If You Own Stocks, Consider This SUPERIOR Trade

How to Enter the Market Without Buying Stocks?

Introduction to Alternative Strategies

• The speaker introduces a method for entering the market that does not involve purchasing shares of stock, promising potential savings and reduced risk.

• Emphasizes that this strategy could potentially double returns compared to traditional stock buying methods.

Deep In-The-Money Call Options Explained

• The focus is on buying deep in-the-money call options as an alternative to buying stocks, aiming to challenge the notion that stock purchases are the only way into the market.

• This strategy is described as a "stock substitution," requiring a bullish outlook on selected stocks and a longer investment timeframe (ideally around one year).

Key Parameters for Implementation

• Investors must select stocks they are bullish about and buy one option contract for every 100 shares they would consider purchasing.

• A critical aspect of this strategy involves choosing a call option with a delta of 90, which indicates high sensitivity to price changes in the underlying stock.

Understanding Break Even Points

• It’s essential to calculate break-even points when trading options, as these differ from simply buying stocks. Knowing where the stock needs to be for profitability is crucial.

• Options can be sold before expiration if they move favorably or unfavorably, allowing flexibility in managing trades.

Risk Management and Strategy Execution

• Discusses what happens at expiration: exercising options, selling them, or rolling them over. Each choice has implications based on market conditions.

• Highlights the importance of having a risk management plan since not all trades will yield positive results; understanding risks is vital for success.

Example Stock Analysis: Silver ETF (SLV)

• Introduces SLV (Silver ETF), noting its recent performance and relevance due to market trends related to silver prices.

Investing in Silver: Options Strategy Explained

Understanding the Market and Investment Strategy

• The speaker discusses the current market conditions for silver, suggesting that if one is bullish on silver, now may be a good time to invest. This is presented as an example rather than a direct trading recommendation.

• The price of silver is rounded to $70 per share for easier calculations. Buying 100 shares at this price would cost approximately $7,000.

• The speaker introduces an alternative investment strategy using options instead of directly purchasing shares. They emphasize exploring different methods to invest in silver.

Exploring Options Trading

• The discussion shifts to analyzing the option chain, focusing on call options and their associated delta values. Understanding these metrics is crucial for making informed decisions.

• Importance of checking bid and ask prices when evaluating options contracts is highlighted. The speaker advises against relying solely on past trade prices due to potential delays in data accuracy.

Selecting the Right Option

• To find a suitable option contract, the speaker looks for one with a delta close to 90%. A specific contract with a strike price of $43 and expiration date in January 2027 is identified as ideal.

• Choosing an option with a longer expiration (about 11 months out) allows more time for potential upward movement in silver prices, aligning with the bullish outlook.

Understanding Delta and Its Implications

• Delta measures how much an option's price will change relative to changes in the underlying stock's price. A 90% delta indicates that if silver increases by $1, the option value will rise by approximately $0.90.

• Lower delta values (e.g., 15%) indicate minimal movement in option pricing compared to stock movements, which could lead to less favorable outcomes for investors seeking significant gains.

Cost Comparison and Risk Management

• The bid/ask spread for the selected $43 strike option shows it can be purchased around $2,860 per contract—significantly lower than buying shares outright at $7,000.

• By opting for this strategy, investors can control 100 shares of silver while reducing their capital outlay by over $4,000 compared to direct share purchase costs.

• If silver were to drop significantly in value (to zero), losses would be limited to the premium paid ($2,860), showcasing reduced risk compared to owning physical shares outright.

Conclusion: Benefits of Using Options

• Utilizing options provides leverage; controlling large amounts of stock at lower costs while limiting potential losses enhances overall investment strategy effectiveness when bullish on commodities like silver.

• Emphasizing that selecting high-delta options ensures alignment between stock performance and option value growth reinforces why understanding these concepts is vital for successful trading strategies.

Understanding Options Trading: Key Insights

Basics of Buying Options

• The fundamental principle of making money with options is to buy at a lower price and sell at a higher price, similar to stock trading.

• An example is given where an option costs $2,860 with a 90 delta, compared to another option costing $270 with a 15 delta.

• A low delta means that the option's value will increase minimally if the underlying asset (silver) rises; for instance, a $1 increase in silver results in only about $15 gain for the 15 delta option.

Evaluating Delta and Break Even Points

• The break-even point for an option can be calculated by adding the strike price to the cost of the option. For example, buying a call at $28.6 on a strike price of $43 results in a break-even at $71.60.

• With silver currently priced at $70, it needs to rise just over $1.60 within 11 months for the trade to break even—considered achievable.

Comparing Different Strike Prices

• In contrast, purchasing an out-of-the-money call (170 strike with 15 delta) requires silver to reach approximately $172.70 just to break even—a significantly higher target than the lower strike call.

• This comparison highlights that while one might save money upfront by choosing cheaper options, they may face much larger risks regarding achieving profitability.

Strategic Considerations in Options Trading

• Many traders overlook critical factors like break-even points when opting for cheaper options without understanding their potential drawbacks.

