Cash Accounts, T+1 Settlements & Straddling ETFs | Podcast Episode #483

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com. Swing Trading the Stock Market. In today’s podcast episode, we’re going to, you know what? I don’t even know what I’m talking about because I, I, I got an e-mail and I’m not sure what the title of this podcast is going to be just yet, because I’m not sure how it’s going to play out.

0:17
He talks a little bit about options, a little bit about straddles, a little bit about position sizing. So obviously listening to this podcast at this point, you know what the podcast title is, me recording it at this particular time, I don’t know what it is. So remains to be seen. But any case, I like to give people a fake Florida redneck name just because that’s what I do on this show.

0:37
I don’t use people’s real identities. But I’m going to steer a little bit differently here. Even though he’s from Florida, he resides in Wisconsin and I’m going to give him the name Blue Moon because I’ve heard in Wisconsin there’s this ice cream flavor called Blue Moon that is absolutely fantastic.

0:53
And I don’t know, I, I personally don’t know that for sure from personal experience, but everybody I talked to from Wisconsin talks about this stuff being the greatest stuff since sliced bread. So one day maybe I’ll make my way up to Wisconsin, be able to have some Blue Moon ice cream. But any case, Blue Moon writes.

1:09
Hello, Ryan. I listened to a few of your podcast episodes recently via Spotify. Thank you for contributing to the Knowledge community. Keep it up. I’m happy to hear about swing trading. I don’t see enough obvious resources available to get started. Too many retirement investments. Set and forget strategies that are prevalent.

1:26
I traded cash count. This avoids day trading in a margin account. But I need to be close. I need to pay close attention to the funds I found AT plus. One is recently adopted which helps me. I seek to trade short for 1% or more. I call them horses as they go out and spread capital over several trades rather than just one.

1:46
I make trades on stocks with if it that’ll eventually go up as well. After 30 days, I consider selling and avoiding cash rules to tax harvest. I find myself straddling as a unique strategy. OK, there’s a lot there. I had to honestly, I had to read that like four or five times just to get a kind of an idea of what he was actually saying there.

2:05
So if you if you actually know what he what he meant there, you’re way ahead of me on that one. You said the amount of shares doesn’t matter which I agree paying attention to the percentage rather than falling in love with the the dollar amount is best. But 100 shares is required to option trade. So thoughts on that?

2:22
Thoughts on saddling like inverse and normal ETFs? At least you know 1 is up or down and you can trade the other. The options trade safer on the other, I appreciate your mentions of your otherwise revenues means, but like your website, I’ll anticipate checking that out.

2:38
Hopefully trading becomes well enough that I don’t need to worry about a day job in the future and then I’ll be more in tune. Thanks if you engage for personal exchanges on pure topics, sincerely, Blue Moon.

2:54
I didn’t quite keep up with a lot of the stuff in that podcast, but I have a general idea of what he’s saying there. In any case, obviously he likes the show. He’s he’s his trading style is a is in a cash account. He talked about the T1 settlement.

3:10
What that is exactly is it takes basically one day and a cash account to settle the funds. It used to be two days, but now we’re recycling the capital a little bit faster into new trades as a result of that rule change.

3:25
He has a short term trading approach. He he aims to gain around 1% or more per trade and he calls these things like quick horses, I guess, or quick trades, meaning he wants to make a lot of smaller trades rather than put a whole bunch of money on just one particular trade.

3:49
And when it comes to options, you really don’t want to put a ton of money on trades because those things can become worthless and in the blink of an eye really can’t unless you’re like trading leaps or something like that and you have a little bit longer of a time frame.

4:08
But any case, he talks about the 30 day wash sale management rule. I don’t really get too much into that. I personally, when it comes to trading, I don’t pay attention to the wash sale because for one, I’m looking to profit on all my trades. That’s just what I do. Does that mean that at times I, I may shoot myself in the foot by not being able to take advantage of that?

