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Options Trading RobinHood [Why You Should NOT Trade Stock Options with RobinHood] - YouTube
Channel: BestStockStrategy
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Options trading with RobinHood app. Why you
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should not trade options using the RobinHood
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RobinHood app. My name is David Jaffee I am the
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worked as an investment banker for five
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years have completed around five to ten
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and the reality is that when you use
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RobinHood then I know that a lot of people
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are drawn to RobinHood because there
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are no commissions but one of the big
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fallacies of making money in the stock
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market is people are scared to trade
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naked options when the reality is that
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when you the only way they okay let me
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let me first start off the only way that
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you're gonna make money in the stock
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market inconsistently is by selling
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naked put options that's it occasionally
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you'll sell a call option in a bear
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market but the reality is the only way
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that you're gonna make money is by
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selling naked put options so there are
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two things you can do when you sell
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naked when you sell put options you can
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either sell a naked put option or you
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can sell a vertical credit spread right
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the problem is that RobinHood does not
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allow you to sell naked put options and
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naked put options are inherently much
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more safe than vertical credit spreads
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you probably think that that's
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blasphemous because you've heard all of
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this stuff about naked put options being
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incredibly dangerous but no they're not
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actually vertical credit spreads are
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incredibly dangerous and for the reason
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that we the reason why naked put options
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are way safer than vertical credit
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spreads you have three reasons the first
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is that you are able to collect a
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maximum amount of premium because you're
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not buying a lower price strike option
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the second reason is that when you sell
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a naked option it inherently limits you
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to manage your size there's no way that
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you can sell a hundred contracts on
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Amazon if you have a small account when
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you trade a naked option then your
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buying power is going to be reduced
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relatively substantially
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by every option that you treat by every
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naked option that you trade what happens
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with when you try to sell vertical
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credit spreads or that human beings are
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inherently greedy so when you treat
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vertical credit spreads if you can trade
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to Naked options a lot of people end up
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trading 20 vertical credit spreads and
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then guess they will be successful on
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ninety five out of those hundred but
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what happens is those five times that
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they lose money they are going to lose
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very big and lose all their returns so
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for example right let's say you can
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trade let's say Facebook's trading at
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175 it falls down to 170 you sell a
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naked option with a strike price of 158
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all right
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then 95 out of 100 times you're gonna
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make money on the trade in the worst
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case scenario with trees to 155 then
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you're gonna roll that option and then
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it's very easy to manage if instead you
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trade a vertical credit spread so you
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would sell that same 158 strike you
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would then buy the 150 strike right and
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then what a lot of people do is if you
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would sell - naked options they would
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then sell 20 vertical credit spreads
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let's say Facebook falls to 153 it's in
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that no-man's land the broker will then
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close out your positions because you
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simply don't have the account size to
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take inventory of those 2,000 shares of
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Facebook so you will end up buying
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Facebook at 158 2,000 shares of it they
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will close you out for a loss and that
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is going to eat up all of your returns
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for the past six months I've seen this
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happen numerous times I can't even
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stress how dangerous vertical credit
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spreads are I guess I do use them on
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occasion because for stuff like Amazon
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which is a two thousand dollar stock I
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don't really want to sell a naked option
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and have my buying power reduced so much
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but one key is that I do manage my size
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if I'm gonna sell two naked options on
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Amazon I sell two vertical credit
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spreads a maximum of three I don't do
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what a lot of other people do and if
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they were gonna sell two they end up
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selling 20 that's what's gonna get you
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in trouble the other thing about
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vertical options is that it's incredibly
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difficult to
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and roll a vertical option because the
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money that you're spending for that
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lower price insurance you're essentially
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throwing away so in that example that I
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used previously with Facebook if you
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would sell the 1:58 strike and you would
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buy the 150 then let's say Facebook
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trades to 153 and you tried to roll it
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let's say you had the ability to roll it
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if you were trading a naked option you
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can simply roll forward by three or four
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weeks that 158 option and reduced your
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size or reduce the strike price all the
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way down to 155 with a vertical credit
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spread that credit that you're receiving
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for rolling that option into the future
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is then going to have to be put into
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buying that lower price 150 strike again
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so you're gonna have to keep the same
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amount of options and roll it forward
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and you're gonna have to keep that same
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158 strike price whereas if you were
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trading naked you would be able to
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easily reduce that 158 strike price all
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the way down to 155 but instead with a
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vertical credit spread that money that
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you would use to reduce the strike price
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from 158 to 155 is now going into having
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to buy that worthless 150 option so
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that's pretty much it the three reasons
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or rather the main reason why you don't
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want to use RobinHood is because it
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does not allow you to trade naked
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options and by far your best bet to make
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consistent profits in stock market is by
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selling naked puts I've been three
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reasons why naked puts our way better
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than vertical credit spreads so that it
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maximizes your premium you don't have to
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spend money on that garbage lower price
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stop option the second reason is that
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it's extremely easy to roll and the
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third reason is that it protects you
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against your inherent bias of being
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greedy
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you're not going to trade 20 naked
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options because your broker won't let
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you but when you trade vertical credit
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spreads they will let you and then
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though one out of ten times that it ends
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up in no-man's land you are going to
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sustain a massive loss this is why I
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never recommend RobinHood I would say
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maybe 10 or 15 percent of my students
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use RobinHood the rest of them use
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another brokerage but if you really want
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to get serious about making massive
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amounts of money in the stock market you
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have to choose a broker that doesn't
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limit your flexibility you want complete
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freedom and you need to be able to trade
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naked options and Nika puts this is
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David Jaffee with BestStockStrategy.com
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BestStockStrategy.com Please like comment share subscribe
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to this channel if you have any
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