Jumping Into Options | Podcast Episode #444

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Hey, I’m Ryan Mallory and this is my swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

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Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

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You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market.

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In today’s episode, we’re going to dip our toes into a little bit of option trading here and I got an e-mail from a person who’s just started off trading.

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They’re on the Robin Hood platform, stock symbol HOOD, and they’re experiencing a little bit of success right now.

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They started off on the rough side, but they’re starting to get the hang of it a little bit. So there’s some questions here that I’m going to answer and some expectations that I want new beginners when it comes to options trading to understand.

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As always, I never use anybody’s real name just because I don’t want people to have their information out there or easily be identified with a particular episode.

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So I give them a Florida red nickname, and this one, I’m giving her the name Jolene.

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Now, I don’t even know any Jolene’s. Not sure I’ve ever come across one.

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But gosh, that Dolly Parton song, Jolene always hits when you hear it on the on the radio. So pretty good country song.

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We’ll give Jolene on the on the song the benefit of being a Florida redneck. So Jolene writes.

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Hey Ryan, so I started dipping my toes into options trading in my Robin Hood account a few weeks ago.

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The first couple of weeks were pretty rough but I think I’m starting to get the hang of it and I’m up a couple $1000 now.

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I was wondering if you had any suggestions for guys you recommend I follow for content on this. I am following a couple of guys on YouTube but I don’t think that they are that great and I really want to learn more of the strategy and the technical stuff.

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Let me know. I’m not doing anything complex, I’m just watching different price levels with my basic readings and buying puts and calls as I see it.

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Originally bought options with an expiration date pretty far out, but then I started learning about the Greeks and I’m mostly buying options one to five trading days out.

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Nothing super crazy. When I was listening to someone early on, I didn’t do that well.

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And now I’m watching different levels and and going with my gut and I’ve been up every day since then by small amounts, $300.00 a day, $100 yesterday, $800 the day before, just slowly growing a small account.

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OK Jolene, we got some stuff to talk about here, a good e-mail. And I’m always happy to see people getting interest in the stock market.

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I remember when I started SharePlanner out back in, gosh, I think it was like 2007, I don’t think anybody ever really traded.

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I mean, there was a little bit of it there here and there and I never saw anyone that was really ardent about it.

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So it’s, it’s cool that so many people are getting in the stock trading. And if you’re just buying straight up equities, it, it’s Commission free, which I think is what

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brought in a lot of people to begin with. And then with the COVID shutdown, people started learning about equities in them.

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You know, they were a lot of people also were starting off with like 4-5 hundred dollar accounts. So they couldn’t really buy like a share of KLAC because that stock trades at $800 a share.

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So then they started getting into options. Now that’s where I, I start to get a little bit nervous for new traders.

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And that’s skipping the experience of buying and selling and being successful at trading equities and going straight into options because options is much more volatile.

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But the lure of options is that, hey, I can buy the rights to 100 shares through this contract for such a smaller amount than it would be if I bought 100 shares of that stock just at straight up

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equities. And that’s true, but there’s a lot of things that have to go your way in order to be able to profit

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consistently in the options market. And now the market as a whole has drifted dramatically towards options trading where so much of the

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price action on a day-to-day basis is driven by options. We’ve seen that over the past year, especially with zero DTE.

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Now zero DTE, for those who don’t know, these are 0 days to expiration contract. That means that the contracts that you’re buying, they expired that same day.

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So the potential for you to completely lose all of your money that you put into the options contract right away is extremely high because if it doesn’t finish in the money, you’re not making the

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profit, you’re going to lose it all. So the zero DTE has been a form of dip buying, especially over the course of 2024, where traders

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will let the market dip to the downside and then all of a sudden they’re loading up on the zero DTE contracts expecting the market to come back to break even and maybe even then some a little bit

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more. That’s why you’ve seen so many times this year where the market will sell off and then come right back up by the end of the day.

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That’s because you have a lot of people buying the zero DTE.

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And what that’s forcing the people who are selling those those contracts to the zero DTE buyers is to have to hedge themselves to the upside by buying shares in those contracts as well, which creates

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a natural squeeze. They call it like a gamma squeeze in the market.

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So and throughout 2024, those gamma squeezes has been the source as a result of the zero DTE that has caused those constant and eerily predictable afternoon rallies off of the lows.

