Trading Stock Options for Fun and Profit

What's up everybody? I have a confession for you.

I have a side hobby, a side.

Gig that I don't talk about very much. And it's called trading options.

Yeah, I make my money in my.

Businesses and I invest the profits. But I also have this little side thing where I, well, I trade options and I really, really enjoy it.

I actually have a personal goal that.

I want to make $25,000 a month just trading options. Because if I can crack that nut, then it's just a cool thing to be able to, you know, no matter what happens in the world, I can still trade my way to, you know, a mid six figure income. And that just sounds really cool to me. And the reason I'm telling you this is because we're doing this series, we've been doing this series inside the 1% about investing and passive income. And I thought it would be really.

Cool to share one of the ways.

That you could generate enough capital to.

Be able to put into the long.

Term stuff that generates more passive income and wealth. And one of those ways for me is that I'm trading options. And I am not an expert at this stuff. I am still learning this stuff. I'm an idiot at this stuff. I'm not licensed for this stuff. You shouldn't listen to anything that I say about this stuff. So I brought my mentor, the person who has been teaching me about this, onto one of our live streams inside the 1% and we go through how it works and why he does it and what his thought process is in this episode. Now we are just able to scratch the surface on, on this time together. It's going to get you enough to.

Be interested at it. We are doing a live class together.

Where we're going to go into more details. Ryan has like an official presentation that.

That he goes through that will really.

Help people get started if they want to do this. And you can join that that's on December 1, 2020 and you can register@capitalism.com options now if you're listening to this after December 1, well I'm sure we'll put the replay up at that link if that if one exists. I actually don't know how if Ryan.

Wants me to do that, but go.

Over to capitalism.com options and we'll have some information about it there if this whets your appetite. In the meantime, here is the class that is about option trading with my mentor whose name is also Ryan, which could get confusing, but I hope you enjoy.

I'm going to introduce you to somebody who you you might have seen on one of our morning chats in the past. He's somebody who's been mentoring me for about the last year or so on one specific thing. What you might not know about him is he's an E commerce seller like a lot of us, or he's at least an entrepreneur, an Internet entrepreneur like all of us. And what he also does is he makes a full time income trading options. Now this has been an interest of mine since I was a young tot. Since, I mean it was actually how I got into, how I discovered that maybe I wouldn't have to work a full time job for somebody else. And I've always wanted to be really good at it. I'm starting to get a lot better at it and I wanted to introduce him to all of you this week. Now, one thing that I want to set some context for. For the last several weeks inside the 1%, we've been talking about investing. We've been talking about the cash flow, dividend, stock. We've been talking about stock renting from last week. We've been talking about where to put your cash. If you're an entrepreneur, you're making your money in your business. Where do you put that for long term wealth and growth? Now what we talk about today is an option for you to fund those other investments. My standard disclaimer, of course, I am an idiot on the Internet. Don't take anything that we say as investment advice because we're just two dudes who like this stuff and like to talk about it and have some wins and losses and would like to share them with you for entertainment purposes. Entertainment purposes only. So there's my standard disclaimer. You probably shouldn't do anything that we talk about because we're all still figuring this stuff out, especially me. Good morning, Ryan. How are you buddy?

I'm doing good, how are you doing?

Good, man. I'm, I'm really looking forward to chatting with you. I always enjoy our conversations. You've been particularly helpful for me in the past several weeks. You've been helpful for me for the last year or so. But I wanted to start things off by talking about that conversation that we had at the pool. So you know the conversation I'm talking about. So tell your version of the story from what you remember.

I think you're mentioning about the conversation relating to trading and in particularly basically taking profits from businesses and investing it and using that to generate cash flow. Is that right?

That's right. But there was one thing that stood out to me about that conversation. And it was. We were, I think the topic of launches came up.

Okay.

We were talking about how like, you know, people in our world salivated the idea of you taking home $100,000 from a launch or $100,000 a month from their business. And you said, you know, I think my goal is to make $100,000 in a day by trading because there would be no product to sell, there would be no employees to pay, there would be no overhead.

And.

And the other thing was no one would have to know you did it.

Yeah, exactly. That's my favorite part.

So I'm curious if that dream has realized or how close you've gotten.

We haven't gotten there just yet. So for folks that may not know, one of the beliefs that I have as a trader is to always be a long term investor first focus on building your wealth for the long term. I think Ryan has a similar personality to me in that. And that means that for my short term trading, I trade with a smaller account. I never trade with more than 10 to 20% of my entire investable assets. Still though, I have had some pretty darn good days this year. The highest was just under $40,000 in profit in a day. So I'm inching my way towards it, but it certainly is better than a poke in the eye.

Now, for context, Ryan, you are an E commerce seller, correct?

That's correct.

This is a major focus of yours.

Yeah, yeah, I have an E commerce business. You know, we have an office and a warehouse and, you know, the whole shebang.

Yeah. And I. You been doing this a long time. This is like you've been an E commerce seller for longer than you've been a trader.

Is that correct?

No. So actually I started trading originally back in the early 2000s and then sort of that was my gateway into actual being an online entrepreneur. And for me, you know, when I got started, you know, I was 17 years old trying to find a business to start. You know, back then it was very challenging to actually do research on what you could even do because the Internet was nowhere near where it is now. We didn't have Facebook, no Instagram, no Snapchat, none of that sort of stuff. Google was very new in and of itself. And so when I started looking at the opportunities, it was like real estate, becoming a publisher, like an author, you know, speaking at seminars as an introverted person. Especially at the time, that sounded like just the absolute worst thing in the world. And then I heard, you know, about the stock market and really this Kind of, I call it like this little hidden corner of the stock market in options trading. And it started to check all the boxes for me. You know, it was like I could do it from home on my parents dial up Internet, you know, I didn't have to have an office, employees overhead, all that sort of stuff and music to my ears. Right. But then as I started to basically go after building that stream of wealth, I started looking for other opportunities. And it wasn't till, you know, almost 10 years later that I got involved in E commerce. And I early on, I mean the mid 2000s, I did stuff with ebay and stuff like that, but really selling physical products, it wasn't till almost 10 years later.

