@@benscott8940 I'm not 100% sure as to what Matt's fund's criteria are, but I'm sure you could send him an email if you wanted to. Details should be on his website I think.
@@NewMoneyUA-cam yep, no worries mate cheers, hope you 3 enjoyed the Berkshire meeting, loved the podcasts and videos you three have released, keep up the good work mate
Brandon, are we able to use this strategy here in Australia - or do we need a broker to create the Put's and Call's on a commercial scale ie non retail ?? Also do you know of any Australian funds using this strategy which is open to retail investors ? Cheers, Andy
Every time I watch a video on this channel, I learn something very valuable which broadens my understanding of the market. Keep up the brilliant content creation Brandon!
When the market goes down then it's buying opportunity. If the market goes up then you are making money. If you stay invested and ignore the market's ups and downs, you'll make a lot of money in the long run; however, a severe market correction causes a lot of margin calls and sell-offs, driving the market even lower. currently i'm up 13% in my diversified portfolio. As crazy as it sounds some still make enormous returns from this seemingly unknown market. gotta be greedy when others are fearful
PRISCILLA DEARMIN -TURNER is one of the best trader I have ever worked with in the past few years, she knows how best to deal with whatever market situation.
This is basically the wheel strategy minus rolling to avoid assignment. Its important to run this strategy on a stock you have done your homework on and want to own. I made the mistake of forcing it on a stock i wasnt sure about because remember that each contract controls 100 shares so you need strike minus premium times 100 for collateral and most stocks with solid fundamentals thst we want to own arent exactly cheap, a 100 dollar stock requires 10k in collateral. Dont settle for a stock you arent 100% sure you want to own because its the one you can afford. Great content though keep them coming.
@Steven He Check where you have your regular equities trading account, and see if they also trade options. You have to request to be approved to trade options. And before you trade, LEARN. *The start of this video **0:07** has a snippet of how a guy says he's woken up to 20, 30, even $60K in losses.* Then, there's nothing said in the video that clearly explains how that scenario is a very real reality. You need to learn about *THAT.* If you're not aware of the FULL basics of options trading risks, you could easily be in the same boat as that guy 7 seconds into the video.
This is your best video ever!! I’m actually doing this with $GME, I got some cash covered put contracts for $100 for Jan 23, because of the volatility in early 2021 the premium was huge!! $70 each if I remember correctly, if the price goes below $100 I’ll have to buy the shares, so long as it stays near 100 I will make money, if it goes above 100 I’ll pocket the premium and the shares, effectively buying like $30 each and selling for more than 100 🤯🤯🤯 the worse case scenario is if it goes below $30, then I’ll loose. It has been more than a year now and the price is around where I need it to be, wish me luck folks!
Thank you for that content! I feel the biggest danger with writing a put that is not really mentioned in enough details here is to miss owning the stock if the price appreciates. That can mean to get a one time fee from writing the option that is heavily taxed vs owning a stock that could appreciate for many many years with no tax if you don’t sell or long term cap gain tax otherwise (20% one time minus taxes vs 15% per year for 10 years?). And finding a high quality stock that sells at low price is hard enough that you won’t want to miss the opportunity to own II when time comes…
There are many great things about this vid. The presenter is endearingly enthusiastic, authentic and unpretentious; the quality of the charts and intercut clips is excellent; and the interviewee is convincingly knowledgeable. However, is there something deeper at play in the options framework that young Matt has missed or not understood ? I think so.
Brilliant in its simplicity. But for the small retail investors, the minimum size of an options contract (100 shares) automatically rules out stocks with a high share price.
Hey hi. I've discovered your youtube recently, and really like it. You manage to go technical but stay simple, it's really appreciable. And this video in particular is absolutely gold. I'd like to know if you can recommend some books, about strategies we can implement such as this one, or even simply in general in order to get a better grasp on investing? Best regards from Annecy, France.
Do these experienced value investors also sell calls to enhance the returns of an underlying that they're long on, reinvesting the premium? Or, is it generally their position that the premium gained is rarely worth it in the long run? If these investors do sell calls for this reason and the stock price begins to test our strike, under which circumstances is it wiser to roll your option, and when is it better to simply allow the contract to expire ITM, allowing the shares to be called away and rebuying? I expect there is sufficient historical data somewhere that would allow us to make favorable expected value decisions on the matter, but I can't find it.
Typically I see this discussion framed as gamma versus theta: you want to maximize the decay in the option (theta) and minimize the directional losses (gamma/delta). Practitioners commonly suggest that being short a contract from 45 DTE to 21 DTE provides enough decay to be worthwhile and not too much gamma to require more management and sudden losses. Just one idea about this
Unfortunately you cannot write a Put option (i.e. Cash Secured Put) for a stock you like in 'retirement' types of account (at least not in Canada with TFSA, RRSP, FHSA, etc... and I suspect it is the same in the US). You can sell Calls in retirement investment accounts though (i.e. Covered Calls).
