Cashflow Triggers Q&A Episode 4

[00:00:00.610] – Katie: Hey, Josh, thanks for joining me again today. We are going to jump back into some Q&A. I know we took a little bit of I think we take like one week off. We were kind of collecting some questions and I wanted to make sure we had enough to really, like, dig in. And so I have six or seven questions for you today, but how have things been?

[00:00:22.410] – Josh: Things have been going great. Markets are moving around. It's shaking what we refer to as shaking the trees. When you shake the trees, the loose leaves come off and some hold on. So when markets are moving like this, we call them weak hands. So the markets are shaking the weak hands out. But it's exciting times here. We got the elections coming up in a couple of weeks. That's going to move markets as well. And there's a lot of uncertainty, which creates a lot of opportunity for us.

[00:00:52.160] – Katie: Awesome. I know everybody has we've been just getting, like, a lot of positive feedback on just the weekly issues and how educationally packed they are and how much value everybody's been getting out of them. So just congrats on that front. It seems like we are off to the races with this new service.

[00:01:11.970] – Josh: Yeah, that's great to hear. It's a little bit of a unique way of looking at real estate and taking part of it, and a lot of individuals are just not knowing of that. So being able to introduce us in a way that is educational and empowering is really what my mission is and why I left Wall Street about 15 years ago and been doing this. So that's exciting to hear. That's exactly the goal of what I'm trying to do.

[00:01:35.550] – Katie: Awesome. All right, let's jump in. So the first question we're going to softball it. This I think you're going to be able to answer pretty quickly, which is just like, how long do you approximately keep new trades kind of open?

[00:01:51.110] – Josh: Yeah, well, we want to take those off as quick as possible. Obviously, the faster money, the better money. But when markets are in fluctuation like they are now, the typical time is going to be a little bit longer here. So we have a couple of winners on the board. I've held onto them a little bit longer, like McDonald's. McDonald's I said I was going to buy back at, I think about $1.30. And I'm seeing right now it's about $0.60. So this is a position we are going to take off. We're going to see an upcoming alert that we're going to close that down. So we're going to capture that money and move on. They have earnings coming up here, so we will probably look to get into a position after earnings on that just to let things kind of move by and then to get out of that. So I think the McDonalds one is one of our longer ones. Meta is right on the dance floor of profit. They have earnings this week as well. That may be another position that we adjust on there. So we want to make the money as quick as possible in markets like this, where you have direction, meaning markets going lower, prices going lower against us. And then you also have the other aspect that we haven't really touched on, on options. It's called implied volatility. JP and I touched on it briefly, but that creates the premium increase or decrease in option premium. And right now that's been holding pretty steady. So while we had time tick away, we also wanted that premium, that level premium to decrease as well. And that really hasn't happened in our favor. So when this happens like that, they say you can't time the market. And that's true to a point. But when you have timing like this, what we just do is we just extend it out, tried to capture more cash flow, and let's let the market come into our box or into our zone and just kick it down the road a little bit. But ideally, we want to get as fast as possible, but market conditions always dictate that.

[00:03:41.070] – Katie: Okay, this is totally off the top of my head, but I think McDonald's was maybe a month ago, maybe about a month ago, maybe a month and a week or so. If that's one of our longest ones, that gives us kind of like a four to five-week timeline there. However somewhat it sounds like what you're saying is that is a little bit specific to just how the market is behaving right now.

[00:04:11.670] – Josh: Yeah, just think of that, though. We sold that about $2.50. It's trading about $0.50 right now. That's $2 in the last month-ish on that margin. And overall, when you break it down day by day, that's a great percentage overall. So we're right now about 75% profitable on that position over that time frame. Obviously, if it happened the next day, that's even better. But that's kind of how some of these positions go. Sometimes you're just going to have that aspect of it where it's decaying every day and you have the percentages and they start to add up. I call it chipping away. It's kind of like the iceberg chipping at the iceberg, melting away. And that's really the game that we play on wanting to collect the cash flow and just let time work in our favor.

[00:05:00.340] – Katie: Okay. All right, so the next one is actually this is a question we had, I think, like the last Q&A session that we did together. So I think this is really just like a good thing to repeat and maybe repeat again. And that is to clarify margins and cash accounts and how that works.

