December 7, 2021: 4 Common Options Trading Mistakes - and How to Fix Them - Cabot Wealth Network

December 7, 2021: 4 Common Options Trading Mistakes – and How to Fix Them


The webinar was recorded December 7, 2021.


You can find the slides here.


Transcription:

Chris Preston: [00:00:05] Hello and welcome to today’s Cabot Wealth webinar four common options trading mistakes and how to fix them. I’m your host, Chris Preston, Chief Analyst of the Cabot Wealth Daily Advisory and vice president of content here at Cabot Wealth Network. With me today is Jacob Mintz, Chief Analyst of our Cabot Options Trader, Cabot Options Trader Pro and our Cabot Profit Booster advisories. Today, Jacob is here to talk about four of the many common options trading mistakes he’s seen in his two decades in the options trading business. he’ll tell you how to avoid them, and we’ll give you a few trades that he likes right now. This is an interactive webinar, which means we’ll be fielding your questions after Jacob’s presentation concludes. So if you have a question, feel free to ask it at any time in the question box on your control panel and we’ll try to get to as many of them as time allows once Jacob wraps up. Just keep in mind that we cannot offer advice in regards to your own personal investing situation or portfolio. First, let me introduce Jacob. Jacob Mintz is a professional options trader and editor of Cabot Options Trader, Cabot Options Trader Pro and Cabot Profit Booster Options Trading Advisories. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk reward. Jacob developed his proprietary system during his years as an options market maker on the floor of the Chicago Board of Options Exchange, where he ran several trading grounds for nearly 10 years. After a successful career on the trading floor. Jacob was tasked with setting up a trading desk at top tier options trading company, trading against the most sophisticated hedge funds and institutions in the world. Bottom line Jacob knows a thing or two about options trading, how to do it right and how to teach it. So I’ll let him do just that, Jacob. Take it away. [00:01:52][106.6]

