October 8, 2025 • 34 mins
Join me as I sit down with Greg Jensen, Founder of OptionsAnimal, and Eric Hale, Founder of Trader Oasis, to break down the foundations of smart options trading. After our last deep dive into the collar strategy, we’re going back to basics to answer the biggest questions every trader faces.
Greg and Eric explain when it’s appropriate to buy long options, why naked calls are among the riskiest trades you can make, and how to think through strategies like short puts vs. covered calls. They also reveal why zero DTE options are attracting retail traders, the hidden dangers behind them, and the adjustments that separate professional traders from gamblers.
In this webinar:
- When to buy long calls or puts — and why conviction matters
- Why selling options often beats buying them
- Naked calls: unlimited risk and real-world horror stories
- Covered calls vs. short puts — which strategy really makes sense
- The truth about zero DTE options: opportunities vs. catastrophic risks
Lead-Lag Live Webinars give you exclusive access to deep-dive conversations with industry experts, portfolio managers, and strategists. Subscribe now to gain the insights you need to make smarter, more informed investment decisions.
#OptionsTrading #ZeroDTE #CoveredCalls #LeadLagLive #OptionsAnimal
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Youtube: https://youtube.com/playlist?list=PLgB6B-mAeWlPM9KzGJ2O4cU0-m5lO0lkr&si=W_-jLsiREjyAIgEs
Spotify: https://open.spotify.com/show/75YJ921WGQqUtwxRT71UQB?si=4R6kaAYOTtO2V
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_02 (00:11):
I'm joined again by Greg Jensen from Options Animal
and Eric Hale from Trader Oasis.
For those of you who listened inlast time, we dug into how to
trade around the stock positionswith the caller strategy.
This time we're going back tothe basics.
And if you're here for CFPcredits, we'll email you for
that info after the chat.
And then for those of you whodon't already know, Greg is the
(00:34):
founder of Options Animal, apublished author, former hedge
fund manager, and RIA, known forhis precise trade adjustments.
Eric is the founder of TraderOasis, a four-time forecasting
award winner, recognized by theChicago Fed and an active
real-time educator.
Guys, thanks so much for joiningme.
SPEAKER_00 (00:55):
Thank you, Melanie.
It is a pleasure as always.
Looking forward to today'sdiscussion.
Eric.
SPEAKER_01 (01:03):
Yeah, yeah, it's good to be here.
Thanks for uh for making thetime.
It was a lot of fun.
We had a good time and a lot ofpeople were interested and
reached out to us after the lastone.
So we hope um hope we have asimilar success this time.
And at the end, we'll let peopleknow how they can uh get a
special offer if they'reinterested in learning more
about what we do.
SPEAKER_02 (01:21):
Exciting.
Yeah, absolutely.
So I just we don't have a lot oftime, so I want to get right
into it.
Uh let's start with somethingevery trader asks at some point,
when is it appropriate to buylong options?
SPEAKER_01 (01:32):
I'm gonna turn this one over to Greg, but before I
address it, because Greg is he'sone of the best traders I've
ever met.
Um, he has um, you know, he'sthis over 10,000 hours thing.
You uh talk about when somebodyis an expert and has a a sense
of um just sort of intuition.
And Greg really has it.
I've seen Greg um like Apple,he's a very fan, he's one of the
(01:54):
best Apple traders I've everseen.
He sometimes he buys calls onApple, sometimes he buys puts,
sometimes he buys both.
Sometimes he's selling optionsaround Apple earnings events.
Um, so I I think I'd really liketo hear Greg's response to this
because I'll be honest with you,I think he's better at long
options than I am.
SPEAKER_00 (02:10):
For me, it long options require an enormous
amount of conviction in myexpectation of where the
market's moving.
So I I gotta be really confidentbecause the problem with buying
a long option, and this is trueof both calls and puts, um, is
when you're going long, you haveall kinds of different things in
(02:31):
the options world workingagainst you from volatility
decay to time decay.
Uh and if you're wrong for verylong, it can absolutely destroy
your position.
So I would say the mostimportant thing is you're very
strong on your conviction aboutI this thing's going up, and I'm
very confident it's going up.
So I'm gonna go a long option.
(02:52):
Now, I'll throw out one otherkey thing I look for with long
options too, is I I've tradedthem enough uh over the years.
I think my first long option Idid was uh it was on uh Nokia
back in uh like 1996 was thefirst time I ever did a long
call.
And it it it's uh it's veryinfluenced by emotion, but the
(03:17):
thing I've found the mosthelpful is that even though I'm
good at it and I've done it alot, I'm wrong a lot too.
And so I don't like to tradeshort dated options.
When I'm going long on anoption, whether it's again,
whether it's a call or a put,I'm buying myself some time.
Uh, three months, six months oftime, so that if in the short
(03:39):
term I'm wrong, I don't killmyself.
I mean, the the fascination withzero DTE options right now and
people trying to buy calls at 10a.m.
Eastern time and selling them byby 2 p.m.
Eastern time, man, that is justabsolutely the casino uh to me.
So I don't I don't gamble inshort-term options, but you
know, give me a little bit oftime and I'll I'll I'll take a
(04:01):
long position.
SPEAKER_01 (04:02):
Did you make money on your first option trade?
SPEAKER_00 (04:04):
I did actually.
SPEAKER_01 (04:05):
See, that's the way it works.
Like the first time you go toLas Vegas, everybody wins your
first trip to Las Vegas, you geta front pass so that they can
get their hooks in you.
And I'll I I had a similarexperience.
The first time I traded longoptions, I made money, and I
don't really knew I didn'treally know why I made money.
Um, I I want to just throwsomething out for everybody
listening, just to give it, putthings into perspective.
(04:25):
If you've been trading longoptions, either calls or puts,
um, then you've probably lostmoney.
And and the reason is aboutsomewhere between 65-70%
probability that you're gonnalose money on a long option.
Because it not only does it haveto move, but it has to move a
lot.
You have to overcome um theextrinsic value, which is
impacted by how much time is inthe option, but also Greg
(04:48):
mentioned volatility.
So you've got the idea that,hey, Apple or Netflix or
somebody has got a big earningsevent coming up, and I think
it's gonna make a big move.
And you may decide, I'm gonnabuy a call.
You have to understand if thatcall is expensive.
And if you look at 30-day callsthroughout the year, they
they're the price, you know, ifyou look at an at-the-money
(05:08):
call, it varies throughout theyear.
Sometimes it's high, sometimesit's low.
Because the market does a reallygood job anticipating that
there's gonna be volatility inthe future.
That's what that's what impliedvolatility is implied
volatility.
Think of the words, impliedvolatility.
It's the volatility that's gonnahappen in the future.
And it's the same notion, youfolks already understand this a
(05:28):
little bit, even if you don'tknow much about options.
You understand that someinsurance policies cost more
when the risk is high.
You think about buyinginsurance.
I use the example of my son whenConnor turns 16 and I called my
state farm agent and asked forinsurance on him.
She gave me a price.
And I said, Is that for thewhole family?
And she's like, No, that's justhis price.
Uh, why is he two and a halftimes more than my wife?
(05:51):
And the reason is the odds ofhim using that insurance go up.
So he costs more.
It's the same thing in optionpricing.
The odds of it paying off, if itlooks like it's going to pay
off, the price goes up.
So we see calls becomeexpensive.
And a lot of people trade longcalls and puts experience this.
Now, there are times, and maybelike if you own stock, buying a
(06:12):
put, buying insurance is not abad idea.