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But whether it’s Jolene or anybody else, one of the things that I would say is it’s that when you’re starting off with something very new, especially with trading, I think there’s, there’s the easy

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belief that when you have a little bit of success in the very beginning is that all of a sudden you may be a natural editor that you’re going to be successful at this.

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And usually it’s the exact opposite. I think a lot of people get themselves in trouble with, OK, I’ve, I’m trying this new tactic and

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I’ve been profitable for about 3 or 4 days. And then all of a sudden there’s the tendency to get a little bit more aggressive.

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It’s like, well, if I made $500 today, well, if I double the position size, I can make $1000 tomorrow, or maybe I’ll forex it and make $2000.

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And I’m not saying that’s what Jolene’s doing here. I’m just saying the natural tendency of people starting off and trading is to get overly confident

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and then start increasing their position sizes. The other thing that I’ve noticed too is that when they first start off, they tend to have this

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belief that they’re going to continuously be profitable. And so when they go on that inevitable hot streak in their beginning trading, they’re like, OK, I’m

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getting the hang of this. I know what I’m doing here is this, this isn’t so bad.

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I’ve, I’ve got enough information to make myself dangerous here. And I might have a knack for this thing.

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But then you, you put on a trade and you start losing. And so then you have a losing trade that is going against the beliefs that you’re holding about

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yourself as a trader. So what happens then?

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Then all of a sudden you throw risk management out of the window, out of the need to be right, because you need to validate the fact that you weren’t wrong about thinking of yourself as being

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capable of being a successful trader.

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And what you’ll find as you spend more time in your trading and your development is that so much of the success of trading is waiting and waiting and waiting and not having that desire or need to have to trade every single move that the market makes.

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And that of course, makes trading boring.

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But I find very few traders that are successful that are very exciting to watch trade. In fact, they’re very, very, very boring.

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The most successful traders are boring traders. If somebody’s getting you hyped up saying hey, you can make the all this money in the 1st 30 minutes of trading, 1st 30 minutes of trading is the most bonkers time of the day to try to be making money in the stock market assembly is that’s when you cannot trust market direction whatsoever.

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You just look at today, we had an employment number that came out and the market shot higher right out of the gate as a result of it and then spent the rest of the day selling off.

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When I tell you you got to make trading boring, it’s because the market, it can be a very volatile place and the more successful you are at making trading boring for yourself, the less tendency there is to have to trade every single move and you’re just waiting for your right opportunities, the better off you’re going to be because you’re not getting whipped around by all the whims and emotions of the day-to-day trading conditions that we experience every day.

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In fact, I know this, this sounds negative and I’m not trying to be negative with it, But one of the things that I’ve probably got a lot of expertise on is beginning traders, people who are just starting off and the, the mindset that they started to take on or the, the belief that they have in their trading abilities.

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I see it play out almost with, I’d probably say like 95% of traders.

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But one thing I would say is don’t believe in your success. Don’t believe that you’ve arrived.

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Don’t believe that you’re getting the hang of it. Actually believe that you will lose on every single trade.

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To this day, I go into every trade assuming that I will lose. There’s a lot of times where I don’t even like the trades that I’m making from a emotional standpoint, but I know that it’s a trade that that should be taken.

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And sometimes those are the most successful trades that I make.

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The ones that I get excited or about or the ones that I’m I, I feel giddy about, Those are usually the ones that I lose on.

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One of the things that Jolene talks about in her e-mail to me is ask me about people to follow. It’s like they already mentioned that they followed some people on YouTube.

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They weren’t that great. And do I know of any that I would recommend sadly?

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And I actually did a podcast episode on this, but I think it’s still worth we we can still expand on this a little bit more of this whole concept of Youtubers.

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Sadly, no, there’s nobody that I would recommend. And I know that it’s Civil Ryan.

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There’s got to be somebody out there. I’m sure there is somebody out there.

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I just haven’t come across them yet. Some of the ones that are very highly followed, they’re very sketchy.

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That’s probably being nice. I’m trying not to say con artist, but so many of them are guys.

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I One of the things that I would say about Youtubers, the better their production value is, the fancier they are and their videos, the more likely they suck at trading.