Buffet has been selling premium for decades through his insurance and reinsurance businesses, he's a master of compounding returns with other people's money.
One thing that is not mentioned here, the downside to this strategy is you need a lot of capital. One options contract is 100 shares. So if you want to buy shares, by selling 1 put contract for say FB at 200 dollars per share, you would need to have 20k in funds
With this small dive into options, any chance you might do a video on LEAPS? I have the feeling that every UA-camr that discusses it is already sold on its 'amazing' qualities, and I would love a value investor vue on the leverage and risk a LEAPS offers compared to buy and hold, especially now that we are entering a more stagnant market.
This is a great video Brandon. I'm glad you have gone out and learned this strategy. I've been Selling PUT's and CALL's on the US marked for about 18 months to collect premium for cash flow. You may also like to look into rolling your option position (for Position Management) Look up the Blue Collar Investor. He has lots of educational resources for your subscribers too. Cheer
Selling or buying 6-8 month options has way to much time value and exposure. 6-8 week would make more sense and easier to manage but of course less premium
I've been doing this as well for a while. The only thing is when your expiration date is far away you also lock your capital for the time being because you have to have the cash to secure it. And yes you could lose money if the price goes far below the strike price.
@@stickpuppyslife ah ok my broker doesn't seem to allow that. For selling puts I need to have the cash to cover. For selling calls I need to own the stock. (not talking about the poor man's covered call)
Great Video, I saw Tom's podcast with Matthew recently and it really resonated. I had sworn off derivatives like it was a cancer to the value investment philosophy, but in reality it was just a protracted example of consitency bias on my part. Big thanks to Matthew for clearing up a mental block I never knew existed.
Great self-reflection. I had the same mindset about derivs before I found out about Peterson. Nevertheless, there is still plenty of nuances and complexities and if they aren't covered in the thesis then speculation creeps back in.
I love your explanation. For something as complicated as this, you sure tried to explain it in as simple terms as possible. I always learn from your videos. Keep it up and thank you.:)
On the description you say Warren Buffett Strategy; however there is no mention of the fact he has used the strategy or examples. Good video regardless!
@@NewMoneyUA-cam 0:07 *Would a beginner watching this video would be able to explain how that guy at **0:07** awoke to a $60K loss?* It's a good intro, but leaves out a basic explanation of how the above scenario is a very real possibility. Perhaps, the video can be updated or annotated? It's a great channel that should continue to grow!
But if the price drops significantly lower and gets assigned it dont you lose the difference between the stock is at assignment and the strike price that you sold it?
The biggest factor that I don't like using short put to enter a long underlying position is that the stock price could drop below your strike temporarily and rebound to finish at above strike. I will be better off getting my long underlying position when the temporary drop occurs, than holding a short put position with comes with a set maturity date. Very hard to time the market.
It sounds like you are referring more to buying put options which yes, would be harder to execute/time the bottom. If the puts you WROTE get executed, and the stock price bounces back up, then you have made a profit; you also would have kept the premium.
An alternative is to sell an in-the-money put which has a higher probability of being exercised (including before the expiration date) as well as participating in the stock's upside
It seems lot more hands on than normal value investing and creates another layer of risk. But a few more percentage point gains for volatile stocks could make it worthwhile
It's good to do both have shares ur selling calls on otm and sell puts to dca for less and collect premiums both ways and possible share appreciation.. but bi weekly seems to be better and can cash out 60% or higher profits. When u have shares u want ur gonna hold regardless.. best to earn money while holding..
I had a doubt as in the example in case the price goes above 10$ the put buyer will not sell us the stock for 10$ because the option will be out of the money and he has the right to sell and not the put writer than how will one buy that stock for 10$ when the price has gone up according to me then the option will lapse and only profit will be the premium. Is this right ?
Not really understandable your question. Anyway, the one selling the put will obviously get the premium (paid by the buyer) if the option expires out of the money (OTM).
guess the thing about cash secured puts is that you need at least 100 times the current stock price. Not a problem for hedge funds, but for the avg investor, it limits which companies you can do this with. It also re-opens the discussion for stock splits since this becomes more accessible.
This sounds so interesting to me, but arent able to fully understand it to implement it myself. As a student been active in the stockmarket for 4 years and would love to see all the possibilities also concerning options etc, and how to make use of them
It may be because english is my second language but I sadly didnt get the strategy. So if Matt is the writer of a put option, getting a fee in the process, someone else has to buy these options from him and has to speculate on a declining stok price. How does this enable him to buy a stock he always wanted to own? And how can he just let an option expire if he is the writer (not buyer, right?) of an option? Sorry, might be a stupid question.