So sometimes it might be prudentfor you to buy a protective
option around uh an earningsevent.
And maybe go back and watch thisvideo we talked about last time,
a caller trade.
Since um since the puts areexpensive, the calls are
expensive too.
(06:33):
And we'll explain a little bitmore about that and mention that
you can create a syntheticposition.
You can create a call usingstock and a put.
In fact, if you look at a stockand a put and looked at a call,
they look exactly the same froma risk reward standpoint.
So if puts become expensive,calls become expensive, or
there's a free arbitrage forpeople that's out there.
(06:53):
So um we do see a lot of peoplethat try to get on the other
side of that and and they selloptions because if you've got a
65 to 70 percent chance oflosing money, you've got a if
you sell those options, you'vegot a 65 to 70 percent chance of
making money.
And I want to turn that to Gregand say, so why don't people
(07:16):
just sell options then if youusually make money?
SPEAKER_00 (07:18):
Because it's boring.
SPEAKER_01 (07:20):
What you don't like making money?
SPEAKER_00 (07:22):
I'll answer that question here in a minute, Eric.
But I want to throw out one morething on long options before we
go away from them.
Um, to to to answer anotherpoint of your or of your
question, Melanie, was you know,why would you buy options?
I think the the one of thereasons in the past was to get
exposure maybe to a stockwithout as much capital
(07:44):
requirement.
You know, you know, you'retrading some really high-valued
equity, it can be hard to to buyit.
Um, but with fractionalownership now offered by so many
brokers, it's much easier tostill trade those equities um
and not expose yourself to justbuying long options.
(08:07):
So um I I would say so thatthat's I wanted to throw that in
there before I went we went awayfrom longs, but Eric to answer
your question, um, you know, whydon't people why don't more
people sell options?
Um the biggest reason why isthey don't know how.
They they don't know the risksassociated with it, they don't
understand the the strategybehind it.
(08:29):
Um, they don't understand thatthey get it.
I think there's a little of anintimidation factor uh in the
idea of when you're selling anoption, you have an obligation.
Um, you know, that you'rerequired to do something,
whether it's when you're sellinga put, you're required to buy
stock, or if you're selling acall, you're required to sell
stock.
And so I think part of it's justa lack of education.
(08:52):
Um, and they don't understandthat to be honest, it's one of
the best ways to make money,like you said, is is actually
selling options versus buyingoptions.
SPEAKER_02 (09:03):
Wanted to ask you what about the strategy?
How safe is the strategy?
And then can you also, Eric,talk about uh naked calls?
SPEAKER_01 (09:10):
Yeah.
Okay, so naked calls, whichMichael's daughter's laughing
now.
Uh she's in the backgroundlistening, learning about
options.
So glad to hear that, Michael.
Uh a naked call is a strategywhere you are telling somebody,
I will give you shares at apredetermined price if you want
to buy them from me.
(09:31):
So it's the opposite of a longcall.
So a long call is sort of like acoupon or a layaway certificate.
You put a deposit down, and ifthe price of something goes up,
you can buy it at the lowerprice.
So that's a long call.
A short call, you're on theother side of that transaction.
If there's a short, if there's along call, there's always a
short call.
So the one exists, and whodelivers the stock is whoever
(09:54):
has the short call.
And again, these these tradetrades have uh very high
probability of working.
And you know, Greg mentioned umthat maybe people uh do them.
Uh I think more people do themthan probably should.
I think it's one of these thingswhere, well, if you understand
what the lit, the limits are ofrisk of a short call.
(10:18):
What's the limit of a of a shortcall?
It's there is no limit to therisk.
It's is undefined.
There's no limit to how muchmoney you could lose.
And if we look at some of thesescenarios, that we've seen some
stocks lately, some mega capstocks that you know move 20,
25% overnight with surprises andyou know, act whether it's an
acquisition or just you know,some oh, we got a relationship
(10:40):
with NVIDIA or NVIDIA or AI orwho, you know, pick the name.
Um, we've seen these massivemoves that have happened
overnight.
And that can happen on bothdirections, right?
It can happen on the upside orthe downside.
And and I would argue thatthere's probably far too many
people who are selling nakedoptions who don't understand the
risk that they have.
(11:01):
And uh, my background as anengineer, and if you ask me, um,
you know, how what what strategywould you never do?
The one strategy I would, and Imean never, ever do is a naked
call.
And I know there are people outthere that do it.
And I like to use sort ofanalogies to put things into
perspective.
You think about probabilitygames that we can play.
(11:24):
Um if you um look at buying alottery ticket, right?
So you go buy a lottery ticket,you know, the mega millions, it
cost you what, three bucks now,or I think the price went up to
five or whatever they are.
Two, it's not a lot of money,right?
It's probably not going toaffect your life.
If you want it, it would reallymake a big difference in your
life, right?
So, what are would you be on theother side of that?
Would you be willing to selltickets to people?
(11:45):
Um, and let's let's use anotheruh example, and that is Russian
roulette.
So there's there's this biasthat happens where people do
things and it works, andtherefore they think it must
have been safe.
In Russian roulette, there arefive players who uh you can call
(12:05):
them smart.
I don't know.
There's there's five satisfiedpeople in Russian roulette.
There's only one dumb person,right?
Uh that that that's that's athat's a harsh example, and I
use it to to really shock peopleto get some attention because I
the worst case that I know isone of our clients' mothers was
selling calls and she was doingthis for income, and she did
(12:30):
really well.
She was making about 25%annualized return for over a
year.
And Michael went to his mom andsaid, Hey, listen, you you
probably should look at someother strategies here.
You've got you've got no riskthere.
Um, she ended up losing$2.3million.
This no BS, this is a truestory.
Um, because the stock, theequity that she was trading had
(12:51):
a massive move overnight.
And uh, I mean, heartbreakingfor me to hear that story.
That's you want to talk abouthow much you can lose.
Oh,$2.3 million might put a dentin your retirement account, I
guess.
Uh, and and it certainly did puta dent in hers.
So I don't think traders shouldbe looking at these strategies
as as often as they do.
So naked calls are just onestraight strategy that I would I
(13:14):
would never do.
I think you always want to buythe call.
My my point is if you're gonnasell calls, always make sure
that you have the stock so youcan deliver it already.
That's a covered call, or youhave a long call.
So you have a long call whichwould allow you to acquire the
shares and limit your risk.
SPEAKER_02 (13:31):
I was just gonna ask you to compare shortcuts uh
versus covered calls.
SPEAKER_00 (13:35):
Let me let me take a shot at that one for just a
minute, Eric.
And I know you've got uh anopinion on this one as well, so
I'm sure you'll you'll addyou'll add some color to it.
But for me, if if you look atthem, if you're just looking at
a risk graph uh of a strat onyour on your strategy tables on
your your brokerage platform,they look the same.
(13:56):
You have a limited upsidepotential, uh uh it's not an
unlimited downside, but it's avery large downside.
I mean, the stock could go tozero, uh, whether you're short
the put or whether you're longthe stock, either way.
So in theory, they're about thesame.
Uh for me, it sometimes dependson the marketplace as to when I
(14:18):
do these.
Um and what that means is whenyou've got really levels of high
levels of vol, if we're in areally uncertain market, if this
were 2020, if this were even2022, you might find more
benefit in doing a short putstrategy versus a covered call
strategy only because you'regonna have a little more
(14:40):
volatility on the put sideversus the call side.
Most of the time, the marketsare not in those types of
scenarios.