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Simply put, I would also go on to say the worst production value that they have, probably the better trader that they are.

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Have you seen my videos? Production quality?

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They suck, they stink, and that’s because I don’t have time to make a video and spend 6 or 7 hours on them.

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During COVID, when everything was shut down, I actually did spend some of that time. I would do one video a week on the market update and the production value was still awful and I

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probably put six or seven hours into it. I mean, there’s a lot that goes into videos, from lighting to sound to a lot of things.

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One thing I do say I have a good setup on is sound. I got lucky with a good microphone.

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I essentially Googled what is Joe Rogan used for a microphone and I bought the microphone and I used it.

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So that’s one thing I do actually do have good production value on is the microphone.

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But outside of that, when it comes to like editing and you know, transitions and B roll and all that, I don’t have time for that.

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When I’m making my videos, when I’m doing these podcasts, it’s after the markets closed.

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It’s after I’ve done my market research and by then I’m probably, especially with the videos, I am exhausted.

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I cannot begin to tell you enough how tired I am when I do those videos.

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And then some of those videos it shows. I mean, you look at the shovel look that I have in most of my videos. It’s, it’s pretty, it’s pretty bad.

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But these guys that are putting out four or five videos a day and they’re telling you how great of a trader.

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They’re not I, I can assure you they’re not good traders. And the reason for that is because a good trader doesn’t have time during the day to focus on making YouTube videos.

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I usually try to do 1 video a week and you want to know what?

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I haven’t done one this week at all. You want to know why is because I’m tired.

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I’m extremely tired. I had a three day weekend that was nice.

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I’ve enjoyed that a lot. And I came back and I’ve, I’ve been a little bit tired as a result.

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Market closes that there’s been some family obligations as well. You know, I might have to take one of the kids from point A to point B Yeah, that takes time.

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And come back, it’s like 839 o’clock. I’m like, I don’t feel like doing a video.

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And the reason why I feel that way is it is because 99% of my efforts goes to trading, to research, to analyze.

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There’s a Bible verse that I that I heard constantly repeated and I’ve read so many times over the years.

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And it applies to life as well and the secular sense too. And this verse comes from Matthew 624.

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It says no one can serve 2 masters for either he will hate the one and love the other, or else he will be loyal to the one and despise the other.

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You can, you cannot serve God and money. And that’s very true and that the applications are very broad in life and in the in the case of

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trading and Youtubing, you can’t be a great YouTube when it comes to the stock market and be an actual great trader as well.

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The two will clash because of the requirements it takes to be a good trader and to do that stuff that it on a day-to-day basis for a trader to do and to be a good YouTuber.

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The amount of time that it takes to make a video and to do it with, with the production value that you see with the people with the biggest followers out there, it’s impossible.

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You can’t do both. I don’t care if you have a staff of 100 people, you can’t do it.

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So just like the Bible says, you can’t serve both God and money. You can’t be both a good swing trader and a good YouTube.

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So what would I tell Jolene to focus on and her development as an options trader? And she’s already started one, but I, I have a feeling that she’s still pretty young into it.

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So there’s in, in, in her endeavour here. So she can spend a lot more time doing it.

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But there’s five things that I would focus on. I would learn the, the Greeks as much as possible.

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The Greeks that are associated with trade and I could be like gamma, Theta Delta, There’s a whole bunch of them guys, but focus on the Greeks.

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Focus your time on technical analysis. I always tell people get a really good boring book on technical analysis and I always recommend one

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of them. And every time I recommend it, I always have to make sure I look it up on Amazon to make sure I’m recommending the the the correct title.

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And it’s called Technical Analysis of the Financial Markets by a guy named John J Murphy.

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I read it. It is boring.

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I think I read it on the toilet more more than anything else because I needed something that to occupy me and, and this book is boring.

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It’s really boring, but there’s a wealth of knowledge in it and it’s very dry knowledge, but you will learn a lot from it.

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And no, I do not get any kind of kickback from this. I don’t even think the guy knows that I’ve recommended his book a bazillion times.

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But I do think it’s really good from a beginning traders frame of mind and I’ve looked at it and referenced it many times in the past as well.

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So study technical analysis. The other thing I would do is get good at charting.

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I’d get a decent charting system. I use TC2000.

