now today we're talking about a strategy
that I love and this is a foot selling
strategy that I employ instead of buying
stock now as you guys know I'm a long
time dividend investor I don't often do
swing trades and I definitely am NOT a
day trader so to speak I sometimes put
on option trades that are held for a
very very short interval but more
normally I'm trading over a couple week
period so I've put on a trade and then I
let that trade kind of stay within a
range and that's where I make most of my
money as an option premium seller so
today what I'm going to do is I'm going
to show you the details of this
particular trade now it's gonna be on
Etsy if for those of you who don't know
I have an Etsy store it's one of the
reasons why I love trading that
particular stock because I like to buy
things that I use it's one of my
personal rules of investing invest in
what we use so if you guys don't know my
personal rules of investing you should
definitely check them out I've got a
video specifically on that it's on the
home page if you're new to the channel
you should definitely check out my rules
because it's kind of what allowed me to
build my wealth over time and become a
40 year old retiree
all right everyone welcome back to
drawbridge finance my name is Levi woods
as you know I'm not a professional
investor I don't work in the finance
industry and this is an opinion channel
about money
it's happy Monday it's amazing we had
that huge sell-off last week I'm making
this video way before market open I'm
still in Tokyo so I'm it's daytime here
the market doesn't open till 11:30
tonight for me and I'm you know chomping
at the bit to get some trading in I
don't know if there's going to be any
trades being placed at all we're looking
at the futures market we'll be looking
at the pre market but prior to opening
and I hope that there's volatility
compression and that the VIX comes down
to a level where we can actually put on
a trade this week right now today what
I'm going to do is I'm going to talk
through a trade they kind of went a
little bit south on me and and how I
managed it and how it was able to
recover and become a profitable trade
because I think that this is important
especially in a time like this where
there is a lot of volatility and this
this trade shows it off very very well
we're gonna look at a one-year chart on
Etsy and I'll show you my mindset
because I trade this pretty regularly I
want to make a option premium trade you
know ideally every single month and now
that's not realistic and somebody asked
me today if there was no fees for option
trading would I trade them every day
well I do trade options very very
frequently I usually put on anywhere
between 20 and 30 option trades a month
so that's more than daily but and I
still pay fees I'm Canadian we have
ridiculously high fees comparatively to
my American counterparts so if you guys
are in America and you're thinking about
getting in option trades if you have a
large enough account to actually make it
worthwhile the fact that you have no
option fees for trading them or very
very low makes them ideal especially in
the strategy that I'm showing today now
I said before I'm an Etsy holder I have
an Etsy store but I own the stock
outright and what I like to do is I like
to look for entry points where I can add
to my current position because by by
owning the stock
I am bullish on the stock I believe that
the company is good and how
a good value and it is going to increase
over time so when I'm looking to pick up
stock I want to buy it at an appropriate
level I want to buy it low so I can sell
it high later I mean that's kind of the
whole idea with with stock trading in
general so if we look back at the one
year chart I'll show you a couple trades
that we're leading up to the specific
trade that we're looking at I made a
little trade in here this was in July
and I held it for about three weeks and
we made a small profit there and that
was pretty nice now if you guys are
interested in looking at any of these
you can go back and look on my patreon
page if you go to post there's a brand
new search bar so you can just put an
etsy right here now those let's pull up
any articles or posts that I've written
about Etsy which is amazing or you can
do it by keyword so if you just go to
these tags you could look through here
and find the one on Etsy you can see
I've got 24 posts on Etsy over the last
three years I've just typed in the
search bar Etsy and showing posts with
Etsy in it and we're just gonna scroll
down through and take a look as I showed
you on the chart I had done a trade I
had done a trade in July that I held for
a little bit longer and then I had this
quick little trade in October held it
literally for two days I put on the
position it was bullish the stock just
drove straight up for two days and I was
able to close the position so here's the
September 20th closing I'd see options
17% gained that's a hundred and twelve
percent annually and then October 8th I
