Cashflow Triggers Q&A Episode 2

[00:00:01.090] – Katie: Okay. Hey, Josh, thanks again. We're back for our second week. This is Episode 2 of our Q&A calls. So this week I thought again I'm Katie Vogel for everybody that didn't listen to last week. I am one of the team members of Awesome REI, and I have the pleasure of joining Josh each week and asking him all of your questions. I'm going to do the best that I can to ask follow ups when I have a question of my own. And if you have any questions, don't forget to submit them. Try to get them in before Sunday because I'm looking at everything on Monday morning and collecting all the questions. Josh, welcome and thank you.

[00:00:43.160] – Josh: In other words, what you want to say is you're the boss. You're the boss of me. You got to get me to show up. You got to get me to places. So you're the boss. I'm just here and looking forward to the questions that we have this week. It's week two. It's two weeks into this, and we have two trades on and we have a little unpredictability in the marketplace right now. So it's a good time to be in the market right now. We're going to cover some good questions as well.

[00:01:08.040] – Katie: Yeah. So I was going to say the same thing. So we have two alerts under our belt. I thought a fun way to start this call and maybe it's something that we do each week. It's just kind of like a quick recap on what we've done so far or we got a couple of weeks down the road, like something a big highlight from a recent alert is worth noting. So if we have two companies we've looked at in our two past alerts. So if you could give us a quick update on what's happening in the market with those two and then we'll jump into the questions from there.

[00:01:42.570] – Josh: Yeah. And as we start to get more winners on the board, as we continue on throughout the week, we'll start to highlight some of the others in the community as well, taking action, making money and highlight them as well. Because one of the biggest things is to take action and to do it. And that's not necessarily always easy. It's easy to consume the information or the alerts, but it's never easy to have to go through this and get confused or frustrated during that process. So we can also do that. Now the outlook of the marketplace. So last week was a little rough in the marketplace, the market, the S&P, specifically the S&P 500, which is 500 companies, you'll often hear the news talk about the Dow Jones. It's 30 stocks. It's not really an indicator of the broad market, just kind of a quick and dirty look. So oftentimes if you hear the news networks, they're usually talking about the Dow Jones. Professional traders like myself or investors usually look at the S&P 500 because that's 500 companies, and that's the bigger index, and it's more diversified. So oftentimes you'll hear me talk specifically about the S&P 500. Now, the S&P 500 was down about 5% last week, so it slid lower. But we had one position on, and that position was McDonald's. Now, you probably saw on your paper trading account or your real money account that it looked like the PNL was down, and it probably was from where you entered. Now, as recording today, it either is.

[00:03:07.030] – Katie: I'm just going to jump in. When you say the PNL, when they're looking at their account and they see the PNL is down, could you be a little more specific in what that actually looks like in their dashboard? I know where this is an audio thing, not a visual call. So I would love for us to just be a little descriptive because that would be a question that would pop into my mind.

[00:03:27.140] – Josh: Yeah, perfect. And what that means specifically is, like on the Thinkorswim platform, under your monitor tab, you'll have a position statement, and you'll see the positions that you have on. So I'm looking at CCI right now in McDonald's, and they both have 60 days to expiration at this point. And what I'm looking at is the PNL that's typically off to the right side. Now, you're going to see a plus or minus. And what that indicates, like, for instance, last week, is that when we enter that put in McDonald's short term, that put increased in value, and that's going to happen. The marketplace fluctuates. I mean, we take the spot and we put risk out there. And this is the other strategic things that we'll start to learn as we go throughout the next 52 weeks as well, is adding onto a position or just picking our spot, putting risk out there and just letting the market bounce around. So that's what we're doing right now. We put risk out there. The market short term last week slid 5%. Okay, not a big deal, but it didn't crush us. It went against us a little bit. And then today, what I'm looking at is the PNL. CCI, our newest trade, is up about 9% already and also McDonald's. Everyone's entry is going to be different. So I do see a little bit of a percentage higher, and that's the benefit. We have time on our side at this point, taken away. And as you heard, JP and I talk, it's like a melting ice cube. So we're just letting that ice cube melt.

