Weekly Webinar #8: “How to Trade and Invest—a Primer”

Hello guys, can anyone recommend books about trading? I'm a beginner something simple and gateway would be helpful.just to learn basic terms and strategies.

Crap. Typo. In my call example scenario #4, I should've written, "The call is worthless, as no one wants a contract to buy $TSLA for the same or **HIGHER** price as it's already trading at."

Everything up through the first bullet of "What is Trading?" was great, but things got a little off the rails after that because the second bullet reads "Options Trading" but what Coach describes is short-selling, which is different from options. A brief summary: There are two types of trading with regard to duration (and taxation): long-term and short-term. Long-term: You get out at least a full year after you got in. Short-term: You get in and you get out within one year. Day-trading is just short-term trading where you get in and get out the same day, even possibly getting in and out multiple times a day with the same stock. But with regard to capital gains taxes, only long-term vs. short-term matters. Every trade has one of these two money-making goals: 1) Buy and Hold -- the objective is to buy at a low price and sell at a higher price. 2) Short Selling -- the objective is to sell borrowed shares at a high price and buy them back at a lower price. All of this is still trading. We haven't touched on options yet. I think the pre-COVID deal that Coach said he was sweating on account of possibly losing his margin was a short sale -- his bank/broker actually borrowed shares for him to sell, and he put up some of his own money to cover the rise in the shares' price if that should happen. Luckily, the price of the shares eventually fell, and he bought them back at a lower price to return to the sharelender. KA-CHING. But, again, none of this is "Options Trading". The second deal Coach mentioned, in which he was relying on people who'd been solid with him before, might indeed have involved options, but because we're short on details, it's hard to tell. So. Options. An options contract is a contract that says, "I have the right to (buy/sell) 100 shares of XYZ at [this price] on [this day]." If the contract is for buying, it's called a "call". If the contract is for selling, it's called a "put". Example: $TSLA is trading at $430 today. Let's say I think it'll go up to $500 in a month. I see there's a call available saying, "I have the right to buy 100 shares of $TSLA for $450 in a month." This contract has a price associated with it. The price of the contract depends on how likely the market thinks $TSLA will rise above $450 in a month's time. Let's say I'm certain enough about this that I buy the call. One of four things will happen within the next month: 1) $TSLA's stock will begin to rise and approach $450, making my call more attractive. The price of the call will rise. If $TSLA actually goes above $450 at some point, the value of my call could skyrocket, as it is now a contract to buy $TSLA at a lower price than what it is selling at. I decide to sell the call and pocket the profit (which, like I said, could be considerable). 2) $TSLA's stock will instead stay below $450, making my call less attractive. The price of the call will decrease as the likelihood of $TSLA breaking $450 before the month is out is less and less likely. I decide to sell the call and take a loss. 3) I choose not to sell the call, the call hits its expiration date, and $TSLA is trading above $450. Presuming I have $45,000 to spend, I can now exercise the option to buy 100 shares of $TSLA at $450, no matter how high the price at which it is actually trading. It's up to me what I do with the shares after that -- I can then either hold the $TSLA shares in the hopes that $TSLA will rise higher still or immediately sell the shares for whatever is the current going price (which will be over $450, so I'll take an immediate profit). If I choose not to exercise the option (maybe because there was an emergency and now I don't have $45,000 to spend), the call simply expires, and I'm out the price of the call. 4) I choose not to sell the call, the call hits its expiration date, and $TSLA is trading at or below $450. The call is worthless, as no one wants a contract to buy $TSLA for the same or lower price as it's already trading at. I'm out the price of the call. Puts work exactly the same, but they're like short sales -- you're buying a contract to sell 100 shares of a stock on a certain date at a higher price than you think it will be trading that day. For example, say $TSLA is at $430 and you think it'll be trading at $400 in a month. You may might a put on $TSLA for $410 in a month. Just like with the call, the closer you are to being right in your prediction, the more likely you can sell your put for a higher price. But if you're wrong in your prediction, you might be out the whole cost of the put. Notice what makes options so hella-risky compared to stocks: If you haven't sold your option by its expiration date, and you gambled wrong, you lose the full amount you paid. That's not true of stocks. For example, let's say you spend $45K to buy 100 shares of $TSLA at $450/share, because you think it's going up to $500/share in a month's time. If you're wrong, and $TSLA drops to $400/share instead, you still have $40K of stock -- and it could always go up again, so maybe you'll win in the long run. But now let's say you took a gamble and bought $45K in calls on $TSLA instead, with a strike price of $470 (because you think it's going to $500 in a month, same as in the stock scenario). Instead, $TSLA drops to $400/share. You do *not* have $40K in calls remaining. Your calls are *worthless*. You lost *the whole $45K*. So please understand: Options are the advanced class. If you do not feel you have a good understanding of stocks, you should not, under any circumstances, play options. I myself am in this category. I'm a novice. So I buy and sell stocks and mutual funds and ETFs. I will not touch options until I feel I have mastered these, no matter how long that takes. NOTE: Something Coach brought up in the webinar is how selling short is potentially infinitely risky. That's very true. When you buy-and-hold, the worst that can happen is that your $50 stock can drop to zero -- i.e., there's a price floor, and therefore a limit to how much you can lose per share. But if you sell a $50 stock short, expecting it to go lower, there's no ceiling on how high the stock can rise -- it could go to $1,000 per share, or $10,000 per share, or $1M per share (you get the idea), and you're out the difference. (In reality, as Coach said, once the stock goes higher than the money you've set aside to cover a rise, your bank/broker will confiscate your money and end the trade, but the result is really the same: You lose big.) In the case of short sales, then, it is actually safer in some cases to buy a put instead. That way, if the underlying stock price rises into the stratosphere, the most you'll ever be out is the price of the put. And you also don't have to ante up the additional money to cover a possible rise in the stock price. So if you're considering doing short-selling, you actually might want to look into buying a put instead to minimize your potential losses. This has been my TED talk. ;)