[00:05:22.540] – Josh: Yeah, so margin is using leverage. It's a margin account. You get one for one. Essentially, when we sell options, that's where we get the margin when you buy an option, you don't get margin, it's cash only. But when we sell puts, we are able to use margin against our position. That's where the leverage comes into play. On the cash aspect of it, cash is what essentially we're going to put up the whole collateral if it went to zero. Now Home Depot, McDonald's, Meta, those stocks are not going to go to zero. So in essence, it doesn't make sense to use and put up that much capital on cash to do that. Now it makes other people feel more safe and secure and that's their judgment. But that's the difference of it, is being able to use margin, which is a line of credit that the brokerage gives to you versus using all your capital. And it's no different than if you went and bought a home and you paid all cash for it versus putting 20% down on a home and using the bank's money to do that. We're using the brokerage's money to leverage that position so we can get more diversification on what we're trying to do. We're diversified on the fact we got Home Depot, we have CCI, we have all these different names that we can partake in. And you don't have to have all that money that you would need for one position to have if you had to.

[00:06:45.040] – Katie: Yeah, you wouldn't have all your money locked up in one position.

[00:06:48.220] – Josh: Yeah, same thing if you bought stock. I mean, it's the opposite of that.

[00:06:54.410] – Katie: Yeah, I mean it's a benefit to this type of options trading that you can, you do have the option to leverage those margins. But it does segue weigh me into the next question, which we've gotten a couple of these questions as well. And some people are kind of expressing this situation where they feel like they've got level three approval within their account and that the account continues to tell them or the broker continues to tell them that they need the entire cash to cover. So they apparently don't have the ability to it's showing them that they don't have the ability to leverage and use margins. Could you let us know, without being super specific to a particular person's situation or knowing that, what do you think might be happening there?

[00:07:46.050] – Josh: Yeah, so I did take a peek at that question before we got on, so I had a little bit more information to be able to answer it. So in that situation, what's happening here is that this individual has level three, so they have the right approval, they have enough money in the account. And the question is, why is my broker still asking for me to put up the whole capital, the whole amount for cash? And without knowing the rest of the details, it sounds like he's in a retirement account in IRA. And for that with Schwab. Schwab does not allow margin in an IRA account. Now there are other brokerages that do allow that. Tasty Trade is a brokerage that allows some margin and being able to do that with an IRA. Now this would be something that JP and you can discuss because the next level from that is if someone wants to do this in an IRA, there is a side-step process to doing that. It's a little bit it's one more extra step and you limit your downside where you don't have to put up as much. You don't have to put up all that capital. It's called using a spread. So you sell one and you buy another. It's a little bit more complicated, but that is another way of doing the position in an IRA without having to put up all that collateral for it.

[00:09:04.110] – Katie: Yeah, I think we might. And that might be something really interesting to explore in the coming months once this first group of people that have gotten into the service really get their hands around this. And then introducing spreads might be something that might make sense.

[00:09:23.660] – Josh: The only reason we didn't do it is because it is an extra step and it's already new and I don't want to say complicating, but it's just new. It's like trying to win the game and all these pieces do it's like playing chess for the first time and trying to figure out what all these pieces do.

[00:09:37.530] – Katie: You totally need a cheat sheet every time. It took me like a solid like, I feel like I played chess like half a dozen times before. I could really do it without being like, wait, what does that move? What does that piece do? But yeah, no, I totally agree with you. Let's walk before we run. Let's crawl before we walk. Like, let's just take it step by step. So I think spreads is definitely something that we could explore down the line. Okay, next question.

[00:10:05.060] – Josh: And just to touch on that, there is a process for that. So if you want more information about it, the more people that have this situation, the more encouragement will have on being able to do that. But there is a you're not like, hey, this doesn't work here. Well, in this framework and that IRA account, this is what we would have to do. We would have to take this extra step to be able to do that. And also for other people as well. It may make them feel a little bit more secure knowing that their downside risk could be potentially capped.

[00:10:39.610] – Katie: Yeah, so that's a great point. So for anyone listening, if that is a strategy that you'd like us to introduce if your in kind of a similar situation, by all means, if you have the question and answer link and throw in there, like, even if it's not a question, just be like, hey, yeah, I'm in that same situation. Like, spread sounds interesting. And that collective feedback would be really helpful. Okay, so moving on to the next question, I'm going to read this one to you. They're in paper trade accounts and it sounds like they had a little bit of an issue just getting their order picked up. By the time that it got picked up, without knowing exactly which this was on. Let me see what this one was on 10/21. Basically. Essentially, like it took a while to get picked up. And then they're at $2.32 and the market value is at $194 and they're kind of like, what do I do next? What should I expect next? And they're in that paper trade account and it sounds like this is kind of their first go at this.