You know, almost all years themarkets go up.
And then we have that bearishcorrection one out of one out of
every 10 years where we havethis ugly market, and that's
when there's gonna be morevolatility on the put side.
(15:01):
But most of the time, your calloptions usually have a tendency
to have a little more vol inthem.
Uh, and so you make more moneyuh in a bullish market when
you're doing a covered callversus a short put.
In theory, they're the same.
Um, in practicality, they theymake a little bit more money
that way.
I like to own the stock.
(15:23):
Um for me, it's a comfort levelthing uh as well.
Doesn't mean I don't do cashsecured puts from time to time.
I think there's a better waythan a cash secured put.
I'd rather leverage and do morecontracts of a bull put than do
a cash secured put because I canactually think I can outperform
it that way, but that's a wholedifferent discussion.
(15:44):
We have a whole nother class onjust that idea alone.
SPEAKER_01 (15:47):
We do.
We should have one.
So there's a lot of folks that Imeet uh that are put sellers.
Uh I hear this term naked putand um cash secured put, which
are really the same thing.
They're the difference somebodymight use a cash secured put as
uh there's actually a questionhere about selling puts to
(16:08):
acquire shares at a lower price.
And that's uh let's start with along put.
So long put is the right to sellyour shares.
It's you know, you buy insuranceon your car, you total your car,
the insurance company buys yourcar from you at a pre-agreed
price.
You buy put on a stock, if thestock price goes down, you can
make somebody buy your stock ata higher price.
(16:29):
Um, I had this happen to me onetime where I had a collar trade
on Apple.
My wife knew that we traded alot of Apple.
And um, she said, Honey, I heardApple dropped a lot.
I said, Yes.
I said, She's like, You don'tseem upset.
I'm like, well, I've got it in acollar trade.
I've got a put.
And she said, Well, I don't knowwhat that means.
I mean it means somebody can buythe stock.
Somebody I can, I'm sorry, I cansell the stock at a higher price
(16:51):
than where it's trading rightnow.
She said, What do you mean?
I said, I said, I bought a put.
And she said, What's a put?
I said, What's it's a and shesaid, what if they don't want to
do it?
I said, It's a contract, honey.
They have to do it.
She says, You signed a contractwithout telling me.
I said, honey, let's sit down.
We'll talk about what it is thatI do here.
And she's like, No, no, no,that's okay.
But the concept of a put is youpre you agree on the price, and
(17:14):
I'm going to sell my stock toyou at that price.
And I have the choice to makeyou buy my stock, or I can turn
around and sell the put.
So it's a it's a good strategyto you know, couple with stock
ownership because it gives youprotection and the downside
move.
But um, people will sell theputs with the notion that I want
to buy the stock and I'm okaybuying the stock.
(17:35):
So you sell a put at 100, and ifthe stock drops to 95, you buy
it at 100.
Okay, so it's only down by five.
But what if it's at 80?
Or what if it's down to 75?
You're still buying it at 100.
So naked puts, again, highprobability trade.
They normally make money, butthe sort of risk that you have
is really um, to me, I I don'tthink it's, I don't think you
(17:57):
get paid enough for the riskthat you take.
Again, we've seen some of thesemega moves that have happened in
large cap stocks, and it's gonein both directions.
And so you might find yourselfin a trade where maybe I'm
making 200 or 400,$600,somewhere like that uh on a on a
monthly basis, but then you takea$3,000 or$4,000 loss and it
(18:19):
wipes out all the money thatyou've made.
And this is why, you know, Gregmentioned the put spreads.
I like doing uh a bull putspread.
So that's I sell a put and buy aput.
That's a great strategy.
But I want to I want to educatepeople who are in this space of
selling naked puts or cashsecured puts.
You're not good at math.
(18:42):
That's the bottom line.
Um, if you're doing a cashsecured put, you're setting
aside all the money that'srequired to buy the shares.
So why don't you just buy theshares and sell a call at the
same strike?
And the reason is you haven'tdone the math.
And I before this session, I waslooking at NVIDIA.
And let's assume that you wantedto sell an at-the-money call in
(19:06):
NVIDIA or an at-the-money put orslightly out of the money put on
NVIDIA.
I'm looking out 30 days, it's um597 is what you can sell the put
for.
So the risk in the trade wouldbe 179.40.
That's where you're gonna end upbuying NVIDIA.
If you did a covered call at thesame strike, um, your cost basis
(19:29):
is a little bit lower, 178.34.
And the profit on that would be667.
The profit works out to be about5%.
It's actually a little bitbetter than 5% annualized.
And if I talk to any portfoliomanager and said, hey, listen,
there's a simple tweak that youcan do to your strategy that's
(19:49):
going to give you 5%, four totypically it's four to five
percent.
Annualized return is better.
They would jump at it.
Yeah, so you you need to belooking at now the the thing
with covered calls, so this is acovered call and an ACID put,
same strike, go compare them.
You'll see that the pricing isdifferent.
I'd I'd very, very smart peoplehave a hard time believing this
(20:11):
is true, but the math is allthere for you to go take a look
at.
So pull up a you know, a coveredcall that's in the money.
So it would be that this shortcall is lower than where the
stock is trading now.
And the chart, the chances arepretty good, 67% chance you're
gonna sell your stock.
And this is what a lot of peoplehave a hard time getting past is
that I might actually sell mystock.
(20:34):
This is not somebody asked me ifthis is skew.
This is not skew.
This is actually closer to row.
This has to do with the cost ofcarry on the stock.
So in one side, you are gettingthe the uh risk-free interest
rate, cost of carry.
So this is not skew.
Skew has to do with up or down.
(20:54):
So implied volatility, if youlook at implied volatility going
up versus implied volatilitygoing down.
Say you pick$20 higher,$20lower, the puts are usually more
money.
It's not a call thing or a putthing.
It's that's skew is options tothe low side.
And there's a there is a slightdifference between the implied
(21:15):
volatility of a call and a putat the same strike.
The reason why, though, isbecause of the risk-free
interest rate.
And that's basically if you buythe stock, you're getting uh
paid.
The difference between that isthe cost of carry.
That's how that's where the mathcomes from.
That's where it works out.
So if you and if you look at acovered call, when I think about
(21:37):
adjusting, and this is I wanteverybody here to think in terms
of um, I think it's is a BlaisePascal.
Well, a more modern philosopherwho used the same thing was
Charlie Munger.
Charlie Munger used this notionof invert.
Invert.
Invert, invert, invert, alwaysinvert, Charlie says.
(21:58):
And I think people should lookat the opposite of not think
about winning, think aboutlosing.
And not that you should focus onlosing, but ask yourself what
happens when this thing thatshould work 70% of the time,
that means 30% of the time it'snot gonna work.
The success that you're going tohave and how you're gonna beat
(22:19):
the rest of the crowd is whenyou're okay with that 30%, when
you can improve upon that 30%.
When a covered call goes down,what happens?
So covered call, the price ofthe call that you sold is
getting cheaper.
So you're making money on thecall.
Now you're losing money on thestock, but you can easily roll
(22:39):
that call down, especially ifit's in the money.
You've got a wide berth, it's aneasy adjustment.
Why does the same adjustment notwork for a naked put?
Because the equivalent in anaked put would mean you are
gonna think about it from acovered call standpoint.
If I have a cover call, I closethe whole covered call, buy back
(23:00):
the call, sell the stock, andthen buy the stock again and
sell another call.
You would never do that, youwould just roll the short calls
down.
