How To Trade Options In 2021 | Cody Yeh Interview

All right, all right, welcome back to the show. Today we got with us Cody Yeh.

Cody, welcome on. Hey, thanks for having me on.

This is gonna be fun. So Cody is actually a pretty famous YouTuber. Check out his channel, Talks Options. And you formerly worked at— was it Goldman Sachs, is that right?

No, no, I, I graduated as an engineer and I work as a project manager in the automotive industry. Oh, Honda.

Oh, Honda. Oh, I thought you were in banking. Okay. You're at Honda, which is awesome. Um, so Cody, we're going to talk options today. We're gonna talk a lot of— and Cody's actually got a fun channel. Um, talks a lot of different stuff on his channel. And, and, uh, so we wanted to, I reached out to Cody and said, Cody, let's do something together. And so bam, here we are. So Cody, give everyone the, the 2-minute, let's just call it the 2-minute overview of you and what you do. And then we'll, we're going to dive into this, this interview on here.

Awesome. Yeah, yeah, thanks for having me on. Like, for your audience who doesn't know me yet, um, my name is Cody Yeh. Came from Taiwan, uh, to Canada— not US, Canada— at the age of 18. Right now I'm 30, so I came here was 12 years ago knowing a little bit of English. Um, I went into engineering because I have the math skills for it. I don't want to write reports, so that's why I went into engineering. And little did I know that it was the most challenging program you could have. From there, I learned about not just engineering side, finance, accounting, but everything was put in a way that's not sexy. That doesn't tell me where I can achieve in my life. It just say, hey, here are the numbers, do some calculation. And that's the results. But it doesn't tell me what, what does it help you in your life? Right. So I was, after I graduated, I started working a corporate job. I started moving up the ladder. I was a project manager, but at night I was, you know, it was 2 periods of time. From a period of time from 2016 to 2018, I was doing day trading in the Asian market. And before that, you know, since 2011, I was doing stock, stock investing. 2016, 2018, day trading in the Asian market. And I'm, you know, while I was playing with the stock option strategy that I teach now. And after 2018, I started stabilizing though. And And that's what I started teaching in 2020, October. Right. I used to take personal coaching clients, but now I was just too overwhelmed with it. So I just put together a class like you do, and like-minded people can always mingle in there. Right. So fast forward, that's, that's where I am.

That's where it's at. How many people have gone through your programs and you've helped coach and things like that?

I think with, uh, personal coaching plus the course, I think it's probably around 200, 300 people. I'll say. So I started last October, and yeah, that's about the amount of people. And then I was investing in real estate before that, since 2016. That's my first property. Bought another one 2017, bought 2 more 2019. And the goal for this year is to buy 2 apartment buildings that's bigger than 10 units. So for people that, like your audience, are in the US, you know, it's not a big deal, but in Canada is a big deal because Properties are very expensive up here. Per door is like $200,000 to $300,000, right? Yeah. Yeah.

That's a— and actually I had a— who was it? It was a buddy of mine. We were talking, he was talking real estate price. I mean, well, real estate in the entire world has gone up. I mean, I guess I wouldn't say the whole world, but let's call it North America has gone up like crazy last couple of years. But he was talking, this is about 6 months ago, he was talking about prices in Ontario, just insane. And then taxes on top of that and how you have to factor in all these different things to buy in Canada was a really interesting thing. So, All right. So that gives us a little bit overview on Cody though. But I think today though, I want to dive into your options strategies. And for people that are watching this show that want to learn more about options, about getting in. Now, just for me, I'm not an expert stock trader. I don't profess to be. I trade, like I do long buy and hold, just safe portfolio. That's just— and my fund does not do anything in the public markets. We all do private sector stuff. So I just, I'm not an expert. I'm a very normal investor, I guess I would say.

Yeah.

Every time I've met somebody that does options, options to me, it sounds like, and they even say the same thing, it's very high risk, at least what I've heard. It's high risk. You can make a ton of money doing options, but you can also lose a lot of money. But it's also a hedge risk, meaning you can, like if you, let's call it, you put in $100, yes, you could lose $100, but you could also make back $1,800. So your risk versus reward ratio is way different. That's all I've heard. And that's, and it's very intriguing to me about, hey, maybe I should start trading options. So I want to hear your take on options in general. Should people, well, first off, tell us how you got into options. I actually want to hear the story of how you got into it. And then let's dive a little bit deeper into the, the, your, your theories and thoughts on doing this yourself.

