More Money Podcast - 285 How to Invest with Options - Bryan Rogers, Client Education Instructor at TD Direct Investing

Episode Date: June 10, 2021

Hurray, today is a special bonus episode for you as we get ready to wrap up Season 12 in the coming weeks! In today’s episode, we’re celebrating the fact that June is Options Education Month. I have Bryan Rogers from TD Direct Investing joining me today to share and answer all questions relating to investing with options.  Bryan is the Client Education Instructor at TD Direct Investing, who has 20 years of experience in the industry with a Master’s Degree in Business. During his Master’s he became interested in personal finance and once he started working at TD he discovered his passion for helping others with their finances leading to his current role.  Investing has long been a favourite topic on the podcast and I was so happy to have Bryan share his expertise on an alternative kind of investing, and one that is more complex. In this episode, Bryan answered what options are, how they work, common terms, and misconceptions. If you’re interested in investing in options or are just curious because of the constant news surrounding the topic then this episode is definitely for you.  Make sure to also check out all the free resources on options here: td.com/OptionsEducationMonth For full episode show notes visit https://jessicamoorhouse.com/285 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, hello, hello, and welcome back to the More Money Podcast. I'm your host, Jess Morehouse, and this is episode 285. And this is your bonus episode for the week. I have a few bonus episodes coming up as we wrap up season 12 of the show. And this is one of them. I'm very excited about this episode because we are diving into a topic I have never explored on the show before. And it is for any of you who are a bit curious about, you know, some other kind of investment strategies, we are going to be talking about options in this episode, investing in options. And the reason is because did you know, did you know that June is options education month? Well, it is. And that is why I have Brian Rogers, who is a client education instructor at

TD Direct Investing. And he knows his stuff when it comes to options. And believe you me, I had a list of questions and I could not stump him. And I think you're going to enjoy this because it's again, like I mentioned, I have not touched really the subject on the show. And, you know, education is power. even if you know, options trading isn't something that you personally want to pursue. Guess what, still important to know how it works, what to know, and you know, how it all how it all fits into the greater world of investing. So I'm very excited to have Brian on the show. Like I mentioned, June is options education month. And with that TD has a number of free videos, on demand masterclasses, webinars throughout the whole month of June that you can sign up for at

td.com slash options education month. So if you want to really go down the rabbit hole of options trading, well, they have pretty much everything you could possibly think of any topic. I mean, they've got a lot, a lot of stuff throughout this month. So make sure to check them out at td.com slash options education month. And without further ado, let's get to that interview with Brian Rogers. Welcome Brian to the more money podcast. So excited to have you on the show. Oh, thanks so much, Jessica. I'm excited to have you on the show. To dive into a topic I've never explored in depth on the show. I think I've had one guest and this was going back a few years ago. I think it actually may have been someone.

I think it was. Was it someone from TD? It may have been. It was a long time ago. And we only briefly touched on options. So I'm excited since it's June. It is Options Education Month. briefly touched on options. So I'm excited since it's June, it is options education month, and you are a client education instructor at TD direct investing and an expert when it comes to

options. So we're going to dive deep into this topic, very excited about it. Because even though, you know, the overall kind of theme or messaging or my, you know, personal, you know, preference is, you know, passive investing, boring investing, I think it's so important to understand the other things outside of that, like options, which I think especially with what's going on with Reddit and just like, you know, all the the speculation we're seeing online, it is so important to have this information and knowledge so you can make a knowledgeable investment decision, whatever you choose to do. So before we really dive in, because I have a whole list of questions that I know my listeners are going to wish they had the opportunity to ask you, Brian, tell me a little bit about yourself. How did you become a client education instructor with TD Direct Investing? What's your background?

Yeah, no, thanks, Jessica. We're going to go back into ancient history here. It's been about 20 years I've been in the industry. It's flown by, for sure. I definitely will say that. And so it was around 2000, and I guess it would be 2004 I entered. So I'm getting around that 17-year mark. And I did my master's in business originally. The funny thing is, I went into marketing. I know I've heard you talk about this on your podcast a lot of times. You end up going into different directions, right?

I know. Why do we go to marketing and then into finance? What's that about? Exactly. Exactly. So I went into marketing and I loved ads and commercials and things like that. But when I was in my MBA program, I loved the idea of personal finance that you talk about all the time.

And really, the interesting thing is, though, in the master's program, I didn't really learn anything about how to trade stocks, like the simple aspects and how to buy a stock and what do I need to know on order types and all these different types of investments that like options and things like that. It was more from the perspective of, you know, assessing companies and analyzing financial statements and things of that nature. So it was a huge interest for me coming out of school. And basically one thing led to another where an opportunity came up within TD where I became an investment representative. So that's where you at the time it was for TD Ameritrade. So it was a U.S. actual investment firm.