Jacob Mintz: [00:01:53] Thank you very much, Chris, and thank you for the warm introduction and want to lead by saying, I’m sorry about your Buffalo Bills. Tough loss yesterday, but let’s focus on the iron stuff. I’m sorry, Chris, start to rub that in on you. We’re going to talk about four common options mistakes and how to fix them. So as you said, my name is Jacob Mintz. I am the Chief Analyst of Cabot Options Trader, Cabot Options Trader Pro, and Cabot Profit Booster. So let’s dive in. We’re talking about four mistakes to avoid. I’m going to go over what those four mistakes are and then I’m going to dive into each one of them. So first, we’re talking about not buying weekly options. Second, we’re going to talk about stop buying far out of the money calls, never go all in and finally never stop learning and experimenting with options. And finally, finally, if I haven’t put you to sleep by the end of the presentation, we’re going to talk about the worst trait of my career, which kind of plays into one of these mistakes to avoid. So let’s dive in with the first mistake that I want you all to avoid. I want you to not buy weekly options. Weekly options are the CBOE and the ICE exchange. All the big exchanges found out that investors like to gamble of sorts with options, so they started listing options that expire each Friday. So today’s Tuesday, on Friday, there’s going to be some options that expire and then the next week there’s going to be another set of options that expire. Now because those options have so little time, they cost pennies. They cost 10 cents, 20 cents, 30 cents. And they found that people really like to trade those options because, you know, you are risking so little money that people really enjoy making these trades. And I’m telling you, don’t make these trades. It’s essentially like buying a lottery ticket. And I don’t want you to be like this guy who said his advice to increase your chances, to win, to win the lottery is to buy as many tickets as you can afford. Don’t listen to this guy. Don’t buy weekly options. Weekly options are essentially lottery tickets. Personally, I don’t like going to the gas station and just handing over two bucks, five bucks, 10 bucks and just lighting that money on fire. That really is what buying and really buying weekly options is kind of like lighting money on fire. In fact, every once in a while, you’ll buy an option for 15 cents and it’ll go to 30 cents or 40 cents. But you’re not really making the big, big money, you’re not buying an option, a longer dated option for three dollars and letting it run to $20 or $30. That’s where the real money is made. And when you buy weekly options week after week after week, it’s been my opinion, it’s been my experience that if you just keep buying those options, you’re just going to keep lighting money on fire every single week. Why is that? It’s because the clock is ticking when you buy an option. When you buy a call, as soon as you buy that call, as soon as that call is listed, there’s an expiration date that’s coming. Time is a critical critical component of when you trade options. And so when you’re buying an option that expires in a couple of days, it’s really hard for that trade to work because time is such a critical component of options. So let’s take a look at an example like Roblox. Roblox busted out to 110 falling earnings and if you had bought it at 110, if you bought weekly options at 110, you can see the stock gave up those gains a couple of days later. That it later bust out to 140 and you’re like, OK, I’ll buy weekly options there. Well, stock dropped to 115 in the blink of an eye. If you’d bought weekly options, it’s hard to really time buying short term weekly options because stocks are going to move around. They’re going to go up, down, up, down. It’s really hard to time short term movements like that in order to have weekly options really, really succeed for you. So what do I recommend? I always recommend buying calls with three to nine months until the expiration. That gives you time, but as we’ve seen in the market the last couple weeks, it’s hard to time the market. You know, stocks countless stocks right now, three weeks ago, it looked like they were ready to break out and they all fell apart. So but if you give your position three to nine months to really work, if you found a stock that you really like and then Nvidia, let’s say if Nvidia chopping around, going up and down, up and down, up and down the last couple of years, that’s fine in the short term. But as you can see the chart, it’s a straight up and a longer term frame. So if you really like a stock, if you think you have a long term winner, I recommend buying calls with three to nine months until their expiration. So let’s take a look at an example. Again, we’re talking about Roblox or Roblox is trading around 117, and when I created these slides, the market was a little bit lower. So some prices have moved around in the last couple of days, but you’ll get the general gesture. So with Roblox trading around 170, I was looking at the July 120 calls for 26 dollars. When you buy that call, that’s by, you know, about nine months of exposure to Roblox and you have unlimited upside exposure. That’s the power of options. You have unlimited upside exposure and you have with this trade nine months approximately until that call expires and the most you could possibly lose in this trade if the stock goes to fifty dollars, if Robux falls 117 to 50, the most you could possibly lose is twenty six hundred dollars. The stock goes to zero. The most you could possibly lose when you buy this call option is twenty six hundred dollars. That’s the power box, especially calls. You have unlimited upside exposure and very limited downside potential. So what’s our next key mistake that we’re going to try to avoid? We’re going to stop buying far out of the money calls. This is what I mean. When I’m trading options, I’m looking to play the right odds, I’m not walking up to the craps table and throwing money on 30 to 1 shots or 100 to 1 odds. But those are trades kind of like the weekly options where it’s just unlikely for those trades to succeed. So I want to buy. I want to put the odds in my favor. I want to, you know, press, press my chips in when I have a pair of aces. I want to be playing trades that are likely to work, that don’t need a giant move in the stock for my trade to work. So let’s take a look at Qualcomm. Qualcomm was trading when I created the slide it around 178, so I was looking to buy the Qualcomm 180. So structuring it one seven eight. I’m looking to buy the one eighty. It’s right at the current stock price, but it’s pretty close. So I want to buy calls right near where the stock is right. I don’t want to buy the Qualcomm March 220 calls. I dont want to buy Qualcomm March 250 calls. Those are far out of the money calls. It would require a really, really big move for Qualcomm to go from 178 to 220 or 250. It’s just not likely for that trade to work. So in this case, I would look to buy the Qualcomm March 180 calls for $15. So again, if have unlimited upside exposure, if Qualcomm goes higher, we will immediately participate in the stock moving from 180 to 185, to 190 to 195 to 200. And the most we could possibly lose on this trade is fifteen hundred dollars. That’s the most we could possibly lose if Qualcomm were to fall to 150 or 100. So again, it’s an unlimited upside exposure trade with very limited downside. I will say, big traders do put on trades where they buy far the money calls and sometimes they work. So for example, I may notice every day I follow unusual option activity, which is option activity made by hedge funds and