[00:11:59.140] – Josh: So they sold it at $2.32 and it's trading at $190. Yes, that's exactly what we want. That means you collected $232 per contract and now that same contract is worth $190. And that difference is what we have at this point. So if you wanted to close it and just walk away, that would be the process here. So what we if on $2.32, I'm looking for something at least 50%. And the reason for 50% is we want to manage risk. And if it went from $2.32 to $0.05 the next day because what happens in equity stocks is that there's events that happen that create these market moves. And just because we're targeting a certain percentage doesn't mean that we're not going to get more. It's just when you want consistency, you have to have a consistent process. So with our strategy of these weekly cash flow triggers, we I define 50%. It could be 60% for you. It could be 40%, it could be 30%. But what we want to do is we want to draw a baseline to be able to create consistency because the market is not consistent, there's all kinds of inconsistencies and that's what we're trying to take advantage of. But to create consistency for us, we want to create a system that we can replicate and keep doing over. So for what? The educational aspect of teaching you guys is to take it at 50% if you want to do 40%, if you want to do 60%. I found 50% to be kind of the sweet spot, the best spot. But it could be 40 and it could be 60. I wouldn't say anything more than that because what happens is, let's say at 232 and you want to buy back, let's say at $0.32, well, you are risking that $2 more at that point to make $0.32. It doesn't really make any sense at that point. It becomes a risk to reward where instead of trying to make all that money in that one contract, you could just close it out and reposition in a new contract. And that's going back to the original question of how long does this take? Well, the educational part of this is going to take a little bit of time and that's what we're trying to do. I work a lot faster, I can maneuver on the market a little bit differently. But I can't replicate that by teaching. We are taking a slower approach. We have the training wheels on, so we're engaged, we're moving around. We're going to make some money, and we're going to do that. But how we're moving around at 232, I'm selling at 50%. And I probably would either roll it into a new position or something like that. So once you start to learn these aspects of just like what we talked about, chess, once you start to learn how the players move and then you start to learn strategy. So we're just learning how things move. Right now, strategy comes down the road. That's exactly what you want. You want to sell something and you want it to decrease lower because now you can buy it back cheaper. So right now it's a perfect position. You can close it out if you wanted to, or you can leave it on a little bit. And that's how I usually would approach it. If I sold something at 232, I'm looking at 50% to profit on it. Doesn't necessarily always have to be that way. McDonald's we have more of a profit, and that's because the market has been moving against us on that position, hasn't breached it, but has moving against us. So we had to sit in that position. And when it moved away from it, which it has been, now we have more of a profit.

[00:15:32.440] – Katie: Okay, that makes sense. The same person has another question in that in their account, the contract is it defaults the contract as -10, and then they're reducing it to -1. Is there a way that you might know where, and remember they're paper trading, where they can change that as a setting, so it defaults to -1 versus -10?

[00:15:57.280] – Josh: Yeah, this is a little trick of the trade that I normally do. So if you go into setup and you go into order entry and I don't want to click around because I don't want to make this longer than what it needs to. But you can find that setting and set up. And it defaults for equity options, futures. What you wouldn't want to do. And I always do this. No matter how big the account is. I always change it for option one and futures one. Now stock, I may do 100 because we refer to things as a fat finger mistake. This happens on trade desk all the time, so you don't want to click on something. And sometimes things are moving so fast, you make a mistake. If you have ten contracts on, like, for instance, on the futures, and it's a completely different product. But let's just say you have ten and you sold ten McDonald's that's a lot of money. And you may have that money in there, but it could be all your money there. So you enter the order, and then what do I do now? And you may think, Well, I'll just hold on to this position. You just start going down the road of the road that you don't want to go down. So I always revert that to one. It's the best approach, no matter if it's a paper trading account, no matter if it's a real account, because those are practices that you want to keep doing and implement over and over again. Because no matter if you've been doing this for five years, ten years, me, 15 years, I've been doing this longer than 15 years, I have it on one, because I would rather control it from there in case I make a mistake than the other way around.

[00:17:39.960] – Katie: Yeah, that's really good advice. Okay, so just to reiterate what you were saying in the tasty cake in the pit, in the paper trade account, you would go up to set up, and there's different options for that setting, for futures options and stocks. So definitely go in, everyone listening. Go in and change that setting. And I would imagine that you probably could find how to change that setting across the board in brokerage accounts with some simple googling, depending on the broker.

