 We are going to review options strategies other than buying long calls and puts. We are going to review two specific strategies. One of them is called a covered call CC and the other one is called a cash secured put. And if you combine these two we get something that you probably heard about which is the wheel. So let's get started. We are going to explore these strategies and run through some examples that I have recently made and we'll talk about the next video topic. So options trading is primarily viewed as the sexy long call. That's the one that everybody always talks about and dreams about why they got into options trading. And the ticker of that long call rockets in price and yields a huge gain. And you'll even see if you research long call maximum profit you'll always see the infinite gain. If you go to optionsstrat.com you'll see that. The maximum profit on a long call is an infinite gain. But tickers rarely rocket. They do go up. They don't moon completely. We like to believe and hope and dream. So they rarely ever rocket or moon to give the option holders more than 2 or 3% digit gains in the best of cases. So let's explore other alternatives to single naked options which is again buying a long call or buying a put. So we're going to explore alternatives to that. So we're going to explore the covered call and the cash secured put. So what is a covered call? Well these are used when you own a stock and you've profited from it enough and you might want to be thinking of exiting the trade. You've already locked in your profit with common stock. You're holding that common stock at least 100 shares and you've already profited from the trade. So what do you do? Well CCs or covered calls are sold for a premium. So you're selling a call. Remember in that previous video which link right here there are two sides to options trading and that's why I thought it's so important to cover the basics of options again because we usually only focus on the long side of the options contract. Who bought the call? Who sold the call? Why whoever bought it or sold it? Why whoever bought the call or bought the put did that? But we rarely see the other side which is well if you bought a call or a put well where did they come from? Who sold it to you? Why is he selling to you? Why is that person giddy enough or happy enough that he's going to sell you a call or a put? He's obviously thinking something different from it. And this is one of those options which is there is a side the other side of the call trade of the long call is the short call which is selling a call for a premium. Now if you sell a call for a premium and you own the actual stock then you have a covered call right because if you recall from that video which I'm going to link to again right here you know the things that they don't tell you about options trading. If you sell a call or sell a put then your risk is a lot bigger right if you sell a call that means that you are basically obligating yourself to give that a hundred shares of stock to somebody else at a specific strike price right so you're expecting the price of that stock to go down. Now here's what happens when you sell the call and you get that premium right the other guy is expecting it to moon you're expecting it to go down or stay at that level but definitely don't go past the strike and you get to keep that premium right if the stock stays at or below the strike but if it goes above the strike which is when the other guy profits right then you might have to sell your shares at that strike price should that buyer or holder of that call decide to exercise it right if he decides to sell it to somebody else then you might still have to sell your shares to that somebody else who now holds that call right but here's the thing when you're selling that cover call you get to pick the strike price so if you've already profited now again let's use the same example if the strike if it's at 50 and sorry if the strike is 50 right and you've already profited at 50 then anything above 50 you have to give in your shares but you keep the premium anything below 50 and you keep the premium so let's talk a little bit about how that works in a minute with an example the cash secured put is basically the opposite or the mirror trade using puts right so these are options that you can sell you can sell the puts saying we're selling calls here but we're calling them covered covered calls and here we're selling puts okay and what happens when you sell those puts you collect a premium again just like with the covered calls you collect the premium now whereas with the sold calls your risk your maximum risk or maximum loss is that you have to deliver those shares in the case of the sold put you have to cash secure it in your account which means that if you sold a put you're willing or you're obligating yourself to buy those shares from somebody right so you have to have the cash in your account to back that up and that's why it's called a cash secured put okay so you sell the premium you're expecting the stock to go up this time you don't want to blow down past your strike price and if it goes up then you keep the premium if it goes down which means the trade went against you you keep the premium but you also have to buy the shares okay at the promised strike price so when a cash secured put is sold for a premium again you always keep that premium whether it goes past your strike price or not but if the trade goes for you which means that it goes up then you just keep the premium if it goes down past your strike price then you are going to have to buy those shares but you're buying it at the strike okay so again you get to pick that strike so in both cases you pick the strike so if you've already locked in profit you know and the stock is at 50 if it goes either above 50 or below 50 you still get to keep the premium okay and that's why you have to be able to choose the strike price and that's why these things are so useful when you have a portfolio all right of common stock so let's let's look at an example of a covered call so here's an example where this stock was bought at 960 and it's currently trading at 3156 it's already making a profit all right so you own the shares with profit that's the key so that means that you would not want this stock to go below 960 because if it does you're going to lose money right it's going to eat away it's basically going to eliminate the profit completely but it's currently at 31 so you're in the money with these stocks right you're you're definitely profitable all right and this is what the chart of this thing looks like all right it's currently at around 350 something right 31 56 sorry uh that must have been where I had my cursor here it is 31 54 something all right so what do you do you're going to remember you're going to sell a covered call what this means is you've already profited from the stock you want to profit a little bit more and don't