4:23
Yes. But I’m also not going to pass up on a good trade setup simply because of a tax rule. Again, when it comes to trading, I try to focus on what the market cares about. Market doesn’t care about the the wash sale rule, doesn’t care about the number of days that you have before you can jump back into it. It doesn’t.

4:44
So I’m not going to put that, impose that on the market. Now, is that the right rule for everybody? I don’t really know that. For me it works because if I start adding additional variables, I’m going to lose my mind. So he uses a straddling concept essentially where he’s playing options and he’s straddling a price and hoping that it’ll break in the direction of one one way or the other.

5:03
I’m not a huge fan of options trading in general. I think there’s too many people trading options right now. I think a lot of people are blowing up their accounts trading options. I think it’s just a lot of people they’re, they need the action. And so they’re leveraging themselves, sometimes without even realizing they’re leveraging themselves because they know that through options they can actually control more shares at once.

5:24
So what he’s trying to do is basically play both the calls and puts in this option strategy to profit from the volatility that might arise from the trade. So, you know, if he gets in the stock at ABC at $100, he’s going to buy a call on a put at that level and then hope that it takes it, makes a big move in One Direction or the other.

5:42
He’ll close out one and hope that it fades back in the other direction to profit off the second one as well. So it’s a legitimate strategy. There’s nothing wrong with that. The millions of people do it. I’m not a huge fan of this really. And one of the main reasons for that is just because of how much of A premium that you’re taking on.

5:59
And it you’re you’re essentially, you know that times you can, you know, take it on like double the amount of premium then you would otherwise be taking. If you’re just trading in One Direction. That means that in order to become profitable on the overall strategy, you need to be able to eclipse both premiums in order to make money on the trade.

6:16
He talks about using these ETS for and, and that he will, he specifically, he specifically mentions trading inverse ETFs alongside of normal ETS as a safer strategy, buying ETF’s that move opposite of each other, ensuring that at least one moves favorably, possibly using options for additional leverage or protection.

6:39
So that, that’s fine, I, I guess, but at some point you got to close it out because they’re, they’re going to cancel each other out. One of the things that you risk is for losing on both of them over time. If you’re trying to hold these things for long periods of time because of the time decay element, both of them are going to have time decay it it’s inevitable that they have to have it in order to maintain the 2 to one or the three to 1 leverage.

6:55
And so if you’re buying, let’s say for instance, TQQQQ&SQQQ, OK, so you’re, you’re buying 3 to 1 leverage of the the NASDAQ 103 to one return with TQQQ.

7:15
And then with SQQQ you’re, you’re shorting that essentially by buying SQQQ with an inverse relationship of three to one. Now obviously NASDAQ goes up 1%, TQQQ goes up 3%, SQQQ goes down 3%.

7:33
So it would seem like it’s a wash, right? So at some point you got to kind of like close out one of them and then you’re going to have the reset every day, which creates the time decay, which creates additional losses over time.

7:49
Now, one it one thing that some people do, and I think it’s hard to find shares with that and I’ve never actually dabbled on this, but people will actually short both like SQQQ and TQQQ and try to take advantage of the time decay and both of them want it can be very hard to find options or not options, but it can be hard to to find shares available to short using both both of those vehicles there.

8:22
So that becomes a problem. The other thing is, is that the compounding like if you know the queues go on this epic run, it could really hamper your ability to to really make long term gains off of shorting both of those. So I’m not a huge fan. I think if I had to choose, I’d probably just rather play the options on a straddle rather than trying to, to straddle it both with the, the leveraged ETF and embers ETF.

8:43
In terms of shares versus options, While he agrees with me on the whole percentage of you know it, we should be more focused on the percentage of our capital and the, and the returns that that capitals making rather than focusing on the dollars or focusing on the number of shares that we own.