So we, we've got almost the exact, exact same story here. Because I wanted to be some sort of entrepreneur. I thought that I was going to do that in stocks and real estate. I'd make my money in real estate, put it into long term stocks and then I discovered options and specifically I discovered things like covered calls and like more traditional, safe stuff that you had to do this thing called go to the library and read about. And there wasn't, there wasn't all this information out there. And, and now it's, it's becoming my side thing because I met someone who was like, you know, several years ahead of me in actually in doing it and making it work. It's really interesting that you mentioned that only 10 to 20% of your portfolio is reserved for, for short term stuff. Would you tell me a little bit about the mindset between making the money in the short run and then investing it for the long term?

Yeah, sure. I think, you know, whether someone has a job, you know, a career, whatever you want to call it, have a business, the, the smartest thing that you can do to generate long term wealth is to really focus on taking a percentage of that and you know, moving it into assets that are going to be able to generate long term wealth for you. And that could be a wide array of things, you know, that could be stuff like someone setting up a roth, you know, IRA, traditional IRA, 401k through their employer. If you're self employed, you might have like a Solo 401K where you could contribute, you know, almost $58,000 as of this year to that, you know, and all of these different things to me are sort of the fundamentals, the foundation. Right, right. It's just like if you were to try and build a house without maybe building a strong foundation, the house might look good for a little while. But in the short term, it's probably going to have some serious issues. My point is like, you have to think about that foundation. And so I look at trading options as a business, right? So that business is separate from my long term investing with it, which is about wealth generation. So to do that I draw very clear hard lines. Like, you know, I have a brokerage account for my regular investing. I've got, you know, a, my retirement accounts, those are all separated. And then I have my options trading account. Again, this is just completely separate and it's the division that makes it very transparent and clear to me that, okay, this amount of money is what I can trade with when it comes to options trading. And, and this over here is for long term investing. Now I will say that in my long term investing, you mentioned covered calls, so I might as well bring it up in those accounts. I do also trade covered calls because to me that's more of a long term strategy and it's a way to really supercharge maybe a retirement account. You know, when done right, you can easily generate, you know, 2 to 5% a month with covered calls in what I believe is a safe manner in from my own experience.

Yeah, we talked about that. We call it stock renting. Ryan, I'm still learning this stuff, but you've taught me a lot and I sometimes serve as the everyman on these conversations. So I want to give you permission to mention any mistakes you've seen me make. Like, feel free to not censor yourself because I'm still learning this stuff along the way. But I'm curious what you see when people are going into this or show a curiosity for it. Like, I mean, hearing somebody say they, they've, they've made $40,000 in a day trading options sounds great. And yet not everyone does it, right? And, and plenty of people get into this and make all kinds of mistakes, myself included. So what are some of the pitfalls, downsides or mistakes that you see people get into when they start playing with this stuff?

Yeah, so I think the first thing is people try and run before they can even crawl, you know, let alone walk. You know, at the end of the day, trading options, selling physical products on Amazon or on your own E commerce store, whatever you're doing takes a skill. The difference that I sort of tell folks who especially have entrepreneurial experience the great news about investing in the stock market, particularly with options trading and how I do it, is that you really only have to master like one skill, right? It's this, the tiniest of skills that you have to master. Now, that doesn't mean it's easy or that it's for everyone. But you compare that to maybe selling physical products where you might have to get good at sourcing. You have to, you know, product design, development, you have to do all of these other skills, right? So when I tell somebody that, hey, especially an entrepreneur, they're usually a little bit more overexcited, overzealous. They don't. They. They kind of throw caution to the wind. Ah, risk. I don't really care about that. And so they just kind of jump right in. Instead of paper trading and practicing and the whole idea of practicing on paper and you can use simulated accounts with, you know, TD Ameritrade or whoever you use. And you just want to practice because to me, that enables you to learn the process. If you have no experience with trading options, this helps you understand, like, well, how do you enter a trade, how do you exit a trade, how do you, like, what is a bid and an ask price? You know, how does all of the sort of nuance actually work when you go to implement it? I see sometimes people like, oh, I'd love to just buy my first option, or they buy it and then they can't figure out how to get out of the trade. And then they're calling up their broker, you know, these online brokers, and they're trying to like, have them walk them through the process of selling a position. Even though it is just a few clicks, it's still something that, you know, practice first because sort of consider it kind of ground school, right? If you were to go skydiving, you're not strapping on a shoot, getting in a plane and jumping out solo your first day, right? That's what often people do when they try and trade stock options. The other thing I would say about it, Ryan, is I would say when people try and jump into something like this. And again, I'll do another comparison of physical products since I know you have a lot of experience in that and so does your audience, I'm assuming, or at least they know about it.

When someone jumps into trading, they often think, okay, the more I know, the better, right? I want to, you know, if I'm going to sell physical products, you know, I want to get really good at building an audience. You know, have my email list, my social media, I'm going to sell on Amazon and Walmart and ebay, and I got my own Shopify store and I hired this FB ads agency and, you know, they just keep piling it. Piling it, piling it. When in reality you could do one of those things and make a full time income, you know, if you just.

Did it well and if you just sold on Amazon.

Yeah.

If you just sold on Walmart or if you just became a Shopify expert, you'd do better than the people who are doing all of them at the same time. And I tell people exactly the same thing. What comes to mind is I had one person at a workshop who's doing $40,000 a month on Amazon and wouldn't stop talking about Shopify, right? And I was like, look, we can double your Amazon sales real fast, but going from 0 to 40 on Shopify could take you the next year.