[00:04:57.350] – Katie: In the Quickstart series you're referring to.

[00:04:59.670] – Josh: Yeah, in the Quickstart series, he used a shot clock. I use melting ice cube.

[00:05:06.710] – Katie: Yeah. So from those 60 days that we have while we're letting this position continue.

[00:05:13.020] – Josh: Yeah. And what we just want is the market is going to go back and forth. So just a quick and dirty the marketplace on what I think is going to happen is we're going to see we're in a bear market. The market is going to have these kind of fast drops and it's going to happen. And that's just part of what a bear market is. It's not going to be what we saw the first six weeks, which is one of the worst starts in the last 40 years. At this point, I think we are going to see more of what we refer to as like two sided actions. So market is going to go lower, we see a rally lower, more two sided action, which benefits us because those options that we sell are just going to eat or tick away, melt away, and it's going to benefit us overall.

[00:05:54.230] – Katie: Okay, I think that's a good transition, and you might have already answered it, but the first question that we have is just like, okay, now I've executed my first trade. Josh, thank you so much. What do I do next?

[00:06:08.090] – Josh: You sit and we wait and we look for the next opportunity. It's getting paid to wait, almost. We put in the position and we just let the market bounce around is exactly what we want here. Like McDonald's or CCI, the analysis that I put in there, these are solid companies. And in real estate, in any asset class, when you're in a bear market or recession, every asset drops lower, even good assets. But that doesn't mean it's a bad asset or the asset value is correct. It's just everything gets weighed down because of fear or uncertainty, and that gives us opportunity. And this is the reason why you hear people like Warren Buffett or the most successful investors out there. Bear markets or recessions are the opportunity to take advantage of opportunity because that's where you really make the money. Everyone can make money on the way up, right? Not many can make money when the market is going down. And that doesn't mean shorting the market. That just taking advantage of opportunity when others are fearful.

[00:07:14.550] – Katie: Okay, so right now, if anyone is listening and they have executed one of their first trades, even in the paper trade account, the next step is just to kind of like, sit and let's keep watching. And if anything were to change, we would send an alert, right? Josh?

[00:07:32.990] – Josh: Yeah, absolutely. You sit and wait right now, and then once it's time in the alerts, the first entry that we publish or I send out, I do talk about on the bottom of it, about a 50% profit. And this will come as we start to learn and start to add more position. So right now we have two positions. It's exciting as we have more, we are more diversified, we have more positions, and we're managing more of our profits at that time, which makes things a lot more fun. So right now, it's not really much to do, but as we get five, six, seven positions on more diversified, then we have more opportunities where we're closing stuff or opening new stuff and it becomes a little bit more engagement and more fun on that. But anytime there's any action where we have to close the position for a profit or even just roll a position for an adjustment for more time, you're always going to have an alert from me. So you're never going to be left wondering what to do. You may not every day have something where I'm communicating with you. Because the benefit of this is that we just put the position on, let it melt away, and once it's time to take action, then we'll close it down. But I will send out an alert on when that action needs to be.

[00:08:43.350] – Katie: Okay. Wonderful. Alright, so the next question that I have is and I'm going to read this one to you and then I think we might need to do a little bit of deciphering unless it's very clear to you. So can you provide a few concrete examples of the put and compare it then to the call? I'm finding the put a tad mind boggling. So I think this particular person might be going through the warm up series and they're having a little bit of challenges with the concept of put versus call.