institutions, you know, the biggest, smartest traders in the world. And sometimes they do execute trades that are far out of the money, I just don’t recommend it. So the trade this morning was a trader, with Apple trading at one seventy one and a half. A trader bought fifty thousand April, March two hundred calls for two dollars and fifty cents. So the stock would have to rally almost 30 dollars for that trader to make money on that trade. Now, it’s certainly possible Apple could rally thirty dollars in the next four or five months, approximately. It’s possible, but if I were to get involved with Apple stock trading is one seventy one an hour, followed by either the 170 calls 172 and a half calls the one seventy five calls. Because, those calls have a much, much greater likelihood of finishing in the money. It’s much more likely for Apple to go from one seventy one and a half to 180 versus going to 200 or above. Now what makes people buy far out money calls, it’s those calls that are inexpensive. This is another case of where traders can get trapped. They see that the out-of-the-money calls are only cost 2 dollars lets say. Well, that’s appealing to some people, but it’s just they’re two dollars because they’re unlikely to work. So I would avoid those type of trades. Next up. Never go all in. I don’t want you to look like this poor gentleman with, you know, your head on the screen just devastated that you lost all your money. Position management and how you allocate money and funds into your trades is a critical critical component of atmosphere trading, as we know the market can go sideways, it can get really rocky, really fast. So I just want to stress to never go all in. Personally, you know, a question I get a lot is, if if a trade is going against you, do you buy more? If a trade goes against you? I don’t if I’m going to be wrong on a trade, I never want to go all in, I never want to go down. The best traders in the world get about 60 percent of their trades, right? So you know you’re I’m not the best trader in the world. You’re not the best trader in the world. So, you know, if we just got to keep our position sizing appropriate levels and, you know, I just don’t want you to be this guy saying, go all in. You know, if you really like a trade, then you could push a little bit more aggressively. Just know 60 percent of the best traders in the world get 60 percent of their trades right. So just, you know, keep your size under control. So what do I recommend? I recommend allocating about two to five percent of your options trading capital to each trade. Now, you know, the tough part about this is if you have a home run, if you buy last year, Cabot Options Traders, we bought Peloton Calls, shortly after the pandemic, the ramifications of the pandemic were, you know, we were starting to see what was going on and I bought Peloton calls. Well, we rode the stock to, you know, our options trade to a thousand percent gain. Well, clearly it would have been the right thing to do to have 50 percent of our options capital in that trade. But that’s not reality. It’s just as likely that, you know, that calls on trade could have gone bust. So two to five percent of your offshore capital that you trades my recognition personally in my account, I put five percent of options capital in each trade. I will say you also kind of have to take into account market conditions and stock volatility when you’re the should be considered, when you’re evaluating trade, that’s what I mean, you know? Cruise stocks, for example, have gotten killed this week and the week before, so it’s if you have interest in buying like a Cloudflare that’s down 50 dollars in a week, you know, but you don’t know if the stock’s up 300 percent before that. Keep your eye on the stock could continue to fall. It could rip back, you know, because the market’s volatile drop that capital to four percent, let’s say, or if there is an earnings situation, if you want to get involved with Oracle, they have earnings coming up at the end of the week. If you want to play oracle earnings now, you know that that trade could go bust in a hurry. So I would again drop that, that capital at risk just just in case the trade goes sideways. In terms of, you know, safer trades that you want to hold a position for a long time, well, then you can raise it a little bit about five percent. But in general, if you stick with one percent, you know, one percentage number five percent market, you’re not going to beat yourself up. If you don’t put enough capital in one trader, put too much capital in a trade that goes bad. You just it. You don’t beat yourself up if you make a mistake in terms of capital allocation to a trade that goes right or goes wrong. And so my last point is never stop learning and experimenting with options. If you’re new to options, there’s there’s a million different ways to start to learn about options. I’ve taken a lot of beginner options traders from learning what to cover, call us to then moving them to them, to what buying followers to next a bull call spread or selling puts. There’s a lot of ways to learn about train options, and this is an option matrix that we created a Cabot which has about, you know, 10 strategies for if you’re bullish on a position. Ways to get bullish exposure via options Bearish There’s about five or six strategies in this matrix that allow you to get bearish exposure, as well as short volatility trades. These are trades that you know you don’t where you’re expecting the stock to not make a big move in one direction or long volatility. These are a handful of strategies that allow you to get exposure to a big market move. So I’m going to talk about a couple so well, let’s let’s say here, I will say if you’re new to options, the place to start is covered cos a company call is where you own a stock, which you know most of us own at least one stock. And if you own 100 shares of any one stock, you can then sell a call option that is the most basic option strategy. That’s really where I would recommend you get started. That’s the strategy that we use at Cabot profit booster, where I take one of fellow Cabot analysts makes some Tolo makes a recommendation. 10 recommendations. I’m sorry each Monday night and I choose one of his stocks one of the stock that has the best stock story, option, liquidity and opportunity, and I select call on that option on that stock. So if you have one hundred shares of Exxon, let’s say yes and you, then you can sell one call against that 100 shares. So you have to own 100 have to be willing to own 100 shares of a stock, and that allows you to sell one call against it. But in terms of next level strategies is not a covered call. It is the most basic option strategy. And that’s where I would start if I was new options in terms of more advanced strategies. If we want to keep learning and experimenting, here’s a couple of others. So bullish trades now again, these are trade ideas that the prices have moved a little bit because the market was down dramatically last week, and now it’s back up significantly this week. So the prices have moved a little bit, but you’ll get the general just so bullish trades that I might consider using different strategies, a bull call spread. Let’s say that’s a bullish position. So the example I wrote here is by the snow, which is this stock a snowflake symbol? 