[00:18:18.850] – Josh: Yeah, he's talking about Thinkorswim specifically because that's the paper trading account. So it's in there. It's under setup.

[00:18:25.350] – Katie: Sorry.

[00:18:27.040] – Josh: Yeah, it's under set up. And then I was trying to find it while you're clicking around. I may do it when I walk through one of the trading tutorials for Good this upcoming week, I might just do a brief reset of that just to introduce that little concept in this week's alert.

[00:18:44.400] – Katie: That's a really good idea. Okay, perfect. I love that idea.

[00:18:47.560] – Josh: When you go to Set Up, which is all at the top right of the platform, you click on Application Settings, and then you go to Order Defaults, which is the third tab. And then on there you'll see stocks, options, futures, future options and forex. So then on Options, what you would do is default quantity of orders to one.

[00:19:10.840] – Katie: To one. Okay.

[00:19:11.500] – Josh: And then order quantity, increments one.

[00:19:15.040] – Katie: Okay. Yeah. Like you said, when you record the trades this week, let's record a little just tutorial on that, showing that specifically, and then we can talk about where to put that as a reference for people in the Quick Start series. All right, last question I have I'm just skimming real quick to remind myself… Today, I need to know if it's oh, this one, I remember this one. Okay, so they're basically just asking they get the alerts and the emails on Friday, and they're kind of worried if they have to quickly hurry up and take action on Friday or if it's okay to wait and take action on Monday.

[00:20:12.000] – Josh: Yeah, I would say right now it's almost advantageous to wait until Monday because we're seeing the market open the following Monday lower. Now, this week has been different, but we've seen that. But that's trying to predict the future. Yeah, I know it's easy to get caught up and like, man, I got to get the same price or I got to get if you get a better price, which I'm always encouraging, that's always advantageous. Now, we send it out Friday morning. Do you have to be ready and roaring Friday at 9:30? No, I mean, you typically don't want to order or enter an order at that time. I always let markets settle in for the first 30 minutes. It's just what I always learned on the floor and on a trade desk. So you let things settle in and you kind of get a feel for the marketplace of where he's going to go and whatnot. I'm not saying that's how you need to approach the markets, and that's not how you need to approach the markets. I would just say you want to get the price. This is a learning process here where I'm trying to implement in real time and also get people to make money at the same time as well and get engaged and to be able to do it. Now, being everyone at the same price is going to be impossible because no one can get the same price. That's how the markets are. It's just impossible. Or one order gets executed, the market may move, and that's just how things work. I would say whatever you feel comfortable with.

[00:21:40.730] – Katie: I also would add what fits into your life, because you have to think, like, there might be a stressor or the obligation or something on Fridays that are making it hard to take those actions on Fridays. But that doesn't mean you can't enjoy this and take advantage of this service. So I just wanted to throw that out there as well because I know for me, it's typically not. It's usually like, how can something fit into the busy, busy schedule versus the perfect time to do it? That would be a stressor for me.

[00:22:18.150] – Josh: Yeah. And I think we hit on this a couple of weeks ago. What I would say, and it just came back to me again, is if you're in a paper trading account, just open up the platform and execute the trade. This is all going to be new. So any mistakes, any goofs and whatnot are not going to hurt you. And if that's the approach, then I would say that is the best. Now, if you're going to try to put real money at this, obviously you want to have a little bit more caution and just opening up and then throwing orders out there. So like on Home Depot a couple of weeks ago, that was a crazy market. Home Depot was down $10, $15, $20 at one point and reversed back. That's when the market that was off the inflation numbers. The market opened up a lot lower and then all of a sudden roared back now when you open up your platform and you see the market moving like that, you're going to be like, whoa, it's just whoa for somebody like myself in markets like that from experience, you just sit back and let things just be what they are. There's no reason why you have to go out there and put risk on. That's the important aspect of being what we refer to as an individual investor, the little guy in the marketplace and managing your own money. Like, you can pick the risk and the strategy and decide what you want to do. And you don't have to get crazy on a market like that. It's even crazy for me. So on those days, it's just like, hey, I'll just wait till Monday. It's the weekend. I don't need to put on risk right now. It's pretty crazy out there. So I'll just wait till, you know, wait till Monday. So it's hard to answer specifically because rvery Friday is different.