[00:09:12.990] – Josh: Yeah, and it's always going to be a little hard at first. That's the kind of like that turn where people are like, well, calls, puts. This is when JP and I went through it. It's exactly the same aspect. So when we put this quick start together, the reason why I started with stocks is because that's the foundational aspect. Now, most people know about buying a stock. You buy stock, you anticipate the value of that going higher. Well, shorting the stock is anticipating the value going lower. The reason why we built that format is because that's the easiest. Even though shorting is not that familiar. Because most people are not shorting asset values. That's kind of like the beginning foundation. So a call is like buying a stock. A put is like shorting a stock when you buy them. Now what we're doing is we're selling, we're facilitating the order, we're selling those option orders. And this is where what you have going through the quick starts. Because when you buy an option where when we buy a call, we're looking for prices to go higher. When we buy a put, we're looking for prices to go lower. Now, when we sell to open a put, we're actually looking for the market to go higher or stay flat. And on the call side of that, we're looking for the equity of the market for that price to either stay flat or stay within that range. That's where it kind of gets confusing for a lot of people. So it's not going to be where I'm going to give you a concrete example right now that's going to be like, I got it. When we see it in action through a paper trading account and just interacting with the product in general, it's going to help make more sense, but also the quick start as well. So you're not going to get on the first quick start. It's something that you hear and you're like, OK, kind of makes sense. I don't know, let's just kind of push through it and then you start to do it and you're like, okay, that kind of makes sense. It's going to take a couple of times to actually get it. So if there's more specific follow up for this reader that he wants to provide but my best advice is that it's not going to be something where right away you're going to be like, oh, I got it, it's going to take it.

[00:11:27.700] – Katie: It takes a little bit of learning to get that AHA, moment or constant exposure almost.

[00:11:34.000] – Josh: Yeah, because you're trying to visualize it. Even when I'm saying it, I'm visualizing there's a graph in my head that I know that I can pinpoint to and I'm thinking about it just to make sure that I'm right when I'm speaking about it. So that graph part in that person's head is not there yet. That's what we're trying to work on getting.

[00:11:51.660] – Katie: The concept that's always been helpful for me with this is the casino example and I'm not quite sure if you guys brought that up in the quick start when you're explaining this particular concept. But for me, when I think about what's the gambling game where you choose black or red.

[00:12:13.720] – Josh: Roulette?

[00:12:14.410] – Katie: Roulette, okay, so for me it's like, okay, imagine a put is red and a call is black. And so like you have an assumption. You're making an assumption or a guess. It's an educated guess. But when it comes to the market. But you're making that guess of whether you think it's going to go. The market is going to go up or the market is going to go down or particular stock is going to go up or particular stock is going to go down and you're buying an option making based on what you think is going to happen and you're buying that put or that call. Then for us as the sellers. We're basically the house in this example. And again, we're making a strategic decision as well because we have to have our assumption, as you just said, whether it's going to stay flat, go down, or kind of stay within the range. So for me and just throwing that out there to anyone who's listening, that concept of analogizing that between a casino or that gambling analogy and then the house was really helpful for me the first time it was explained to me.

[00:13:23.310] – Josh: Yeah, we use that casino example and that's a very binary thought process on how to kind of visualize it. This person kind of hung up on the difference of calls versus puts. Like why are two different contracts and there's two different contracts because one does one specific thing and the other does another specific thing. And then when you sell it, it becomes the obligation part of it. So it's kind of like a three layer onion, and you get to the first layer and it's kind of like well, it's kind of confusing why there's calls or puts, but in simple terms, a call is just speculating on price going higher. A put is speculating on price going lower.

[00:14:00.640] – Katie: Yeah. Okay, well, feel free to ask us any further questions that that might have brought up for you or anyone else. And we will just keep chipping away at this, and we will just keep coming up with different ways to try to verbalize it or explain it and help everybody get I know this is like these are big concepts, and a lot of times there are new concepts. Next question that I have is, can you help me better understand this is a little bit of a long question, so I'm going to walk through it. Can you help me better understand the logic of how I could mirror your moves when the market prices I see differ slightly from what you saw? In other words, I understand that the markets are always moving, but I'm struggling to understand how to really mirror exactly your trades effectively when the options market pricing doesn't exactly mirror. So they're logging in and the market has moved slightly, and it's not matching the alert. We talked a little bit about this last week, and I think this might be somewhat of a follow up question to that. They give a very specific example as CCI trade alert. When the CCI trade alert went out, you had it at 260 and 280 and then the video and then when they got on in your video, you adjusted your trade price to sell a put option for 270. I think that the confusion. There's still a little bit of confusion around the change in the market and, like, ranges that would and how to best mirror and make those decisions.