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I think trend spider is another one that is pretty good. I have that one too.

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I use it often. I also use trading view.

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I think those are the three best charting platforms out there and they all have their strengths and weaknesses, but you can’t go wrong with one of those.

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And then I’m going to learn a lot about the candles too. Don’t just trade with lines on the chart.

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The candles will tell you a much deeper story about the day-to-day activity regarding a stock price action.

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So learn that as well.

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And then you have risk management.

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And this is, this is the crux of it all. If you don’t manage the risk, nothing else matters.

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No, what are you going into? What is the, what are you willing to Max lose on your trade?

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How are you going to plan out the risk? If you’re buying an options contract that’s that’s priced at a dollar, so you’re putting like $100

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into it, OK, what are you willing to lose that $100 before you get out of it?

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Now, remember, one of the most frustrating things about options trading is that you can be right on the direction, but wrong on the time.

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So if you’re trading stuff that’s expiring within one to five days, your window of opportunity is very difficult to succeed in.

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Do I like it when my trades take off within the first one to five days?

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Yes, I love it. But often times it requires a couple of weeks.

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And so the shorter the time frame, the more right you have to be on the timing and on the entry. And I will learn ways to how to combine your analysis on the daily charts with intraday charts and

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to be able to get a better grip of how to stage your entries into these these place. Because I do think it’s very, very difficult to be a successful options trader when you’re skipping

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through the equities to just trading equity straight up. And that’s, I still trade equity straight up.

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Do I have I dabbled in options in the past? Yes.

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I, I’m always playing around with them. So I’m toying with them, looking at different strategies.

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But by and large, 99.9% of what I do is trading equities. Why?

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Because the chances of being good at it are much better options trading. There’s the lure of more shares at a lesser amount, but you end up somehow always losing more money

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down the road as a result of that. So we have to be careful there.

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And when you’re managing the risk on options, it’s going to be much more difficult. You don’t know what those options premiums are going to be worth.

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If you’re basing a stop loss. Let’s say, OK, let’s say you getting get into an options contract and say it’s you know, you’re

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paying $500 total for for one options contract and it let’s say it’s based off of Apple. And I know Apple doesn’t trade at $100.

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But to keep the math simple, let’s say the stock is trading it $100 and you tell yourself, I’m going to get into this Apple contract.

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It’s out of the money. I’m going to get into it.

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But if the contract loses half of its value, then I’m going to get out of the options contract.

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Well, here’s some of the things that can happen. The stock may only lose like like a couple dollars per share and you already lost half the value of

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your contract depending on when the expiration is. I didn’t even really get a chance to see if it would be played if the stock was going to play out

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profitably for my options contract.

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So what do you do? You stay in a little bit longer and then it drops a little bit more than all of a sudden you’re

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looking at no value left in your options contract. And so the time decay can work against you very, very dramatically.

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And I know that for a lot of options traders and some of you going to disagree with me on this. And I think if you listen to my podcast over the years, I’ve probably become a little bit more of a

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realist, you know, when it comes to the stock market.

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And I think that just comes with experience and as well as just being more frank with everybody about it.

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But options training is going to be very difficult.

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I’m thrilled that Jolene’s having some success here in the in, in her early days of a trading it.

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But I also don’t want her to believe that she’s arrived on the scene either, because options markets, they’re very complex.

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They’re, I don’t understand a lot of the stuff that goes on in the options market.

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That’s why you don’t see me trading it a lot when I’ve traded in the past.

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The biggest frustration, I’ve already mentioned this, but I’m going to mention it again, was being right on direction but just not having enough time to let it play out in my favor.

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I would buy contracts on a stock that I thought would go up and maybe it was for like a month out and I’m like, OK, I got a whole month for it to play out in my favor and it does nothing.

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It just trades sideways. I don’t see that that the share price really go down in value.

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In fact, it’ll go up a little bit in value, but just not enough for the options to get into the money.

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And then the option expires worthless.

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And what do you see? You see the stock go up the next day, go way into the money and so forth.

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So it’s very frustrating in that regard. And again, that the tighter the time frame, the more difficult it is to be successful.

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I’m not saying that you can’t do it, but I’m also saying that it’s a, it’s a hard road. And though you’ve had some success so far with a $300.00 day, $100 day and $800 day, know that

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that’s not going to last. It’s going to come against you and it’s going to come against your heart.