Totally.

So I'm tracking with you.

So it's amazing that you say that because you, you often give this advice, but sometimes we don't know our own blind spots, right? So then like when you step over to trading, some of the things that we've discussed is, I'll kind of use an example of like you're, you're, you're making a gumbo here, right? You're basically taking everything, dropping it into the pot and trying to apply it all at the exact same time. You're, you're dropping the Shopify and you're dropping the Amazon and you're dropping everything in versus just going, okay, I'm just going to focus on this one, one thing. And for me, the way that I always frame the stock market is I think it's a story, right? And it really is a story in pictures, you know, technical analysis, when, if folks don't know what that is, all that is is your ability to look at a chart that has these indicators, right? And these indicators, I call them characters because they're characters of a story that you're seeing through this window, the window of the chart you're looking at. And I believe that we all have sort of this inherent ability to understand stories. We've heard them growing up, we've told them. You know, it's just sort of part of our DNA in my opinion. And when I look at the stock market as a story, the one of the mistakes I see folks often make is thinking, well, I know story number one, story number two and story number three. I only focus on really three stories. And then they try and blend them all together and they think more is better when in reality we need to separate them. And in isolation that is where the power is because less truly is more. When it comes to the stock market.

I want to tell you A story that I think will help a lot of you who are. Who are new to this. When I was in, gosh, like, eighth and ninth grade, I had a mentor who taught me a little bit about how all this works. It was mostly about stock investing. And he gave me a series of VHS tapes by a guy named Wade. I think it was Wade Cook, you know, who I'm pretty sure is in jail now.

Yeah, yeah, he's definitely in jail.

Okay. Like, I don't. I don't know what happened. Like, I don't know what he did right. I don't know anything about that. But. But his tapes were actually pretty good. And he had. There's one thing that he said in his tapes where he was drawing on a whiteboard and he mapped this out where he showed how if you've got a stock, like, let's take Shopify, since it's come up a couple times, if you have Shopify stock and it goes from 900 to $1,000, you've made 12 or 13% on your money or whatever that is, which is great. But here's where a lot of you who are starting out with a very limited amount of capital can. Can see the potential here. If you've got a Shopify option, which, instead of costing $900, might cost $50 or even less, and the stock goes from 900 to $1,000, there's a magnified movement in the option, so the option may go up by 100 points, too. So that $50 option can go up a hundred points, just like the stock did, but the option cost $50 and the stock cost $900. So whereas you would make 12% if you bought Shopify stock, in that scenario, you would triple your money. In that option scenario, you'd go from $50 to $150 instead of $900 to $1,000. And so when I saw that on this tape, this VHS tape, where I realized that I could get the same movement and a much higher percentage, I went, I got it. Like, now I get that even if I'm starting off with a limited amount of capital, like a few thousand dollars, I can get the same. This. The same paper dollar amount, but a much higher value. And of course, not every scenario is that rosy or that obvious. And plenty of people lose money trading options because they don't know what they're doing and they haven't practiced. But that's. That's where I really got it. Ryan, I'd like for you to tell me when you got it. If you Remember, like, when did. You know, okay, this is like the thing that I could actually do pretty well at.

You know, for me, it was really like, when I even discovered the opportunity, you know, it was just as I started to learn about what it took to be able to do the business, you know, it just all made sense, and I just immediately had this inherent belief that, like, I could do it. And I don't know why. You know, all I could tell you is as a shy kid, you know, I was super introverted, you know, at the time that I learned about options. And even when I was wanting to build a business and not even go to college, like, I couldn't type on a keyboard. I remember telling my brother, who was obsessed with the Internet when we were kids, I was like, you're. Why are you wasting your time? This is going to go away. You know, it's like, how embarrassing is that, considering what I do now? You know, it's just like, how, um. But then I started to learn about it, and it. I took to it just like a fish to water. And I don't know, you know, I think sometimes you find sort of that vocation that just makes sense to you. And I did. You know, I started with a tiny amount of money. You know, I. It took me over about 30 days or so to drum up $1,000 in cash to be able to even get started, you know, again, I was in high school selling stuff that I thought was so valuable at the time, like my signed Anthony Hardaway basketball. Oh, that top.

That's heartbreaking. Yeah, that's heartbreaking.

All these things so that I could do it, right? So when people always say, like, oh, I don't have enough money, or nothing's like, really, you don't? Or you're just not willing, right? I would work any odd job. I could try and clean around the house, help neighbors, whatever I could to come up with the capital. In this day and age, it's so much easier. Go drive for Uber, go do anything, right? And then I started trading. And you know, fortunately for me, again, I kind of took to it like fish and water here. And in the first 90 days, I tripled my money. So I made. I had a thousand. I made 3,000 in profits. Now I had four grand, right? And I was like, okay, this now makes sense to me. Now, you talked about types of returns. If I was trading stocks, I maybe could have somehow miraculously got there, but it was because of the power of options that I was able to actually accomplish that, right? And that's where then the real lessons started to come into place. Things that I teach, you know, folks that I help with this and, and folks like you is where I started to think that I was invincible. I started to kind of break my own rules. I started to.

I can't relate at all, Ryan.

You really have to learn how to make this a long term thing. And obviously I fortunately figured it out because here we are nearly 20 years later, and I'm still doing it.

You said something to me this week that was such a head slapper for me. I was like, I didn't get it before and now I get it. And it really cemented it in my brain because I saw myself doing it, which is you said that most people cap their upside because they're afraid, and then they expose themselves to the risk because they, they want it to turn around. Right. So if someone loses money, they tend to be like, it'll turn around, it'll turn around and turn around and it'll go down, down, down, down, down, down. And then they limit their upside. They get a little bit of profit and they sell, which limits all of their, all of the potential profit. And what I really got from that was you do the opposite, which is you cap your downside pretty quickly.

Yeah.