[00:15:39.370] – Josh: Yeah, it's a very good question, and I'm not saying good question because it's good, but it's a great question because, again, they're taking action and are like, hey, I don't see the same thing that you're seeing. So it's uncertainty, like he or she is. When I hear that it's okay, I want to make sure I can mirror it exactly, which you are. But the price that I'm getting isn't the same price. So I'm kind of concerned, am I doing it wrong or doing it right? So let's address that one. You're doing it right. First of all, you're mirroring it because we're selling the same option contract. It may not be the same price as you see, so you probably in the next step on that is like, what price do they see when they're logged into their account? It could have been more.

[00:16:25.810] – Katie: They gave me that information. That's the next section. So they said that I checked into the paper trade account on Saturday. So the alert went out on Friday. On Saturday, I see a bid ask spread for November 18 at $2.25/$2.45. So you had put $2.60/$2.80. And then now they're seeing $2.25/$2.45.

[00:16:53.370] – Josh: On our video that I sent out, my price was $2.70.

[00:16:58.620] – Katie: And they saw and they saw $2.25 and $2.45. So now they're unsure how to mirror your trade. What logic should I use to mirror you with these numbers? Would I change the put price to $2.70 just as you did in your video? Or would I instead set the put price somewhere between 2.25 and 2.45? Is there a best practice here?

[00:17:18.820] – Josh: Well, the market is not open on Saturday, which is going to look differently. So as you go into the weekend and as you're logging in over the weekend, looking at price, the price on that is probably going to be very wider than normal or even after the market close. So when I did that video, I believe it was during market hours, if not just after market hours, and on Thursday. So that price, that what I'm showing on that is here's what the market is. This is what we're selling. Now, if you get a better price, that's great. If it's like $2.40, then you're not going to get the same price, and no one's going to get the same price because that went out Friday morning and now you're logged in the next day. 24 hours can change a lot in that option pricing. So in that situation, what you want to do is you just want to get the best price possible. And for instance, like McDonald's. McDonald's, we issued that on Friday, but that price on that following Monday. Yeah, that following Monday or Tuesday went higher, meaning that you were able to sell that for a much greater profit of instant cash flow from that. So it's never an exact science of like, hey, I want to get this best price. And when I hear that, because it's not the first time I heard that, I just want to make sure I'm doing the same thing that you're doing. So I'm not messing up. And even if you sold it for $2.50, that's $0.20 lower than what I showed on there. And the reason why I'm showing that is because as we learn and as we progress through the next 52 weeks of learning this, there's more to learn. And we're just in the beginning foundation. We got the training wheels on. There's a lot more to it, but it's not really advantageous to learn it until we actually engage and start to go through the motions and start to go through that stuff. So when you see something like on CCI, where it's $0.20 wide, the reason why I'm just doing mid market in there is to show you, hey, if you just shoot for mid market here, you probably will get filled. But if you want to go on the bid, you're going to get filled instantly. Versus if you want to work the order. And working means if you want to put your order out there and get a better price. If you have a little bit of time, then you can try to get a better price in the marketplace. The market is open during market hours. You can try to do that and get a better price. But if you're just trying to get filled and just trying to get in the order, then when you see that you just want to either get on the bid or you want to get in at mid price, it's hard because everyone is different. Some people are going to be like, I just want to get in, I'll just give me the mid price, and that's okay. Some people are like, well, I kind of want to get a little bit of a better price. And then some people are like, well, I'll just take midmarket. So we're talking to a couple of different people in what we're doing here with the service, and it's hard to give an exact, hey, this is what you should do because everyone is different. Everyone has a different risk tolerance or time horizon as well. Time horizon being, hey, I just want to pop up on my platform, enter the order in, and go on with my day. Okay, if that's the case, then you just go on the bid, the lower price execute there and then call it a day.

[00:20:35.710] – Katie: Okay. So one, the Saturday thing is good to know. So letting everyone know, look into it if you want over the weekend, but don't necessarily hold too much water to it until you get on there on Monday when it's actual market hours.

[00:20:58.090] – Josh: Correct. And these are only applicable during market hours.