If you write the put, someone can sells shares to you for a given price that's roughly the current price. If the stock only goes up, you collect the premium (worst case). If the price falls below the strike price, it might get exercised at which point you buy effectively at (current price - premium) and then own the stock (for which you are planning to hold it anyway). So it's really about the premium you are collecting for providing the insurance (of which you are convinced that it's not needed because you know the "real" value of the stock).
this is extremely complicated lol.. I always shy away from options.. frustrating.. is it buying call options if you think the stock is going up?? is that the way it works?? but how far out do you go?
They said you sell a put, and if the price dips, then the put holder will sell you shares. They're saying you will get paid an options premium to buy shares (by selling the put) or sell shares (by selling the call)
Very valuable video, thank you. For us non-US investors finding a good broker that allows Options trading is a challenge. In addition to Stake I’ve started using IBKR for this exact reason :)
Thanks for this great video. Since I read about another options strategy from Mark Spitznagel in his book "Safe havens", I would like to hear your thoughts about that strategy from Spitznagel as well. Looking forward to your opinion on that!
Now that tech has smashed back down to earth I’ve been selling out of the money puts on some companies with high volatility and high growth prospects that still just are a bit too overpriced to be considered value. Either they drop and I get them at value price, or they don’t and I get 2% a month in premium. It’s been working very well so far!
Hi Brandon, Commsec & Westpac are not taking new applications for options trading that allows selling of calls and puts. I think it has something to do with an ASIC ban in May 2021 on binary options for retail investors. I guess ASIC are trying to force us to be ripped off by non-Aus brokers. Would be interested in being able to write puts as an Aussie. Cheers
Selling PUT and CALL options is not binary options! You can trade options on ASX however the Aussie market is not very liquid thus premiums are lower. The US marked is the place to trade.
0:06: 📈 Options trading has become increasingly popular, but there is a strategy that can be used by value investors. 3:53: 💡 Options can be effectively used by value investors to enhance returns. 7:22: 💰 Selling put and call options can provide high returns on investment. 11:03: 📈 The video discusses using covered calls to profit from the appreciation of a stock. 14:58: 📊 Not all stocks are eligible for this options strategy, as they need to be listed on the Chicago Board of Exchange and have available option contracts in the public markets. Recap by Tammy AI
Would a plan work where you use this strategy on a list of stocks from the acquirers multiple and magic formula screeners? It seems to me like you could make big money with it and you reduce your risk over multiple stocks. Would love to hear your opinion on this!
It sounds pleasant. But why isn’t Matt the richest person in the world? And if it works so well why would he teach the technique (yes I know it’s been widely known before him)There was not sufficient discussion of the downside
When you sell your possible profit is given by the premium if the options expires OTM (or you buy it back while in profit before expiration). Otherwise, if expires iTM, you lose the difference between the price of the underlying and the strike, which is the profit of the buyer in this case (minus the paid premium, obviously)
You collect 2.50/sh put premium and need 10/sh collateral (including the 2.50). So to open the position, you need to find 7.50/sh collateral. If the option lapses, then you collected 2.50/sh on your net of 7.50/sh, or 33% over the period.
Imagine selling a Put on NFLX 3 Months before their last earnings, Implied Vol & IRR would have been double digit annualised as recommended. Think why. You are taking the risk for someone else. Absolute pain trade, even after premium received!
Great explanation but the click bait of Warren Buffett is s bit offensive for your audience. Non a word of Warren in the video. I am bit disappointed with this. Also the undercover publicity of Cboe. It seems that the video is a Marketingvideo supported for the brand. It rest some credibility to your content
I would say that it looks different though. Wheel strategy, at least as far as I am concerned, is a process of regularly writing options out ~1-2 monthes that ideally end up out of the money, just in order to collect the premium on a pretty much stable stock (in terms of volatility)
@@Andy__A I would say you are correct, the wheel makes sense for stocks that you don't mind owning, but don't think will increase in value in the near future as you often write covered calls just above your cost basis for the short term. If you think the stock is going to 'moon' in the near future, wheeling caps your upside potential greatly and is outperformed by buy and hold. This appears to be like the wheel but for stocks that you think will rise in the near future, as you only write a covered call once you believe the stock has reached its full potential.
7:39 The writer of the Contract can only Buy it back at a higher price at this point. They have NO control over whether they are assigned the shares or not. Furthermore, you would NEVER be assigned BEFORE the price of the stock falls BELOW the Break Even. There's NO WAY to pay Less than the Spot price because you will always be assigned BELOW the Break Even which is .01 ×100=$1.00 Bare minimum. Realistically though one is usually assigned 1.×100=$100 over the going Market Price. Otherwise, what's in it for the Buyer of the Put.(Not because you pay more than the pre-determined price but because the price of the stock has fallen $1 or more below the Break Even.)