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So I feel bad about saying this. I really do.

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Because in some ways I, I feel that when I do these things, I’m dashing like the hopes and dreams of people sometimes.

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And not, not just of like the person who sends me the emails that are, that are often times beginning traders, but the people we’re listening to because these are very relevant questions for

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much of the audience. And if you’re not trading options, you’re wondering, should I trade options?

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I mean, people do make money in options. I just had a guy today in the trading block chat room.

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You know, it’s like guys, I I got I top tick Intel like to the penny. I’ve never done this before, but I got I top ticked it and it goes from 2212 down to 1884 and he’s

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up like 300%. And that’s amazing, man.

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I couldn’t be more happier for the guy that he did it. But I also know too the realities of options trading, especially just buying calls and buying puts

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very difficult. I’m more of the let’s do covered calls, let’s do like strategies that can generate income.

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I I like those a little bit more. But then when I’m doing income generation, I’m also hedging in every which direction you can

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imagine. Another thing that would talk about is the types of markets that we’re in.

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Past few days we’ve seen a market that’s been trending lower and mid-july we start, we start to see in the market top out that culminated and the 8 the bottom that took place on August 5th.

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And for those listening to this in the future, I’m talking about 2024.

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There was a three day period where really the bulk of the gains from that July 16th all time high to the sell off that ended on August 5th.

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Yes, that was about 20 days worth of where the market trended lower, but the bulk of the gains came from a three day period.

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And so if you’re, if you’re trading in that three day period, boy, it feels like options are really the way to go.

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You can get that those those trades and the money really fast and it is adrenaline inducing.

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It’s one of the best feelings in the world.

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But then you can also get into these periods of sideways chop and maybe this is the period where Jolene was losing some money because she wasn’t making much off of the market.

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And that would go back to August 20th through August 30th.

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It was like a 10 day period, two weeks worth. The market did absolutely nothing, just traded sideways.

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During that period. I didn’t make a single trade.

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I think I made a trade maybe on the last day where it looked like the market was about to break out to the upside was the last trading day of August.

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And then it started to fade. So I went ahead and got out of the trade.

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I was with KLAC actually, and I I took like a 1.3% loss. Glad that I did because that thing would have gone right through my ultimate stop loss that I had in

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place had I not noticed that the market was not validating that breakout.

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So over a two week period, more than a two week period, I made one trade.

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That’s called boring, but it’s the way to go when the trading trading needs to be boring.

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If it’s exciting, you better figure out a way to tame it down some because trading should not be exciting.

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Trading should be boring.

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Also wouldn’t necessarily call it boring. I think it’s interesting is swingtradingthestockmarket.com.

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Yes, that is my service that goes alongside of this podcast. You’re going to get all of my stock market research each and every day with it.

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That’s going to include big tech updates or mega cap updates, I guess is what I call them now because you got Eli Lilly in the mix there.

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Now you also have stock market updates. I do these videos all throughout the week.

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I also provide a daily watchlist of stocks that I’m looking to buy and sell and people use use the watchlist for options trading, as you know, for their own benefit.

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So it can go both ways. Plus I do a watch list review on those stocks each and every day.

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I post a video, go through the watch list that worked. What did not work, what I’m, you know, looking for and, and then at the beginning of each week, I

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put a master watch list of stocks that I’m looking to get, get or procure my setups from.

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So check that out swingtradingthestockmarket.com. It’ll take you to my SharePlanner page and that you can choose which plan works best for you.

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If you enjoyed this podcast episode, I would encourage you to leave me a five star review on whatever platform you’re listening to.

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That does mean a lot to me.

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And keep sending me your questions, ryan@shareplanner.com. I do read them.

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I do make a podcast episode out of almost every question that I get.

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So keep sending them to me.

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I don’t get enough of them. So get busy writing this weekend and let me know what gives you problems or challenges you noticed in the stock market.

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And, and who knows, maybe I have a couple of things to tell you about it.

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Thank you guys and God bless.

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Thanks for listening to my podcast, Swing Trading the Stock Market.

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You have any questions, please feel free to e-mail me at ryan@shareplanner.com.

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All the best to you and I look forward to trading with you soon.