0W March three 60 call March 360 400 bull call spread for 13. So in this case, in that bull call spread, you’re buying the March 360 call and you’re selling the March 400 call. When you sell that March 400 call, you’re lowering your cost basis on the street. But this bull call spread. It has limited upside exposure to the stock to run from 360 to 400. That’s the most you could possibly make. The most you could possibly make on this trade is two thousand seven hundred dollars if the stock were to go from 360 to 400. So that’s a bull call spread. Next up is a bull put spread. That’s where you say, I don’t think the stock is going to fall dramatically. More so in video. When I wrote this, when I create the slide was trading around 300 bucks and I think it’s right around there, it’s a little bit higher. So I said to myself in video straight 300 stock that I think won’t fall very far. So I’m going to sell the video February to 80 to 70. Bull put spread for two dollars and fifty cents. So if Nvidia closes above 280 on their expiration, I will create a yield. I will have created two or three dollars in income in my portfolio. So essentially, you’d say it’s essentially selling insurance against a stock’s dramatic fall. On my next paring of sorts is bearish trades. This is a way to get bearish exposure to a stock or to an index. So in this case, I was looking at buying in the QQQ March three, 85 350 bear put spread for $10. So this is like a hedge idea of sorts. If the cues which are trading around three ninety five, I think today three eight five zero said this. If this QQQ is were to drop to three five three eighty three sixty three fifty, you would have you have a bearish exposure to the to the cues and you can make thirty five dollars on that bear put spread. Another strategy is selling a bull. I’m sorry, selling a bear call spread, which basically says in this case, the SPI Jan. four 94 95 bear call spread essentially says that the spider won’t trade at four nine zero or above if it doesn’t trade it for a year above. By January expiration, you collect $40 per bear call, spread, diesel and find. Only in terms of short trades, a short volatility trade is an iron condor. It’s a very popular short volatility trade that essentially limits how much you can lose on a trade if it were to go wrong. So what I looked at was Ambarella symbol, and I was looking to sell the February 250 260 bear call spread. So the industry in and around 2:20 today, I think, to 10 to 20 or so I’m saying Amber Wilt will not go to 250 on the upside. I’m also at the same time selling the 150 140 bear bull put spread. I’m sorry, which says that Amber will fall to 150. So essentially I set a range that I think emeralds are traded. I think it’s a trade in between 150 and 250 between now and February expiration. If that’s the case, then I collect two dollars or $200 per Iron Condor sold. So it’s really just up now. Emeril’s a wild stock. So if you sell an iron condor on a stock with Ambarella, you’re going to get a bigger premium. Essentially, you’re selling insurance against a big move. If I were to execute a trade similar to that in Bank of America, which is a less volatile stock, the premium wouldn’t be two dollars, it might be 50 cents or a sword. So you figure when you’re talking about selling volatility, it’s almost like selling insurance. Are you selling insurance or are you writing insurance on a house that’s close to the ocean? Or are you selling hurricane insurance to somebody Iowa, right? I mean, the difference would be quite dramatic, because that could be any of hurricanes in Iowa. If you’re doing it close to the ocean, it’s a greater likelihood and you’ll have to pay a higher premium. So finally, the worst trait of my career and it kind of plays into the position management of sorts, putting too much capital into any one trade. So when I was a market maker on the floor of the Chicago Board of Options Exchange, it was my job to provide liquidity and to to the biggest tip to you, the individual, as well as the biggest hedge funds and institutions in the world. So all day, every day I was making markets so I would make a market and Google and I would make a market in Bank of America, and it was just making providing liquidity to anybody and everyone and anyone who want to trade in the stocks. They were my crowd, so there are about 50 stocks in my trade crowd. So I would trade Google, which is a giant stock, and then I would trade the smallest material stock that you’ve never heard of. So it was my job to make markets in all of those stocks. So one of the stocks, one of the biggest stocks in my crowd was BlackBerry, the, you know, the phones before iPhones, the Blackberries, the with the keys and really the symbols are right and that that. So I was a market maker and rim, r-mo. And I remember distinctly remember Goldman Sachs one day came running into my crowd and they wanted to buy a ton of call options. And right now I knew that there was there’s there have been rumors that a Big Corp patent court ruling was coming, but there was always rumors of this right? So every day, for months and months, they buy lots. Of course they buy lots of puts it that. It was a known event that was come at some point, but at some point, you know, it just became just part of it. It’s coming, it’s coming. It’s coming. You know, we kind of lose track of how big of a move it could be. So I sell, they come in, they’re looking to buy thousands and thousands of calls. So I sell one and I saw another 300 and another if I were paying higher, higher price. So I think I’m getting a really good price, though I’m selling well, I sell. I’ve sold probably 600 calls. And then Ben. The stock holds. Am I? Oh, my God, what did I just do? This was before I good hedge and 50 60 percent of my position, so when I was selling calls to hedge that I would immediately buy the stock. That’s the way to, you know, when you sell a call, it’s a bearish position. So immediately the way to hedge that position is to buy stock. That’s the way to hedge off that risk. Well, I wasn’t able to hedge off all my risk before the stock halted. I am freaking out. You know, news finally comes out. They say the the jury is or the judge has said that he’s going to make a ruling. So that’s why that stock was halted. So for the next hour, two hours, three hours, there’s nothing I can do that stock is called. I cannot hedge my stock the short calls. So what happens, of course, because I got too big with my call selling? I mean, it never fails. You know, once you get too big with a position, once you’re not allocating five percent of your allocated 20 percent to your short position. Stock opens up finally up 30 ups. I’m out. I’m losing millions of dollars in the blink of an eye. There’s nothing I can do except start buying stock because if I don’t, if the stock is up 30 percent goes up 40 50 hours, 100 hours. I have no idea how high the stocks go. I don’t start hedging if I don’t start buying stock of their. I could be out of a job like my dream job. Well, we’ll be gone in a matter of minutes just because I was so stupid. I sold calls, too many calls. So what I do? I bought half of my stock position, then I bought half the stock position up 30 dollars. They cost me a fortune. You know, I my plan was to buy half that stock position. Step back and see what happens because like I said, I didn’t know the stock would be up $100 by the end of the day. Well, what happened? As soon as I bought that stock of $30, it came crashing right back down and I had essentially locked in my giant loser. So anyway, I just want to share with you that every once, while even though I’m a pro, I think I’m pretty good every once in a while. You know, hubris gets the best of me back in the day. And, you know, you kind of learn from your own mistakes that sometimes you know, you got to keep the ego in check when you’re doing, when you’re trading. So that’s all I have for now. I’m gonna turn it over to Chris for questions. [00:25:04][1391.8]