Yeah, no, those are great. I think most of even new, my new audience or your audience who have questions like, Cody, okay, now here's another person going to talk about how to go big or go home.

Right.

So that's the entire opposite of why I trade options. Now, because of COVID since COVID last year, a lot of people lost their job. A lot of people have a little bit of savings, so they have time to learn this. Now, just like anything that's new, people are new to real estate investing, new to anything, they want to have immediate results. So what they do is they cling on and learn about the buying side of the option. So like you, if you buy and hold a stock, you know, if the stock goes down, you hold it. If the stock goes up, you still want to hold it in the long term. Now with option, the very big difference between option and stock is that option have expiration date. It's like an insurance company's, you know, buying or selling a contract. There's expiration date. Now most people cling to the idea that I can spend $100, I can potentially own earn $1,000. And that's how most people on Robinhood, you know, WallStreetBets are doing. But that's the totally opposite. We are actually selling our option contract to those people who want to speculate, who want to gamble, because the strategy I'm teaching, we're on the selling side. Imagine you're kind of like a market dealer when you're buying a call, right? You want to bullish, you want to buy a call. when you buy a stock, you're bullish on it. On the other side of the market dealer, they're trying to fill in your contract. And they— so they take the opposite bet. But when they take opposite bet, you pay amount of premium for them. And that's, as an insurance company, that's how they get paid, right? What they call the float. So now my entire strategy is getting paid the float. And then the worst case for us is that we can own a stock that you already want to own, just like yourself, you would buy a whole, you know, not stock advice or anything. I'm just saying Apple. I'm just throwing out Apple because Warren Buffett's favorite is Apple. Just say if you want to own Apple, but now you can say, hey, I sell a contract. Okay. I'm willing to earn Apple at a 10% discount, but I get paid 1% per week for doing that. Now, if the stock price stays above that, guess what? I keep the $100. I keep doing the same thing. But if it goes below that 10%, right? If it dropped 10%, guess what? I buy at the 10% discount. I still keep the premium. So from that standpoint, from that standpoint, do you think it's a high risk or is it a low risk strategy, right? So a lot of people don't know that.

You already want to get into. If it goes up, great, you make the premium. If it goes down, you just buy the stock.

Keep the premium. You still keep the premium. You buy the stock at a discount.

Yeah. Interesting. Okay. I like, I've never heard someone explain it like that. I love that.

That's just like in real estate. You buy off-market deal. You're willing to pay the market price. But if now you go to your neighbor and sign a contract and say, hey, I know you're afraid the housing price might be a bubble, but what if it, if it goes down by 10% next year, I will buy at that price, but you have to pay me a premium because I'm the insurance company. Now, next year come along, if it dropped 9%, Or drop 8 or stay the same or go any higher, you keep that premium they pay you and you're starting all over again. So that's the idea for it.

So would you say, anytime you're on the sell side of options, make sure to have enough cash reserves obviously to be able to transact, to be able to buy. You don't want to default on that as well. So what kind of ratio do you use to make sure that you're safe You're not overleveraged?

I, I don't, uh, well, especially for beginners.

Do you use that? How do you think about it?

I don't even use leverage. So if I, for example, like if I sell a contract on Apple, I want to make sure at any time in my account I have money to buy 100 shares of Apple because one option contract controls 100 shares of Apple. So I want to make sure I have that money at any time. So if the market dropped like COVID, 30% in one month, I'll probably get assigned, but it's fine. I'm not using any leverage. I won't get margin called. I buy a stock I want to own anyway at a discount. And because of that premium I get paid, I further reduce my cost of ownership.

Right.

So—

Gosh, that makes a lot of sense. So at any given time, you're, you actually have a large cash position, correct?

Yes.

To back up all of the options that you're, you're selling.