put on new ad sees options I gave a few
details about what the trade was just
like I said stock market is down so it's
a good day to sell puts short-term play
make a couple of bucks eighty-six
percent chance of the stock staying
above $50 if we look at the chart back
on October 8th at that 55 dollar mark it
was trading just under that 20-day
moving average and I wanted to get it
for even better price so we had had a
couple of down days and we were
expecting a few up days after that you
know this is just like how the cycles of
a stock move that one we closed for
quite a nice gain it was a 10 or 50
percent annual gain but basically we
sold originally for 40 cents and then we
bought back for 15 cents in just two
days so that's a nice little profit the
one I really want to talk about is this
on October 18th trading kind of down and
then up and down and it was just trading
in this in this trough I was expecting a
little bit of a rally to up until it
earnings I thought well the earnings are
coming out in two weeks and I said that
rate in the post opening selling a short
November fifteenth fifty puts fifty
dollars is what I want to pay for the
stock that's how much I feel you know
this is my personal threshold of what I
want to buy the stock at it's trading a
55 I would like to pay 50 you know
that's exactly what we would all want is
be able to buy the stock for less than
it's currently trading wouldn't that be
the right thought process so that's what
I want so the stock price that day was
5876 the earnings are expected November
6th and I want to have this trade closed
before then this is a quick bull trade
as I am expecting upside movement next
week so right there looking at that
chart we had this down day and that we
were gonna just charge up here I was
going to be able to collect that premium
the same way I just done on October 10th
where the the market was just gonna
drive up and I was gonna make a nice
little tidy profit in a really short
timeframe I did not want to play through
earnings now my mistake with this trade
was actually that I was wrong if we look
at the post I said that earnings were
November 6 now I don't know if they
changed the earning days or if I just
looked at a bad announcement but this is
why everybody should always do their own
research on every trade you know he
should never be trapped like following
blindly anyone's trades but this was a
blatant mistake the earnings were
actually October 30th and I ended up
getting caught in that and the earnings
came out and the stock dropped down and
I was unprepared for that I was
expecting to close the trade prior to
earnings which I completely missed you
know my bad it happens so let's look at
what I was looking at that day now I was
looking to sell the put and I was going
to collect a dollar ten US dollars got a
little trading log here and we're just
gonna go over to that and I'll show you
the first line so this is a a put option
profits so the date was October 18th the
stock price was 58 76 and I sold so I'm
sure one option the option was a dollar
so I collected a dollar 10 on that day
28 days to expiration sell to open puts
November 15th $50 so these are the
November 15th 50 puts that will expire
28 days from October 18th if the stock
is above 50 bucks those options will
expire worthless I sold them for a
dollar 10 on October 18th so the point
of this is that I'm hoping the stock
will rise up further than the current
level of 5876 this option price will
decrease because of that upward movement
and I will be able to buy it back and I
am you know under trade like this I
might expect to buy it back for 85 cents
or 90 cents and and make a 20 cents
difference now each options contract
controls a hundred shares so this dollar
ten is a hundred and ten dollars so when
I say a dollar ten I actually mean a
hundred and ten and when I buy back for
85 or 90 then I would be buying back for
85 or 90 dollars and collect that
difference in a couple of days so that
was my intent now what actually happened
with the stock was as I said before I
got caught by earnings the earnings came
out and the stock dropped it gapped down
which is the absolute worst thing that
could happen in my position my position
makes money when the stock goes up not
when it goes down and it went down far
enough that it went past my strike price
my my strike price was here at $50 and
the the stock was all of a sudden
trading it like $44 and I kind of was
like oh shoot that's not what I wanted
to happen my option is going to expire
on November 15th and I have to do
something about it so I watch the stock
and it's kind of waffling for these
couple of days it's not doing much so on
November 5th I make a trade and what I
do is I just roll the option out I take
my November 15th expiry I buy it back
for a loss and then I sell the December
50 put let's just look at what that
looks like so the stock was trading at
44 98 buy to roll puts November 15 51
contract to negate my original sold
contract so now I've got 0 after this
transaction but it cost me 5 dollars and