If you close a naked put, that'swhat you're doing, and it makes
no sense.
The the naked put, what you needto do is get the stock assigned
to you right away, and then youcan sell calls on it.
So Greg does naked puts.
(23:20):
This is maybe I I don't know ifthis is coming through, but it's
adjusting a covered call in thedownward direction.
Anybody that's done is like, oh,this is I'm good with this, as
opposed to a naked put.
You're gonna, if you close thenaked put, you permanently
booked a loss, and then you sellanother put someplace else.
You can never make that moneyback.
A covered call, you can.
So with a naked put, I would ifI'm gonna do a naked put, and I
(23:43):
I didn't say that I would not donaked puts, I do do them.
Naked calls, I won't do nakedputs, I do, but I want to buy
the stock and I want to getassigned, I want the shares
right away, or have it go up.
Um, if it does start droppingdown, I'm looking at other
potential adjustments, likemaybe adding the put to it.
But in Greg's case, when I thinkabout that, Greg mentioned a
(24:04):
bull put, uh, which is a putcredit spread.
That's where I'm looking.
That that's what I'm I when Ithink this through, I I invert.
I invert.
I've got a naked put.
What if it goes against me?
I have been doing this for 23years.
If I have that strategy, I wantto buy that.
As soon as the stocks go down, Iwant to buy the put.
(24:25):
The sooner I buy the put, thebetter that trade is.
So why not buy the put now?
SPEAKER_00 (24:30):
So exactly.
Sometimes even buying the putbefore assignment even occurs.
SPEAKER_01 (24:34):
Right.
Oh, absolutely.
I that's I mean, as soon as itstarts going down, I want to buy
that put.
And when you have been there,um, you realize, like, wow, it
would have been better if Ibought the put sooner.
It would have been better.
And I get to the point that,like, well, just buy the put
now.
When you sell the put, buy theput.
You will use far less capital orfar less risk and have much
(24:57):
better opportunities foradjusting.
Now you bring in less money thana naked put, but I think the
reward is far better, farbetter.
And we have a free class that weoffer at the end.
We'll let people uh know howthey can tune in to a to
understand more about thatstrategy.
We have another free class thatpeople can attend.
SPEAKER_02 (25:17):
Because we don't have a lot of time left, I
really wanted to uh touch onzero DTE options.
What do you think?
Guys think the biggest thingtraders need to know about both
the opportunities and the risks.
SPEAKER_01 (25:26):
We get a lot of people who are interested in
zero T DT options.
Mentioned the story aboutMichael and his mother.
Uh, I've had a few of thosewhere regular people here who
doing it in the IRA, one guy, Idon't want to, I'll use his
initials because he mightactually be here, uh, reached
out to me and he said, Eric, I'mI'm gonna lose$30,000 at the end
of the day if this doesn't workout for me.
(25:47):
What should I do?
Um,$30,000 is probably not, youknow.
I mean, that's a good year foryour 401k, I guess, for most
people, or maybe two years.
So there's, you know, people areputting significant risk.
They're again high probabilitytrades, but they can really go
against you.
But Greg, I want to hear yourthoughts.
SPEAKER_00 (26:05):
In my opinion, there are there's very little upside
for zero DT op zero DTE optionsfor the retail investor, even
though that, even though theretail investor seems to be
embracing it with open arms,they're jumping in.
In my opinion, the biggest riskpeople are making or taking, I
should say, is they are doingthese this idea of I'm gonna go
(26:27):
do a short-term one-day uh ironcondor where I'm gonna sell one
standard deviation and expect itto not move during the day.
And man, you gotta be numberone, you gotta be glued to your
computer all day long.
You have enormous gamma risk umof this the the the trade
(26:48):
absolutely blowing up on you.
And like Eric said, it's one ofthose things you could win 50
trades in a row, and then if youmiss on one, you blow up 50
trades.
Uh and so for me, the risk wayoutweighs the opportunity uh
that is created by zero DTEoptions.
I mean, if I have an equity thatI'm selling it against, if I'm
(27:11):
covered, different story.
I I'll sell I'll buy and sell astock every day and use a zero
DTE if I actually have it hedgedwith the underlying.
But for me, trading them alone,again, that's that's the
roulette table.
And if you're gonna gamble, goto Vegas.
There you at least get freedrinks.
SPEAKER_01 (27:29):
So when you're most most of the people who trade
zero to ease are institutions,and there's an institutional
reason why it makes sense forfor institutions to trade those
options because they get there'sa there's a benefit.
Um, they don't have to paymargin fee if they don't hold it
overnight.
So they can get exposure to theSP 500 futures.
So the vast majority of optionvolume that's in the zero to
(27:52):
E's, DTEs, are institutions.
Now, retail traders have reallytaken off, and it's a
significant portion of it isretail traders.
But I want to use anotherprobability model, and that is
if you go to the casino, if yougo to the casino and you get to
the craps table, you can bet onsnake eyes.
So a$10 bet will pay off$320 ifyou're at a good casino, some
(28:14):
only$300.
Uh so or$10, yeah,$10.
So it's three, it's$30 or$32 to1 is what they pay off.
Now, what are the odds ofrolling snake eyes?
Rolling a one.
One in 36.
One in 36, because there's sixtimes six.
So it should pay out 36 to 1,but it pays out 30 or 32 to 1,
(28:35):
depending on the casino you goto.
Would you be willing to go tothe casino and say, I will take
your$10 bet and pay you$50 toone?
Now, most of the time peopledon't roll a two, but people do
occasionally.
So if you win money in thatsituation, uh, because you know
(28:57):
you got to keep your bet, andthis is this is what people
really need to understand iswhat is the probability model
that option prices are based on.
And I think you really have tounderstand um that at a level
better than most people aredoing it.
So just because you win at doingsomething, Russian roulette,
doesn't mean you made adecision.
(29:17):
I we really focus on goodprocess and good outcomes.
You can have a bad process andhave a good outcome.
And the problem is thatreinforces bad behavior.
That's a quote from Annie Duke,which is a really good book if
you get a chance to read it.
Annie Duke's um thinking andbets.
It's a way better book than Ithought.
So I highly recommend becausethere's a lot of application to
(29:39):
trading, trading, not from agambling standpoint, but about
that is that following a goodprocess is really what is going
to get you to havingconsistently good outcomes.
SPEAKER_02 (29:49):
Great.
We're coming to the end.
Uh, one person has asked uh ifuh people will get a recording
of it.
This will be edited and thenpublished on uh League Lake Live
on YouTube, so you can go andwatch it there.
But uh Greg and Eric, this hasbeen a great session.
But can you tell everybody wherethey can go to find you and
about the uh deal that you'reoffering?
SPEAKER_00 (30:07):
Well, the best place to find us is uh
optionsanimal.com slash LLM.
Right?
I get it right, Eric.
Yeah, you did.
SPEAKER_01 (30:16):
Yeah.
SPEAKER_00 (30:16):
So this large language model, right?
Yeah, large language model,yeah.
SPEAKER_01 (30:19):
Now is that the name of the company, Michael?
Large language model?
No, lead lag media, L L N.
SPEAKER_00 (30:24):
Yeah, go there.
We we've got a lot of differentuh classes that you can sign up
for there as well that are free.
That'll give you a little moreinformation about who we are at
Options Animal and how we as aas an education company teach
people how to employ thesedifferent strategies into their
individual portfolios.
Um, so yeah, go check us out.
SPEAKER_01 (30:43):
We're also on social media.