This is not necessarily true because there is a value to depository liquidity, so the put can be exercised when it still has some extrinsic value (again, not a surprise when cash is needed). As an American style options seller, you're also selling options fugit
@OurNewestMember Right, but the buyer of contracts has the right but not the obligation to "exercise" the contract and Call or Put the shares. The Seller of said contracts can Buy them back to Close or Roll their positions to a further date. If the Seller of said contracts allows the price of the stock to go in the money or at the money before the ex-dividend is paid, then they will be "assigned" and the shares will be Called from them or Put to them. The Sellers Sold the contract. They cannot exercise something they don't own anymore. They "Write" the contract and Sell it, and when they buy it back to Close, the Contract is automatically canceled. There's nothing left to exercise.
@OurNewestMember You are right that the Seller can be assigned below or above the break if the ex-dividend is approaching and the extrinsic value of Theta left on the contract is less than the value of the dividend being paid. In that case, you will be assigned At the Money when the price is just above or below the Strike price.
At 9.95 or higher they would not exercise the option… that is , not Chose to sell you the share on or before expiry. They would buy the put contract for 2.5 if they were worried that the share was going a lot lower or to 0. They are betting the share is going to fall. I agree The example is a bit optimistic . In my experience, For a $10 share the usual price in Australia for a 12 month Put @$10 is around $1 not $2.5…. Option Pricing obviously varies greatly with Market volatility and risk surrounding the underlying company. If there was a material chance of the company going to 0 ,I probably wouldn’t be writing (selling)the put option or buying the share. I have been applying this strategy since 2008 and it works ok. But making typically around 10 to 15% on the underlying shares not 25% as per this example… Just my 2 cents
Thanks for watching guys! Please leave a like if you enjoyed, and huge shoutout to Matt for taking the time to explain this to us!
How do retail investors invest with Matt? Unable to? Thanks Brandon
@@benscott8940 I'm not 100% sure as to what Matt's fund's criteria are, but I'm sure you could send him an email if you wanted to. Details should be on his website I think.
@@NewMoneyUA-cam yep, no worries mate cheers, hope you 3 enjoyed the Berkshire meeting, loved the podcasts and videos you three have released, keep up the good work mate
Brandon, are we able to use this strategy here in Australia - or do we need a broker to create the Put's and Call's on a commercial scale ie non retail ?? Also do you know of any Australian funds using this strategy which is open to retail investors ? Cheers,
Andy
Huge thanks to Matt for taking us through his strategies while in Austin!
#legend
Every time I watch a video on this channel, I learn something very valuable which broadens my understanding of the market. Keep up the brilliant content creation Brandon!
Thank you man! I appreciate that!
When the market goes down then it's buying opportunity. If the market goes up then you are making money. If you stay invested and ignore the market's ups and downs, you'll make a lot of money in the long run; however, a severe market correction causes a lot of margin calls and sell-offs, driving the market even lower. currently i'm up 13% in my diversified portfolio. As crazy as it sounds some still make enormous returns from this seemingly unknown market. gotta be greedy when others are fearful
I'm surprised you know her too. I've been making a lot of profits investing with her for a few months now.
PRISCILLA DEARMIN -TURNER is one of the best trader I have ever worked with in the past few years, she knows how best to deal with whatever market situation.
This is basically the wheel strategy minus rolling to avoid assignment. Its important to run this strategy on a stock you have done your homework on and want to own. I made the mistake of forcing it on a stock i wasnt sure about because remember that each contract controls 100 shares so you need strike minus premium times 100 for collateral and most stocks with solid fundamentals thst we want to own arent exactly cheap, a 100 dollar stock requires 10k in collateral. Dont settle for a stock you arent 100% sure you want to own because its the one you can afford. Great content though keep them coming.
@Steven He Check where you have your regular equities trading account, and see if they also trade options. You have to request to be approved to trade options. And before you trade, LEARN. *The start of this video **0:07** has a snippet of how a guy says he's woken up to 20, 30, even $60K in losses.* Then, there's nothing said in the video that clearly explains how that scenario is a very real reality. You need to learn about *THAT.*
If you're not aware of the FULL basics of options trading risks, you could easily be in the same boat as that guy 7 seconds into the video.
Would you say doing this with a SPY would be a good idea?
This is your best video ever!! I’m actually doing this with $GME, I got some cash covered put contracts for $100 for Jan 23, because of the volatility in early 2021 the premium was huge!! $70 each if I remember correctly, if the price goes below $100 I’ll have to buy the shares, so long as it stays near 100 I will make money, if it goes above 100 I’ll pocket the premium and the shares, effectively buying like $30 each and selling for more than 100 🤯🤯🤯 the worse case scenario is if it goes below $30, then I’ll loose. It has been more than a year now and the price is around where I need it to be, wish me luck folks!
Well said
how’s it going?