9:05
And that’s an honest question. Why, why would somebody want to trade options? Because what it usually comes down to is they need more action, they need more leverage, they want to make more money. And really that’s not what trading is about, especially if you’re very young into your trading career, Very definitely not what it’s about.

9:22
I talked to somebody the other day, he’s never even traded in his life. And he’s, he’s, he came over to my house where, you know, having a good night, you know, hanging out with the family and everything. And, and he’s telling me how he started Futures Trading has no idea about the leverage.

9:38
And I’m trying trying to point like, I don’t know, I got a good idea of what I’m doing here. You know, I, I, I figured some things out and we’re talking about a week’s worth of trading on the futures market. Guy has no idea the amount of leverage that he’s taking on. And I even told him, I said, you’re going to blow up your account and you’re probably going to cost yourself immensely amount of money in the process holding them, holding futures over the weekend, multiple contracts.

10:02
And so, you know, one of the things that I’ve learned, and it kind of goes back to some biblical references, it talks about how a prophet’s rejected in his own town, right? And I don’t necessarily call myself a prophet, but sometimes I feel like just on a local basis, when I’m talking to friends and everything, it’s much easier to, to brush me off is just like, oh, that’s just Ryan, you know, and yeah, he probably knows what he’s talking about.

10:29
But, you know, I know him personally. I, I, I know a thing or two that he doesn’t probably know. And I, I’ve got this under control, but what’s going to ultimately happen? I’ve seen a lot of my friends do this. They blow out their accounts almost every time. They rarely ever listen to me.

10:51
But what you’re probably looking at here, why is somebody getting into options instead of just trading equities? I think there’s so much more opportunity and, and growth progression by starting off and equities and in confidence building as well and just saying, Hey, you know what?

11:06
I’m going to get into futures or I’m going to get into options trading. Most people are not ready for options trading. I hardly ever do options trading. I do some like sometimes I’ll sell covered calls against positions. That’s fine. OK, I don’t really consider that really heavy options trading, but a lot of a lot of people will will will trade options and and never even experience what it’s like to buy buy shares outright.

11:27
People will sell puts right now, you know, cash secured puts, hoping that, you know, that a stock will keep going down and they, if they get assigned to it, they, they get those shares and if it, and if it doesn’t, then they collect the premium. The problem is, is if you get into a situation where you’re selling cash secured puts against something like United Healthcare, like what we saw this past week and you know, the stock goes from like 650 down to the four hundreds after earnings.

11:52
And you’re like, oh, OK, I’m going to sell some cash secured puts at 380, you know, and it’s going to expire in, in a couple of months. But then all of a sudden they suspend their guidance, their CEO steps down just out of the clear blue and the whole thing falls apart. Now all of a sudden you’re getting assigned shares while it’s trading at 311.

12:10
You just got assigned some massive amount of shares, $30,000 worth. And, and maybe that’s like your entire account not thinking that that would ever get assigned. You just got assigned shares at 380 and the stock is trading at 311. You’re down over 20% on the trade.

12:27
And so there’s so many things that people are doing and things that, that I see them doing. Another one is the 0 DTE options trading strategy. They’re getting in to that and almost, and you can tell when it’s going on in the market. It’s, it’s usually during the bull run.

Transcript (continued from 12:27)

12:27
And then when the market makes intraday new lows like after the 10/30, 11:00 mark and we’re making new lows almost every single time, you will see heavy amounts of buying just flow right back into the market.

12:54
And so that’s, that’s typically what what you see from a lot of retail behavior, yes, is the institutions engaged in zero DTE, Yes, but so is the retail crowd. And the retail crowd generally gets burned doing that.

13:10
They’ll have a couple of good trades and that’s enough for them to lose 7 or 8 more times before they get the hint that that’s probably not the right thing to be doing. So there’s a lot of options strategies that is going on. So when he says, well, how do you make up for position sizing when it comes to options trading when you each contract is worth 100 shares, My thought would be is don’t, don’t do it.