[00:21:01.980] – Katie: Yeah. So let's say it's Monday, just to stick with this example. Say it's Monday and they log back in in this exact example, and it's $2.25 or $2.45 for November 18. Like, if you were logging in for CCI, what would you do at that point? Like, what would be your decision? Just walk us through your thought process if you were in this person's shoes.

[00:21:28.450] – Josh: Yeah. So right now I'm looking at CCI, and it was the $1.45 put, right? That was what I issued out for that one. And that is correct. $1.45 put right now. It's trading right now as we discuss this. $2.20 by $2.35. So it's $0.15. That's the difference. If I wanted to get this in right away, I just hit $2.20 or try to get $2.25 or $2.30. It depends. Again, like, I've done this for so long, I'm going to try to work my order for a better order, but that doesn't necessarily mean it's good for someone as you. I wouldn't tell you that. I just say hey, just get in at $2.20.

[00:22:14.220] – Katie: But at $2.20 you just will make less instant cash flow than if it was at the $2.60 or $2.70 that we saw late last week.

[00:22:23.960] – Josh: Correct. Or the other way to overcome that is because in the alerts, you'll see, I talk about a limit or you see on that order. The other thing, too, is that you can just click market, and then you'll get filled at the market price, which whatever the market will give you at that point is what you'll get filled at. It makes it a lot more simpler. It's not going to be the same price that I show on there. And again, this is not like saying that I got filled at that price, so even if I go to mid market at that juncture, I probably will get filled, but it's not guaranteed I will get filled. It may take a couple of minutes, may take five minutes. Market may move away from there. So you were dancing with the market here. And we just have to accept what we want to be able to accept. If it's something that like, you know, if there's nothing wrong with the reason why we issue them why I like to issue them on Friday is because either you take action or you have the weekend to also look at it and decide on Monday if you want to do that as well.

[00:23:25.490] – Katie: Okay, I guess my follow up question to this would be, is there a point where it's not a good decision? At what point in this exact example so you issued in the alert, we put $2.60 to $2.80, and now today it's Monday at 03:00, and it's at $2.20 to $2.35. I think you said somewhere around there. At what point does it go down to where you're like, you know what? It might just be worth waiting than putting the bid in.

[00:23:57.310] – Josh: Well, I would have to say if we're already about to exit that position, we got 30% profit at that point, meaning that if we sold it at $2.70… 50% of that is $1.35. So if we are like, at $2 at that point or $1.90, I probably have to say yes, it's probably not the most optimal to enter that new position. Now, when you look at something like McDonald's, for instance, even McDonald's, even if two weeks afterwards, with the market going, the S&P down 5%, that was the $2.30 put, and that right now is trading at $1.93 by $2, this is still an applicable trade. Even if you just join this week and you're like, hey, I missed out on McDonald's. No, you really did miss out on McDonald's because it's still trading in an advantageous price that you can still collect that cash flow from it. It's two weeks later, but it's still in an area where you can still enter an order and take advantage of that as well. So sometimes we're just going to have the market rip higher and prices, we're going to have the market, we're going to enter orders, and it's going to be fast cash, close them out quickly. And there's going to be some times where you enter the order, and it's going to take a little bit more time sometimes it's going to take a little bit more time on that.

[00:25:25.870] – Katie: So in the $2.35, for McDonald's example, going back, I got my calculator out. So a $1.17, a $1.18 would be 50% of that.

[00:25:38.730] – Josh: Correct.

[00:25:39.740] – Katie: And you said it's trading right now.

[00:25:44.810] – Josh: Right now it is trading at $1.93 x $2.06. So you probably get filled at $2. So, yeah, it's $0.30 less than what it was two weeks ago. But it's still something that you can still take advantage of. You're not going to get the same price. Okay. I mean, the pricing thing is what it is. It doesn't mean it's not a valid trade still that you can't mirror it because it's still the same trade that we're in, and we're not going to close that out until we get to a 50% profit at that juncture. Or the other thing, too, is that once we get closer to earnings, if we don't have that profit, we're going to take the profit because we don't want to carry these types of positions during earnings when a company has earnings. So that's another thing that we'll start to learn and you'll discover as we continue on with more of these trades. But that's the other aspect of it as well.

