How to invest in stocks. Stock market tutorial. David Jaffee with BestStockStrategy.com
and in this video you're going to learn the best way to earn
consistent profits in the stock market as a trader. So the reality is that the
best way to earn consistent profits in the stock market is to actually NOT own
stocks and you definitely don't want to trade stocks because there is no
statistical advantage to owning stocks. We all know that when you're long stocks
they tend to go up around 52% of the time yes you can definitely make money
by being long a company like Amazon, or prior to about four months ago, a company
like Facebook but you do not have a statistical edge. In fact, owning stocks
is extremely passive and we have been in a bull market for around 10 years and
2018 so far has been extremely volatile you had an incredible month in January
followed by the correction in February and October 2018 was the worst month in
around 7 years so even though I cannot tell the future, I believe that the
market is going to be relatively stagnant for the remainder of 2018 and
also in 2019 perhaps we might even enter in a recession if you want to make money
in the stock market the best way to become a profitable investor in the
stock market and in stocks is to sell option premium so I'm going to run you
through the best way that I know in order to invest in stocks and to make
money in the stock market. So it's as follows and it actually is extremely
scalable it doesn't matter if you have two thousand dollars or twenty million
dollars the only thing that you're gonna vary is the number of contracts and
perhaps when you have a larger account of you know $100,000 or more instead of
trading verticals or spreads you will start to trade more naked options if you
don't understand what I just said don't worry about it it's completely ok
I'm going to explain things right now so the first step that you want to do is to
have a watchlist considering that I believe that the
remainder of 2018 in 2019 is going to be extremely
volatile because the VIX right now is trading for around $20 which is around
twice as much as it was trading for during 2017 you want to make sure that
you have only A+ opportunities and the best stocks on your stock market equity watch list.
This is the watchl ist that I recommend you would have Lockheed Martin,
Raytheon, Boeing, McDonald's which is recession-proof Dollar General which is
recession-proof JP Morgan and Facebook. So Facebook is not really a market leader, it's
down 33% so far in 2018 but the reason why I'm including Facebook is
that it's been beaten down so much that the far that I can't really see it
trading much below $120 dollars right now Facebook is trading at
around a hundred and forty dollars a share so if it falls an incremental 15%
you can still easily make money on that by selling puts with a strike price of
around $120 so with these positions you have a lot of diversity
because you have multiple industries that are being represented this is
defense, this is food (this is recession-proof) this is a dollar store
or I mean it does sell goods for more than a dollar this is a market leading
finance industry bank and then this is also in like a FANG stock you know
internet stuff so you have five industries here I don't care if you have
twenty million dollars this is enough diversification for you because all of
these are A+ opportunities so what you do is right now Lockheed I think
it's around $305, Raytheon is around 181 Boeing it's around 350 McDonald's is
around 184 Dollar General is around 115 today is october 13 so you can if you
want you can look up these prices JP Morgan I think's around $108
and Facebook I think it's around $143 So the the problem with
investors is that when they try and buy and sell stocks what they do is they're
they're gonna wait and they're gonna think hey Lockheed Martin earlier this
year was trading around $390 dollars this is a great
opportunity to buy it let's buy it at 305 the issue is you're not sure if
Lockheed is gonna go up or go down but two weeks ago was trading at 290 so if
it falls when you buy it at 305 you're gonna show a large paper loss you're
much better off instead of buying the stocks outright instead you would use
the derivative markets and turn yourself into a casino and become an insurance
company and collect premium that's how successful investors make money in the
stock market they invest by selling option premium so in this situation what
you do is you would be PATIENT and then you would simply wait so LMT is trading
a 305 what you do is you wait for LMT to trade a 295 you wait for RTN to
trade around 175, BOEING to trade around I don't know 3 I'd say around $340
mcdonald's since its trading right now near its height you'd wait for it to
trade around 175 DG's also close to his high because high was around 118 you'd
wait for it to fall to around 110 JP Morgan maybe you'd wait till it fell to
around 102 and Facebook is trading relatively close to its low so you would
wait for it to fall to around 138 now these will be your triggers so you would
