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A $10,000 Lesson

"How did you learn to day trade?"


We've probably been asked this about a hundred times, and the simple answer is YouTube and Twitter. We like to call it YouTube University. Now the more complicated, detailed, and real answer is that we actually paid about $10,000 to learn how to options trade—and no, we are not referring to a paid discord, or paying a "financial guru," or taking a course. It was $10,000 of trial and error, a $10,000 lesson.


To take it a step further, we’re still learning. Every trade brings a lesson with it.


Our learning process has been different, and we've been able to see growth in our personal experiences. In this blog, we'll be going through our individual journey and offering you pointers from it. Please note, we are not financial advisors, and everything written here is from personal experience. This blog is not advice to buy or sell any stock, but rather sharing our thoughts from what we have learned in the market ourselves.


 

BEGINNER

Wendy

I started trading commons (regular stock) in 2020 during quarantine simply because it caught my interest. I was working remotely and had extra time on my hands, and I wanted to acquire a new skill that would lead to extra income. Little did I know that it would also bring me a rollercoaster of emotions.


In the Summer of 2021, I started to read about options trading, and it was quite difficult for me to understand. In fact, I wouldn’t say that I learned much until I tested the waters. I learned once I bought my first call. With that said, I will explain how options work as simple as possible, but I do recommend trying it out for yourself to fully understand the dynamic of day trading.


Now before I go into detail about options trading, I would like to encourage you to read my previous blog on how to get started in the stock market. To learn how to options trade, you must begin with the basics. Here is the link.


Note: I use Robinhood to day trade and had to upgrade my account to a gold Level III to unlock day trading options.


 

Terms:

  • Calls: When you buy a call, it is because you are predicting the price of a stock to go up. When it does, you make money. If it goes down, you lose money.

  • Puts: When you buy a put, it is because you are predicting the price of a stock to go down. When it dips, you make money. If it goes up, you lose money.

  • Price strike: The price you are predicting that the stock will move towards

  • Expiration date: The last day that your contracts (calls or puts) are valid

  • Day trade: When you buy a call/put and sell it within the same day

  • Swing trade: When you buy a call/put and hold it overnight or for several days and/or weeks

  • Greeks: The delta, gamma, vega, and theta of option positions. They are utilized to measure the sensitivity of an option's price to quantifiable factors.

  • In the money: When the price of the share is above your call or below your put

  • Out of the money: When your STRIKE price for a call is higher (typically by a good percentage) than the current share price AND/OR when your STRIKE price for a PUT is below (typically by a good percentage) than the current share price.


A lot of people see options trading as gambling, and I would agree, that is until you apply strategy. No plan = gamble, but strategy leads to a decrease in risk, an increase in capital protection and ultimately, profit.


To get started, I would begin with no more than $500. Since your account will be under $25,000, you will be limited to only 3 day trades every 5 days. In addition, there is something called an expiration date and the Greeks. Both affect the money you could win or lose.


For example, $AAPL is currently (as I write this) at $164.34. Look at the charts, do some research and come up with a prediction. Say you think it will start to move up, so you look at buying calls. On the trading app (Robinhood, Webull, TOS, or any others), you will see a list of different call strikes. This means you can buy a call for $165, $170, etc. You will also see dates at the top.



Look at the screenshot for reference.


NOTE: The ITM and OTM is displayed for a call. Understand that it is reversed for a put.


Currently, the price of an $AAPL $170 call for 03/04 is 0.42 cents, which means it will cost you $42. Why? Because a call is a contract that gives a holder the right to buy 100 shares at given price. This means the contract is 0.42 x 100, therefore $42.


The further out you buy a call/put for, the more expensive it is. Why? Because the stock will have more time to reach your price target, and with more time comes a higher probability, thus a higher price. In other words, you are buying time, which is good! If you are determined that $AAPL will move up, you could buy a $170 Call for 03/04 (this is an example, I do not hold a position in $AAPL). If it starts to move up as you predicted before 03/04, you make profit. Since it is currently at $164.34, you would need about a $5.50 move to be in the money, but since your call doesn’t expire until 03/04, a $2 move up by Tuesday would yield you profits. Sell when you’re up!


If the price of a stock dips when you have a call, but you still think it will go up, you could hold your position overnight, but you must manage your risk. Otherwise, your call could go worthless. This means that if you buy an $AAPL $170 call for 03/04 but it dips to $155 by the day before expiration (03/03), your call would only be worth a penny, whereas it would have cost you $42.


Now let’s talk about the Greeks. You can find the Greeks on the pop up that appears when you are about to buy a call or put. The Greeks for the $AAPL $170 03/04 Calls are currently this:

Delta is 0.1607
Theta is -0.1035

This means that for every dollar that $AAPL goes up, the call price will increase by $0.167 cents.