When you have profits, you again, protect your downside. You lock in some profits, but you let that ride so that your winners really, really run. And I was hoping you could share that with everyone so that they really get that concept.

Yeah. So. So think of it, you know, again, go back to human nature. What drives the stock market and price movement? Is it realistic that Shopify is trading at, you know, like $920 right now or so is, is the company worth that? Like if you start doing the math? Or is Apple worth what it, what it's worth or any of these companies? Right.

And oftentimes your answer is going to be no. They're extremely overvalued. Like Peloton's, like something trading out something like hundreds of years of their profits, which is just ludicrous. So, you know, you kind of think about, well, what's driving this? Well, part of that is our human nature, the majority of it, in my opinion. And two emotions particular, fear and greedy. Now, the thing that you have to understand with fear and greed is it can control us or we can use the fact that other people are experiencing those emotions and let that be an opportunity for us to kind of control the market how we want to. Right. Or at least how we intend to. So when I look at trading I always believe when it comes to short term options trading, you must have a plan. If you don't have a plan, you've already failed. And part of that plan is you have to have an exit strategy. You have to say, okay, I'm entering this position. If it doesn't do what I want, here's how I'm going to get out of the trade, right? Because this is obviously something that could happen. It could go down or if you're wanting it to go down, it could go up or it could just go sideways. Right now if it does do what I want, we have to have a plan as well because we need to focus on limiting the downside risk and maximizing our upside potential. Okay? So it's really, really important to understand that again, people usually operate in reverse, going back to fear and greed. So when it's going down, they're fearful that if they sell that they're going to miss the rebound, okay? So they ride that thing all the way down to the bottom. Then they're greedy. When it starts to move up, they're salivating. They're like, oh man, 20% in two days or whatever the number is, you know, I'm a genius. And they, they're now getting greedy, but they're also fearful of that they'll lose those gains. So what do they do? They get out of the position. Now rather, when I look at it, to me it's just part of the story, right? Going back to what I said before, I look at the market as a story. So the story is unfolding. For example, Walmart, this is a trade, again, disclosure. I have an active position in Walmart right now. I have profits in this trade right now. But when I entered the trade, I immediately, immediately placed a protection. And then as the story has evolved, I have now adjusted that downside protection. So now it's basically set. Unless there's some crazy circumstance, I can't lose, right? I will have profit. Now if Walmart stock all of a sudden dropped 20 points at the open, that would certainly be a little bit of a different story because you can't totally account for that and my protection will get skipped and I will have a market order, you know, which will cause a little bit of a loss for sure. But under almost all normal circumstances I'm set up to have profit. Now here's where again, fear and greed starts to plan. Because I want to talk you through this because this is, I don't want to say it's more advanced, but it's something that comes About Walmart is reporting earnings this upcoming week. Do I necessarily care? A lot of people would be nervous. They would be like, well, should I get out before earnings? What happens if they have good earnings but bad expectations and then the stock collapses? All of these what if, what if, what if scenarios, right? Well, again, take a step back and think about are you making rational decisions or are you making emotional decisions? Generally that's coming from an emotional standpoint. You're either afraid or you're greedy. Oh, if it's, if it's good earnings, what if it jumps 20%? That's nice.

Now this idea of waiting for something to happen or anticipating something is going to happen and making an investment decision based on that, we all do it, right? We've all done it, we've all thought about it. And what you're doing, Ryan, is you're kind of opting out of that and you are trading based on all of that anticipation. Am I understanding?

Well, look at it. It's like this is a habit of a winning trader. You need to basically say, hey, this is emotion. I'm going to push it out of my decision making process. And by having a plan and knowing like, oh, I'm going to limit my downside here. This is my hard stop. I don't, if it hits it, I'm now automatically taken out of the trade. I don't have to then sit there and go.

Should I get out of it right now? I don't have to like log into my brokerage account and like go in there and say, oh, I'm down 18%. I just got in this morning. Like, should I do it one more day? One more day, right? That's often what people say. And then it's like, oh, I'm down 32%. Well, you know, it's gonna come back. It's got it right? I've got two months. You know, these are all the stories. Someone will tell them in their head. They'll come up with any justification. But if I've already done the hard work up front and now I can be out walking my dog or I could go do whatever and if something happens and it hits it, great. I don't really care, right? Because I'm not sitting here trying to win every single trade. I'm not also day trading, right? I'm, I'm looking for very specific opportunities. You know, like, it's just like one of my favorite shows is Seinfeld. And you know, originally I'm reading a book right now called Seinfeldia. It's hysterical. It talks all about sort of the history of the show and the characters and kind of the movement of this cult following created and how the show almost never got made. And one of the things that sort of developed on the show was how Kramer entered Jerry's apartment. And at first it was sort of normal, but then it became like this whole shtick that he did, right? And it became more and more elaborate and all these sorts of things. And the staff actually would keep, like, extra parts for the door and door frame because they'd have problems with it breaking and stuff like that. And so I always think of that, like, how Kramer enters and exits the scene. This is exactly sort of what I'm looking to find in the story. When I'm using sort of this lens that I'm placing over the market. I'm saying, oh, this is story number one. How can I enter and how can I exit? And I always use, like, this visual representation of kind of Kramer jumping in and jumping out. And it's. It's like, automatic for him. And that's how I want it to be for me. I don't want to be sitting there pondering, turning the doorknob, you know, like, peeking in, you know, and closing it. Like, I just want to in, out, you know, very simple, hard and fast.

Ryan, I. I don't want to get super technical, into the weeds on this. There's time for that in other places. But I was hoping you could walk us through just the general idea of. Of what you saw here. So this is Walmart that I have pulled up on the screen. So Ryan said that he's actively in Walmart right now. This is a trade that he's doing right now and that they're going into earnings season. So, Ryan, with, you know, what you can see on my screen, would you just kind of talk us through this a little bit?

