Stock market trading for beginners. David Jjaffee with BestStockStrategy.com you can go
to BestStockStrategy.com enter in your email address and receive $400
worth of free trading materials. So December of 2018 was the worst December
in about 85 years since the Great Depression in 2019. I think that there's
going to be a substantial amount of volatility in the stock market. Now most
of the people who are watching this channel know that the only way that you
can trade that provides you with a high statistical probability of profit is to
sell option premium because by selling option premium you are essentially
becoming like an insurance salesman or a casino you are taking high probability
bets that have an 80 to 90% probability of making you a profit so are you
guaranteed to make a profit on every single trade that you made? No, of course
not, in December of 2018 I lost money which is completely cool because when
you make money and you make millions of dollars by trading options I'm
completely okay with losing a little bit of money in December 2018
thankfully I was able to sell calls in December of 2018 which
substantially reduced the losses that I experienced on the put side but the
fact is that you're not going to win every single time and I believe that I'm
one of the best traders in the world because I put the work in and I'm going
to teach you right now one of the best ways that I would recommend trading in
2019 so that you can make money so the first thing is you need to set your
account up so that you're able to sell option premium I made a previous video
about the best brokerages pretty much you can use tastyworks you can even use
RobinHood even though I'm not a big fan of it. I use OptionsHouse which was recently
purchased by e trade but the fact is that if you can pretty much use any
broker as long as it's legitimate like an interactive broker, Schwab, Fidelity you
know options house, e*trade, tastyworks thinkorswim
TD Ameritrade etc now you can let's say the Commission's are a little bit higher
than you want you can call them and negotiate the Commission's and sometimes
they offer you free spot free signup bonuses you can also ask them you should
also ask them for level three or level for trading access which allows you to
sell options like naked puts and calls if they don't allow you to sell naked
calls which I believe is level four that's completely fine because a lot of
times we're going to be using verticals anyway. So what I like to do the first
thing is you have to focus only on the most important things so here, I
just wrote down a watch list of stocks and these are pretty much the only
stocks that you should they should focus on in 2019 so you have Amazon Raytheon
JP Morgan Dollar General McDonald's and Visa and the reason why I like these
stocks is that for the most part there are relatively recession-proof I know
that Amazon is not recession proof but Amazon right now is trading at around
$1500 and previously was trading at around 2000 so if you're able to sell
puts on Amazon with a strike price of around 1200 then that would be great
so I'm gonna put put and I'm gonna put call so here is you should do a put for
like 1200 raytheon right now is trading at around 160 so 140 JPM is trading at
around 97 so let's say 89 would be the put side would be the puts that you
would sell Dollar General right now is actually trading relatively it's been
holding up very well that's trading around 109 so that's actually relatively
high so I would do like a 99 McDonald's is trading around 175 I would probably
do like 163 and Visa I'm actually don't I don't usually trade Visa that often I
think it's trading it around 135 or something I barely trade it but I should
probably get clarity on this but let's say you're gonna do you're gonna use
them you're gonna have a put with a price of let's
like 128 okay I'm not a hundred percent sure on music because I don't really
trade it that much but in any case so the reason why I'm putting these these
puts here is these are the puts that you should actually target so right now
Amazon is trading at around 1550 so the only way that you should trade Amazon is
if it falls to around 1450 maybe 1425 at which time you would sell like the 1200
put. Raytheon right now was trading at around 160 you should wait for it to
fall to around 155 then you can sell the 140. JPMorgan's around 97 you can wait
for it to fall to around 95 then you can sell the $89 general same thing so
trading around one 108 you can wait for it to trade to around 104 or 105 then you
can sell the 99 the reason why I chose all these stocks is as I said previously
Amazon is relatively recession-proof and it's a market leading stock it's problem
I think besides Microsoft it's the largest company in the world Raytheon is
a defense contractor so you do have some support there because it has government
contracts and it has a lot of predictable revenue streams when I
worked in investment banking we would always want to see the predictable
revenue streams because it removes uncertainty and when there's uncertainty
there's volatility in the market place so you want to have defense contractors
like raytheon-sarcos and is a market leading investment bank and they're
trading - they've also held up very well over the past three months Dollar
General is a counter-cyclical dollar store and I read somewhere where around