have all of these stocks it's not really that many, only 7 securities and then you
would get comfortable with their trading range which you can do by simply logging
on to your account once a day and then you would just simply wait you would
wait to see if Waki fell to 295 once and you know Raytheon fell to 175 etc but
unlike stock buyers and investors what you would do is you would wait for it to
sell to fall down and to a drop to this to these prices any of these securities
then you would sell a put for around 10 or 15% below
the depressed market price so remember at this moment Lockheed is at $305 at this
moment Raytheon's at $181 but what you're doing you're
waiting for any of these stocks to fall to the range so around $295, $175, $340 etc
then you were going to sell a put LMT you would sell a put with a strike price
of around 280 Raytheon with a strike price of 165 Boeing you probably sell
around a320 maybe of 315 put McDonald's you'd sell
I'd say write a 166 DG you'd sell a 100 JPMorgan you sell around at 92 put and
Facebook you would sell a put for 120 now this is amazing and you would get
paid for all of these positions so again just to be clear right now Lockheed is
trading for 305 you are agreeing to buy Lockheed at 280 Raytheon is trading a
181 you are agreeing to by Raytheon at 165 Boeing is at 350 you're agreeing to
buy Boeing at 320 McDonald's 184 you're agreeing to buy McDonald's at 166 and in
exchange you are receiving premium. Okay now just like an insurance company you
will choose an expiration date usually I like to choose four to six weeks in
advance however because the market is so volatile right now I am generally
reducing the expiration that I choose to around three weeks and actually you're
getting paid more money because the VIX which is a measure of volatility is very
high right now so near dated option premium is actually more expensive than
expirations in the fart it you know farther out in time
that's an inverse relationship I think that means that the volatility curve is
is any convex meaning that the near term volatility is actually higher than the
long term volatility and as a result when you sell options that expire in
three weeks you're actually getting more premium than you would if you sold some
or at least you know you you get a the same amount of premium as you would for
sell something farther dated out meaning
that you're not being compensated for selling options five or six weeks
relative to how you would have if the VIX is trading at around 11 but anyway
the only takeaway that you need to know for what I just said was that when
volatility is very high like it is right now I do choose to select
shorter dated options because you get compensated for you know more than you
would if you chose five or six weeks out so you choose three weeks all right so
let's say for Lockheed which remember is trading a $305 right
now you would sell and agree to buy Lockheed to $280 you would
choose let's say like the first week of December that would be the expiration
and you would probably receive around $2.20 so for every
contract you sell you would receive $220 dollars for making
that trade now in the event that Lockheed Martin does not fall below $280
before the first week of December which is your
chosen expiration you would collect and you would keep that entire $220 dollars
So again Lockheed is trading at 320 you would
wait for it to fall down to 295 then you would sell a put at 280 which would
obligate you to buy a hundred shares of Lockheed Martin at a strike price of 280
now in that now what you would do is you would collect that $2.20
of option premium and if Lockheed Martin does not trade below 280 dollars
below 280 before the option expires you would collect and keep the entire two
dollars and 20 cents now another thing that I like to do when we're in
extremely volatile times as I will do like to close out my trades early so
using that Lockheed example if you collected two dollars and 20 cents
I usually the second that that trade fills I would then put a closing order
in to buy back that option at a price of around a $1.20 or $1.10
so I would like to keep 50% of the original premium received. So again, just
to recap, Lockheed Martin is trading at 305 I would wait for Lockheed to trade
to 295 then I would sell a 280 put with an expiration of the first week in
December I would receive around 2 dollars and 20 cents which would be the
market price of that option now you would put in a limit order that would
execute it around 2 dollars and 20 cents for every option that you sell you would
then collect $220 a premium then once that order fills you would immediately
put in a closing order with a price to buy that option back because remember
your initial order you're selling to open you're selling to open you're
selling something you're receiving two dollars and 20 cents per contract one
contract is a hundred shares so you're selling something you're receiving $220
once that fills you are then going to immediately put in a buy to close
limit order with a price of $1.1 which is 50% of the premium received and that