Thank you for that content! I feel the biggest danger with writing a put that is not really mentioned in enough details here is to miss owning the stock if the price appreciates. That can mean to get a one time fee from writing the option that is heavily taxed vs owning a stock that could appreciate for many many years with no tax if you don’t sell or long term cap gain tax otherwise (20% one time minus taxes vs 15% per year for 10 years?). And finding a high quality stock that sells at low price is hard enough that you won’t want to miss the opportunity to own II when time comes…
That's why I would rather go in with a call debit spread. Sell off the far out unrealistic profit to get a better entry price.
There are many great things about this vid. The presenter is endearingly enthusiastic, authentic and unpretentious; the quality of the charts and intercut clips is excellent; and the interviewee is convincingly knowledgeable. However, is there something deeper at play in the options framework that young Matt has missed or not understood ? I think so.
Woooow I was studying a lot about options but always got lost with premium put or call. But now all is clear thanks a lot
Brilliant in its simplicity. But for the small retail investors, the minimum size of an options contract (100 shares) automatically rules out stocks with a high share price.
Luckily there are many stocks worth owning that trade for lower prices and are suitable for this strategy (or wheeling) even at small portfolio sizes.
Size of account is not a deal breaker, most small accounts use a pmcc or put spread. Does increase your transaction fees however and calculations
Dont you do it on margin account? Then when assigned stocks you sell them.
No margin in my risk profile.
@@KenStreetman I think you need margin account to trade options.
To anyone watching this...
GIVE YOUR BEST THIS WEEK FOR EVERYTHING YOU DO! 💪🔥
Hey hi. I've discovered your youtube recently, and really like it. You manage to go technical but stay simple, it's really appreciable. And this video in particular is absolutely gold. I'd like to know if you can recommend some books, about strategies we can implement such as this one, or even simply in general in order to get a better grasp on investing?
Best regards from Annecy, France.
Very well explained! Thanks!
Do these experienced value investors also sell calls to enhance the returns of an underlying that they're long on, reinvesting the premium? Or, is it generally their position that the premium gained is rarely worth it in the long run? If these investors do sell calls for this reason and the stock price begins to test our strike, under which circumstances is it wiser to roll your option, and when is it better to simply allow the contract to expire ITM, allowing the shares to be called away and rebuying? I expect there is sufficient historical data somewhere that would allow us to make favorable expected value decisions on the matter, but I can't find it.
Typically I see this discussion framed as gamma versus theta: you want to maximize the decay in the option (theta) and minimize the directional losses (gamma/delta).
Practitioners commonly suggest that being short a contract from 45 DTE to 21 DTE provides enough decay to be worthwhile and not too much gamma to require more management and sudden losses.
Just one idea about this
Have to say I'm struggling to get my head around this but your channel is more educational than my school ever was
I’ve wondered for a while why you haven’t liked options. Glad you see the potential benefits of them now.
Thank you so much for this. Warren Buffet also uses long term options (LEAPS) for hedging/gains. Can you make a video on his LEAPS strategies?
Unfortunately you cannot write a Put option (i.e. Cash Secured Put) for a stock you like in 'retirement' types of account (at least not in Canada with TFSA, RRSP, FHSA, etc... and I suspect it is the same in the US). You can sell Calls in retirement investment accounts though (i.e. Covered Calls).
Buffet has been selling premium for decades through his insurance and reinsurance businesses, he's a master of compounding returns with other people's money.
Well spoken
Matt is the man
Absolute boss.
Your channel is a very important asset!
One thing that is not mentioned here, the downside to this strategy is you need a lot of capital. One options contract is 100 shares. So if you want to buy shares, by selling 1 put contract for say FB at 200 dollars per share, you would need to have 20k in funds
With this small dive into options, any chance you might do a video on LEAPS? I have the feeling that every UA-camr that discusses it is already sold on its 'amazing' qualities, and I would love a value investor vue on the leverage and risk a LEAPS offers compared to buy and hold, especially now that we are entering a more stagnant market.
This is why I subbed
Cheers Barrett!
This is a great video Brandon. I'm glad you have gone out and learned this strategy. I've been Selling PUT's and CALL's on the US marked for about 18 months to collect premium for cash flow.
You may also like to look into rolling your option position (for Position Management)
Look up the Blue Collar Investor. He has lots of educational resources for your subscribers too.
Cheer
Ecellent video Brandon. Could ypu please do a follow-on on American options v/s European options....
Selling or buying 6-8 month options has way to much time value and exposure. 6-8 week would make more sense and easier to manage but of course less premium
many congrats for the video ! lately I noticed the quality content of your video has increased a lot ! good job ! bravo !
I've been doing this as well for a while. The only thing is when your expiration date is far away you also lock your capital for the time being because you have to have the cash to secure it. And yes you could lose money if the price goes far below the strike price.