So you're saying you can reasonably guarantee your trades? How much net worth +% have you succeeded in increasing? Yes it's only worth getting into with serious though and gaurantee of success. So do let me know please?

Ebrahim Ali

Great presentation coach and an excellent overview on trading and investing. I wish I watched something like this when I started trading years ago. Congrats on your trade. Did you buy simple puts on certain stocks? What do you mean by selling short naked? It's either calls or puts in options. If you sell puts naked that is being bullish on the market which is not what you want in a falling market. If you bet on the market falling, you can either buy puts or sell calls but. you'd make more money by buying puts to take advantage of increasing volatility. When you buy puts on a stock and if the stock tanks, its implied volatility go up and this makes all the options contracts for that underlying stock more expensive. Yes. Trading is a form of gambling with probability. You have to do everything you can to give yourself an edge in the game. If people trade on a whim or chase with the crowd because of fomo, it usually turns into tears. I trade options for a living and it's hard to explain or learn options without visuals. Playing options is like the financial chess game (in my opinion) because there are more variables in options trading than simply:1.buy low, sell high, 2.sell short, and buy to cover low. The biggest advantage of options is that you can structure your trade to have: 1.Fixed risk, 2. Outsized risk:reward. It is a leveraged instrument by nature and if you don't know the rules of the game, it can cause a disaster but if you know how the game is played you can significantly limit your risk and increase your profit potential. An option contracts' price is determined by few things: I suggest you google them if you're interested in options. 1.Options Greek (delta, gamma, theta, vega) 2.Implied volatility Understanding how they can affect options contract is very important because if you don't, you're going to get screwed over in the long run. Most beginners who jump into options market are clueless about these things. They could be right about the direction of a market and still lose money in their trade because they don't know how the game is played. Ask me away if you have questions about options or just want to talk about options and economics, DM me. I could talk about these things all day and I fuckin' love this game. I just wish I know more people who do this thing for a living. It's very important to use a suitable platform for options (not Robinhood certainly), and practice paper trading until you understand how to play options or even bet small amount with live trading so you can get real hands-on experience. The stock market right now is in a big historical bubble fueled by blind liquidity injection by central banks. But that doesn't mean you short the market until you get a good short signal. This market has hurt so many people on the way down back in March and it also has punished people who are shorting this market for months now. The market is going up with the hope of rising inflation. The stock market is forward-looking (stock market is NOT economy) and I honestly think we're heading towards depression and deflation and not inflation.

You may find interesting economist Warren Mosler.

This was so interesting (and challenging). A lecture. I wanted to know about this stuff since ever and here it is. Gold. Thank you very much indeed.

Great videos - thanks for sharing your knowledge. Please make more videos on similar topics. Thanks