Chris Preston: [00:25:05] Thanks. Thanks for that, Jacob. That’s. That’s quite a story. [00:25:09][4.0]

Jacob Mintz: [00:25:12] I sort of sweat just thinking about it, unfortunately itself. [00:25:14][2.8]

Chris Preston: [00:25:16] So we do have a lot of questions rolling in. One thing I just wanted to mention really quick is that if you’re on this webinar today, you will receive an email the next day or so with an offer to that’s exclusively for people on today’s webinar to some of the Advisories that Jacob just mentioned. Cabot Cabot Cabot profit booster. So look for that in your email inbox. We’ll have a link at the end here too. But OK, let’s move on to questions. Read Rajesh. Hopefully I’m pronouncing that right. Has been waiting patiently. Jeremy, you touched on this in some of your trade examples of the end, but he asked this early So what about selling calls, selling calls to collect premium? [00:26:05][48.8]

Jacob Mintz: [00:26:07] Yeah, so that’s that’s the strategy we use a Cabot Profit Booster. I use the example of my personal portfolio. My grandfather owned a Exxon Shell station, I think was essential, but regardless it was Exxon, and he gave all of his grandkids Exxon stock when he at some point or before he passed. And so for Exxon, four years is going like, this is going nowhere, nowhere, nowhere near. We collect the dividends here or there. But it’s someone like, why am I not selling causing it? So I started selling. Every single month. I sell a new set of calls as a way to create income and yield against the stock. And you know, we all have stocks in our portfolios where the stock, you know, we’re holding a stock that’s going to where the market’s going crazy, the upside, and we’re just doing nothing with the stock hold. So in my opinion, I think you should be selling calls against stock holdings, especially, you know, again, if you’re selling calls, it’s similar to the hurricane insurance example I used earlier. If you’re selling calls in exile, you’ll probably get, you know, a small yield every single month. But if you sell calls against crazy stock like a snowflake, let’s say the premiums. Instead of a dollar, you could get a $20 premium, which is $2000 per call. Now the downside to the strategy, if there is a downside, is that you limit your upside potential. So if you sell a call in snow and the stock explodes higher, you know, explodes 500 dollars higher, you won’t participate in that full stock gain. So that is the downside. But if you, you know, if you’ve got a stock is chopping or aimlessly, it’s a great way to create yield against that stock and something I do in my personal portfolio. I have a personal portfolio where on top of Cabot, where I execute this trade, so I execute the trades for Cabot properties as well as my personal portfolio. I’ll just, you know, buy a dividend stock also calls against AM. I’m essentially creating yield two ways by collecting the dividend as well as the call for you. [00:28:04][116.9]