Well said
You don't have to have cash technically. You can own shares that you lodge as collateral with the options clearing house. 😉
@@stickpuppyslife ah ok my broker doesn't seem to allow that. For selling puts I need to have the cash to cover. For selling calls I need to own the stock. (not talking about the poor man's covered call)
Great Video, I saw Tom's podcast with Matthew recently and it really resonated. I had sworn off derivatives like it was a cancer to the value investment philosophy, but in reality it was just a protracted example of consitency bias on my part. Big thanks to Matthew for clearing up a mental block I never knew existed.
Great self-reflection. I had the same mindset about derivs before I found out about Peterson. Nevertheless, there is still plenty of nuances and complexities and if they aren't covered in the thesis then speculation creeps back in.
I love your explanation. For something as complicated as this, you sure tried to explain it in as simple terms as possible. I always learn from your videos. Keep it up and thank you.:)
I would love the discipline needed to build and hold a cash position large enough to take advantage of cash covered puts. Great video!
On the description you say Warren Buffett Strategy; however there is no mention of the fact he has used the strategy or examples. Good video regardless!
Let's talk
Brilliant intro to options!
Cheers Victor!
@@NewMoneyUA-cam 0:07 *Would a beginner watching this video would be able to explain how that guy at **0:07** awoke to a $60K loss?*
It's a good intro, but leaves out a basic explanation of how the above scenario is a very real possibility.
Perhaps, the video can be updated or annotated? It's a great channel that should continue to grow!
Very well explained !
But if the price drops significantly lower and gets assigned it dont you lose the difference between the stock is at assignment and the strike price that you sold it?
Thanks for the very detailed explanation. Was looking for something like this.
Great content! I love where this is going
Phil Town has been using this strategy for awhile now. Interesting stuff.
great video. would love to see more from this guy. the visuals/graphs were very helpful too
Great video! Love this channel
yeah I like to use CSPs to give myself patience when entering a position
The biggest factor that I don't like using short put to enter a long underlying position is that the stock price could drop below your strike temporarily and rebound to finish at above strike. I will be better off getting my long underlying position when the temporary drop occurs, than holding a short put position with comes with a set maturity date. Very hard to time the market.
Other than the above, I really find the option strategy appealing. Best way to put it is that this extra premium income comes at extra risk.
It sounds like you are referring more to buying put options which yes, would be harder to execute/time the bottom. If the puts you WROTE get executed, and the stock price bounces back up, then you have made a profit; you also would have kept the premium.
An alternative is to sell an in-the-money put which has a higher probability of being exercised (including before the expiration date) as well as participating in the stock's upside
As a Value Inv. this is still out of my comfort zone.
It seems lot more hands on than normal value investing and creates another layer of risk. But a few more percentage point gains for volatile stocks could make it worthwhile
Great video mate! So how and where do we Aussies get access to options?
I do this with dividend paying stocks, and “Drip” the premiums for more shares so the exponential growth of the dividend increases even more.
you don't collect dividends on stocks you write puts on.
@@LBtheGreat Should clarify that these are stocks I already own, and want more of. I also use this for CC's.
@Steven He You'll need to fill out an application with your brokerage to see if you can get approved to trade options.
@@LBtheGreat you can collect the dividend if you write the put the day before ex-div
This is a great strategy BECAUSE it forces discipline on your MOS price. Everyone makes the mistake of getting greedy/scared.
I have to watch this again...
Is there any telegram channel for us market ??
Thanks! Great video
There’s cover call and much more strategy if you use it wisely you can earn more than you expected
It's not gambling if there strategy and risk is minimized. All business has risk.
Anything in life has a risk attached. Even just living 🙂
It's good to do both have shares ur selling calls on otm and sell puts to dca for less and collect premiums both ways and possible share appreciation.. but bi weekly seems to be better and can cash out 60% or higher profits. When u have shares u want ur gonna hold regardless.. best to earn money while holding..
Great video! Thanks!
I had a doubt as in the example in case the price goes above 10$ the put buyer will not sell us the stock for 10$ because the option will be out of the money and he has the right to sell and not the put writer than how will one buy that stock for 10$ when the price has gone up according to me then the option will lapse and only profit will be the premium. Is this right ?
Not really understandable your question. Anyway, the one selling the put will obviously get the premium (paid by the buyer) if the option expires out of the money (OTM).
You're correct. He said that it's a possible downside that the stock may rise and you only collected the put premium
guess the thing about cash secured puts is that you need at least 100 times the current stock price. Not a problem for hedge funds, but for the avg investor, it limits which companies you can do this with. It also re-opens the discussion for stock splits since this becomes more accessible.
This is a great video, thanks for posting! Hope you continue to do interviews with industry leaders such as Matt.
Matt rocks!
Great video, as a value investor myself I use a cover call etf to buy hold and generate extra income.