Sure. So the first thing that I'm looking for right now is because the broad markets are trending up, we have what's called a bullish bias, meaning we're looking for long positions. I like to follow the trend. You know, I believe swimming with the tide is the best thing that you can do here. Trying to swim against it or swim upstream is going to be a challenge. So with that in mind, I've been watching Walmart for a while now and looking for opportunities to kind of enter the story. So last month, we can see that it started to struggle with round number like 145, and we started to kind of get this consolidation and all that. Really means is it's like, it's like you're kicking a soccer ball against a wall, right? Like what I used to do as a kid because I didn't have someone to play with, right. Kicking the soccer ball against the wall, it's like hitting this resistance and coming back. Right? And we can see that it, when it tried to get over that 145, it came right back. So then this month I was looking for the same thing. I was looking for it to have trouble with 145. We can see initially it was able to get over 145. It fell back below, got back over 145 and now once it was back over 145, I was looking to get a confirmation, kind of like an okay to say, hey, I'm going to stay over 145, at least in the interim. And that is what happened three bars ago. Okay, so that was on Wednesday. This is when I decided to open a new position on Walmart. And because that 145 was sort of this wall that we were kicking against, we know that there's going to now be some support. Think of it like a floor, something that hopefully we can stand on. Now if you ever watch the show like American Pickers, you know, sometimes they're standing on floors and barns that you can fall through. So we have to understand that that floor might not be as sturdy as we want. So what I've done is I initially placed a contingent and which all that means is, hey, if the stock price goes below 145 to something like 144.75, go ahead and sell my position, get me out of the position at the market order, I'll take a little bit of a loss. But now because it's below it, I know that I no longer want to be in that trade. And the reason why, just so people know, is remember we're already looking at 145 as like a ceiling. So if it falls below the floor now I've got to get back through the ceiling. That can often be challenging. So I don't even want to think about it.

So now I forgot to. Since you disclose it, I'll full disclose this too. I'm actively in Walmart as well. Ryan will beat me up for my entry point, I'm sure because I'm still learning this stuff. But I, you might call it luck here. I entered here when it was a little bit lower because it came off of this bounce really aggressively. So I, I am in this too. And I kind of similar logic of it came up over some resistance points. And so I'm, I'm in this trade too.

Wonderful. So now that I have profit, and obviously Ryan has profit as well, what we need to think about is how we can protect that profit. The floor of 145 now doesn't really make all that sense because it's, you know, say almost five plus dollars away, five and a half or something like that, where I might have my exit. So now that it's over 150, this is, we don't know if 150 is going to be a line of support, you know, a floor that we can count on. But I can use what's called a trailing stop and all that is.

I'm sorry to interrupt you Ryan, but I just want to add context here. Like we're talking about in my brain before Ryan taught me this was, I meant I entered this trade, I'm up like 50% in four days or something, right? Woohoo. Yeah, yeah. Brain says I should sell so that I don't lose my 50%. And what Ryan is saying now is great, glad we're in the black, glad we made some profits, let's lock it in so that if it drops, it sells and we lock in profits. But it would be a mistake at this point to say, well let's sell all of our shares because it is, it has no theoretical limit and we want to maximize as much of that as we get. Right.

And think about, well, why would you sell? Right. There's no indication here outside of you saying I want to maybe take some profit to get out of the trade. It's moved up strongly. It's, you know, currently up in after hours trading, which I don't really look at too often. But we also think about, yes, earnings are coming up, but if something is continuing to move up, leading up to earnings, oftentimes there's expectation that the earnings will be good because otherwise people wouldn't be buying it. Right. And so now we still have to take some of that, that outside influence out of the picture and say, okay, well where's my real line in the sand here? Do I want to place a contingent below say like 150? And so maybe for Ryan, he's got 50 profit, he says, I don't need to worry about this specific stock price. I'm willing to risk 15 of my existing profit for further gain. So you set a stop that's based on percentage or maybe it's 20 or 25. Right. You can Adjust it to how you feel. And again, it doesn't matter if that ends up getting triggered and you get taken out of the trade. Of course, we always want to review our trades and learn from them. The concept is that far more often than not, instead of just getting out and taking a 50% gain, say you set the 15% and you get stopped out. Well, now you made 35%, you made less. Right. But there's going to be more times where instead of 50, it's 200 or, you know, 150 or 90 or whatever the number might be. You know, I've had trades in the hundreds and hundreds of percents. I had one student that generated over 1100% from one trade. Imagine that for a moment. You know, like, that's an insane ROI. If he would have said, oh, at 50%, I want to cap that. That would have been, you know, imagine the psychological torture of having to watch it continue and then being able to like, take a pause and say, okay, I made a mistake. I need to not let that emotion carry over to the next trade. Right.

I, I love the story that you tell about your mentor who learned this the hard way, where the wife wanted to buy some furniture.

Yeah.

So, so he made a trade, doubled his money, sold it, and went and bought the furniture and was like, see, honey, we got our furniture paid for.

Yeah.

But had he just ca. If he just put in a, A stop in place rather than sell it, he would have 8x'd his money because the stock kept going up. So I'm. Most of us can relate to that feeling of like, oh, I wish I would have bought or I wish I hadn't sold on something. Like, for me, it's Tesla. I bought. I was in on Tesla when it was at 200.

Yeah.

And, and I sold it and everybody told me I was an idiot because Tesla is not profitable. And, and then Tesla goes to 700. I sell because I think it's overvalued at that point. And then it went up to 2100. Right. And now I just feel like a dunce now I just feel so. It's the same thing with long term investing. Like, if I had just set a contingent in place rather than, than just selling the whole thing.