13:28
You know, I mean, I wouldn’t make a trade if you have to buy something that requires you taking on 100 shares eventually if you get assigned or, or because you feel like you need that action. It just it makes zero sense. Trading is so much better for people, especially new traders by jumping in in the early stages into not even in the early stages.

13:52
You can build a whole career like I’ve done off of just trading equities. There’s really no need to trade options. And, and for most people, I would say 95% of the people, I’d maybe even say 99% of the people. It’s really a bad idea.

14:10
Now, again, I’m not saying like selling covered calls and stuff that’s going to blow your blow up your account, but there’s a lot of very aggressive trading strategies, whether it’s zero DTE, selling cash secured puts where you get assigned, like in the case of UNH, there’s a lot of people that got assigned some really, really bad positions there just this past week.

14:33
So what’s the approach going forward, at least as it pertains to blue moon here? He’s he’s got, you know, he’s trading in in a cash account. I think one of the good things is that he doesn’t want to trade a margin. I think that’s that’s a solid thing.

15:03
Premiums are going to be less, but also the volatility is going to be less as well. So you, you really still need to know that there’s a, a technical reason for why a stock might break out or break down in the near future. And before I forget, make sure to check out swingtradingthestockmarket.com.

15:18
Or you could just go to SharePoint or as well. swingtradingthestockmarket.com will just take you right to the premium services and show you all the good stuff that I have to offer from being a part of my discord and trading community and getting all my stock market research or just getting one of the training courses that I have to offer.

15:36
I have a newly launched 1 called the the self-made trader really good. It teaches you essentially everything I know about trading and gives you the A-Z of everything. It’s like 25 plus hours of of video training with me by they created by me, edited by me, everything done by me.

15:53
But it’s really good. It’s very in depth, takes you from the very beginning and takes you into much more advanced strategies as you go along. It’s a 1514 week course and you even get the trading block with it for three months for free and all my other courses thrown in there as well. So check that out. You can go to shareplanner.com or swingtradingthestockmarket.com and get all of that information there.

16:13
So wrapping this up, I like Blue moon. I like the the energy that he that he brings. He’s a professional engineer based off of what his e-mail says, but I would try to encourage the person. And, and here’s the the other thing too that I think is kind of interesting.

16:34
A lot of people will get into options trading because they’re not cutting it in equities, just buying and selling equities. I talk about how people will jump US directly into options, but often times too, they will go from equities to options thinking that that’s the better path to success and actually it’s the worst path to success.

16:53
Options, futures and all that stuff. You’re, you’re really diving into some areas that that more than likely you don’t understand. If you haven’t been successful in trading, I definitely wouldn’t dive into options because the risk that you take on is so much greater in options and the likelihood that you that you flame out is very high.

17:10
I would say about 90% of options traders do not make money in the stock market. And so I would rather see somebody really try to grind it out, learn the the mechanics of trading equities, do it successfully, and then eventually migrate over to options. Knowing that they have the experience of success and swing trading equities.

17:29
And then their chances of actually doing really good in the options markets going to be far greater than than any other position they could put themselves into versus like jumping right into options right out of the gate. Just just makes sense to me. Find, find success in equities and then build upon that in the options market if you really want to go.

17:47
I think a lot of times what people will find is that once they start having that success in equity, they care less about the options market. At least that’s the way it’s been for me.

18:07
If you enjoyed this podcast, I would encourage you to like and subscribe. If you’re listening to me on YouTube or leave a five star review on Spotify or Apple or whatever platform that you’re listening to me on, make sure to send me your questions ryan@shareplanner.com.

18:24
Plus, check me out on swingtradingthestockmarket.com. You can see everything that I have to offer there and I think you’ll be really impressed with everything that you can do to from a learning standpoint, education, opportunities and so forth. Again, don’t forget to send me emails ryan@shareplanner.com.

18:24
Thank you guys and God bless.