This sounds so interesting to me, but arent able to fully understand it to implement it myself. As a student been active in the stockmarket for 4 years and would love to see all the possibilities also concerning options etc, and how to make use of them
It may be because english is my second language but I sadly didnt get the strategy.
So if Matt is the writer of a put option, getting a fee in the process, someone else has to buy these options from him and has to speculate on a declining stok price. How does this enable him to buy a stock he always wanted to own? And how can he just let an option expire if he is the writer (not buyer, right?) of an option?
Sorry, might be a stupid question.
If you write the put, someone can sells shares to you for a given price that's roughly the current price. If the stock only goes up, you collect the premium (worst case). If the price falls below the strike price, it might get exercised at which point you buy effectively at (current price - premium) and then own the stock (for which you are planning to hold it anyway).
So it's really about the premium you are collecting for providing the insurance (of which you are convinced that it's not needed because you know the "real" value of the stock).
this is extremely complicated lol.. I always shy away from options.. frustrating.. is it buying call options if you think the stock is going up?? is that the way it works?? but how far out do you go?
They said you sell a put, and if the price dips, then the put holder will sell you shares. They're saying you will get paid an options premium to buy shares (by selling the put) or sell shares (by selling the call)
Very valuable video, thank you. For us non-US investors finding a good broker that allows Options trading is a challenge. In addition to Stake I’ve started using IBKR for this exact reason :)
Let's talk
Glad to know more about it but it is way beyond my skill level or comfort zone. I’ll leave that stuff for the experts with much bigger pockets. 👊🏼
Fair assessment I think!
This is why you will remain unskilled and poor
Whenever useful information reaches you, you dismiss it 🤪
@@maalikserebryakov you’re funny dude. I’m sure you’re Warren Buffet Rich and skilled. 🤣
The video is awesome
How is an 18% annual return good when the Nasdaq had about a 22% annual return over that same time period?
Yep.. all sh*t, just buy and hold. No need to gamble your hard earned money
Thanks for this great video. Since I read about another options strategy from Mark Spitznagel in his book "Safe havens", I would like to hear your thoughts about that strategy from Spitznagel as well. Looking forward to your opinion on that!
Most people even professionals dont Beat the market over a long period. So maybe it is Not that easy making money with this.
Now that tech has smashed back down to earth I’ve been selling out of the money puts on some companies with high volatility and high growth prospects that still just are a bit too overpriced to be considered value. Either they drop and I get them at value price, or they don’t and I get 2% a month in premium. It’s been working very well so far!
Hi Brandon, Commsec & Westpac are not taking new applications for options trading that allows selling of calls and puts. I think it has something to do with an ASIC ban in May 2021 on binary options for retail investors. I guess ASIC are trying to force us to be ripped off by non-Aus brokers. Would be interested in being able to write puts as an Aussie. Cheers
Selling PUT and CALL options is not binary options! You can trade options on ASX however the Aussie market is not very liquid thus premiums are lower. The US marked is the place to trade.
lets go got benjamin in it
0:06: 📈 Options trading has become increasingly popular, but there is a strategy that can be used by value investors.
3:53: 💡 Options can be effectively used by value investors to enhance returns.
7:22: 💰 Selling put and call options can provide high returns on investment.
11:03: 📈 The video discusses using covered calls to profit from the appreciation of a stock.
14:58: 📊 Not all stocks are eligible for this options strategy, as they need to be listed on the Chicago Board of Exchange and have available option contracts in the public markets.
Recap by Tammy AI
Wait you need strategy trading options?
Where does it say that Buffett uses this? The only time I’ve seen buffett mention options are when he said he regretted it on Coca-Cola.
Would a plan work where you use this strategy on a list of stocks from the acquirers multiple and magic formula screeners? It seems to me like you could make big money with it and you reduce your risk over multiple stocks. Would love to hear your opinion on this!
In your opinion, who gets hit worst in a 'depression'?
It sounds pleasant. But why isn’t Matt the richest person in the world? And if it works so well why would he teach the technique (yes I know it’s been widely known before him)There was not sufficient discussion of the downside
I dont understand how the return is calculated. Can someone explain?
When you sell your possible profit is given by the premium if the options expires OTM (or you buy it back while in profit before expiration). Otherwise, if expires iTM, you lose the difference between the price of the underlying and the strike, which is the profit of the buyer in this case (minus the paid premium, obviously)
You collect 2.50/sh put premium and need 10/sh collateral (including the 2.50). So to open the position, you need to find 7.50/sh collateral.
If the option lapses, then you collected 2.50/sh on your net of 7.50/sh, or 33% over the period.
Great video
this is called the wheel. WSB theta gang knows it well. this video is a little late to the party but still well done
Cheers!