trade will be profitable around 85 percent of the time maybe even ninety
percent of the time you can do that with all of these examples Raytheon it 181 it
falls down to 175 you sell a 165 put with an expiration still first week at
December considering that right now is October 13th 2018 you probably collect
for that around a $1.60 that would mean a $160 dollars
for every contract that you sell immediately once that order fills you
would then put in a buy to close order of 80 cents which is 50 percent of
the premium received the other thing is make sure that you watch your size at
all times you want to have it a minimum 30 to 35 percent probably 35 percent of
your account size so if you have $100,000 you want to make sure that you
have at least 35 percent of your account available to trade especially with
the volatile market that we're in you actually want to target 45 percent so if
you have a hundred thousand dollar account at all times you want to target
having at least forty five thousand dollars available for you to trade you
want to have 45 percent that should be your target buying power now that buying
power is going to bury every single day and every
minute every second that the market is open based upon the underlying value of
your position so that's why if the S&P falls three percent tomorrow let's say
today you have forty five thousand dollars
let's say you have a a hundred thousand dollar account and today you have forty five
percent of your account available as buying power
if the s&p 500 falls three percent tomorrow instead of having 45%
you're gonna have maybe 30% available to trade that's why you want to make sure
that you have the necessary buying power because you don't want that buying power
to become negative that way it's gonna force you to close out positions at a
loss at an inopportune time and therefore suffer a loss so remember you
want to bend but not break and especially in this marketplace this is
the best strategy the other thing that you can do which I've been doing a lot
more recently is selling call options so let's say Lockheed Martin trading at 305
it trades down to 305 rather at 295 you would then a PUT with a strike
price of 280 then let's say three days later Lockheed trades up from 295 because
remember it's gonna trade at 295 then you would sell the 280 put remember now
let's say Lockheed two or three days later it trades all the way up to 310 in
that situation what I would do is I would sell the 330 call option and I
probably receive around $1.20 in premium so I receive a $120
dollars for every contract that I sold the expiration would be the same as the
put that I sold so therefore you would turn that position into a strangle. I
don't like selling strangles from the onset because from my experience the
call side tends to get tested and also remember if you're selling a put then
inherently that's an inopportune time to then sell a call option like for example
if you're selling a put when Lockheed which is trading right now at 305 then
it falls down to 295 and you sell the 280 put then that's a great opportunity for
you to sell the 280 put because Lockheed Martin is training at the low end of its
range but if you sell the 310 call option when Lockheed is training at 295
not only you not going to get that much money but
at the same time you're also taking substantially more risk because right
now with 295 Lockheed is training at the low end of its range meaning that if
there's a high probability that over the next few days it's going to bounce back
higher so if this bounces back to 305 that call option that you sold for 310
is going to show you a large paper loss and remember when Lockheed was trading
at 295 you didn't even collect that much premium for selling that 310 so I
definitely would not do that I'm very very selective in selling call options
again this is David Jaffee if you have any questions you can go to BestStockStrategy.com
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BEST available you can learn everything that I know about how to be a successful
and profitable trader additionally make sure that you do close out your
positions early this is extremely important especially in this volatile
market so you would review all of your positions let's say you sold
Lockheed Martin when Lockheed was at 295 you sold the $280 put. If Lockheed Martin
then three or four days later increased in price to around $305 you should ask
yourself for every position that you have would I make this same trade right
now so if Lockheed was trading at 295 and you sold the 280 put and then three
days later it jumps back up to 305 that call or rather that put option that you
sold for two dollars and 20 cents is probably trading at around a dollar a
dollar 10 so again we automatically want to enter buy to close orders for every
trade that we make but if you don't what you do is you scan all of your positions
and then ask yourself would I make the same trade right now and if the answer
is no you close out or you manage the position this is David Jaffee from BestStockStrategy.com
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