Uh, I'm Eric714 on Twitter, andGreg, you can see at Options
Animal 34.
What's the 34?
SPEAKER_00 (30:56):
Charles Barkley.
SPEAKER_01 (30:57):
Oh, okay.
I thought it is.
I thought it was because you're34 years old.
SPEAKER_00 (31:01):
You look young.
When I was in high school,Barkley was my guy.
So okay.
Now he's just old and funny onTNT.
SPEAKER_02 (31:08):
Thanks, Melanie.
This was a lot of fun.
It was awesome.
And and I uh I suggest thathighly suggest people go back
and look at the uh last webinarthat we did uh with the color
strategy.
SPEAKER_01 (31:18):
It's been great, and I look forward to next time.com
backslash LLM.
Optionsanimal dot com backslashLLM.
I'm joined again by Greg Jensen from Options Animal
and Eric Hale from Trader Oasis.
For those of you who listened inlast time, we dug into how to
trade around the stock positionswith the caller strategy.
This time we're going back tothe basics.
And if you're here for CFPcredits, we'll email you for
that info after the chat.
And then for those of you whodon't already know, Greg is the
(00:34):
founder of Options Animal, apublished author, former hedge
fund manager, and RIA, known forhis precise trade adjustments.
Eric is the founder of TraderOasis, a four-time forecasting
award winner, recognized by theChicago Fed and an active
real-time educator.
Guys, thanks so much for joiningme.
SPEAKER_00 (00:55):
Thank you, Melanie.
It is a pleasure as always.
Looking forward to today'sdiscussion.
Eric.
SPEAKER_01 (01:03):
Yeah, yeah, it's good to be here.
Thanks for uh for making thetime.
It was a lot of fun.
We had a good time and a lot ofpeople were interested and
reached out to us after the lastone.
So we hope um hope we have asimilar success this time.
And at the end, we'll let peopleknow how they can uh get a
special offer if they'reinterested in learning more
about what we do.
SPEAKER_02 (01:21):
Exciting.
Yeah, absolutely.
So I just we don't have a lot oftime, so I want to get right
into it.
Uh let's start with somethingevery trader asks at some point,
when is it appropriate to buylong options?
SPEAKER_01 (01:32):
I'm gonna turn this one over to Greg, but before I
address it, because Greg is he'sone of the best traders I've
ever met.
Um, he has um, you know, he'sthis over 10,000 hours thing.
You uh talk about when somebodyis an expert and has a a sense
of um just sort of intuition.
And Greg really has it.
I've seen Greg um like Apple,he's a very fan, he's one of the
(01:54):
best Apple traders I've everseen.
He sometimes he buys calls onApple, sometimes he buys puts,
sometimes he buys both.
Sometimes he's selling optionsaround Apple earnings events.
Um, so I I think I'd really liketo hear Greg's response to this
because I'll be honest with you,I think he's better at long
options than I am.
SPEAKER_00 (02:10):
For me, it long options require an enormous
amount of conviction in myexpectation of where the
market's moving.
So I I gotta be really confidentbecause the problem with buying
a long option, and this is trueof both calls and puts, um, is
when you're going long, you haveall kinds of different things in
(02:31):
the options world workingagainst you from volatility
decay to time decay.
Uh and if you're wrong for verylong, it can absolutely destroy
your position.
So I would say the mostimportant thing is you're very
strong on your conviction aboutI this thing's going up, and I'm
very confident it's going up.
So I'm gonna go a long option.
(02:52):
Now, I'll throw out one otherkey thing I look for with long
options too, is I I've tradedthem enough uh over the years.
I think my first long option Idid was uh it was on uh Nokia
back in uh like 1996 was thefirst time I ever did a long
call.
And it it it's uh it's veryinfluenced by emotion, but the
(03:17):
thing I've found the mosthelpful is that even though I'm
good at it and I've done it alot, I'm wrong a lot too.
And so I don't like to tradeshort dated options.
When I'm going long on anoption, whether it's again,
whether it's a call or a put,I'm buying myself some time.
Uh, three months, six months oftime, so that if in the short
(03:39):
term I'm wrong, I don't killmyself.
I mean, the the fascination withzero DTE options right now and
people trying to buy calls at 10a.m.
Eastern time and selling them byby 2 p.m.
Eastern time, man, that is justabsolutely the casino uh to me.
So I don't I don't gamble inshort-term options, but you
know, give me a little bit oftime and I'll I'll I'll take a
(04:01):
long position.
SPEAKER_01 (04:02):
Did you make money on your first option trade?
SPEAKER_00 (04:04):
I did actually.
SPEAKER_01 (04:05):
See, that's the way it works.
Like the first time you go toLas Vegas, everybody wins your
first trip to Las Vegas, you geta front pass so that they can
get their hooks in you.
And I'll I I had a similarexperience.
The first time I traded longoptions, I made money, and I
don't really knew I didn'treally know why I made money.
Um, I I want to just throwsomething out for everybody
listening, just to give it, putthings into perspective.
(04:25):
If you've been trading longoptions, either calls or puts,
um, then you've probably lostmoney.
And and the reason is aboutsomewhere between 65-70%
probability that you're gonnalose money on a long option.
Because it not only does it haveto move, but it has to move a
lot.
You have to overcome um theextrinsic value, which is
impacted by how much time is inthe option, but also Greg
(04:48):
mentioned volatility.
So you've got the idea that,hey, Apple or Netflix or
somebody has got a big earningsevent coming up, and I think
it's gonna make a big move.
And you may decide, I'm gonnabuy a call.
You have to understand if thatcall is expensive.
And if you look at 30-day callsthroughout the year, they
they're the price, you know, ifyou look at an at-the-money
(05:08):
call, it varies throughout theyear.
Sometimes it's high, sometimesit's low.
Because the market does a reallygood job anticipating that
there's gonna be volatility inthe future.
That's what that's what impliedvolatility is implied
volatility.
Think of the words, impliedvolatility.
It's the volatility that's gonnahappen in the future.
And it's the same notion, youfolks already understand this a
(05:28):
little bit, even if you don'tknow much about options.
You understand that someinsurance policies cost more
when the risk is high.
You think about buyinginsurance.
I use the example of my son whenConnor turns 16 and I called my
state farm agent and asked forinsurance on him.
She gave me a price.
And I said, Is that for thewhole family?
And she's like, No, that's justhis price.
Uh, why is he two and a halftimes more than my wife?
(05:51):
And the reason is the odds ofhim using that insurance go up.
So he costs more.
It's the same thing in optionpricing.
The odds of it paying off, if itlooks like it's going to pay
off, the price goes up.
So we see calls becomeexpensive.
And a lot of people trade longcalls and puts experience this.
Now, there are times, and maybelike if you own stock, buying a
(06:12):
put, buying insurance is not abad idea.
So sometimes it might be prudentfor you to buy a protective
option around uh an earningsevent.
And maybe go back and watch thisvideo we talked about last time,
a caller trade.
Since um since the puts areexpensive, the calls are
expensive too.
(06:33):
And we'll explain a little bitmore about that and mention that
you can create a syntheticposition.
You can create a call usingstock and a put.
In fact, if you look at a stockand a put and looked at a call,
they look exactly the same froma risk reward standpoint.
So if puts become expensive,calls become expensive, or
there's a free arbitrage forpeople that's out there.
(06:53):
So um we do see a lot of peoplethat try to get on the other
side of that and and they selloptions because if you've got a
65 to 70 percent chance oflosing money, you've got a if
you sell those options, you'vegot a 65 to 70 percent chance of
making money.