So, yeah, so I started in with a investment representative role with TD Ameritrade where, you know, basically we're taking phone calls and helping other people invest. So it was one of those perfect avenues, not only for myself to learn, but I'm teaching others as they're calling in to say, oh, how do I buy a stock? I just want to know simply how do I buy ABC stock? Or back in the day, it would be during there was a tech boom at some point even back then as well. And, you know, people were just interested in doing this on their own. So it was a great way to actually learn that for myself and then also learn how to teach people about it as well. I know you've experienced on your podcast here, like the growth of, okay, it's one thing to know this stuff and learn it, but it's another thing to teach it, right? Yeah. So that's something that became big for me throughout the most of my

majority of my career. I did some other roles, working with margin and credit risk, they call it and some other things that I really did enjoy. But my passion was for teaching this type of thing on you know, making the what some people think is the complex, making it simple. Or just like translating it. I hear a lot of people are like, oh, yeah. It's like, I wish someone could translate this. Because honestly, when you see some of these terms, it's a different language. And it just seems like it's impossible to really break through. Absolutely. And I think us financial people, too, like to make it sound complicated, too, right?

Make ourselves sound smart with all these acronyms and words. Yeah, yeah. And terms. So, yeah, as I, as I more and more was in my role and going into different roles as a financial advisor at one time and, you know, a team manager and things like that, it really just came back to me that I love education and I want to be able to help people do what I did. And I spent so much time and so many conversations with people on the phone and, and doing all

these trades and everything. And I learned that, you know, really easily and was able to, became effective at teaching other people how to do it as well. That I'm like, yeah, there's a really huge need in this market for people that want to do this, but they just don't know where to get the information and how to get that as well. So that's where, you know, it's been mostly all with TD. And TD has actually really done an excellent job of recognizing the power of education. And knowing that there is a, I think there is a big void in the, in the marketplace for that hands on specific stuff on how to do these things. Yeah, exactly. And it's also like, I mean, the reason I mean, I've worked with, you know, TD on lots of different campaigns before. And, you know,

the big one that I really enjoyed was, you know, talking about their learning center, I mean, the reason I mean, I've worked with, you know, TD on lots of different campaigns before. And, you know, the big one that I really enjoyed was, you know, talking about their learning center. You know, if you're a web broker client, you can access all this, all these free like videos and webinars and masterclasses, which is great. And also because it's options education month in June, there's also a bunch of like, that's part of it. There's a bunch of free, you know, kind of online virtual events and classes, which I've honestly signed up to a bunch. Just because I'm like, you know what, let's jog the memory. And let's learn

some of these ins and outs. And just to hear other people's perspectives about options. So I kind of want to dive right into the topic, just for people who have no idea what the heck an option is, can you describe what is an option? What exactly does that mean? Yes, yes. It's definitely a loaded question because we could go on for days and days about options. I could probably talk about it forever. But yeah, really simply is, you know, I'll probably give you a few analogies here in a moment too, because I think that works really well. But initially, just to say what it is, it's an alternative investment. It's actually part of a derivative. So you said when you did your CSC, there's actually a course, there's a derivatives course that you have to do as part of your Canadian securities course. And the way I

explain it to a lot of my clients when they're in our classes is think of the word derive, right? If something's derived from something else, it's coming from something else, right? So I can't think of a good example of what's derived from what. But yeah, like apple juice is derived from apples or something like that. Yeah. But think of as derivative is the price of the option is coming from the stock itself. So we're talking mainly stock options. There's all kinds of other derivatives that you can look at. But for our discussion today, we're looking at stock options where you're buying an investment

that its price is derived from an underlying investment. And what it's really designed to do is give you an option, pun intended here, give you the option to buy a stock. You can lock in a price. You're paying a fee, basically. It's like a down payment or deposit. You're paying a fee to lock in a price to buy a stock that if it goes up in the next six months or it can go up in the next year, you get to pick your timeframe.

And if it goes up to a really high price and you locked in that lower price, it's giving you the right to buy that stock or you can possibly even sell the option itself. Are you all right if I give you a good analogy right now, Jessica? Yes, please. Let's do it. Okay. I think this will help. So one that somebody gave me a long time ago and I really loved it is, let's say if you had a nice classic car, like a 1970s Mustang or something that you own, Jessica, and you were thinking, okay, the market value of this car is, you know, at the time, say $20,000. So if I wanted to buy that car, you were possibly maybe thinking of selling it. And I went to you and said, you know, if you're willing to buy or sell me that car at $20,000, I'm not really ready to buy it yet, but I think I should be good in the