Chris Preston: [00:28:06] OK. Question from Steve, how can we track unusual options activity every day? Is there a place we can find that information? [00:28:14][8.0]

Jacob Mintz: [00:28:16] You can, if you really want. It takes work, you know, the the greatest job in the world, but it’s also it’s work. So I mean, I sit in this chair watching the ticker every single second of the day. So I pay, you know, $500 a month for a live feed. And I just watch it all day, every day. Now you don’t have to do that. I actually every day for Cabot off street or Cabot off the street or process I send the next day every morning at 8:30. The biggest hedge fund and institutional trades from the previous day. So I do that work for you. You don’t want to sit there and you know you have a life. You have you want to play golf, you have a job, you have kids that you want to hang out with. Let me be the one suffering in front of the computer all day, watching for unusual option activity. And then I report it for you at Cabot hours trader Cabot options Trader Pro. [00:29:11][55.2]

Chris Preston: [00:29:13] OK. Jerome has a question. Should you buy? Should you buy only in the money calls? [00:29:21][7.4]

Jacob Mintz: [00:29:23] No, I you can if if you want so many in the money, call it so I talked about buying, not buying far out of the money, calls the my fair call to buy. If I’m looking to buy a call is at the money. So if the stocks ring at 100, let’s say I want to buy a one hundred straight call or a one 000 five straight call it the most. But. And but some people like to buy in the money call. So buying like the ninety five call the ninety call, those calls will move much quicker with the stock. So if you buy a ninety strike, call with the stock offering it a hundred and the stock takes off, that call exploded in value. Now the downside of that strategy is those in the money calls costs dramatically more. So my recommendation buy at the money calls or very slightly alimony. But yes, you certainly can’t. If you buy in the money call, that essentially gives you similar exposure to buying the stock outright, but it costs a little bit more than buying at the money calls. Good question. [00:30:23][60.3]

Chris Preston: [00:30:24] OK. And actually a follow up from Jerome our lips. The best way to buy options. I’m. [00:30:30][5.3]

Jacob Mintz: [00:30:32] I don’t have a problem with buying it. No, that’s totally fine. Leaps are longer dated options, so you know, it’s we’re about to come in to January twenty twenty one. So a leap would be buying January options expiring in twenty twenty three or twenty twenty four. So these are buying options that have all years and years to work. I have no problem with buying these. The downside to buying a leap is that option because it has so much time, costs so much, it costs dramatically more. So if you were to buy, let’s see my example earlier buying the roadblocks. July calls, I think it was July. Those options will cost twenty five dollars, but if you buy a leap on that same strike, it could be seventy five dollars or something like that. So its cost dramatically more. Again, three. My sweet spot of sorts would be about six months if I were choose. The perfect time for it would be a six months out in time to buy a call option. No, but certainly I don’t like buying options with three months or so. Six six months would be my sweet spot. [00:31:35][63.0]

Chris Preston: [00:31:37] OK. The good question from Guru, if you roll down a losing call option, how does the tax treatment work? [00:31:45][7.6]

Jacob Mintz: [00:31:46] Oh geez. I’m going to pass that one. I am not. I am not attacking tax experts. I’m just sorry that I’m starting to be that guy to say I’m not going to answer that question, but I don’t feel cut. I will talk confidently about what I know. I will not, you know, go deep into tax related questions. So I apologize for that. But that’s just not my area of expertize. [00:32:09][23.0]

Chris Preston: [00:32:11] OK, fair enough. Let’s see the specific question from David. David asks, Do you use the point seven zero delta for buying calls? [00:32:22][11.5]