Yeah. So not all of my students start with a big account. Some of them even start with paper trading account as in everything is real except for the money part. So they, they have confidence, but they want to make their own mistake with fake money. And they know if I put in $50K or $100K, this is how much money I can make consistently for a couple months. Then they know once they put in real money, that's how much they can make and build up their, their appetite for it, the risk-reward up and down, right? Are you okay? Are you comfortable with that, right? So a lot of them start with fake accounts, start with $30K, $50K, As your account gets bigger, you can participate in more stocks, right? More expensive stocks like even Amazon when your account size gets bigger. Hmm.

Gotcha. I love it. Now, Cody, I want to ask you, how did you get involved with this? How'd you get started? Give us a bit on this.

Yeah. So when I was in school, um, 2011, second year of university at University of Toronto, some people know, you know, One of the best, I want to say the best, one of the best universities in Canada, number eighth in the world. I think that's how they rank it. So I learned about accounting and corporate finance, and engineering economics, and all that. So that's where I first get started. But the first couple years from 2011 to 2015, I was just like you, buy and hold. I buy like Boeing stocks, like whatever Microsoft, like. Banks, buy and hold. Oh, it goes up a little bit, okay, maybe I'll sell it, wait for it to come down, things like that, right? But it's until 2015 I met my previous coach who was 2 years younger than me. So I'm 30, she's 28. She was doing day trading in the Asian market. So people— for people who doesn't know, like, for most people know the S&P 500, right? They hear about that. The equivalent of that in Taiwan and Hong Kong, that's what my trading, right? So she was day trading it. So at that time, I have a full-time job. So I say, how do I learn this? How do I see if this is real? So I have to find something that's 12-hour difference. So I finished my full-time job, I come home, I brush up, dinner, prepare for an hour or two reading the news, preparing what am I going to do for the day. I trade for an hour or 2, and then I write reports on the graph, and I manually drew out all the graphs to get a good feeling of it for 2 to 3 hours. So total of 5 to 6 hours, Monday to Friday, each day. That was my life.

While you're in school studying and taking tests and stuff?

That's from 2016 to 2018.

Oh, okay.

That's when I have a full-time job already.

Oh, okay.

You're ready for that time.

Gotcha.

Gotcha. Yeah, I'm ready full-time. But that's when I learned it in school, but I didn't do much until someone inspired me and I learned it. And I realized, holy cow, that's very time-consuming. And then I wouldn't teach that because a lot of people cannot handle that kind of stress. It's because I'm kind of born from a pressure cooker because came from Asia, you understand. Went into engineering school here, one of the most competitive. Then I'm built that way, but I still couldn't do that long term because all my white hairs were coming out when I was 26. All my white hairs were coming out because I was holding 2 jobs because I was basically starting a war, starting a battle every day because day trading is like, I'm as good as my last trade. Right. So, you know, first 4 months I was losing money.

I want to just cut you off for a second too, and just say how impressive that is. I mean, we talked earlier before this call, but I lived in Taiwan for 2 years and I saw, I met a lot of people like you, Cody. And we talked about Taiwan and all this cool stuff. I love Taiwan. I speak okay Mandarin Chinese.

No, you speak really good Mandarin.

And, uh, and hung out there. But the fact that you were— and I, I saw kids in Taiwan. I mean, it was insane the amount of school. I mean, it was, it was normal school and then it was bushiban, right? After school, all the— I think it was called cram school after school. And then to be able to get into the best high schools and then be able to land, uh, a college placement at the University of Toronto in a different language to take it, you know, you got to take the English, all And stuff. To land that in Toronto is, is absolutely insane. To come out of a high-pressure environment and then to come out on top of all that and to go and then do— I just, it's, it's really impressive. That's all I gotta say.

Yeah.

Very impressive what you did and what you accomplished there.

And I just want to add one thing. There's one thing to put your head down and keep running, but there was another thing that's called— I realized more of my why. I take responsibility of my own life once I came to Canada, because that's when I realized I am on my own and I'm responsible for my own action. Before, when I was in Taiwan, I just been told, you know, go to the best school, go to the best junior high school, high school, university, then you will get a job. But it's until I came here, I'm like, wow, there's so many options now and I can control that, but I'm responsible for that. That's when everything changed. Right. Before I was just living kind of like day to day and just having a good time. I was smart. Thankfully I had some talent, but yeah, it's until I came here and then I realized I'm responsible for my own life.