And I want to turn that to Gregand say, so why don't people
(07:16):
just sell options then if youusually make money?
SPEAKER_00 (07:18):
Because it's boring.
SPEAKER_01 (07:20):
What you don't like making money?
SPEAKER_00 (07:22):
I'll answer that question here in a minute, Eric.
But I want to throw out one morething on long options before we
go away from them.
Um, to to to answer anotherpoint of your or of your
question, Melanie, was you know,why would you buy options?
I think the the one of thereasons in the past was to get
exposure maybe to a stockwithout as much capital
(07:44):
requirement.
You know, you know, you'retrading some really high-valued
equity, it can be hard to to buyit.
Um, but with fractionalownership now offered by so many
brokers, it's much easier tostill trade those equities um
and not expose yourself to justbuying long options.
(08:07):
So um I I would say so thatthat's I wanted to throw that in
there before I went we went awayfrom longs, but Eric to answer
your question, um, you know, whydon't people why don't more
people sell options?
Um the biggest reason why isthey don't know how.
They they don't know the risksassociated with it, they don't
understand the the strategybehind it.
(08:29):
Um, they don't understand thatthey get it.
I think there's a little of anintimidation factor uh in the
idea of when you're selling anoption, you have an obligation.
Um, you know, that you'rerequired to do something,
whether it's when you're sellinga put, you're required to buy
stock, or if you're selling acall, you're required to sell
stock.
And so I think part of it's justa lack of education.
(08:52):
Um, and they don't understandthat to be honest, it's one of
the best ways to make money,like you said, is is actually
selling options versus buyingoptions.
SPEAKER_02 (09:03):
Wanted to ask you what about the strategy?
How safe is the strategy?
And then can you also, Eric,talk about uh naked calls?
SPEAKER_01 (09:10):
Yeah.
Okay, so naked calls, whichMichael's daughter's laughing
now.
Uh she's in the backgroundlistening, learning about
options.
So glad to hear that, Michael.
Uh a naked call is a strategywhere you are telling somebody,
I will give you shares at apredetermined price if you want
to buy them from me.
(09:31):
So it's the opposite of a longcall.
So a long call is sort of like acoupon or a layaway certificate.
You put a deposit down, and ifthe price of something goes up,
you can buy it at the lowerprice.
So that's a long call.
A short call, you're on theother side of that transaction.
If there's a short, if there's along call, there's always a
short call.
So the one exists, and whodelivers the stock is whoever
(09:54):
has the short call.
And again, these these tradetrades have uh very high
probability of working.
And you know, Greg mentioned umthat maybe people uh do them.
Uh I think more people do themthan probably should.
I think it's one of these thingswhere, well, if you understand
what the lit, the limits are ofrisk of a short call.
(10:18):
What's the limit of a of a shortcall?
It's there is no limit to therisk.
It's is undefined.
There's no limit to how muchmoney you could lose.
And if we look at some of thesescenarios, that we've seen some
stocks lately, some mega capstocks that you know move 20,
25% overnight with surprises andyou know, act whether it's an
acquisition or just you know,some oh, we got a relationship
(10:40):
with NVIDIA or NVIDIA or AI orwho, you know, pick the name.
Um, we've seen these massivemoves that have happened
overnight.
And that can happen on bothdirections, right?
It can happen on the upside orthe downside.
And and I would argue thatthere's probably far too many
people who are selling nakedoptions who don't understand the
risk that they have.
(11:01):
And uh, my background as anengineer, and if you ask me, um,
you know, how what what strategywould you never do?
The one strategy I would, and Imean never, ever do is a naked
call.
And I know there are people outthere that do it.
And I like to use sort ofanalogies to put things into
perspective.
You think about probabilitygames that we can play.
(11:24):
Um if you um look at buying alottery ticket, right?
So you go buy a lottery ticket,you know, the mega millions, it
cost you what, three bucks now,or I think the price went up to
five or whatever they are.
Two, it's not a lot of money,right?
It's probably not going toaffect your life.
If you want it, it would reallymake a big difference in your
life, right?
So, what are would you be on theother side of that?
Would you be willing to selltickets to people?
(11:45):
Um, and let's let's use anotheruh example, and that is Russian
roulette.
So there's there's this biasthat happens where people do
things and it works, andtherefore they think it must
have been safe.
In Russian roulette, there arefive players who uh you can call
(12:05):
them smart.
I don't know.
There's there's five satisfiedpeople in Russian roulette.
There's only one dumb person,right?
Uh that that that's that's athat's a harsh example, and I
use it to to really shock peopleto get some attention because I
the worst case that I know isone of our clients' mothers was
selling calls and she was doingthis for income, and she did
(12:30):
really well.
She was making about 25%annualized return for over a
year.
And Michael went to his mom andsaid, Hey, listen, you you
probably should look at someother strategies here.
You've got you've got no riskthere.
Um, she ended up losing$2.3million.
This no BS, this is a truestory.
Um, because the stock, theequity that she was trading had
(12:51):
a massive move overnight.
And uh, I mean, heartbreakingfor me to hear that story.
That's you want to talk abouthow much you can lose.
Oh,$2.3 million might put a dentin your retirement account, I
guess.
Uh, and and it certainly did puta dent in hers.
So I don't think traders shouldbe looking at these strategies
as as often as they do.
So naked calls are just onestraight strategy that I would I
(13:14):
would never do.
I think you always want to buythe call.
My my point is if you're gonnasell calls, always make sure
that you have the stock so youcan deliver it already.
That's a covered call, or youhave a long call.
So you have a long call whichwould allow you to acquire the
shares and limit your risk.
SPEAKER_02 (13:31):
I was just gonna ask you to compare shortcuts uh
versus covered calls.
SPEAKER_00 (13:35):
Let me let me take a shot at that one for just a
minute, Eric.
And I know you've got uh anopinion on this one as well, so
I'm sure you'll you'll addyou'll add some color to it.
But for me, if if you look atthem, if you're just looking at
a risk graph uh of a strat onyour on your strategy tables on
your your brokerage platform,they look the same.
(13:56):
You have a limited upsidepotential, uh uh it's not an
unlimited downside, but it's avery large downside.
I mean, the stock could go tozero, uh, whether you're short
the put or whether you're longthe stock, either way.
So in theory, they're about thesame.
Uh for me, it sometimes dependson the marketplace as to when I
(14:18):
do these.
Um and what that means is whenyou've got really levels of high
levels of vol, if we're in areally uncertain market, if this
were 2020, if this were even2022, you might find more
benefit in doing a short putstrategy versus a covered call
strategy only because you'regonna have a little more
(14:40):
volatility on the put sideversus the call side.
Most of the time, the marketsare not in those types of
scenarios.
You know, almost all years themarkets go up.
And then we have that bearishcorrection one out of one out of
every 10 years where we havethis ugly market, and that's
when there's gonna be morevolatility on the put side.
(15:01):
But most of the time, your calloptions usually have a tendency
to have a little more vol inthem.
Uh, and so you make more moneyuh in a bullish market when
you're doing a covered callversus a short put.
In theory, they're the same.
Um, in practicality, they theymake a little bit more money
that way.
I like to own the stock.
(15:23):
Um for me, it's a comfort levelthing uh as well.
Doesn't mean I don't do cashsecured puts from time to time.
I think there's a better waythan a cash secured put.
I'd rather leverage and do morecontracts of a bull put than do
a cash secured put because I canactually think I can outperform
it that way, but that's a wholedifferent discussion.
