45:08Tony was mailing you a check.
45:10>> Oh,
45:12okay. All right.
45:12>> Yeah, you didn't get that check.
45:13>> Still waiting for it.
45:15>> I'm still waiting for it, but I'mma keep
45:17watching you guys, man. Love that you
45:18guys are doing your thing here and uh
45:20looking to call back soon. All right.
45:22>> Thanks, man. Thanks, man. Appreciate
45:23Appreciate you calling. Appreciate your
45:24support.
45:24>> Thanks. Thanks, Chris.
45:26>> Yeah, I remember him calling him 15
45:27years ago we first started.
45:29>> Um, so S&P's down 39, not much and the
45:33NASDAQ kind of hanging in there all
45:34things considered. Um would you when you
45:38see that the Fed's two-day meeting
45:40>> Yeah.
45:41>> they raised the probability on the CME
45:44site to 85%. Didn't you tell me the
45:46other day if it's over
45:47>> over it's over 65% they've never not
45:50gone in that direction. So it was a 65%
45:53chance or more of
45:54>> chance there's 100% chance.
45:55>> That's right. 65% is 100%. 65% of the
45:58time you're 100% correct. That's right.
46:00In this instance it plays true. The
46:02interesting thing about that is that I
46:04don't know that there's a play there
46:05because there's no question that
46:08everybody already knows that and that's
46:10already priced in to the bonds where
46:12they currently are.
46:13>> It's going to be the wording or the BS
46:15uh moving forward like are we going to
46:17maybe take rates down again after the
46:19war is over, you know, like again for
46:21the AT when is it best to use ETF or ETF
46:25options and when is it best to use
46:27futures or futures options when trading
46:30commodities? I'll give you some examples
46:31and you tell me.
46:32>> Sure.
46:33>> Um like things like gold, things like
46:36gold verse GLD, uh bonds verse TLT, um
46:41>> so I don't I don't
46:42>> natural gas verse UNNG.
46:44>> Okay.
46:45>> Um
46:46F uh Euro verse FXE. Oh, these are all
46:50examples.
46:50>> Sure. Sure. So for for me I first of all
46:54I I I prefer the ETF options on as a
46:58high level but as I dig into each one of
47:01those USO for for oil/cl I would go into
47:05forward/ over USO GLD versus GC you got
47:09to take them like individual it's a
47:12tossup but I like GC TLT over ZB I like
47:16ZB over TLT now it's going to be I'm
47:19going to change my strategy
47:20>> so your answer is that you default to
47:22probably the futures as a as a
47:24>> no you default to the most liquid
47:26>> the most liquid which usually is the the
47:29future side of that of the ones that you
47:31mentioned net gas UNNG versus net gas
47:34now I think net gas is a huge big
47:36product for most retail investors and I
47:38would probably do a net gas spread over
47:40a naked UNNG option
47:42>> I agree with you but there are certain
47:43things like if you want to trade copper
47:45I would use FX I would use copper
47:47doesn't have what is it what am I
47:49thinking what's report uh
47:51>> FCX.
47:51>> FCX.
47:52>> Mhm.
47:52>> Yeah. So, there are certain things like
47:55there are definitely certain things
47:56where we would prefer to use the ETF.
47:58Yes.
47:58>> But and if I'm trading silver, I prefer
48:00to trade SLV. But if I'm trading gold, I
48:02prefer to trade GC.
48:03>> Right.
48:04>> So, the first default is always
48:07liquidity as measured by notional
48:09buying. Liquidity rules. Don't ever
48:11forget that. Liquidity rules
48:12>> always. Next comes tradability as
48:16measured by option volume and bid ass
48:19differential.
48:22>> I I I mean I mean
48:24>> and wherever the greatest volume is is
48:25good where you should be living.
48:27>> But that's part of liquidity, right?
48:29Volume liquidity is there. Now, I'm not
48:31going into a strike and saying that this
48:33one has the most amount of of of trade
48:37volume there. So, I'm going to go into
48:38that strike, but it is an indication and
48:41usually it's a whole number. The 75, the
48:4480, the 85 because they've been around
48:46the longest. Then they add the in
48:48between 77.
48:49>> So, first comes liquidity, then comes
48:50tradability as measured by option volume
48:52and bid ass differential.
48:54>> Next comes contract size and BPR.