Right.

And that's when everything changed.

That's such a big moment. I think everyone has sometime in their life. And it sounds like you had in Toronto, which is, yeah. And I've told people on this show, I had a similar moment, moments in my life where it's just like, there's a lot of, there isn't a one-track type of universe. There's lots of options, lots of opportunities. And you've got to be self-aware and looking inward and say, okay, how can I get there? And you can, you can do it. I love it. So I cut you off, Cody. You were— so you're day trading, you know, you're only good as, as good as your last trade. So what happened then?

And then from there, I— first 4 months I was losing money. My coach told me I would lose money for 8 months. I didn't trust her. I'm like, I'm paying you big bucks. You're going to teach me exactly what to do. She's like, yes, but you cannot do it. You do not have the heart. You do not have the machine-like mentality. And she was right. I took off profit too soon and I took profits too late. Sorry, I took losses too late. I took profits too soon. So our mentality was that we take small losses frequently, but when we win, we got to make sure we win a big one. Then whenever I win, I'm like, I just need to break even. So I take off the profit too soon. And that's when I realized that's against human nature. Even as trained as I was, a lot of people, even if I teach that, a lot of people lose money. And meanwhile, I was playing with stock option, right, with my phone while I was working full-time, right? I was just playing Boeing stocks and sell options on it. And I'm like, this is a lot easier. And the return, it's a lot higher in terms of how much time I put in, how much stress I incur on myself. So I stopped day trading one day because I have 4 screens. 32-inch screen in front of me until I fell asleep 4 days in a row. And my girlfriend's just saying, what are you doing? Are you going to be doing this for your whole life? Like, seriously? I'm just like, holy cow, I, I, I don't think so. And then that's when the, the strategy on my mobile phone, just selling options, right, has worked out really well. And I only spent like 30 minutes per day on it while at work, just at break, or I a lunch and just do it. And I'm like, well, that's a better return on time comparing to what I'm doing now, right? I can't sustain that, right? So that's when the aha moment goes off. And I went on and stabilized the strategy. And then after 3, you know, 2, 3 years, and I started teaching, right? And I bring in a lot of day trading where people say, Cody, why don't I day trade? Okay, this is what you're looking at. You want to get good at it, you need to do this. Otherwise, stay here. All right. So I can kind of bring both experiences to put that into perspective.

No, that's really spot on. It's cool to hear. Well, and it's funny, I mentioned this, I was on a live call this morning, but everyone's— with day traders in general, I have a lot of friends get into day trading all of a sudden, and everyone's a genius when the market's up, right? And the market goes down, everyone's losing their shorts as it's going on. And And it's interesting how many people are still day trading after 3 years, after 5 years, after 7 years, right? The number drops drastically and it's because of that you just mentioned. So let's transition over to options now. So you saw this, you could do it on your phone, 30 minutes. It was a lot better return on time. I love that.

Yeah. Return on time and stress.

Yeah. Walk us through the mechanics of actually options. Walk us through your strategy and how you think about doing options and kind of give us the overview of it and how you go about teaching it and sharing it.