Imagine selling a Put on NFLX 3 Months before their last earnings, Implied Vol & IRR would have been double digit annualised as recommended. Think why. You are taking the risk for someone else. Absolute pain trade, even after premium received!
Can you team up with Matt or Phil and please teach Phil’s rules
Interesting video. However, I very much doubt Warren would be on board with the title, thumbnail & hashtags. C’mon be better
I still think the hard part is finding a stock you want 100 shares of.
Picking a strike and timeframe are icing on the cake after that
Great explanation but the click bait of Warren Buffett is s bit offensive for your audience. Non a word of Warren in the video. I am bit disappointed with this. Also the undercover publicity of Cboe. It seems that the video is a Marketingvideo supported for the brand. It rest some credibility to your content
iirc buffett sells naked puts instead of cash secured
Is this the wheel strategy???
I just looked up the wheel strategy. It seems that it is the same thing. :)
I would say that it looks different though. Wheel strategy, at least as far as I am concerned, is a process of regularly writing options out ~1-2 monthes that ideally end up out of the money, just in order to collect the premium on a pretty much stable stock (in terms of volatility)
@@Andy__A I would say you are correct, the wheel makes sense for stocks that you don't mind owning, but don't think will increase in value in the near future as you often write covered calls just above your cost basis for the short term. If you think the stock is going to 'moon' in the near future, wheeling caps your upside potential greatly and is outperformed by buy and hold. This appears to be like the wheel but for stocks that you think will rise in the near future, as you only write a covered call once you believe the stock has reached its full potential.
great videi
Which options trading platform would you recommend for Australian investors?
trading platforms are not designed targeting the nationality of users 🙂
This is called the Wheel strategy
The wheel involves rolling to avoid assigntment. Pretty close tho.
I learnt that Twitter stocks will become a great boom in the coming weeks. How true is this?
I don't know how to play this
Yes
Indeed.
7:39 The writer of the Contract can only Buy it back at a higher price at this point. They have NO control over whether they are assigned the shares or not. Furthermore, you would NEVER be assigned BEFORE the price of the stock falls BELOW the Break Even. There's NO WAY to pay Less than the Spot price because you will always be assigned BELOW the Break Even which is .01 ×100=$1.00 Bare minimum. Realistically though one is usually assigned 1.×100=$100 over the going Market Price. Otherwise, what's in it for the Buyer of the Put.(Not because you pay more than the pre-determined price but because the price of the stock has fallen $1 or more below the Break Even.)
This is not necessarily true because there is a value to depository liquidity, so the put can be exercised when it still has some extrinsic value (again, not a surprise when cash is needed).
As an American style options seller, you're also selling options fugit
@OurNewestMember Right, but the buyer of contracts has the right but not the obligation to "exercise" the contract and Call or Put the shares. The Seller of said contracts can Buy them back to Close or Roll their positions to a further date. If the Seller of said contracts allows the price of the stock to go in the money or at the money before the ex-dividend is paid, then they will be "assigned" and the shares will be Called from them or Put to them. The Sellers Sold the contract. They cannot exercise something they don't own anymore. They "Write" the contract and Sell it, and when they buy it back to Close, the Contract is automatically canceled. There's nothing left to exercise.
@OurNewestMember You are right that the Seller can be assigned below or above the break if the ex-dividend is approaching and the extrinsic value of Theta left on the contract is less than the value of the dividend being paid. In that case, you will be assigned At the Money when the price is just above or below the Strike price.
@OurNewestMember Details... I wish I could make videos as good as yours, though. Some of you make it look easy.
But yes, you're right, the American style options seller does not control when exercise occurs.
But you are paid an extra premium because of this.
I didnt know buffets traded with puts/calls
Not anymore, but when he was much smaller it made sense for him to do it
wish I had enough capital to buy 100 shares each time.
Why woud somebody sell you their shares for 9.95? If they paid 2.5 premium. They coud also just wait till the shres reach their intrinsic value again
At 9.95 or higher they would not exercise the option… that is , not Chose to sell you the share on or before expiry.
They would buy the put contract for 2.5 if they were worried that the share was going a lot lower or to 0. They are betting the share is going to fall.
I agree The example is a bit optimistic . In my experience, For a $10 share the usual price in Australia for a 12 month Put @$10 is around $1 not $2.5….
Option Pricing obviously varies greatly with Market volatility and risk surrounding the underlying company.
If there was a material chance of the company going to 0 ,I probably wouldn’t be writing (selling)the put option or buying the share.
I have been applying this strategy
since 2008 and it works ok. But making typically around 10 to 15% on the underlying shares not 25% as per this example…
Just my 2 cents
You did not factor in the the capital gains tax if it really ends up being better for the portfolio
seritage is now at 5$ , best invest ever, he didnt cover this outcome
Totally didn't get this on first view.
Click bait title.
Exactly, Buffett never promoted derivatives whatsoever. I unsubbed.