I would, I would have done. Done much better. And Ryan, something that you're saying that I've heard you say in some of our conversations is that you don't try in this strategy to like, predict the economy or predict the election or to make decisions based on earnings of a company or Even, like, one time I saw you trade Kohl's, and I was. I was so. I was like, why is he. Why is he investing in Kohl's? Kohl's is gonna go out of business any minute. They're done. They're done. They're a terrible store. They're in a terrible market for them. Like, they are not going to be around. Why is Ryan trading Kohl's? And it's because you don't care about what's happening in the next year. You care about what the indications are telling you. So what that does is it takes. It really allows you to take your fear out of it. It allows you to not be so emotionally reactive. So would you comment on Kohl's and the economy and how you're able to take that out of it?

Sure. You know, it's so funny that, again, going back to fear and greed, I sound like a broken record, but it's so important for you to understand that. And just, I would highly encourage people to look at. When you're making decision, just take two seconds to think, am I being driven by emotion here? And with Kohl's, for example, like, of course this company is struggling, right? You can look at their stock chart and see that they were struggling. But again, I don't really care. What I care about is my Kramer moment, right? Where can I enter the scene, you know? And so when I'm watching it and looking at it, and each day it takes me all of 5 seconds to look at Kohl's and say, hey, is there an opportunity here? And then all of a sudden, one day there was, right? We had a breakout out of a channel. Basically, the price was moving between a floor and a ceiling and broke through the ceiling. I knew I can go long, open a new position, and should it fall back into the channel, then all I had to do was automatically get out. Well, it did exactly what I hoped it would do. And not only that, it did it so vehemently that I made over 60. I think the number was something like 63% in a couple days. And literally got out of that trade and said, thank you, Kohl's. I'll see you next time. You know, that's it, right? So of course, there's times where it doesn't work like that, but in that instance, it was great. And then thinking about the economy, you know, back in March, I did a kind of call like this with my other friend named Ryan, who you know.

As well, this is going to get confusing.

And you know, him And I talked about sort of what was going on. The markets were selling off like crazy lockdowns. The whole world was in a point of uncertainty. And what you need to understand is the stock market prefers sort of some call it gridlock, some call it certainty, it prefers to not have any sort of wild cards. Right. So part of the reason we saw like a nice big bump in the market was when they were calling the election for Biden. They were, you know, the market's thinking, okay, Democratic President, Republican Senate, sort of gridlock. Right. That's a good thing for the market. Then obviously there was some other good news and stuff like that. But nonetheless, for me, that sort of thing doesn't matter. Right. Because when I'm looking at the story, I'm letting it dictate what I do. Right. You know, the scene is already set for me. When the market's going down, I'm jumping on the train and wanting it to continue down. When the market's turning around, I'm jumping on the train and want to ride it back up like a roller coaster, you know, when it's sort of flat, I'm looking for opportunities in between to play sort of these smaller movements within that flat space. So to me, again, it doesn't matter is the economy. Of course, you know, if the market has a distinct trend, it's things can become more magnified. So for example, one of my best years in the last five years was 2017. And part of the reason is if you look at the stock market in 2017, it was just like nice trend up. Right. And so that presented a lot of opportunities where I could get in the trade. Slap on a 20 trailing stop. Next thing you know, I have 340 gain. You know, it was just like the market just kept moving up in a fairly straight line.

And the important thing there is it was not that it was going up, it was that it was consistent.

Yeah, it was a defined trend.

Yeah, it was, it was a stable, consistent trend.

Yeah.

And it would, it would be the same same if it was stable, consistent going down.

Correct.

Because what, what Ryan is saying is he's not emotionally attached to what the economy is doing. He's not emotionally attached to who the President is. He's not emotionally attached to what a company stands for. He's not, he's not emotionally attached if that company's going to be around. He's just looking for predictable trends.

Yeah.

And you put little triggers in place to ensure that if you're wrong on the trend that you stop your losses. Very quickly.

Right.

And that allows you to be active without this fear coming up over and over and over again.

Yeah. And the other thing that I do is I, in that it's almost often I'm looking at things from a contrarian standpoint because where there is fear, there is opportunity. Right. So for example, you, you talked with your group about stock renting, which I, you know, cover calls. And so I don't know all the details of how you sort of explained it. But for example, when the market was going down and it started to have like this fake bounce and there's some people predicting a V shaped recovery and all these different things, some industries were just so hated on that people were fleeing them in droves, you know, and some of them were having 10 year lows or all time lows and like companies in oil companies, in, you know, energy companies, in travel, like airlines or cruise lines. And I started to see amazing opportunities because when there is so much fear, there can be a disproportionate amount of kind of opportunity if you're willing to jump on it. And because I don't care. Right. Again, I'm not emotional. I'm buying puts on companies that people would say I'm insane to buy puts on American Airlines, Royal Caribbean, Carnival Cruises, bank stocks like all of these companies. And the premiums were insane. Like literally buying the put, getting paid sometimes 20% of the share price up front. So that means if the price is $10, I was getting paid $2 to say I would be willing to buy it at 10 bucks. That's insane, Right. So sometimes I was put the stock, meaning I got the opportunity to buy it and then I would write covered calls on these, and I would write covered calls on these. And Royal Caribbean, for example, I made, I mean, too much money to, to think about. It's just so crazy how well I did with that company, you know, in a short period of time generating, you know, just astronomical gains. And again, I didn't care that Royal Caribbean wasn't operating cruises. I didn't care that Royal Caribbean could go out of business because I'm using again a small portion of my account and then an individual trade is an even smaller portion of the account. And I'm never trading with more than a certain amount of money. I have all these sort of what I call rules of a winning trader in place already. Right. So it gives me the opportunity to look for that, well, where is there sort of magnified emotion and play that opportunity. And then as the market started to rebound, every pundit was, you know, there was kind of like two sides. Some were talking about v, shape, recovery. Very few others were saying, when is it going to go back even further? Right? Like, and I think you had mentioned that you had kind of thought it was going to rebound and then go even deeper, right? And again, you know, if it did that, great. But I wasn't so much thinking about that, right? It started to rebound and all I did was play that rebound and that presented again, tons more opportunities. And, and we saw it with companies like Apple and other companies not only getting past their highs, but new all time highs, right? And it's the folks that are like sitting on the sideline thinking, well, it's got to go lower, right? The economy is suffering, you know, all of these sorts of things. It has to, right? Well, it doesn't actually have to, right? You know, it can continue to go in the direction that you don't want it to go. It's just like bitcoin, right? Bitcoin fell off a cliff, dropped below 5,000. And some people hate bitcoin, some people love it. I sort of fall on the side of, I believe that it's a catalyst for change and I'm betting on that. And so when it fell below 5,000, I was telling my students like, hey, I, I see opportunity here. I'm buying more cryptocurrencies. Bitcoin, if you bought it, then I mean, it's only been what, seven months or so and it's now flirting around 16,000, a little bit higher. Pay less than 5, get more than 16. Not too bad, right? And there was a lot of opportunities. So I'm sort of blending kind of some long term stuff here, just so folks know. But again, the point is, the truth is I'm looking for opportunities that people are sort of, they're using their emotion on. You know, gold and silver were the same thing in March. Usually if the market goes down, precious metals go up. They're looked at as a safe haven. But everything was going down. Disparity, right? You could trade options on gold, you could buy. I did both. In three days, I made 133% on a gold option. It's just sort of crazy, you know, numbers, you know. And then you kind of think about, even right before the election, contrarian thinking, I made bets on marijuana companies, right? And what do you know, bunch of stuff got legalized, medical, recreational, decriminalized, all these sorts of things those companies took off. One of them was up over 120% in two days post election Right.