12 cents to do that I originally sold it
for a dollar 10 buying it back for 5 12
other
a major loss if I stopped there and
there's 11 days left in the trade and
this is exactly why I'm closing it when
the option becomes in the money there's
risk of assignment so I want to give
myself more time so that there's less
risk of assignment so that's what I did
I'm rolling out one month in time so I
sold to roll put December 20th for $50
so the only thing has changed is I've
given myself an extra 35 days to be
correct about my assumption and for that
role that I was able to sell it sell the
December contract for five dollars and
72 cents so I'm short one December
collected 572 now the difference is 60
cents the difference between 512 and 572
now I have 46 days for it to go back up
about 50 bucks so here we are November
5th and the stock continues to drive
lower again not what I wanted to see at
all but we start to see a rally buyers
start to realize that there's some value
in the stock so they start to put out
their money and buy some stock here it
comes up and now we're getting into this
range where we're coming up on Christmas
there's only 20-something days left in
the trade there was 21 days left in the
trade which is kind of my optimum the
three Fridays before option expiration
that's what I want to get out of that
trade 21 days left so right on the money
that's when I did it November 29th I did
the exact same thing I'm going to buy
back the option for a loss and then I'm
going to sell the option again so this
time there wasn't as much drop the stock
was trading for only a dollar 50 lower
the original trade that I sold for 572
this December I was actually able to buy
back for 657 only a 75 cents difference
still driving this lower but because I'm
rolling out in time and my assumption is
that the stock is worth more than $50
then I believe that the stock is going
to continue to go up
that was why I put this position on in
the first place I want to buy the stock
for 50 bucks and it's okay if I do I'm
just collecting a little bit of credit
as I go along so in this case I'm buying
back the December 20th I'm rolling
though to January 17th to give myself
some extra time in this case 28 more
days and I collect the difference
between the
the purchase price of buying the the
puts and the selling price of selling
the new January puts and I collect
another 30 cents not a huge credit but
still another 30 bucks into my coffers
and again my assumption is that the
stock is going to come up again the
stock drove down not very happy about
this at all
but we continued to start seeing a
little bit of a rise and when we get
down to the end of December December
31st it's the end of the year there's
not a lot of trading in that week
usually and I'm going to roll out in
time so this time what I did was I
decided to give myself much more time
instead of putting on this trade every
single month and saying okay I'm making
the transaction and I've got this in the
money put and I'm just concerned about
it I'm giving myself more duration more
time for Etsy stock to recover so that's
what he did December 31st the stock was
trading a 44 30 actually an increase of
almost a dollar from the prior trade did
the same trade again I bought back that
the January puts and this time I sold
the March puts by selling further out in
time I was able to collect way more
credit so I bought back a position for
541 that I had originally sold for 688
so there was a bit of profit there and
then I sold the new put in March for $7
and 36 cents this time collecting credit
again so I've collected credit four
times on this trade a dollar ten sixty
cents 30 cents and down with dollar 95
and now I've got 80 days for that stock
to come back up into that $50 or above
range let's look at the chart and what
happened well this year as we know was
having an incredible upswing everything
was doing extremely well so the stock
finally started to get some traction and
we went up and up and up 51 and a half
and then it started to flatten out and
come back down I continued to hold
because I want to I want to sell and and
get the most premium that I can and
ultimately I've got time left at this
point we're at the beginning of February
and I believe that the stock is going to
go up in value higher it should be over
$55 I mean it's been trading in an
upward range for a very long time and I
trade this every month so I know so here
it goes
now it starts to really break out and we
go up there's
a month left in my option contract and
the stock broke the 55 dollar mark still
wasn't quite and a small enough premium
for me to buy out for a large profit and
again I don't care about this I'm just
gonna keep doing it over and over these
are small positions for me and I can
just roll them each and every month and
collect your credit if I need to I was
hopeful it was going to continue to go
up and he didn't it went down a little
bit went back down to $50 and then the
earnings came out and again I'm just