Yeah. So first of all, because I was— I'm a real estate investor as well, and I don't like to gamble. I grew up learning from Warren Buffett, and Warren Buffett actually used this strategy in a modified way back in the days when he started investing in Coca-Cola. He keeps selling options on Coca-Cola because he wants to own Coca-Cola at a cheaper price. But if not, keep going up, that's great. I keep getting paid premium until the time it pull back. I will own a lot of Coca-Cola. So he kept doing that. So I know Warren Buffett is doing it. I found it somewhere in his financial statement. It was hidden. It was called derivative contract. And then there was billions of dollars every year. I'm like, what is that? Right? So I look into it and I'm like, holy cow. He never talked about it. He kept talking about buying 50 cents on the dollar, but he never talked about what he does with options. And that's exactly what he did. Right now, coming back with that Warren Buffett mentality and with investing in real estate, when I invest in real estate, the number one thing is I look for cash flow, because everything other than cash flow is speculation. It's not that I make the most money from cash flow, but I know the cash flow is what— when the music stops, even if the price goes down, if the cash flow is positive, I can hold it. Just like right now, a lot of your friends are probably playing with a lot of high volatility stocks. When the music is going, oh, it goes up hundreds of percent. I look like a genius. When the music stops, I'm not sure if I really want to hold that stock. I better shake it off at 50%, 80% loss, right? But I don't, I don't touch those stocks. I only invest in, just like real estate, in a company consistently making money, consistently being innovative, and year over year has more than 20% growth. Okay, no stock advice, but a lot— that's the FAANG group. So that same thing holds with real estate. I want cash flow. I want that from day one. I might have to do some renovation to it. I know you did flipping, right? So same thing.

Mm-hmm.

On my day one, I buy low, I put in some renovation, I turn into a cash flowing property, then I can hold on to it. Same thing here. I want to, you know, in stock option, I want to only look at companies that are consistently making money, preferably paying some dividend, so I know that if I need to, you know, hold on to it long term, it will not disappoint me. Because in the long term, it will catch up to the fundamental. In the short term, there's a lot of greed, a lot of fear, but in the long term, it will catch up eventually. Just like real estate, if there's more demand than supply If there's more job, GDP are getting better, price will go up. And if the cost of building goes up, it will go up. So same thing in the stock market price, right? Stock market feel.

Gotcha. I really like that approach. That's cool. I didn't know that about Warren Buffett. And I love that you found it on his balance sheet, right?

That and yeah, derivative contract.

Yeah, that's really smart. And it's it's a great way in a company you believe in. I think it's a fantastic strategy. So now for people that— let's go a little more basic here just to help people out too. Walk us through calls and puts and what those are and what they mean. And you're selling puts, correct?

Correct. I'm selling puts.

Yeah. Walk us through why, how people can use these. And then, and then let's get more— we'll go from kind of basic level to more of how to act, the mechanics, how you think about all that kind of stuff.

Yeah, so for people who doesn't know, most people who got into option is because they want to use a small amount of money and leverage it so they can potentially make 10 times, or they could just lose everything they put in. It's like buying a lottery, but you know, more people argue that they take a calculated risk. But that's the bottom line. When you buy a call or you buy a put— buy a call is that You anticipate the stock will go up. When you buy a put, you anticipate the stock will go down, right? That's the bottom line. You can spend a small amount of money and you can control 100 shares of the stock. A lot of time you only need to outlay 10%, 20%, depending on how you structure it. But that's why it's so sexy to a lot of people. But that's where you lose most of the money, because from CBOE Chicago Board of Options. They actually did a study on it. 85% of the options expire worthless. Let me take a step back. 85% of options expire worthless. That means it's the same thing. That means 85% of the gamblers are losing money. That's what that meant. So if I'm on the other side, 85% of time, you know, depending on your structure, you're winning because if they expire worthless, guess what? I keep all the premium as an option seller. And that's why it's so sexy for me, because statistic is on my side. I might seem a lot slower than other people, but long-term probability is on my side, right?

Yeah, it's better to be on the side of the casino than the other, uh, the other side there. I love it.

Yeah, yeah.

So 85% were worthless. That's very interesting. Yeah, yeah.

And you know, most people— because when you're buying option, you need the price to be right, you need the time to be right. A lot of time, one of the two will not be right. And if I'm on the other side, if one of those two are not right, I'm always right. And I know the worst case is, guess what? If I sell a put, if I'm wrong, it goes below, you know, the strike price, which is the price I agree to buy the stock at and get paid for it. I'll just buy a stock that I want to own anyway. I'm okay holding on to it, right? So That's the jinx of it. I don't want to confuse your audience, but I think that's a good introduction.

I want to get more into the mechanics of it too. So let's just say, let's drop a hypothetical example here. Let's say we've got a stock, ABC stock, it's $100 share price today.

Correct.