Like all this to say, I mean, if you follow my work closely, yeah, I am not a fan of bitcoin. Right, Right. Like I am, I am not a fan and everybody thinks I should because I run capitalism dot com. I'm not, I'm not a fan. But I missed out because I used my own emotional reaction to that idea.

Right.

To stop me from investing in what a lot of other people are very bullish on. And I missed out. I had missed, I missed out. I, my, my, my love for certain companies can clout my decision to trade them. Which is why Ryan is saying like, I don't, I don't, I don't work like that when it comes to making trading decisions. I look at what other people are doing and I bet on this. Now I want to highlight, I unfortunately can't show two comments at the same time, but there's, there's a discussion happening between Drew and Scott about Tesla and how in, in, in the old days it was cheaper. And I wish there were other opportunities in there. But I want to point out those opportunities are always happening. They're always happening. What we're, what you're observing is that the opportunity you saw in Tesla is no longer there. But those opportunities are always there if you know what trends and opportunities to spot. They're, they're just different. Now, Ryan, you look like you want to comment.

Yeah. And I'll just make a comment about Tesla. Right. So Tesla in the last year. I don't know, Ryan, if you can put up the chart.

Yeah, sure, I'll pull that up.

Just a 12 month chart. So in the last year, and even if you go back further, remember I talked about like a defined trend. Right. The defined trend helps us understand what the consensus is. There can be a consensus for the broad market, there could be a consensus for an individual company. Now if you look to the, towards the far left of this actual screen, the first kind of full month that we've got there, do you see how 200 became a ceiling? And what a great option trading opportunity when it broke over 200 and went from 200 up towards 350 and you would have certainly had a trailing stop to protect your downside. You know when the stock moves almost a hundred percent the way that your option would have moved, especially that it did it in a matter of like eight trading days, you would have made a ton of money. Right. More than. Even if you bought the stock probably at 200 and sold it at 2000 percentage wise. Now look at how they're Sort of where these periods of what I call irrational exuberance, right. All of a sudden there's kind of this consensus at about 300. And then all of a sudden it goes from 300 to 500, right? And we're looking at numbers after the split. These dollar amounts were bigger before. The percentages were bigger or equal though. But then look at these sort of people not being so excited, selling from 500 down below 350. So you can kind of look at sort of the waves that this has ridden. And now what do we start to see here? Well, we start to see there's becoming more of a consensus. Notice how it was moving between say like 350 and 450, then back to 350. Well now this window, this has become tighter and tighter and it's now really say 4, 400 to about 450. And this is now becoming sort of the consensus. So as a short term trader, whether I believe in Tesla long term or not doesn't matter. I may still find opportunity here should it present itself. So I think when someone is, oh, I missed out on that, or I wish there were more opportunities like that. Just remember, patience as a trader or an investor is one of the greatest qualities that you can have. Because you mentioned Kohl's, you know, and many other companies that I, that I trade, there will be no opportunity and then boom, all of a sudden it presents itself, right? So I have to be patient and wait for that opportunity versus really like, I think oftentimes people say they want to pursue it, right? They're like, today I need to find a trade. Why? Why? Because I mean, even if you're doing this full time is like, like someone feels like they need to be doing something. You know, I've coached some folks where it's like I, I just can't wrap my brain around like I can't just do it for 30 minutes a day. I have to watch it all day long. And I tell them, I say, you know, this is going to cause a problem because if you're watching every little tiny movement, it's going to start to stir up some emotions in you, right? So you have to relax just like my dog over here and let things just sort of play out, right? And I simply just check in my trades on really like once or once or twice a day, you know, and.

Would you share like how much time you're usually spending as somebody who does very well with this, what your time allocated?