40% of the people in the United States are now purchasing their food at dollar
stores because they're small they're very convenient and cheap and this is
the Best of Breed it's very well-run it's very it's much better run in Dollar
Tree McDonald's also cheap food it has a
great brand and it has predictable revenue stream so this is also counter
cyclical so if we hit a recession then McDonald's will hold up very well in
visa which is the gold standard of payment processors so as I said before
these are the strikes that you would target
you would target these strike prices now if we have a recession and the market is
going down you also want to sell the call side so what this means is that
when the market increases in price let's say the S&P 500 goes up like 50 points
you would then want to start selling calls so I'm a call side if Amazon right
now is trading at around 1550 you would wait for it to trade to around 1625 and
then you would target I would say around 1820 call Raytheon you probably target
around like the 182 call JP Morgan you probably sell like the 112 dollar
general you'd probably target like the 117 or 118 McDonald's you probably
target let's say like the 189 call and visa I definitely should have got 30 on
specifically where visa is trading because out of all of these these is the
one that I don't trade that much at all but with visa you probably want to
target I think like the 155 call okay so in this situation just like I went
through with the put side if Amazon trades up to 1625 or 1650 then you would
sell in 1820 call if Raytheon increases in price through around like 168 then
you would sell the 182 call if JP Morgan increases in price to about to about one
hundred and three dollars you would sell the one twelve dollar general if it
increases to around 111 you would sell the one eighteen call McDonalds if it
increases in price to around 180 you would sell the 189 and Visa I think as I
said I think it's trading at around 140 and if these uh trades up to around 145
then you would trade the the 155 again I'm sorry I'm not a hundred percent sure
on Visa so check this and if you have any questions you can leave a comment
below and I'll answer it but all the other ones
positive about these I'm not because out of all them these has very little
volatility and as a result I don't really trade it that often so the next
question is should you trade naked options or spreads usually I like
trading naked options because it maximizes the amount of premium that you
receive it actually decreases your buying power reduction I so it decreases
your buying power so therefore it protects you inherently against the
greed that a lot of people face and therefore it protects them against
trading too many contracts naked options are very easy to roll and to manage now
I hear a lot of people say and also it reduces your amount of commissions I
hear a lot of people say that with naked options you have like unlimited risk and
it's substantially risky but the probability is that you're much more
likely to be profitable when you sell a naked option than you will with a
vertical and we can all bring things to the extreme in order to disprove an
argument like for example why should I go outside I could potentially get hit
by a car maybe there's one tenth of one percent probability or one hundredth of
one percent probability that I'm gonna go outside and get hit by a car as a
result I don't believe that the probability is enough for me to actually
stay inside all day so in this example what's the probability then 800
million-dollar company company like Amazon is going to go bankrupt zero or
very close to zero what's the probability that a company like Raytheon
which has government contracts that span for the next 10 or 20 years is going to
go bankrupt so all this stuff who tell all these people who tell you that there
is a substantial risk by trading naked options they are not profitable traders
however let me just tell you that over the past three months the volatility
that we've experienced in the market has made it so that I had been trading a lot
more spreads just because in late December there was a Wednesday where the
S&P 500 was down 80 points and then it actually in two and a half hours it
regained all of those 80 points in the closed up 20 points this is volatility
this is like 2 or 3 standard deviation moves in one day which is unheard of so
I definitely think that many people should be trading spreads even though
there are less advantageous even though you're collecting less premium they're
harder to manage they are a lot harder to roll they have higher commissions and
also you're going to be motivated to trade more contracts because there's
going to be a lower buying power reduction I still believe that if you're
able to deploy the strategy and exercise restraint and determine and be diligent
in managing your positions without trading too many contracts then many
people and myself included are primarily going to default to trading spreads in
2019 and the main reason is that the spreads will protect you against the
volatility that we have experienced in the marketplace in which may continue in
the marketplace in 2019 so from a spread perspective let's say Amazon trade sound
Amazon right now is trading at around fifteen hundred and fifty dollars let's