• If silver makes significant gains early on (e.g., rising quickly), traders should consider taking profits rather than holding until expiration.

Utilizing Tools for Better Decision Making

• The discussion emphasizes using resources like barchart.com’s free options calculator to analyze deltas and make informed decisions based on current market conditions and projections.

This structured overview encapsulates key concepts from the transcript related to options trading strategies and considerations while providing timestamps for easy reference back to specific parts of the discussion.

Understanding Options Pricing and Delta Dynamics

Overview of Strike Price and Fair Value

• The discussion begins with a focus on the strike price of $43, which has 335 days left until expiration. The fair value indicated by the bar chart is $29.82, which is used as a reference from the option chain.

Bid-Ask Spread and Delta Calculation

• The bid-ask spread for the $43 strike shows a value of $28.60, aligning with the calculator's output. The delta is noted to be over 91%, indicating a high sensitivity of the option price to changes in the underlying asset's price.

Impact of Silver Price Changes on Option Value

• A hypothetical increase in silver prices by $1 suggests that the option price should rise to approximately $30.72 due to its high delta (around 90%). This illustrates how closely options track their underlying assets' movements.

Tracking Movements: Upward and Downward Adjustments

• When silver increases by $10, the option price could rise significantly (up to about $39), demonstrating that as silver prices increase, both option prices and delta values tend to grow larger, enhancing potential profits. Conversely, if silver decreases by $1, the option value drops correspondingly (about 90 cents). This highlights how delta diminishes during downward movements, reducing losses on options when prices fall.

Expiration Day Insights: Intrinsic Value Calculation

• On expiration day, if silver remains at $70 for 335 days, despite initial fluctuations in value ($29.16), it will still hold an intrinsic value of approximately $27 per contract at expiration—indicating minimal loss over time due to time decay effects on options pricing strategies. The break-even point is identified as around $71.60; thus only a small loss occurs if sold at this point compared to its purchase price ($28.60).

Deep In-the-Money Calls vs Out-of-the-Money Calls

• If silver rises above break-even ($72), profit can be realized; however, purchasing deep in-the-money calls retains more intrinsic value compared to out-of-the-money calls that may expire worthless if not above their respective break-even points at expiration (e.g., for a call priced at $2.40). This emphasizes strategic considerations when selecting options based on market conditions and expected movements in underlying assets like silver.

Understanding Silver Options Trading

Key Concepts in Silver Options Trading

• If silver remains stagnant, minimal financial loss occurs; however, purchasing out-of-the-money options (e.g., below or above $70) may not yield profits. Quick price jumps can lead to doubled investments, but future movements are uncertain.

• Upon expiration with silver at $70 and an option valued at $27, traders have several choices: sell the option for $2,700 if they believe silver will stagnate or exercise the call options to acquire 100 shares of stock.

• Another strategy is rolling the trade by selling the current option due to time constraints and purchasing a new one-year-out option at a lower cost instead of buying 100 shares directly.

Risk Management Strategies

• Discussing risk management plans is crucial; if silver's value declines, so does the call option's worth. Traders must determine their stop-loss points based on personal thresholds or market conditions.

• Stop-loss strategies can be based on percentage drops in silver’s price (e.g., exiting if it falls 10% or 20%) or losses in the option's value (e.g., exiting after a 50% drop).

Evaluating Call Options vs. Stock Purchases

• The cost of in-the-money calls may seem high but is significantly less than buying 100 shares outright. Out-of-the-money calls are cheaper but carry higher risks if prices do not move favorably.

• Successful trading involves taking quick profits when opportunities arise; holding onto losing trades can result in significant losses. Diversifying contracts allows for profit-taking while retaining some investment using "house money."

Profit Potential Analysis

• Analyzing potential returns reveals that deep-in-the-money calls offer superior returns compared to direct stock purchases. For instance, a rise from $70 to $110 yields different percentages for stocks versus options.

• A stock purchase yielding a gain of $40 results in a return of approximately 57%, while an equivalent call option could yield over 134% return due to lower initial capital outlay and higher leverage.

Conclusion and Further Resources

• The recommendation is clear: buy deep-in-the-money calls with a high delta and consider taking profits quickly. For more insights into this strategy inspired by Warren Buffett, visit smartoptionseller.com.

Overview of Services Offered

Key Offerings

• The main service provided is selling put options, which is highlighted as the primary focus of the business.

• Additional services include newsletters and one-on-one coaching for individuals seeking assistance in getting started with options trading.

• A probability calculator is available for users wanting to explore the intricacies of put selling more deeply.

• There is a video series consisting of five hours worth of content aimed at educating users about put selling and related strategies.

• Viewers are encouraged to check the description for links to other resources, including websites and books that may be beneficial.

Closing Remarks

• The speaker invites viewers to engage with previous content, specifically mentioning a video on silver and collar trades.

• A call-to-action is made for viewers to like the video, indicating an emphasis on community engagement and feedback.