trading rate through earnings at this
point I don't really care about it
because if I buy for 50 bucks I'm
totally happy buying it and of course
earnings came out and the stock drop
jumped way up to 57 which is way more
appropriate range where it's trading now
$57 now the the reason I wanted to make
this particular video is because these
are stocks that are performing extremely
well even when the market was tanking
last week the Etsy earnings and this gap
up actually happened in the middle of
the week last week so there are stocks
out there that are having up moves that
are not actually going down in this down
market so finally I got to close out the
trade for a debit so if we just take a
look the stock was trading at 5781
February 28th which was just last Friday
I finally closed the last contract that
I paid 75 cents so now the total if we
look at this collected a dollar ten
sixty cents 30 cents a dollar 95 and
then debit of seventy five cents so a
total credit of three dollars and 20
cents so now I want to just calculate
the profit so we can look at the annual
return now I'll run this through it for
you guys so that you understand how to
calculate annual profit which is
calculated by the premium received minus
the fees now I said before I still have
large fees in Canada so I have to count
those in that equals my profit so here's
an example 320 was the total credit hour
times by a hundred that's because it's
one contract controls 100 shares
so that's $320 and then minus and we'll
say in this one there was a total of
eight trades and each trade costs a
dollar twenty-five I think that's
probably pretty average for a lot of
people down in the states we look at how
many trades there were there was one two
three four five six seven eight trades
dollar twenty-five times eight
and then we'll get our profit so 320
minus 10 equals 310 in profit now to
calculate that a percentage-wise we can
tell how much percentage gain it's just
the profit divided by the margin
required and then times by a hundred
that gives you your calculated return on
investment in percentage so in this case
it would be three hundred and ten
dollars now the initial margin that's
the amount of cash that is required to
have you need to have in your account to
put on this trade was seven hundred and
fifty dollars and then times five
hundred so three ten divided by seven
fifty times by a hundred and it's the
calculated return on investment is 41.3%
I also like to calculate it annually so
that's easy enough to calculate it
annually we take the return on
investment we divide it by the number of
days held and then we times it by 365 so
41.3% and then divided by one hundred
and thirty-four days that's October
eighteenth to February 28th then we
times that by 365 and we get this total
a hundred and twelve percent return so
that's the calculation so that if we did
this trade every single day for the
entire year which we're not expecting to
there's always going to be gaps we're
always looking for the opportunity then
we close when the numbers are right and
then we wait until the next opportunity
so we have to play a multitude of of
different stocks and different options
in order to be able to make money off of
a strategy like this but if we did it
every day our theoretical return would
be a hundred and twelve percent on a
trade like this now this is super
complex and I know this there's going to
be terminology in this video that was
way over people's heads but I assure you
when you start to think about the buying
stock and the risk that you're taking
buying a stock compared to selling a put
and the risk that you're taking by
selling the put there is a mathematical
advantage to selling the put by itself
now there's a disadvantage of course if
the stock goes up too much then we're
missing out on profits now I have a
chart that I've been working on for
quite a long time this spreadsheet and
it's actually available to my March
patrons so anybody that is a patron for
on my $7 or above tier on patreon is
available to download this chart I'm
just doing some final tweaks on it today
just to make sure it's absolute
glitch-free before I post it but anybody
that is a patron for March will be able
to download it in on my patreon page on
the post page and it actually says zero
on the digital files but I once I upload
that it will be available to everyone
and if you don't want to become a patron
that's cool as well you can go and
purchase any of my spreadsheets on my
Etsy store and that's why we're doing @c
today because I actually use that T I
love it it's a great product a great
website this is not a sponsored video by
the way it's just I'm a shareholder in
them and I love it anyways I think
that's it for today I hope that what you
guys learned something I'm you know
about option trading and that it makes
it a little bit more clear if you have
any questions please leave them below
check out some of my other videos so we
can all get rich together thanks so much
for watching and see you very soon
you