say Amazon trades down to fourteen fifty we would then sell a 1200 pipe and then
we would buy an eleven hundred put Raytheon if it trades down to around 154
155 we would sell like maybe a 142 but let's just leave it we would sell a 140
and we would buy a 130 here if JPMorgan trades down to around 95 we would sell
an 89 and we would buy an 85 put. Dollar General
if Dollar General trades down to around 105 excuse me we would sell a 99 and
then we would buy a 95 put McDonald's we would sell a 163 and buy like a 157
on the call side as well so remember we're entering these trades and this is
a very big difference between myself and tastytrade where if it's an opportunity
opportunistic opportunity for you to sell puts that in herre
only means that it's an inopportune time to sell calls so you should not enter a
strangle and by selling a put and a call at the same time because in this
situation we're only selling a 1200 put if Amazon drops down to around 14 25 or
1450 if Amazon is trading at 1425 or 1450 we're not going to sell in 1820
Hall on Amazon because we're not going to collect any premium so the only way
that we would sell so in this situation we would opportunistically engage these
positions in a strangle so for example if Amazon is trading
right now at 1550 and then it trades up to 1650 we would then sell an 1820 call
and then we would buy an 1860 call so therefore we would create a vertical
credit spread on the call side of this position then let's say a week later
Amazon drops down from 1650 remember if Amazon increases in price to 1650 we
sell in 1820 call and then at this on the same ticket we would buy in 1850 or
1860 call so in that example we would be short a vertical credit spread on the
call side and Amazon right now in that example was trading at 1650 then let's
say a week later Amazon drops down to 1450 at that time we would then sell a
1200 put and buy an 1150 put so then we would have an iron Condor in that
specific example because we would be both short a call credit spread and a
put credit spread so in that situation we would opportunistically enter into an
iron Condor but we don't put both legs to put in the call side on at the same
time in this example same thing so JP Morgan right now is trading at around 97
dollars on the call side we would wait for it to increase in price around
around 105 and then we sell the 1:12 call and then we would buy
the 1:15 call as a result we would be short we would collect more premium for
selling the 1:12 and then we would buy the 1:15 so that would reduce our
premium and therefore we would have a call credit spread then if two weeks
later JPMorgan trades down to like $95 we would then initiate and sell and open
a put credit spread by selling an 89 put and buying an 85 in buying an 85 put
these trades will allow you to be profitable on 90 to 95 percent of your
trades and you can earn anywhere from thirty to sixty percent every single
year consistently you don't have to bang your head up against the wall and just
hope that you're gonna be profitable or you don't have to give in to any fake
gurus and you know who are trying to sell you like three simple chart
patterns or indicators which all of us know do not work the last thing is if
you want to be profitable in the stock market and you want to trade stocks and
do extremely well then for the stock market for beginners in this video the
best thing that you can do is once you enter these trades you immediately put a
buy two closed order in so in this example with Amazon where Amazon is
trading right now at around 1550 we wait for it to trade to 1450 then we would be
we would sell a 1200 put and we would buy an 1150 putt so we will be short in
a 1200 1150 put spread let's say in that situation we were able to collect let's
say six dollars six dollars per share for a 1200 1150
let's pray okay so we collected six dollars in this situation once this
water fills we would immediately enter a by two clothes order with a limit price
of three dollars so once this triggers once we have this position open in our
account we would submit a by two clothes
limit order now the time in force would be GTC which is good to cancel that we
are not submitting day order so it doesn't get cancelled and then you have
to resubmit the same order all the time so if this fills first and you collect
six dollars of premium that's $600 for every vertical credit spread that you
would sell you would immediately enter a bye to close limit order with the time
in force of good to cancel for three dollars as a result on a net basis you
will collect and keep $300 for every contract in every spread that you sell
less the Commission's and that's how we make money we close out our trades early
we only trade the best most stable underlyings and we only trade a plus
opportunities and we are very patient and we wait for our opportunities David
Jaffee with BestStockStrategy.com I have hundreds of students if you want
free training you can go to BestStockStrategy.com and enter in your email
address and receive over $400 worth of free training materials I offer the best
trade alerts and also the best education available if you have any questions I'm
here to help you please like comment share and subscribe to this channel and
if you have any questions like I said leave a comment I answer everyone and I
appreciate your attention