Now, when you're going to sell puts or sell these options, what do you like to do as far as a timeframe for these to expire? And where do you like to set your price at? Um, does it— and how do you go about thinking about that?

That's a very great question. Actually, in my course, I actually set out— because I bring people from A to Z, not like YouTube type A to Z, like really A to Z, all the way from setting up your platform. How do you even open your account? What type of account? How do you fill out those questions? How do you set up your entire platform, watchlist, everything, so you have minimal involvement? Now, that being said, we take a step back and say, assume we have all those set up. Say, Cody, we just want to make a trade. We have everything set up already. First thing is I don't touch the, the stock that has a negative earning per share, as in the company is not making money right now. And one company has been consistently making money for the last 5 years and consistently growing it even through COVID. I want to see that because that means how resilient they are. So with that fundamental side down, I know they can survive five years. They have a track record and they survived COVID coming out even stronger. Good. That's a good company I want to own. Now the next step, I'll say, okay, what is the the the market volatility? That's what we call VIX volatility index. So the VIX is higher when the entire market is very fearful, as in last, last March during COVID the VIX was really high because everything was dropping and people think this is the end of the world. We do not— all the company will go bankrupt, right? There's a saying, when everything's going well, the company's going to the moon. When there's a slight change of sentiment, everyone thinks the company's going bankrupt. Right. And that's when we go in and we be more aggressive, more puts. Because, you know, like Warren Buffett say, right, you want to be greedy when others are fearful, right? Be fearful when others are greedy.

So when the VIX is— when it's volatile, when the VIX is high, that's when you get— that's when you get more bullish on options, correct?

Not bullish, but that's when I can put on the same type of risk, but I could pay a lot more. It's like an insurance company, right? When you're an insurance company where there's a tornado outside, you sell tornado insurance, guess what? You're going to get paid a lot. But technically, tornadoes, once in a year, once in 10-year event, right? So you basically capitalize on the fear on the insurance side, right? And the next day, if it's sunshine and rainbow, guess what? You can go back to your customer and say, hey, I know you bought it for 10 years, but you know, Now that tornado's gone, from stats, it's only going to come back in 9 years. Do you want me to just pay you back half or maybe 20%? We call it a day. A lot of people agree to it because they just want to mitigate that risk. So it's when the market's fearful, you get paid the most. And you can actually agree to buy a stock at a much cheaper price because when the uncertainty is high, you can buy at a lower price but still get paid really handsomely. It's just like insurance company. People might need to wrap your head around, right? For example, if an insurance company is selling tornado contract, there's tornado outside, they could probably say we only gonna pay up to $1 million instead of $10 million because, hey, the risk is really high, but we need you to pay more now even for that $1 million compensation, right?

Yeah.

So very similar thing.

Now, how long, what's your term on most, let's just call it average. I'm gonna go averages. I know there's a lot of different strategies and stuff probably in your course that you're like, I don't want to share that right here.

No, no. I don't mind sharing it. I just want to, don't want to confuse people.

Yeah. It doesn't make sense in this context, right?

Yeah. Yeah.

So, what's an average length though on a put? Like what's your timeframe?

I'll say within 60 days. And the reason for that, Is very interestingly, this is something different than the insurance contract. There's something called theta. Theta is the time decay on option contract. So on when you're on the buying side, you're paying money every day that goes by. If the stock price doesn't even move, you're losing money because that theta is going away because it's like an entry price for the lottery ticket. Every day that goes by. And then hit your number. Guess what? Every day from there, there's less probability you will win that lottery. So same thing, right? I'm on the other side now. I'm selling a lottery ticket. So every day I get closer, there's less chance that I will get hit, less chance I need to buy the shares. So the closer you are to the expiration day, the more money per day I keep in the pocket. So the higher amount, that higher rate of change And theta I keep. So I try to keep it shorter, right? Within 45, 60 days for that, if that makes sense. I hope I don't confuse you.

No, that does make sense.

Yeah.

So yeah, I was just curious about the timeframe. So, and then yeah, volatility, obviously it's going to be priced in. It's going to be higher priced because there's more volatility. There's probably a bigger chance that you could lose in that time as well, correct?