just outright sell this at market because if you sell it at market that's fine you're going to keep this profit but you're losing the opportunity to make just a little bit more so how do you make just a little bit more you pick us resistance okay you spot a resistance remember when we're here anything below is a support anything above is a resistance all right so this 35 looks like a resistance right here or you could pick one of these swings up here around 36 or 37 all right so you spot a resistance level above the current above the current price okay so the current price is around 315 and you are looking at possibly this resistance here which would be the confluence of these three moving averages which are basically the 50 the 100 and the 200 if I recall correctly what I have on this e-trade thing all right so we're looking at 35 as the possible strike price we believe that this thing is going to go either lower just kind of fumble around 3132 or go up but not go go past 35 okay and this is what the options chain looks like all right so we were looking at the 35 call and here's its data okay this is for buying the call that's for selling the call so if we sell this call the premium we collect is 24 dollars okay and we are looking at a delta for that particular 35 strike call of about 16 percent so you want if you're selling these you want to have to have an options contract with a delta below 30 obviously because that means that is not going to be it's a very low probability that it will end up in the money all right so that's what we're doing we're selling this because we don't think it's going to stay in the money it's going to be above 35 all right which is what we want we want to profit from it if it stays from 35 or below so we're still going to make money on the shares from 31 to 35 but we will only profit from this if it stays below 35 and basically what happens in the end is if it stays below 35 okay then it's out of the money the call is out of the money which means that if you're the holder you lost what did you lose you lose whatever you paid for it but we're the sellers in this case so what happens to us we get to keep that 24 dollar premium okay because it stayed below 35 and we get to keep our shares now if the trade goes against us it means that it does blow through that 35 dollar strike and in that case we still we still get to keep the premium but we have to sell the shares at 35 is that a bad thing no because at 31 we're already in profit so at 35 we're going to be in profit some more plus we're going to get the 24 dollar premium that we that we received for selling this call all right now let's look at a different example all right so here's another one cost basis is about 36 dollars it's currently trading at 52 so it's definitely in profit and we own the shares all right so in this case I looked at two different resistance levels all right and I have them over here the 55 and the 57 and I threw in the 60 just fun so we have some levels that are closer to the the actual current price of 52 such as 55 and 57 and then we have 60 which is way farther away now obviously the more out of the money you go the less money you're getting the less premium you're going to get when you sell these things if you sell it at 55 you're getting 59 dollars for it if you set if you settle for a strike of 60 you're only getting 10 now here's the thing it's more likely to go past the strike of 55 just because 55 is closer to 52 then it is to go past the strike of 60 so that's the name of the game here this is a much less likely strike to be hit but it's only worth the risk of getting 10 dollars per contract here this one's a lot riskier this thing might definitely be reached but you're getting 60 bucks pretty much for the risk okay so here are the deltas on this thing right so this 55 strike price is 26 percent that's almost 30 that's you know basically the threshold that you want to be playing with so that's pretty close but the 61 is way out at five percent probability in the money all right which is what the delta is so you could pick the 57 five which is probably why I threw on this on here it's about halfway you get about half the money well a little bit less than a third in the case of the 55 call but it is 12 percent in the money now remember you can only sell as many contracts as you have shares so in this case you can sell one contract in the case that we saw up here this one has 200 shares so you could sell two contracts for this thing all right so that's the example with the calls have one example here with the cash secured put okay so this is slightly different in this case you actually want to buy the shares and so yeah you could definitely just go out and and set maybe a limit order if this thing goes down to 160 then I'm definitely in you know or if this thing bounces and it blows past this moving average 165 then I'll set my order at 165 where you can just go and buy it at market that's fine whatever you know whichever you prefer but there's another way okay you can basically buy it at a lower price and all you do is you pick your whatever the nearest support in this case would be and that's going to be your strike all right so we're at 165 5 something like that so we're looking at the support below which is about 160 we believe that this stock could drop but it won't go below 160 spot 5 okay why because this is a support level you can see some touches here you can see the 100 and the 200 moving average right there so this is very likely going to be a good support so it's that 165 it could drop to 160 but it's very unlikely that it'll go below 160 so that is your strike in the cash secured secured puts you want this thing to bounce but stay above in the covered calls you want it to hit resistance and go below all right and in this case we look at the 165 and we're on the puts side now so we're on the right side in this case of the chain and in this case for the 160 for the 160 all right which we were looking at we're getting $60 for a contract okay the closer that strike is to the money or at the money the more premium you get you get 100 more than $100 more for the 165 which is the current price the problem is that the delta is on this one on the 165 is 35 almost 36 percent so this is a very high probability that this thing is going to go in the money remember we're selling options so we don't want them to end up in the money we want them to end up out of the money so that we can keep that premium all right so in this case this 165 is pretty close to the current price so it's very likely that this is going to end up in the money all right but the other one the 160 is much farther below has a smaller probability of ended up ending up in the money it's only 15 percent delta or 15 percent in the money so again you want these deltas to be lower than 50 different you know took completely opposite to what you would want when you're buying contracts you when you buy