48:57Sometimes the the reason you would trade
49:01UNNG as opposed to to natural gas NG is
49:04because natural gas is 10 or 11 times
49:06bigger. Mhm.
49:07>> Bonds are 10 or 11 times bigger than
49:09TLT. Gold is 10 or 11 times bigger than
49:13GLD. So contract size, notional contract
49:16size, and BPR next. ETFs are usually
49:19onetenth the size.
49:20>> Perfect.
49:21>> Okay, next one. Risk and leverage are
49:24next on the list. You might not be
49:27comfortable because of the contract size
49:29with the amount of risk that you're
49:30taking. Mhm. Okay. I know they seem like
49:32they're the same thing, but sometimes
49:34the leverage, you know, when you do a
49:35bond, right, just to put some context
49:37around this, you put up like, let's say,
49:39$2,000, you're trading a $100,000 bond.
49:43>> When you trade um an S&P, an ES
49:46contract, just remember, you're putting
49:48up what? $24,000. Now,
49:50>> you're putting up $24,000 to trade an ES
49:52contract.
49:53>> You are controlling
49:557700 times. You're you're controlling
49:58$375,000
50:00worth of stock for $25,000.
50:03$375,000 worth of stock. That number
50:05might be too big for somebody. Yeah.
50:07>> So, you might want to do the MEES, which
50:10is $37,000, and put up $2,200, $2,400,
50:14whatever it is. But that also might be
50:16too big. So, then maybe you do S spy.
50:19I'm just saying. The next one is
50:21sometimes when you trade futures, you
50:23need to understand the nuances of
50:25futures and futures options. They're not
50:27exactly the same because each one's a
50:28little different. Like gold expires on a
50:30different day than crude oil and crude
50:32oil expires on a different day than spy,
50:34>> which we think is barbaric, but it's the
50:36way it is. I mean, they should make it
50:38all standardized.
50:39>> Barbaric. I don't know. It's archaic.
50:42>> Archaic. All right, whatever.
50:44>> He's a knuckle drager. I'm sorry. And
50:47the last thing I came up with was that
50:50sometimes ETFs are not pure plays.
50:53>> They are not. They could be a blended
50:55like TLT is a blended against a 20-year
50:57bond. It's not
50:57>> they don't move exactly the same.
50:59>> Yep.
50:59>> Yeah. So sometimes, you know, it can be
51:01a little bit weird in that sense.
51:03>> If spot is at 6,000 and futures at
51:066,100, is 6,000 the at the money option
51:10as the textbooks say, or is 6100 the at
51:13the money option as some traders say?
51:16Could you please clarify from a trader
51:18perspective?
51:21>> It's the
51:22>> Yeah, go ahead. If you're the chain of
51:23the future, it's 6100. It's where the
51:25future is trading.
51:26>> Yeah.
51:27>> Right.
51:27>> It's where the future trades. So, it's
51:28what your underlying is trading. And
51:30futures are futures and cash is spot.
51:32Cash is cash. So, you know, if you could
51:34trade an option on cash, you'd be
51:37trading 6,000. But if it's on a future,
51:38it's 6100. Is that the money?
51:40>> Yeah. Yeah. It's always what it's always
51:42what the future it's what the underlying
51:44future is that the the options you're
51:46trading are what whatever um settles
51:48into that underlying future.
51:51>> Okay. All right, next up. I was looking
51:53at the um forward sli options chain
51:57yesterday and noticed it only lists
51:59expirations out to July. Not much of a
52:02future, is it? Why does silver have such
52:04a shortdated options market compared to
52:06other futures? Says our friend from
52:09London or the UK, Julian,
52:12>> I'm not sure that that's actually
52:14correct, Julian.
52:15>> It's not it's not correct.
52:16>> I'm not sure that's correct. Yeah, the
52:18simple answer is
52:20>> and I will speak for for tasty when we
52:23were there you you don't want to offer
52:25there's so many series in futures
52:28>> and the problem is only the front
52:30handful are liquid after that they
52:32become really illquid. So we didn't want
52:34to allow our customers to get into
52:35trouble because that's what's going to
52:36happen most likely if you go trade it.
52:38So we just limit you know we just
52:40wouldn't show them all. There might be a
52:42platform that shows them, but I actually
52:44pulled up silver and it looks like for
52:50silver, the CME goes out to May of 27.
52:55>> Yeah, I think at least
52:56>> it goes out much further. I'm sure
52:57there's options on those, but again,
52:59they're the markets are probably so wide
53:01you could drive a truck through them.
