Options trading with RobinHood app. Why you
should not trade options using the RobinHood
RobinHood app. My name is David Jaffee I am the
worked as an investment banker for five
years have completed around five to ten
and the reality is that when you use
RobinHood then I know that a lot of people
are drawn to RobinHood because there
are no commissions but one of the big
fallacies of making money in the stock
market is people are scared to trade
naked options when the reality is that
when you the only way they okay let me
let me first start off the only way that
you're gonna make money in the stock
market inconsistently is by selling
naked put options that's it occasionally
you'll sell a call option in a bear
market but the reality is the only way
that you're gonna make money is by
selling naked put options so there are
two things you can do when you sell
naked when you sell put options you can
either sell a naked put option or you
can sell a vertical credit spread right
the problem is that RobinHood does not
allow you to sell naked put options and
naked put options are inherently much
more safe than vertical credit spreads
you probably think that that's
blasphemous because you've heard all of
this stuff about naked put options being
incredibly dangerous but no they're not
actually vertical credit spreads are
incredibly dangerous and for the reason
that we the reason why naked put options
are way safer than vertical credit
spreads you have three reasons the first
is that you are able to collect a
maximum amount of premium because you're
not buying a lower price strike option
the second reason is that when you sell
a naked option it inherently limits you
to manage your size there's no way that
you can sell a hundred contracts on
Amazon if you have a small account when
you trade a naked option then your
buying power is going to be reduced
relatively substantially
by every option that you treat by every
naked option that you trade what happens
with when you try to sell vertical
credit spreads or that human beings are
inherently greedy so when you treat
vertical credit spreads if you can trade
to Naked options a lot of people end up
trading 20 vertical credit spreads and
then guess they will be successful on
ninety five out of those hundred but
what happens is those five times that
they lose money they are going to lose
very big and lose all their returns so
for example right let's say you can
trade let's say Facebook's trading at
175 it falls down to 170 you sell a
naked option with a strike price of 158
all right
then 95 out of 100 times you're gonna
make money on the trade in the worst
case scenario with trees to 155 then
you're gonna roll that option and then
it's very easy to manage if instead you
trade a vertical credit spread so you
would sell that same 158 strike you
would then buy the 150 strike right and
then what a lot of people do is if you
would sell - naked options they would
then sell 20 vertical credit spreads
let's say Facebook falls to 153 it's in
that no-man's land the broker will then
close out your positions because you
simply don't have the account size to
take inventory of those 2,000 shares of
Facebook so you will end up buying
Facebook at 158 2,000 shares of it they
will close you out for a loss and that
is going to eat up all of your returns
for the past six months I've seen this
happen numerous times I can't even
stress how dangerous vertical credit
spreads are I guess I do use them on
occasion because for stuff like Amazon
which is a two thousand dollar stock I
don't really want to sell a naked option
and have my buying power reduced so much
but one key is that I do manage my size
if I'm gonna sell two naked options on
Amazon I sell two vertical credit
spreads a maximum of three I don't do
what a lot of other people do and if
they were gonna sell two they end up
selling 20 that's what's gonna get you
in trouble the other thing about
vertical options is that it's incredibly
difficult to
and roll a vertical option because the
money that you're spending for that
lower price insurance you're essentially
throwing away so in that example that I
used previously with Facebook if you
would sell the 1:58 strike and you would
buy the 150 then let's say Facebook
trades to 153 and you tried to roll it
let's say you had the ability to roll it
if you were trading a naked option you
can simply roll forward by three or four
weeks that 158 option and reduced your
size or reduce the strike price all the
way down to 155 with a vertical credit
spread that credit that you're receiving
for rolling that option into the future
is then going to have to be put into
buying that lower price 150 strike again
so you're gonna have to keep the same
amount of options and roll it forward
and you're gonna have to keep that same
158 strike price whereas if you were
trading naked you would be able to
easily reduce that 158 strike price all
the way down to 155 but instead with a
vertical credit spread that money that
you would use to reduce the strike price
from 158 to 155 is now going into having
to buy that worthless 150 option so
that's pretty much it the three reasons
or rather the main reason why you don't
want to use RobinHood is because it
does not allow you to trade naked
options and by far your best bet to make
consistent profits in stock market is by
selling naked puts I've been three
reasons why naked puts our way better
than vertical credit spreads so that it
maximizes your premium you don't have to
spend money on that garbage lower price
stop option the second reason is that
it's extremely easy to roll and the
third reason is that it protects you
against your inherent bias of being
greedy
you're not going to trade 20 naked
options because your broker won't let
you but when you trade vertical credit
spreads they will let you and then
though one out of ten times that it ends
up in no-man's land you are going to
sustain a massive loss this is why I
never recommend RobinHood I would say
maybe 10 or 15 percent of my students
use RobinHood the rest of them use
another brokerage but if you really want
to get serious about making massive
amounts of money in the stock market you
have to choose a broker that doesn't
limit your flexibility you want complete
freedom and you need to be able to trade
naked options and Nika puts this is
David Jaffee with BestStockStrategy.com
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