[00:26:39.790] – Katie: Okay, so just doing the rough like back and after math. In the two examples that you just gave for CCI and for McDonald's, if you're somewhere kind of just because this person is asking for a little bit more specifics about best practices, in those two examples, it sounds like if you're about 25% to 30% lower than the original what we put in the alert, that still seems like it's a pretty good time to take action.

[00:27:14.790] – Josh: Here I got a better frame. If you're in a paper trading account, just place the trade, just place the trade. If you're in a real money account, then use what Katie had just mentioned. That's the best parameters I can.

[00:27:25.210] – Katie: Okay, perfect. That's super helpful because I like that because I was going to follow up. The next thing I was going to say is like the other question we've kind of talked about bids versus the offer. Offer, yes. So then we're all new. Let's assume we're all new at this. Take the bid and just put the two in this example for CCI, put the $2.20/$2.25 in and just like, take action. So that the best way to learn is just to continue and start taking action. So I think for our listeners, let's take a quick second, just summarize. If we're somewhere in 20% to 30% less than what we put in the alert, go and take the action, if you're in an actual money account. If you're in a paper trading, no matter what it is, just take some action so that you can learn as we keep going and you have some open positions.

[00:28:20.580] – Josh: Yeah. And if you see something that's higher than what we've discussed, that means you're getting more than what I that's a better fill. Yes

[00:28:28.940] – Katie: Which is what happened with McDonald's, where we put that out at $2.25, $2.35, something like that, and then it was up to $2.60 or something around there by Monday. And anyone who took action on that Monday after we put that alert out would actually make more cash flow. So, if you see it higher, definitely take action. If you see it lower, kind of make if you're in a cash account, make a judgment based on the percentage of how much lower it is. If you're in a paper trade, just take action on the bid so that we're taking action and we're learning we have open positions.

[00:29:03.340] – Josh: Yeah. And just to touch on that McDonald's, it's a good example because McDonald's is one that it sold off last week with the market, as well, but not as much as the marketplace. It's bounced up today, almost back to trading at $2.57. So just $3 off from initially where we were at two weeks ago, but that option has decayed over the last two weeks. It is less even as the market went down 5% and McDonald's went down, as well. That option is less than what we initially sold it for short term. The following Monday, it did pop a little bit higher. Okay. And as time ticked the next several days into today, it's trading lower. And that option now is a profitable position where now we're looking to capture that 50% and manage that risk. And the reason why it's 50% is because we don't want to get stuck holding. I refer to it as picking pennies up in front of a steamroller. We want to be able to collect as much as we possibly can and lock that profit in because the market has shifted. At that point, we can redeploy that capital into a better position. A lot of people like to stick in bad positions because they're just trying to get as much from that one position. They don't have to do that. There's other opportunities out there, and we can just keep rolling and rolling and rolling.

[00:30:25.060] – Katie: All right. I think this is a good call. I feel like we've covered a lot, and I hope that it added some clarity and gave some specificity where it was needed. Everyone who's listening, please follow up with additional questions that might have come up from what we've been talking about or additional questions that come up as you continue to take action or you read our next alert. So, until next Monday, we're recording this on Mondays for you guys. You'll see them on Tuesdays, but until then, thank you so much, Josh. This was really helpful.

[00:30:56.400] – Josh: Yeah. And these are really great questions. These are very technical questions. And these questions actually mean that these people asking it are doing it. They're implementing. They're just trying to understand, hey, why does this look this way or this is that way? So great questions. The more technical, the better. And this is what these Q&A's are for, to be able to hash this out just like Kate and I do. Hey. I'm thinking in my head, honestly, it's free money in the paper trade account. Just hit the bid. It doesn't really matter at that. Get in. Now, if it's real money, then it's different. We gave you those parameters, so it's really valuable going through these and especially hitting in those technical questions.

[00:31:34.410] – Katie: Yeah. All right. Thank you so much. Have a wonderful rest of your week, and I'll talk to you soon. Bye.