53:03So, you know, if I could tell you for
53:05Tacium, my guess is other platforms are
53:07doing the same thing. retailer saying
53:08list and there's no reason to list those
53:10cuz they're not really tradable.
53:11>> It's really dangerous when you show
53:14options that don't trade and then
53:16somebody makes a mistake and puts in an
53:17an order and that's like, you know, on a
53:20$10,
53:22>> loses $10,000 and then tries to break
53:24the trade and you can't. So, there's a
53:26reason firms don't show those options.
53:28>> That's why it is.
53:29>> Okay.
53:30>> Y but they exist.
53:31>> Y
53:32>> Okay. Um next,
53:34>> and you can trade SLV options. They go
53:36out, you know, probably leaps, I'm
53:38guessing, go out a couple years.
53:39>> Um, I will tell you, SLV,
53:41>> they probably go out to 28. I'm guessing
53:43>> they do. D 15 to 28. 1,000 in two days.
53:46You want to take a guess? Let's see how
53:48good your market
53:50de of what' you say de of 28.
53:53>> D 15 of 28. So, it's a,000 days.
53:57>> Okay. That's almost the 60. It's 63 and
54:00a half. You want to take a guess on what
54:01the straddle is?
54:03>> 60. What do you think the expected move
54:05out going out that far?
54:08>> It's got to be at least
54:12>> It's lower than I think than I thought
54:13it would be.
54:14>> It's It's got to be at least
54:16$40 to $50.
54:18>> It's a good guess. $39. That's lower
54:20than I thought it would be. It's 39
54:21bucks if you want to trade that.
54:22>> Okay. I was going to say 40.
54:24>> Yeah.
54:25>> All right.
54:26>> Yeah.
54:26>> Let's take a call. Stephen from Miami.
54:28Hi, Stephen. The question is, do you
54:30sell a covered call if your stock's
54:33below, you know, your your break even?
54:35Do you sell a covered call below your
54:38basis?
54:40And what if the stock rallies after
54:42that? Should you roll the call higher?
54:44Did you cover it? Like, what are you
54:45doing? And I feel really strongly about
54:48this topic. So, but I'll ask you, Scott,
54:52what do you do?
54:53>> Yeah, totally. If you I mean if you're
54:56selling a put and you get hit on the
54:57stock I would absolutely you know at
54:59that point I mean depending on the
55:00situation assuming it wasn't a disaster
55:02assuming it was somewhere close you go
55:04fine you're still obviously bullish on
55:06its assuming you have the buying power
55:07to hold the stock absolutely keep stock
55:09and sell a call and if it rallies just
55:10keep rolling the call. So, this just
55:12happened to me last week. Um, I sold the
55:17weekly puts in uh Walmart. The stock was
55:20114.
55:22I sold the I think the expected move was
55:25like $5 and it dropped $10. So, it went
55:28to 1114 to 104. I sold the 110 puts. So,
55:32soon so and they were weeklys. So, I got
55:35hit on stock. So now I'm long stock in
55:38Walmart at whatever it was like 109 and
55:43the stock was trading at 104 and a half
55:45105 and so I immediately sold a call. I
55:50think I sold the 106 calls for se or I
55:54don't remember which one I have to I'll
55:55look at it if it's if it's se I'll roll
55:57to a tomorrow and so yeah I'm underwater
56:00now because I sold the 106 calls even
56:02though I'm long stock at 109. So, it's
56:04exactly the situation from here. Um, now
56:07that's what happens when you get burnt
56:09on an earnings trade and it's a
56:11short-term earnings trade. There's
56:12nothing you can do. So, I just sold the
56:15calls and what I'm hoping to do is I
56:16let's say I took a I don't remember
56:17exactly I took it, maybe a dollar or
56:19something. So, so I'm longing the stock
56:21at 109. It's currently trading 105. I
56:24sold the 106 calls.
56:25>> Get back to 107.
56:26>> I can maybe get back to 107. And if I
56:28roll forward again, maybe I can keep the
56:30dream alive for another month or two. Or
56:32maybe I just cover it eventually for a
56:34$2 loss if it goes up as opposed to a $5
56:37loss.
56:38>> Stock got down to 103.
56:39>> Y
56:40>> I mean, all you're trying to do is to
56:42reduce the size of your loss, but of
56:44course you would of course you sell the
56:47covered call unless you just want out.