[00:24:05.550] – Katie: I would say, like, a good summary that I'm taking away from what you're saying is that it's up to every individual person, but maybe let the market settle in for half an hour. So before you decide if you're going to take action on Friday versus wait, and then if the markets are kind of like, a little wild, there's no benefit necessarily to taking on risk, so you can wait till Monday as well. The other side of it is just like accepting that we're not all going to get the same price. And I think that is a struggle that some people are experiencing. It's not a mirror image of what you're sending out, and that's a comfort level that everyone's going to have to just keep getting used to because it's just going to be the reality of being an individual investor.

[00:24:59.990] – Josh: Yeah, I mean, it's just like if you bought a TV last week and this week's on sale, it's like, yeah, it's the same thing. It's just part of the process. I'm like, I'll just take that TV back, and I wouldn't do that. But you have that feeling of, like.

[00:25:16.350] – Katie: You don't want to miss out.

[00:25:17.520] – Josh: You want to miss out, or you want the best deal possible. And in the marketplace like this, as you can see, there's a lot of opportunity. And when we talk about our idea from last Friday v re, we're one day away. One day away. That's how close it's frustrating for me. I know when I wake up Friday morning and Transparent, I'm doing the research on this last week, and I'm thinking, I'm telling my wife Nicole. I'm like, the research that I dive into is much more than the story and aspect. And I'm looking at more things sent out on Friday.

[00:25:57.910] – Katie: Yeah.

[00:25:58.320] – Josh: Yeah. I'm looking at more of the company overall. And I'm thinking to myself. Like. As I mentioned in the Alert. I'm like. People think this is still office related. Which I didn't go too much into depth about that office aspect of it. But that's the reason why it's been hammered is because they had office space during COVID in New Jersey and New York. Which is the worst business friendly states to be in. Next to California. So all that aspect, all that property that they had, they had to liquidate and they moved and they already had started positioning and pivoting. So I'm looking at all this information. I'm thinking to myself, I'm like, this is a no brainer here. I was going to wait for after the alert to come out and I was going to actually start buying some shares. I was going to start buying stock in that. Now, I didn't think it was going to be a takeover. I thought more a buyout. I thought more importantly, I thought over time, it's just a good value and they didn't pay out a dividend. So you're looking for appreciation on that, but that's how close something like that. When we talk about Home Depot, McDonald's, I mean, that's not the aspect we're talking. Vre is a smaller cap stock, but again, that was more of an insider buying and multifamily aspect to real estate in a hidden gem, which wasn't so hidden.

[00:27:16.280] – Katie: I know. Yeah. So just for everybody listening, the VR thing last week, josh is doing this research to give everybody, like, how the inside view of how things work on our side. Josh is doing all of this research and then we're putting this entire email together, which takes I think there's maybe three people, four people involved on that side and everything's in the can ready to go Thursday evenings. And then the email goes out Friday morning without anybody really having to push the button or anything like that. It just goes out automatically because it's set up on Thursday. So when it went out automatically and then, Josh, you're texting me and you're like, well, now we have to change. We have to change everything just to give everybody that perspective and that inside scoop of how things are working on our side and how something like last week comes about. Where we're like. We put this whole issue together the day before. And then the news breaks and like. The email is already out and it was a little chaotic. But I think we pulled it together and I think in the end. It still was such great education and yeah. It was good.

[00:28:30.230] – Josh: It's frustrating that no one could take advantage of it. It's frustrating on my end because I couldn't make money off of it either, doing the research. And as I say, with insiders putting your money where your mouth is, I mean, it's the same thing.

[00:28:46.880] – Katie: Yes, exactly. Well, hopefully that doesn't happen. It was incredibly unusual. We were all messaging internally on our side, and we were like, this does not happen very often. All right, I think. That's all the questions I have for you for today. Is there anything else that you want to update anybody on or anything else you want to cover?

[00:29:05.790] – Josh: No, I think we covered a lot today, which is good. We took off that one week, so we got a lot of good questions here, and markets moving are going to create new questions. Even if we've answered a question before write in, we'll answer it specifically, your question. And as I mentioned earlier, I read your questions, so your question will get answered. And I am also reading it, so we may be reading them, but as a team…

[00:29:32.270] – Katie: I'm terribly trying to interpret them. Sometimes I feel bad, but I think I'm like I think the question is this, because sometimes it gets a little more technical, even than I'm capable of all right, well, it is like six our time, so I'm going to let you go, Josh, and thank you so much for all of your time. And then we'll chat again later this week or early next week.

[00:30:01.880] – Josh: Absolutely. I enjoy this. So looking forward to it.

[00:30:03.930] – Katie: Yeah, same. All right, later.