$AAPL is $164.34 at this moment. If it goes up to $165.34 on Monday, your contract would be worth 0.58 cents. Why? Because you bought it at 0.42 cents and since the stock went up a dollar, the call went up 0.16 cents, summing up to 0.58. This means you could sell your call for $58. The difference is your profit ($16) and if you buy 2 contracts, then it is $32 and so on. Since calls and puts can be very cheap, you can make large amounts of money the more you buy… but you could also lose all of your money, so be careful!


The theta is the amount of money you lose per day. In other words, theta eats your profit, which is why a lot of traders prefer to day trade rather than swing. The theta does increase per day so be careful in holding for too long!


Note, it is OKAY for the price of the stock to go above your prediction for a call or below your prediction for a put. So, although you made a $170 call prediction, it does not limit it to $170. Matter of fact, you make MORE. This is referred to In the Money (ITM). If $AAPL makes a big move and reaches $175 before 03/04, then you are DEEP in the money, and you would be high in profit.


I did not give a put example but it works the same way. For puts, you make money as the stock dips. That is the beauty of options trading! You can make money even when the market is red.


This sums up the first description on options trading, but it is important to know that options trading goes much deeper than all of this. I will be offering 2 short, 30 minute google meetings every week for one month to those who get their feet in the water, open a Robinhood account and (preferably) buy their first call/put to see how it works. *Please buy one that is no more than $50*



 

BEGINNER-INTERMEDIATE


Fidel

I’m assuming that if you clicked on this blog, you are at least semi-interested in how it is that I am constantly traveling, how I purchased a Tesla, or how I got my first rental property all by myself at the bright and bold age of 20-years-old. Surely a lot of questions that I have all the answers to, but this specifically will be about one particular source of income. Options trading is just like any other trading market. You can trade stocks, you can trade foreign exchange, or even crypto or NFTs. I personally like trading stock options because it only takes little money to make a lot. With that being said, it only takes a little for you to lose a lot. My experience with this venture in my life has been a big roller coaster. Just like anything worth it, you must put in the work… You must let all things stock market related consume you. Pick your circle wisely and be picky about what you talk about. Your socials must be converted into a tool utilized for market data or current news’. I’m not here to sell you anything but rather offer you my personal experience and lessons, and let you know of the tools that are very much accessible to you.


The only way I know how to learn is by doing. Hands on or trial and error; the beginning of this journey started with a lot of trial and error. The thing is, the errors were costing me money, forcing me to truly grasp the actual concept of what I was doing. I learned everything from YouTube, fintwit (Financial Twitter) — both very accessible to anyone reading—and most importantly, the only one person I would talk to all-day every-day, my lovely girlfriend. (Sidenote to all the gentleman reading this, choose your circle wisely, as mentioned earlier.)


My pointers consist of sticking to ONE plan, ONE strategy, ONE reason as to why you should enter a trade. This may be boring but it’s PROFITABLE. You must resist FOMO (fear of missing out). Otherwise, it will be the beginning of a lesson that will cost you.

  • Stay away from earnings.

  • Learn how to read charts. I use trading view. I only play wedge breakouts. Or channel breakouts.

  • Use stop losses to protect your capital.

  • Take profits when you’re comfortable and understand you may be missing out on a lot more money when you do that—but you are also protecting your capital in doing so. So, in raw terms pull out!

The money you will start making will 100% get to your head and you will want to over trade because you’re afraid of missing out on more money. FOMO is everywhere. Pay yourself. Otherwise, your head and heart aches are for nothing. You are no different than me. Everyone wakes up every single day and puts their pants on one leg at a time. Get active and learn something new.

 

Wendy

My pointers for those who already understand how options work are these:

  • Learn how to read charts

    • Bear flag

    • Bull flag

    • Channels

    • Candlestick patterns

    • Technical analysis

  • Do not buy a call or put without first looking at its chart and studying it

  • Do not play earnings, it is too risky

  • Do not let the fear of missing out get to you

  • Do not buy into pump and dumps (typically cheap stocks that make big moves are pump and dumps)

  • Set AND respect your stop loss

  • Do not look at the dollar signs, look at the percentage. A 10% increase in your account is GREAT!

  • Do not bag hold – If you are up, sell! Otherwise, you risk losing your profits and the principal cost

  • DO NOT REVENGE TRADE!

    • I understand it can be frustrating to lose money and want to make it back quickly, but this is what we refer to as emotional trading. If you are trading on emotions, then you’re setting yourself up to continue losing money.

So, that is all for now and I hope to have you back for the next blog!


Yours truly,


Wendy and Fidel


P.S. The only thing in the way of financial freedom is you! You have the tools, now go after the education. Use social media for your benefit and soak up all the information you can. You got this!


P.S.S. Follow my stocks Twitter @WisdomStocks and go through my following. I love to use their alerts to create watchlists for myself!




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