Jacob Mintz: [00:32:25] So that’s similar to. Up point seven, Delta, a 70 delta, is in the money fall, so it’s similar to the question from earlier, I think it was earlier. That’s the delta is the delta is the rate of change of an option. So if I buy an option with a 50 delta for every $1 move in the stock, that option will move 50 cents. So if the stock option for a dollar moves, it’s a 50. Delta goes up a dollar, it will go to a dollar 50. That same option, if the stock were to drop a dollar, that one other option would lose 50 cents and be worth 50 cents. No, I don’t necessarily. I’m not tied to a 70 by any stretch of the imagination. If again, I would tend to track trade options with like a 50 delta is about the sweet spot. So typically a 50 delta with about six months to expiration is just about my sweet spot. I won’t get tied to, you know, a certain Delta 70 Delta or 65 or 60 generally 50 Delta, 45, 50, 55 Delta, that’s about where I would play of sorts. [00:33:29][64.8]

Chris Preston: [00:33:32] OK. Let’s see. The mall has a question. Where do you see the market going from here? And what would you recommend? Would you recommend? Which stock sector would you recommend and which call options? [00:33:48][15.6]

Jacob Mintz: [00:33:49] OK. Well, Mike, as I always write to my subscribers, my crystal ball is broken or a little bit cloudy right now. It’s hard, especially in the short term. As I said, it’s really hard to predict things in the short term. I will say this. I was definitely concerned the last couple of days the VIX was spiking higher, higher and higher higher, countless growth stocks were breaking down. But then we had a really interesting reversal yesterday and the market’s up again today. So seasonally, we’re in a pretty bullish time and if the market can hold itself together the next couple of days. And people have really puked a lot of positions the last week or two where the market was getting it. We could see a real spike higher in the indexes in the year as those with the risk of sorts and sold a lot of stocks are forced to chase those stocks back higher again. So I’m pretty bullish on the market, but I also have my finger on the mouse ready to exit if things get worse in terms of the best looking sectors. I mean, I hope the semiconductor sector looks terrific. That’s not held up spectacularly well during the growth stock meltdown. I know the railroads are near highs. I don’t really get too involved with them. Housing, I know, is pretty close to their highs, but the semiconductors look the best to me right now. We own Marvel, so we’ll reveal in the Cabot options trader after Trader Pro Services, and that stock is breaking out all time highs. Like Qualcomm in the semiconductor space on semiconductor symbol, own semiconductors look really good. I also like I wrote two Cabot arbitrators today. I like the auto space. Huge, huge call up action activity in Ford and General Motors. So. I’m sure activity is starting to heat up again, so I’m pretty I’m I’m intrigued by this market maybe making a year and run a Santa Claus rally of sorts. [00:35:45][116.1]

Chris Preston: [00:35:47] Yup. Another Delta related question from Andrew. You may have already partially answered this do you use Delta or RSI metrics to help with your stock options VIX? [00:35:58][11.3]

Jacob Mintz: [00:36:02] I guess I would. I guess I’ve kind of answered this. I use, I just stick to my general plan of going approximately six months out in time and approximately at 50 Delta or at the money. It’s it’s not rocket science. The options can be rocket science. There is some fairly sophisticated stuff I do, but just, you know, the old keep it simple stupid “KISS”. Keep it simple, stupid when it comes out six months till expiration $50 delta. And if you’re picking the right stocks. If you’re a lot of people, a lot of Cabot subscribers subscribe to Mike Cintolo’s Advisories, and when he makes a recommendation on a stock, they will buy calls six months. They’ll buy the stock. They’ll buy a call option on that stock’s six months out with a $50 delta. So being the best stocks in a strong market and buy the call strache and timeline that I’m talking about and you’ll do pretty well. [00:36:59][56.4]

Chris Preston: [00:37:01] OK, we’ll do one or two more. Bruce asks, what about the I.V. Implied volatility range on a call? Does the I.V. Need to be in the lower half? [00:37:11][10.2]

Jacob Mintz: [00:37:14] You guys are asking some really tough questions, I think I’m going to start sweating like when I was talking about the research in motion example. So I’ve implied volatility is the price of an option. It’s a factor in the price of an option. So, some of the factors are implied volatility as well as time as well as interest rates, so there’s sophisticated stuff that gets involved. Implied volatility is probably the most important component of an option. So a Bank of America option, the implied volatility would be 10. It’s not like the Bank of America is really going to move, so because the stock is not going to move a lot, the option is not going to move dramatically also. But for instance, going back snowflakes and SNOW, that’s actually move 20 dollars every single day so that that implied volatility could be 50 or 60, which makes that option more expensive because the stock is more likely to move. Some people like buying low, low I.V. Stocks because that option is cheap now. It’s cheap for a reason because the stock’s not going to move a lot. But if you if you buy a cheap option and it really moves, So last year we bought General Motors calls and those were very inexpensive calls and the stock took off and we had a huge, huge winner on our hands. So there are times when buying those cheap I.V. Options. Implied volatility options work. If you’re a gunslinger and you want to get involved with the the high fliers, then you’re going to have to pay higher vol, higher prices to get involved with those stocks Via options. Especially implied volatility gets really, really elevated around earnings because there’s a chance for the stock to make a dramatic move, so the price for options, because there’s that likelihood of a stock move, that implied volatility goes up. Good question. [00:39:02][107.8]