Yes and no. A lot of people look at volatility as in risk, but volatility and risk is very different. Volatility just means how fast the speed of the stock price moving up and down. But if it's a good company, even though periodically you have a higher volatility, it just means that it could go down faster, but fundamentals the same. And that's when we go aggressive because there's an arbitrage opportunity, same risk in the long term, but now we get paid a lot more. And that's when we capitalize on it.

That's so interesting, Cody. I love— I actually really love this concept of companies that you want to get into. This is a great way to get into them over time and get into these companies. Now, with most, let's say they have to exercise— they exercise the option, they get into the company, they just hold forever with that company? Or do a lot of them sell immediately and get out and put that back into options? Or do they just use the income from their day job to keep fueling their options? How do you know for a long— while you're doing this for years on end, you're eventually going to get tapped on how you can buy these. What has your experience been on that?

So we use selling put, right? We're selling option contract and say, hey, we're willing to own it at a cheaper price. If it never hit it, we keep doing, repeat it, right? Let it expire. We keep repeating it. Now, if we ever get a sign, we can turn around and sell cover call. So we're still on the selling side. When you sell a put, you have the obligation to buy if the price is below that agreed price. Now, when you're selling cover call, I have the obligation to sell if that price is higher than my agreed price. So for example, Apple's at $100. I sell a put for $90. Guess what? At expiration day, Apple is at $89. Guess what I got? I own 100 shares of Apple, $90. But because the premium I get paid up front, my cost of ownership might be $85 or $87, whatever that is. Now I go and sell a covered call higher than $90, let's say $95 or $100, right? So if it goes up, you're like, Cody, now you're gonna get called away. Yeah, when I get called away I keep the premium I got paid from the covered call, and I get to keep the difference between $90— my true cost is $87. So from $87 to $95 or $100, I get to keep all those appreciation of 10%, get to keep the premium from selling the put, get to keep the premium from selling the covered call and appreciation. So that's how we exit.

So interesting, you do a covered call. Wow. So then, and then If it never— so yeah, I just keep selling, still stuck at higher cover, but you got a discount on that, correct?

Yeah, yeah. So if I never get— you know, if I sell a covered call, if the stock price stays the same or go down, I keep selling covered calls to further reduce my cost of ownership. But the idea is that because it's a good company, it will come back eventually. So in the meantime, we just keep lowering the cost of ownership. Eventually, if they come back and go higher Our gap between our cost of ownership and the real stock price is bigger. That's where our profit is, right?

Interesting. So the only risk there is, let's just say you're in a bear market, stocks are falling. You keep— you can't actually— you're just paying premiums essentially for covered calls.

No, we're getting paid. When you're on the selling side, we're getting paid premium. We're on the selling side, we're always getting paid premium. Like a casino owner.

Yeah.

Like an insurance company. We're always getting paid, just more or less. Right.

Gotcha. So you're not, you're not buying covered calls. You're selling a call option on that same stock. Gotcha. Okay.

When I, when I sell covered call, guess who's on the other side? Robinhood trader and WallStreetBets people who are thinking that in the short term, within 45 days, the stock should go here. Guess what? If it goes there, I would just give you my stock. But if it doesn't go there, 85% chance it will expire worthless. I'll keep all your premium. Yeah.

Interesting. So you're— yeah, I love it. And then that one's about a 60, usually 40 to 60 days?

Yeah. 45, 60 days. There's some research done on it and there's my personal preference on it. It's a general rule of thumb.

Gotcha. Now, a lot of these— do you do this through an exchange or what kind of mechanism do you use to actually sell? And you have to pay insurance companies. What kind of payments do you have to make to have an accountant to do this? Is it pretty expensive or is it—