(15:44):
We have a whole nother class onjust that idea alone.
SPEAKER_01 (15:47):
We do.
We should have one.
So there's a lot of folks that Imeet uh that are put sellers.
Uh I hear this term naked putand um cash secured put, which
are really the same thing.
They're the difference somebodymight use a cash secured put as
uh there's actually a questionhere about selling puts to
(16:08):
acquire shares at a lower price.
And that's uh let's start with along put.
So long put is the right to sellyour shares.
It's you know, you buy insuranceon your car, you total your car,
the insurance company buys yourcar from you at a pre-agreed
price.
You buy put on a stock, if thestock price goes down, you can
make somebody buy your stock ata higher price.
(16:29):
Um, I had this happen to me onetime where I had a collar trade
on Apple.
My wife knew that we traded alot of Apple.
And um, she said, Honey, I heardApple dropped a lot.
I said, Yes.
I said, She's like, You don'tseem upset.
I'm like, well, I've got it in acollar trade.
I've got a put.
And she said, Well, I don't knowwhat that means.
I mean it means somebody can buythe stock.
Somebody I can, I'm sorry, I cansell the stock at a higher price
(16:51):
than where it's trading rightnow.
She said, What do you mean?
I said, I said, I bought a put.
And she said, What's a put?
I said, What's it's a and shesaid, what if they don't want to
do it?
I said, It's a contract, honey.
They have to do it.
She says, You signed a contractwithout telling me.
I said, honey, let's sit down.
We'll talk about what it is thatI do here.
And she's like, No, no, no,that's okay.
But the concept of a put is youpre you agree on the price, and
(17:14):
I'm going to sell my stock toyou at that price.
And I have the choice to makeyou buy my stock, or I can turn
around and sell the put.
So it's a it's a good strategyto you know, couple with stock
ownership because it gives youprotection and the downside
move.
But um, people will sell theputs with the notion that I want
to buy the stock and I'm okaybuying the stock.
(17:35):
So you sell a put at 100, and ifthe stock drops to 95, you buy
it at 100.
Okay, so it's only down by five.
But what if it's at 80?
Or what if it's down to 75?
You're still buying it at 100.
So naked puts, again, highprobability trade.
They normally make money, butthe sort of risk that you have
is really um, to me, I I don'tthink it's, I don't think you
(17:57):
get paid enough for the riskthat you take.
Again, we've seen some of thesemega moves that have happened in
large cap stocks, and it's gonein both directions.
And so you might find yourselfin a trade where maybe I'm
making 200 or 400,$600,somewhere like that uh on a on a
monthly basis, but then you takea$3,000 or$4,000 loss and it
(18:19):
wipes out all the money thatyou've made.
And this is why, you know, Gregmentioned the put spreads.
I like doing uh a bull putspread.
So that's I sell a put and buy aput.
That's a great strategy.
But I want to I want to educatepeople who are in this space of
selling naked puts or cashsecured puts.
You're not good at math.
(18:42):
That's the bottom line.
Um, if you're doing a cashsecured put, you're setting
aside all the money that'srequired to buy the shares.
So why don't you just buy theshares and sell a call at the
same strike?
And the reason is you haven'tdone the math.
And I before this session, I waslooking at NVIDIA.
And let's assume that you wantedto sell an at-the-money call in
(19:06):
NVIDIA or an at-the-money put orslightly out of the money put on
NVIDIA.
I'm looking out 30 days, it's um597 is what you can sell the put
for.
So the risk in the trade wouldbe 179.40.
That's where you're gonna end upbuying NVIDIA.
If you did a covered call at thesame strike, um, your cost basis
(19:29):
is a little bit lower, 178.34.
And the profit on that would be667.
The profit works out to be about5%.
It's actually a little bitbetter than 5% annualized.
And if I talk to any portfoliomanager and said, hey, listen,
there's a simple tweak that youcan do to your strategy that's
(19:49):
going to give you 5%, four totypically it's four to five
percent.
Annualized return is better.
They would jump at it.
Yeah, so you you need to belooking at now the the thing
with covered calls, so this is acovered call and an ACID put,
same strike, go compare them.
You'll see that the pricing isdifferent.
I'd I'd very, very smart peoplehave a hard time believing this
(20:11):
is true, but the math is allthere for you to go take a look
at.
So pull up a you know, a coveredcall that's in the money.
So it would be that this shortcall is lower than where the
stock is trading now.
And the chart, the chances arepretty good, 67% chance you're
gonna sell your stock.
And this is what a lot of peoplehave a hard time getting past is
that I might actually sell mystock.
(20:34):
This is not somebody asked me ifthis is skew.
This is not skew.
This is actually closer to row.
This has to do with the cost ofcarry on the stock.
So in one side, you are gettingthe the uh risk-free interest
rate, cost of carry.
So this is not skew.
Skew has to do with up or down.
(20:54):
So implied volatility, if youlook at implied volatility going
up versus implied volatilitygoing down.
Say you pick$20 higher,$20lower, the puts are usually more
money.
It's not a call thing or a putthing.
It's that's skew is options tothe low side.
And there's a there is a slightdifference between the implied
(21:15):
volatility of a call and a putat the same strike.
The reason why, though, isbecause of the risk-free
interest rate.
And that's basically if you buythe stock, you're getting uh
paid.
The difference between that isthe cost of carry.
That's how that's where the mathcomes from.
That's where it works out.
So if you and if you look at acovered call, when I think about
(21:37):
adjusting, and this is I wanteverybody here to think in terms
of um, I think it's is a BlaisePascal.
Well, a more modern philosopherwho used the same thing was
Charlie Munger.
Charlie Munger used this notionof invert.
Invert.
Invert, invert, invert, alwaysinvert, Charlie says.
(21:58):
And I think people should lookat the opposite of not think
about winning, think aboutlosing.
And not that you should focus onlosing, but ask yourself what
happens when this thing thatshould work 70% of the time,
that means 30% of the time it'snot gonna work.
The success that you're going tohave and how you're gonna beat
(22:19):
the rest of the crowd is whenyou're okay with that 30%, when
you can improve upon that 30%.
When a covered call goes down,what happens?
So covered call, the price ofthe call that you sold is
getting cheaper.
So you're making money on thecall.
Now you're losing money on thestock, but you can easily roll
(22:39):
that call down, especially ifit's in the money.
You've got a wide berth, it's aneasy adjustment.
Why does the same adjustment notwork for a naked put?
Because the equivalent in anaked put would mean you are
gonna think about it from acovered call standpoint.
If I have a cover call, I closethe whole covered call, buy back
(23:00):
the call, sell the stock, andthen buy the stock again and
sell another call.
You would never do that, youwould just roll the short calls
down.
If you close a naked put, that'swhat you're doing, and it makes
no sense.
The the naked put, what you needto do is get the stock assigned
to you right away, and then youcan sell calls on it.
So Greg does naked puts.
(23:20):
This is maybe I I don't know ifthis is coming through, but it's
adjusting a covered call in thedownward direction.
Anybody that's done is like, oh,this is I'm good with this, as
opposed to a naked put.
You're gonna, if you close thenaked put, you permanently
booked a loss, and then you sellanother put someplace else.
You can never make that moneyback.
A covered call, you can.
So with a naked put, I would ifI'm gonna do a naked put, and I
(23:43):
I didn't say that I would not donaked puts, I do do them.
Naked calls, I won't do nakedputs, I do, but I want to buy
the stock and I want to getassigned, I want the shares
right away, or have it go up.