Yeah, I mean I spend about 30 minutes a day trading, you know, It's a very nominal time, you know, and that's why people think often many of my friends say, you know, how's your day trading going? It's like, trust me, I'm not a day trader. I have friends who are day traders. And you know, he's looking at 10 different screens. You know, he's afraid to go up to go to bathroom because he's doing 600 trades a day. Like, think about that for a moment. Like 600 trades in one single day. When the trading commissions basically went all but away, you know, there's still tiny commissions for some things, like some option trades and stuff. But that was a good day for him because think of how much he was paying in trading commissions, you know, Insane, right? So you have to kind of think about like, well, what do you want to do? Like, I didn't get into trading so that I could have like 10 pretty monitors sitting in front of and watching, you know, green and red charts all day long. Like that sounds miserable to me. I got into it to create sort of this lifestyle business that leverages this corner of the market, right, that fit my personality where I don't talk to people, I just do my thing. Like, you know, there's a great series of books by this guy, Jack D. Schwager and, or Schwager, I'm sorry for mispronouncing that, but he has originally a book called like Market Wizards. Then it was New Market Wizards and Unknown Market Wizards and Hedge Fund Wizards and the Little Book of Market Wizards. And all these books talk about other folks who have done insanely well investing. And the most fascinating one to me is the Unknown Market Wizards because it's people in the financial, that the financial world has no clue who they are. Some of these people made hundreds of millions of dollars in the market and nobody knew who they were. Right. And what's amazing is I think he's interviewed now hundreds of different traders and they all have different strategies, right? They all believe in kind of their own little corner of the market and do their thing, right? And that's great and that's the same way that I like to operate and why I think that business is so great.

You know, we could talk about this all day and, and scratch the surface. And so I know a lot of you are, are interested in this, but all we did was pique your curiosity. I want to highlight that Ryan and I have decided to do a follow up class on this topic that's not public, that goes into this. A little bit more specific specifically and show you how you could actually get started with this if you want to. So that's@capitalism.com options. So that's a live class that Ryan and I are going to be putting on together. That'll go a little bit into, into the weeds of this. And again, I just, I want to offer up that I'm not the expert on this. Ryan is helping me too. Like Ryan's, Everybody has their style, everybody has their person they follow. And Ryan is my guy. I don't want to be known as an option trader. I don't want to be known as, like, this is something I do on the side because I enjoy it. And because Ryan said something to me once that, that this was. I was like, I have to get good at this. Ryan said, if you can get good at this skill, then you'll always have a skill that you can make money with.

Yeah.

Regardless of what happens to your business, regardless of what happens to the economy, whatever. If you get good at this skill, as long as there is Internet and as long as there is a stock market, you can, you can have a skill that you can make money with. And that was when I was like, you know what? No matter what it costs or what mistakes I need to make or how much time it takes for me to learn this, I want to have that. I want to have that skill that allows me to just go full in on my business and my audience and service. So that's why I decided I really am going to get good at this. And Ryan's my guy for this.

That.

So we're going to do a live class. I think it's December 1st. We decided capitalism.com options. Again, this is going to be a private class. I'm not going to stream it like this one. It'll just be for people who want.

To talk about this publicly.

I just want to make a comment about the skill thing because I think it's so important to understand the value in that, that when you learn this, you can do this for the next 10, 20, 30, 40, 50 years. You can teach your kids, your grandkids. It truly stands the test of time. You know, when my mentors learned how to do this himself, he was getting charts mailed to him and reviewing charts at night and then calling his broker over the phone. Right. Talk about an evolution of how easy we've got it. But I think it's so important to understand that this skill, I remember, I must have been 14, 15 years old, I heard someone talking about, you know, learn this skill and you'll never have to worry about work again. They were talking about selling, like, become a great salesperson and you'll never have to worry about a job again because companies will always need a great salesperson. That was exciting to hear. But at the time, the idea of selling and selling to someone else or a company was terrifying to me. Right. So it was like, well, that doesn't make sense. But it always stood in the back of my brain, like, what can I do? That is sort of something that can last my entire life. So again, going back to when I was thinking about real estate or looking for opportunities and there was like, oh, go teach seminars or go write a book or go do all these things as a 17 year old, all that didn't really make sense. But then all of a sudden I learned about this hidden corner of the market and I thought again, to that person talking about sales and I said to myself, well, if I learned this, even though I don't know anyone in my personal life that does the stock market or really talks about investing or money ever, if I learn this, then maybe that's exactly the same thing that he was talking about. And it's.

I love that. I love that philosophy.

Philosophy.

Ryan, I call you the Jordan Peterson of investing and trading because you get the mindset piece so well and I love that you bring that in. Thank you for all. Dude, like I tell you this privately, but publicly, thank you for all of your help with me.

You're welcome.

I mean, you sent me a video this week that I was, I watched it multiple times and then was like, I, I just, I just, I don't know why I didn't get this major piece before and now I. And now I really got that piece and it really changed my. The way that I look at it and it helped tremendously. So thank you for all your help for me and for sharing this so.

Humbly and, and publicly. I really appreciate it.

Yeah, you're welcome.

All right, everybody, hopefully we'll see you on the class and otherwise we'll see you in the 1% Facebook group. Good to see all of you.

Take care.

I love talking about this stuff and I have so enjoyed the series we've been doing inside the 1% that has been about passive income and cash flow investing for entrepreneurs. Because entrepreneurs are like magicians.

They know how to make money appear.

Out of thin air and then they also make it disappear. And if you don't have an engine.

Behind your business strategy that gives you a way for you to invest capital.

That will grow and compound and produce passive income over time, then you're always tense about the way that you're going to run your business because you don't have the wealth part and the growth part taken care of.

So that's something we've been working really.

Heavily with inside the 1%. If you're not a member, you should join us over@Capitalism.com 11 and you'll get access to a bunch of our investing stuff that'll help you with the passive income side of this. It's just as important as your business stuff. So please get that in order and come join us capitalism.com 1 and if you want to be on the class that we do with Ryan, that's capitalism.com options. So I hope to see you at least on one of those, preferably both of those, because this stuff is really important. It'll change your life if you let it. Thank you so much for listening to capitalism.com I really appreciate you guys. Thanks for letting me do work that I find meaningful and I'll see you guys on the next episode.