Chris Preston: [00:39:03] OK, last one. This is more in your wheelhouse. You mentioned you follow unusual options activity. What stocks are getting the most attention and the unusual options activity you see now? You mentioned semiconductors, but anything outside of that. [00:39:18][14.5]

Jacob Mintz: [00:39:19] So as I mentioned also, General Motors and Ford are seeing dramatic dramatic call buying for weeks now. So it’s it’s very, very interesting. It’s, you know, Ford is trading at $20. They’re buying the twenty five calls, a 30 call, you know, calls. It’s unlikely for Ford to make to go from 20 to 30. So it’s definitely intriguing to me. Similar to General Motors, General Motors trading around sixty two dollars, they’re buying the 70 calls, 80 calls to 90 calls, just generally raising an eyebrow for me. In terms of the growth stocks that have been hit hard. There was big call buying in Bill.com Simple BILL into that stock decline. Yet just yesterday, Datadog, some of the DDOG saw big call buying. And today there was a big buyer of DoorDash symbol DASH. There’s big call buying and their shares are starting to reload of sorts via call options into these hyper growth stocks, as you know, try to play a further bounce, they got killed. I mean, someone fell 50-60 percent. I mean, it’s been that ugly and now traders are starting to buy calls and those type of stocks. So I’m intrigued, if you know, if the market can get going and these growth stocks start moving and it could be a parabolic move. Maybe we’ll have to see how the next couple of days goes. [00:40:37][78.4]

Chris Preston: [00:40:41] OK, we have one more question from Mirco. Yes. What what do you think about rolling your positions in order to collect some profits and at the same time to get more leverage? [00:40:51][10.1]

Jacob Mintz: [00:40:52] OK, that’s a that’s another good question. This is a smart group. So let’s say, rolling means you own a position and it’s worth it in this gentleman’s case, and he wants to take those profits. He bought a call and he wants to sell that call to lock in his profits, but then he also wants to continue to have exposure to the stock. I have no problem with the strategy, especially in this choppy market 2021, where a stock breaks out and you’re holding and your holding, and your holding and it falls apart. I have no problem taking some profits along the way and then moving that money into a longer day call. So let’s say we bought a call in May. Let’s just say we bought a May call and it’s expiring in December. So in a week and a half with this trigger is basically saying is I want to sell that may call, lock in that profit before that call expires and then move some of that capital into a call with further, you know, further on time. So you might sell that may call and then buy a June call that expires in 2022. I have no problem with that strategy. That’s it. I do that quite often. It’s, you know, it’s a great, great way to take some money off the table, especially during a holiday season when you have to buy your special someone you know, something nice and then but still have some exposure by buying a new call. It’s perhaps not with, you know, with some of the money already locked in on that original trade. So good question. I have no problem with that strategy. [00:42:18][86.1]

Chris Preston: [00:42:20] OK, yeah. Really good questions today from everyone. Well, thanks, Jacob, and thanks to everyone for joining us today. As I mentioned, if you’re interested, if you like what you’ve heard from Jacob and are interested in signing up for any of his advisories, you will receive an offer in your email and the next day or so. Or you could go to the website on your screen now. Cabot Wealth dot com slash webinar special. We’ll be back next month with a webinar from Mike Cintolo, who Jacob mentioned earlier our growth investing and market timing expert and Chief Analyst of our Cabot Growth Investor and Cabot Top 10 Trader Advisories. Mike will be talking about what to expect from the market in 2022 and 3 stocks that could lead to the next or lead the next bull run, and that’ll be at two O’Clock Eastern on Thursday, January 20th. Any final words, Jacob? [00:43:11][51.2]

Jacob Mintz: [00:43:13] Not really. Thank you very much for joining, and those are some tough questions, you guys are a sharp group, that’s for sure. [00:43:20][7.3]

Chris Preston: [00:43:22] For sure. Well, that does it for us, for Jacob and the entire Cabot Wealth Network team, I’m Chris Preston. Happy holidays and we’ll see you next time. [00:43:30][8.0]

Jacob Mintz: [00:43:31] Happy holidays! [00:43:31][0.0]

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