56:49Yes, you sell the covered call. You're
56:51in a bad trade and you're trying to
56:52mitigate the loss. And again, nothing
56:54wrong with wanting out and getting out
56:55or again depending on the account size.
56:57If you don't have the money, you might
56:58not have a choice. If you don't have a
57:00choice, then I would say then look to
57:01sell another put if you still like that
57:03position.
57:04>> Sure.
57:05>> Um and then we default to a the 30 delta
57:07strike is the one we default to. That's
57:09kind of always the default. You can do a
57:11little higher, a little lower if you
57:12want. And you know, when you sell a call
57:15below your cost base, this is not a
57:17mistake. This is the mechanics. What
57:19else are you supposed to do? You you
57:21there's there's no other there's no
57:23there's no quick fix for a bad trade.
57:25You have to work your way back. And
57:28sometimes it'll take a month, sometimes
57:30it'll take three months, sometimes it'll
57:31be never, but hopefully you can make
57:34some money back. Now, what happens if
57:35the stock continues to go down? You
57:37continue to roll that call down. Y and
57:39you roll it down aggressively. And what
57:41happens the stock goes up? Well, you
57:42either let it get called away or you
57:44roll it out in time.
57:46That's it. You just play the game, man.
57:47It's just a game, you know? You're
57:49you're you're playing a game
57:51mechanically. As long as you can
57:52continue to do the mechanics on this,
57:55you know, up and down, that's the best
57:57you can do as a trader and over time it
57:59works.
58:01If the stock moves higher and breaches
58:03our short strike, at that point we
58:06generally close out the trade. And when
58:07you close out that trade, you can then
58:09turn around and sell another out of the
58:10money put for a high probability trade
58:12if you want. That's the mistake that a
58:13lot of people make. They don't go turn
58:14around and do other high probability
58:16put. Yep. And and um so we replace that
58:22covered call. When you have a covered
58:23call that goes your way and you just
58:25take your profits, you should replace
58:27that with a short put if you still like
58:29the stock. Correct.
58:30>> Because you take this trade where you're
58:32okay, I've kind of maxed out and then
58:34you put on another high probability
58:35trade and you're essentially rolling the
58:36profits. It's an offensive role. It's
58:39kind of thing. I really like that.
58:40>> Yep. It's good stuff.
58:42>> I'm Tom Sausnoff. He is Scott Sheridan.
58:44S&P's up 40. NASDAQ's up 280. The NASDAQ
58:47has not moved the entire freaking day
58:50that we've been on. Um the gold has not
58:53moved. S&Ps S&Ps have had about 20
58:56handle rally.
58:57>> Yeah, you've had moves moved. You've had
59:00Microsoft has moved. Uh you've had Meta
59:03has moved, but
59:05>> Apple's moved a couple bucks up. Um, you
59:08know, uh, I I have been, just to give
59:12you a little like brief like weekly
59:15recap, this has been a very, um, it's
59:19been a good week for premium sellers,
59:21but this has not been a good week for
59:22putting on new trades. It's also there's
59:24been some outlier moves. Now, lucky
59:26thing, we didn't really get caught in
59:28any of these earnings places. We didn't
59:29trade them last night, and I didn't get
59:30caught in MADNA, but there has been some
59:32outlier moves. Um,
59:34>> Madna, Madna was nasty.
59:36>> I I looked at Madna yesterday to try to
59:38find a trade.
59:39>> I couldn't find something I wanted to do
59:41in there and I
59:42>> see. And if you let the aantic tool,
59:45they'd find plenty of trades for you.
59:47>> No.
59:48>> Okay. No. No. I like to find my own
59:50trades. I'm always going to find my own
59:52trades. Um it's one minute before we go
59:55off air, so just a quick little
59:57reminder. Um uh there will be some um
1:00:01there'll be some new videos coming out
1:00:03tomorrow. Um, or you can follow us on on
1:00:06on
1:00:07X also at we are lost dog. And I also do
1:00:10a weekly podcast with Dylan Radigan.
1:00:12That's on that's on X. And you can check
1:00:15out outside on money or you can ask
1:00:17question send questions to one lucky dog
1:00:19at lossog.com
1:00:22>> and obviously join for free at
1:00:23lossdog.com. Sign up. Sign up. And with
1:00:26that,
1:00:27>> great week. Happy Thursday. If you like
1:00:30this video, please take a look in the
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