Um, if it does start droppingdown, I'm looking at other
potential adjustments, likemaybe adding the put to it.
But in Greg's case, when I thinkabout that, Greg mentioned a
(24:04):
bull put, uh, which is a putcredit spread.
That's where I'm looking.
That that's what I'm I when Ithink this through, I I invert.
I invert.
I've got a naked put.
What if it goes against me?
I have been doing this for 23years.
If I have that strategy, I wantto buy that.
As soon as the stocks go down, Iwant to buy the put.
(24:25):
The sooner I buy the put, thebetter that trade is.
So why not buy the put now?
SPEAKER_00 (24:30):
So exactly.
Sometimes even buying the putbefore assignment even occurs.
SPEAKER_01 (24:34):
Right.
Oh, absolutely.
I that's I mean, as soon as itstarts going down, I want to buy
that put.
And when you have been there,um, you realize, like, wow, it
would have been better if Ibought the put sooner.
It would have been better.
And I get to the point that,like, well, just buy the put
now.
When you sell the put, buy theput.
You will use far less capital orfar less risk and have much
(24:57):
better opportunities foradjusting.
Now you bring in less money thana naked put, but I think the
reward is far better, farbetter.
And we have a free class that weoffer at the end.
We'll let people uh know howthey can tune in to a to
understand more about thatstrategy.
We have another free class thatpeople can attend.
SPEAKER_02 (25:17):
Because we don't have a lot of time left, I
really wanted to uh touch onzero DTE options.
What do you think?
Guys think the biggest thingtraders need to know about both
the opportunities and the risks.
SPEAKER_01 (25:26):
We get a lot of people who are interested in
zero T DT options.
Mentioned the story aboutMichael and his mother.
Uh, I've had a few of thosewhere regular people here who
doing it in the IRA, one guy, Idon't want to, I'll use his
initials because he mightactually be here, uh, reached
out to me and he said, Eric, I'mI'm gonna lose$30,000 at the end
of the day if this doesn't workout for me.
(25:47):
What should I do?
Um,$30,000 is probably not, youknow.
I mean, that's a good year foryour 401k, I guess, for most
people, or maybe two years.
So there's, you know, people areputting significant risk.
They're again high probabilitytrades, but they can really go
against you.
But Greg, I want to hear yourthoughts.
SPEAKER_00 (26:05):
In my opinion, there are there's very little upside
for zero DT op zero DTE optionsfor the retail investor, even
though that, even though theretail investor seems to be
embracing it with open arms,they're jumping in.
In my opinion, the biggest riskpeople are making or taking, I
should say, is they are doingthese this idea of I'm gonna go
(26:27):
do a short-term one-day uh ironcondor where I'm gonna sell one
standard deviation and expect itto not move during the day.
And man, you gotta be numberone, you gotta be glued to your
computer all day long.
You have enormous gamma risk umof this the the the trade
(26:48):
absolutely blowing up on you.
And like Eric said, it's one ofthose things you could win 50
trades in a row, and then if youmiss on one, you blow up 50
trades.
Uh and so for me, the risk wayoutweighs the opportunity uh
that is created by zero DTEoptions.
I mean, if I have an equity thatI'm selling it against, if I'm
(27:11):
covered, different story.
I I'll sell I'll buy and sell astock every day and use a zero
DTE if I actually have it hedgedwith the underlying.
But for me, trading them alone,again, that's that's the
roulette table.
And if you're gonna gamble, goto Vegas.
There you at least get freedrinks.
SPEAKER_01 (27:29):
So when you're most most of the people who trade
zero to ease are institutions,and there's an institutional
reason why it makes sense forfor institutions to trade those
options because they get there'sa there's a benefit.
Um, they don't have to paymargin fee if they don't hold it
overnight.
So they can get exposure to theSP 500 futures.
So the vast majority of optionvolume that's in the zero to
(27:52):
E's, DTEs, are institutions.
Now, retail traders have reallytaken off, and it's a
significant portion of it isretail traders.
But I want to use anotherprobability model, and that is
if you go to the casino, if yougo to the casino and you get to
the craps table, you can bet onsnake eyes.
So a$10 bet will pay off$320 ifyou're at a good casino, some
(28:14):
only$300.
Uh so or$10, yeah,$10.
So it's three, it's$30 or$32 to1 is what they pay off.
Now, what are the odds ofrolling snake eyes?
Rolling a one.
One in 36.
One in 36, because there's sixtimes six.
So it should pay out 36 to 1,but it pays out 30 or 32 to 1,
(28:35):
depending on the casino you goto.
Would you be willing to go tothe casino and say, I will take
your$10 bet and pay you$50 toone?
Now, most of the time peopledon't roll a two, but people do
occasionally.
So if you win money in thatsituation, uh, because you know
(28:57):
you got to keep your bet, andthis is this is what people
really need to understand iswhat is the probability model
that option prices are based on.
And I think you really have tounderstand um that at a level
better than most people aredoing it.
So just because you win at doingsomething, Russian roulette,
doesn't mean you made adecision.
(29:17):
I we really focus on goodprocess and good outcomes.
You can have a bad process andhave a good outcome.
And the problem is thatreinforces bad behavior.
That's a quote from Annie Duke,which is a really good book if
you get a chance to read it.
Annie Duke's um thinking andbets.
It's a way better book than Ithought.
So I highly recommend becausethere's a lot of application to
(29:39):
trading, trading, not from agambling standpoint, but about
that is that following a goodprocess is really what is going
to get you to havingconsistently good outcomes.
SPEAKER_02 (29:49):
Great.
We're coming to the end.
Uh, one person has asked uh ifuh people will get a recording
of it.
This will be edited and thenpublished on uh League Lake Live
on YouTube, so you can go andwatch it there.
But uh Greg and Eric, this hasbeen a great session.
But can you tell everybody wherethey can go to find you and
about the uh deal that you'reoffering?
SPEAKER_00 (30:07):
Well, the best place to find us is uh
optionsanimal.com slash LLM.
Right?
I get it right, Eric.
Yeah, you did.
SPEAKER_01 (30:16):
Yeah.
SPEAKER_00 (30:16):
So this large language model, right?
Yeah, large language model,yeah.
SPEAKER_01 (30:19):
Now is that the name of the company, Michael?
Large language model?
No, lead lag media, L L N.
SPEAKER_00 (30:24):
Yeah, go there.
We we've got a lot of differentuh classes that you can sign up
for there as well that are free.
That'll give you a little moreinformation about who we are at
Options Animal and how we as aas an education company teach
people how to employ thesedifferent strategies into their
individual portfolios.
Um, so yeah, go check us out.
SPEAKER_01 (30:43):
We're also on social media.
Uh, I'm Eric714 on Twitter, andGreg, you can see at Options
Animal 34.
What's the 34?
SPEAKER_00 (30:56):
Charles Barkley.
SPEAKER_01 (30:57):
Oh, okay.
I thought it is.
I thought it was because you're34 years old.
SPEAKER_00 (31:01):
You look young.
When I was in high school,Barkley was my guy.
So okay.
Now he's just old and funny onTNT.
SPEAKER_02 (31:08):
Thanks, Melanie.
This was a lot of fun.
It was awesome.
And and I uh I suggest thathighly suggest people go back
and look at the uh last webinarthat we did uh with the color
strategy.
SPEAKER_01 (31:18):
It's been great, and I look forward to next time.com
backslash LLM.
Optionsanimal dot com backslashLLM.
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