No, no. This is like if you have— when I started back in the days, 2011, I just used the bank's Platform, but they charge a lot of money. My girlfriend works at the biggest bank in Canada. Like for people doesn't know that's Royal Bank of Canada. People in the U.S. might not know because we're small banks. You know, that's a joke. But but they charge ten dollar to fifteen dollar per trade. And you know, I'm not sponsored by Interactive Broker yet, but that's what I use, and they charge one to three dollar. So just from there, I save up all the commission I pay. That's a potential profit I can make. And you know, you just set up an account, you get the right permission, which I teach in the course, right? Exactly follow through a PDF file. How do you set up your account? And you go through the course. I teach you the entire system. And really from the next day, a lot of my alumni start the next day. They're like, Cody, I'm not sure what I'm doing, but I think what I know I'm doing, but I'm just going to see how much money I can make. I'm like, okay. Just be very careful, right? But they have that kind of confidence. It's like you teach us the whole system for it. So to answer your question is you don't have to pay for anything because the broker, the platform want you to use it so they can collect commission from you, right? So, and there's a lot of zero commission based broker in US. Again, I'm not going to talk bad things about them, but if it's free, they're They got to charge you somehow. So if they're free, a lot of time they're selling your order flow. As in, if you're buying, they're selling your order flow to a third party so they can create a spread. If you want to buy for $100, you always realize, why am I always getting filled a little bit higher than $100? Yeah, because they're selling your order flow to get paid that way. So a lot of time you actually end up paying more than the commission, right? So just be very careful with that, with of some of the new, new investors and traders.

Isn't that what Charlie Munger just said in the last thing? He said Robinhood's not free. Yeah, it's not.

And again, I gotta be very careful. Maybe Robinhood will find me as a sponsor, but I'm just saying there are ways that Robinhood are making money and do okay with. They making money that way, you're— you don't want to pay commission upfront and you think that works for you, go for it. Because Robinhood, a lot of the new platforms make it really easy for you to trade. Doesn't mean you know what you're doing. They just make it really easy, seem really easy. But when you're trying to make money, it's not that easy. And you understand what I'm saying? There's one point of making a transaction. There's another point of how do you actually make money, right? So it's totally different. It's not like, like you teach people how to set up funds. It's not like you can set up a fund, then you can make money. No, it's totally different thing. You can make it really easy for people to set up fun, but your actual mechanism and business model and making money, that is very important as well.

Spot on. Cody, where can people go to find your course?

I can probably— you can probably put the link in the bottom, or they can find me on my website, CodyYeh.com. That's C-O-D-Y-Y-E-H.com. Right? Um, there's a hat in the back here, right? Say yay to FIRE. That's my brand. So I run webinar, free webinar, uh, every month. And just like yourself, you run it on demand. I run it live every month.

Yeah.

And anyone who's interested can come join and chat with me, you know, no obligation to sign on anything. But you feel like, like what I've learned in the past is that if I pay for something that can get me from zero to Even 50, it's all worth it because that's all the time saved. That's how you scale up really fast. So I really appreciate the program you've come up with too, right? I'm very interested in that. A lot of noise out there, but how do you actually do it?

I love it. Well, click on the link below. We'll put that down in the bio for you guys to check out Cody's stuff if you want to learn more about options. And Cody, thanks for coming on, chatting to us about options.

Yeah, thanks for having me.

Last thing I want to ask you, I ask all my guests this, if you could leave this group with one thing that's most valuable to you? And it, it can be religion, it could be politics, could be money, could be entrepreneurship. Last 2 minutes, what do you want to leave this group with as, as something that you feel like is most valuable to share with, with this group and audience?

I think, I think your group is probably a lot of action taker, so I don't need to tell them to, but that's a lot of times the most important thing. It's You take action and you learn, and that's the fastest way you can learn. It's not like you have to get everything ready, then you start going. A lot of times the opportunity is not there. But again, you can start small and start learning from someone who has done it, has a track record of doing it. Learn from them. At least you avoid a lot of other mistakes that can, you know, they can cause you to fail. You avoid all those. There's a lot more upside now, and you learn it from someone. You can hold them accountable and Learn from, you know, someone like yourself or myself. I think that just saves a lot of time. At the end of the day, that's how we can scale up and scale fast and not to lose our mind and give up on a lot of our dreams, right?

I love it, Cody. Thank you so much. Again, click the link below. You guys can see Cody's channel and learn more about his courses and everything that's going on there. Cody, thank you again for coming on today. It's been fun to hang out.

I know. Yeah, thanks for having me. Definitely a pleasure. Thank you.