a contract whether it's a call or put you want it to be in the money so you want delta that in the money probability to be greater than 30 okay yeah you could go greater than 70 or something but you know that's going to be like too expensive but if it's greater than 30 when you're buying an option then it's very likely that it'll end up in the money but we want as sellers of calls and puts we want these things to end up out of the money so we keep the premium and we keep whatever in the case of the shares what we had or we keep the cash and then just do it again all right okay so here's the overall plan here when you buy a call you're a holder same as when you buy a put you're a holder you want those options contracts to be in the money when you buy a call you expect it to rocket which means that the current price is way above the strike which means that your options contract is in the money and it's incredibly valuable right the market is above the strike or in the case of a put which is looking bearish you want again that put contract to be in the money because again you're holding it right you want to be able to give it to somebody else the hot potato so you want the market to be below the strike because when you're holding a put you want to be able to put to whoever sold you that put all right at a higher price than whatever the market is the market tanks to 10 but you have the right to sell it 50 then you're golden so in both of these cases because you're a holder of options contracts you want them to end up in the money for those contracts to be very valuable in the case of selling calls or puts you want those contracts to be out of the money because you keep the premium and you get the shares because it was a covered call so you had the shares and the premium plus the cash because it was a cash secured put you want to keep the premium and the put all right and in this case if these go against you then you keep the premium and then you sell the shares for a profit if you had them for a profit or you buy the shares at a lower price than what you would have if you just bought it out right at whatever the market price is all right okay so basically cash the covered call and cash secured puts are the perfect combination to a common stock portfolio and here's the extra and we'll do a whole video just for this if you combine the cash the covered call again the covered call with the cash secured put then you get the famous wheel strategy all right so what is that wheel strategy well we'll just touch on it a little bit basically what you do is you start out with some cash in your account right and you sell a cash secured put that's why you have a cash in your account because it is securing the put if the put that you sold ends up out of the money then you just keep your put premium and then you go and sell another one right but if at any time and here it is right if you sell a cash you put you basically you're going to enter or you could end up entering a common stock position okay because you need to have the cash in the account in case it ends up in the money instead of out of the money if it ends up out of the money you're put then you're fine you keep the premium but if it ends up in the money if the trade goes against you then you keep the premium but you also have to buy the shares at the strike that you picked which would obviously be lower than the current market price when you're whenever you sold your put all right so what happens if the stock ends up above the put strike okay then you keep the premium and you keep your cash and you do it again but if the stock ends up below the strike then then basically that put forces you to buy the shares okay all right now now you're stuck with shares but if you pick a good ticker then you probably have pretty good shares now once you hold those shares then you can now guess what sell a covered call against those shares that you already own and you don't particularly want so instead of getting rid of shares in you know by selling them then you'll go ahead and sell a covered call okay you already own the shares so the call could do one of two things the call could or the stock could end up below the strike price and in that case you keep the premium and the shares that you already own but you don't necessarily want eventually the stock might end up above the strike price which means that you keep the premium but those shares get taken away they get sold to somebody to whoever you know ended up exercising that that call so you rinse and repeat because now you don't have any shares okay you sold it at a price that you knew was profitable for you and therefore you have more money in your account and you can start wheeling again by selling another put all right so that's basically what the wheel is all about now in the next video i'd like you guys to drop some comments on the the youtube channel here and let me know if you want me to pick either one of these two advanced spreads using verticals and calendars or advanced spread strategies which is actually butterflies and iron condors either one of those two pick one and the other option is of course if there is something else you would like me to cover in a different in the future video then go ahead and comment below all right so basically you know you use cover calls instead of simply outright selling shares that you no longer want but are profitable in you just be careful that your shares might not sell if the strike price isn't exceeded right so you end up keeping the premium and you end up keeping the shares that you possibly don't want okay so you might end up keeping those shares for longer until eventually the trade goes against you and then you actually sell your shares in the cash secured put right you use that to buy shares okay instead of just a limit buy order or a market order to sell to buy sorry you use it and then you can get the shares that you want at the strike you want and you can get some premium in your pocket so as long as the strike isn't broken under then you just you keep the premium but if it's broken under then you keep the premium but you also have to buy the shares with the cash that was securing that put all right so that's what you use these two strategies for and remember to look at the trading strategy video which gives you an overall look at what kind of a strategy you should use and why it's important to basically to have a trading strategy if you want to be successful as a trader and I also wanted to remind you guys to if you are already members go ahead and upgrade to the lifetime membership plan because basically with what you make in about a week or a month you'll pay for that lifetime membership and you know one to three months tops it's just it's a no-brainer for me don't forget to subscribe to the youtube channel to get notifications when new videos come out and all right so thank you guys for subscribing and I'll see you in the next video