next three months, the next 90 days. You could say, oh, well, you know, I don't really want to hold onto this car too long. And what if somebody else comes along and wants to buy it? I'm just going to want to sell it. But then I said, well, you know, what if I buy an option from you? I'll pay you a thousand dollars that, you know, you get to keep that thousand dollars and you're going to be willing to sell me that car at $20,000 in the next 90 days. You won't sell it to anybody else. And if I don't come back and buy it, you get to keep that thousand dollars. So that's the other side. That's the sell side. But for me as the buyer, what's happening for me is I bought this option where I'm locking in this

price. I get to buy this classic car at $20,000. And either when I get the money at some point, maybe it's going to take me a couple months for my bonus to come in, or I have to move some money around. I'm going to have the money to buy that car. And maybe in that next 90 days, I find out the car market's gone way up and that car is now worth $30,000. You've obligated yourself to sell it to me at $20,000. And I have the right or I have the guarantee to buy that car at $20,000. So I'm paying a fee to do so. And if I changed my mind and I said, I don't want to buy the car, I lose that fee. If I noticed that the market went way up and I still don't have the money to buy the car, I could sell my, my little option or my deposit to someone else. And maybe I'll sell it to them for 2000 because they know that the car

is worth a lot more than they're going to buy it for $20,000. Does that make sense? It does make sense. But what I was thinking the whole time you're talking, I'm like, this makes sense. But also, when does it make sense? It's just like a regular retail investor to actually do something like that. It's simple when you explain it like that with that analogy, but also a bit complex, I feel like when you're actually putting it into practice, because I feel like if you do one thing wrong, you could really regret, you know, it's not as simple as buying a stock and selling a stock. You know, there's a little bit more complexity to it. Yes, there is that level of complexity. I agree. You know, that's why we try to use those analogies, because you can think of it a little bit easier than if I'm telling you,

if you buy a call at the strike price of this, and there's a bunch of terms we'll probably talk about later. So that's why we try to simplify that analogy. But you're absolutely right. It's not as easy and simplified as just buying a stock and hoping it goes up or hoping it doesn't go down. It can go in those two directions. But the other thing that's powerful about options is, let's say, for example, you know this, Jessica, in terms of Amazon stock is in the thousands of dollars per share. You know, most of us can probably only afford like five shares, right? You know, you're not really going to be able to maybe even less than that. You're not going to be able to earn much, even if Amazon

goes up on a per share basis. Whereas you can use options to leverage. We use the term leverage quite often. I'm not going to need $200,000 or $300,000 US to buy 100 shares of Amazon. I can use a lot lower fee or price tag on just buying that option and potentially still benefit from a big move upward if I'm buying what we call a call option. So it's kind of like that car going up way in value. If Amazon goes way up, I only had to spend $1,000 and I didn't have to risk that $20,000 and have buyers from Morrison buy that car. And it turns out I didn't really want it or it wasn't worth as much.

So that's where options can be. You can simplify it a little bit that way and then use it as a tool, even on top of, of your actual stock investments as well, your long-term stuff. So you mentioned a few terms. And so I thought, you know, might as well dive deep because I know if anyone is going to do some research after listening to this episode, you're going to come into contact with all of these different terms. You mentioned, you know, call options and put options. What are the, can you kind of explain what's the difference of those? Yeah, that's a good point. There's a lot of terminology and we'll talk about later on. There's, there's so many places you can get access to this information. But yeah, just to start with

the basics, when we look at terms, there's only two types of options. There's a call option and a put option, which you had mentioned. And what I'm talking about in class is one thing, a little trick that I tell people all the time is if you're trying to remember which one is which, think of, you know, if you pick up the phone and you call somebody up, right? You're going to call up somebody on the phone. You want your stock to go up. If you're going to buy a call option, you think of call up. Call up. I like that.

Yeah. Yeah. Call them up. Pick you're going to buy a call option, you think of call up. Call up. I like that. Yeah. Yeah. Call them up. Pick up your phone. Even though, you know, we're not doing the rotary dial anymore these days, you still have to actually pick up your phone for the most part. And then, you know, put down is, you know, you can think of it. Okay. When you're going to hang up, you're going to put down. So think of the word put down means that you want the stock to go down. So you're speculating in both of these cases. So those options, when you buy a call, you're hoping to lock in a price for the stock to go way up, giving you that right to buy the stock at that lower price. And then to buy a put, same thing.

It's a contract giving you the right to sell the stock. So in other words, another term you can use is you can put the stock to someone else. So you're selling the stock to someone else at a higher price if the actual stock goes down. So I guess like the one thing that I think is important to kind of talk about is when we're talking about options, it is sort of a kind of a zero sum game or that if you win, someone else loses. Is that kind of how it works? Yeah, that is true. That's a good way to put it for sure. Yeah, because think of a contract, right? I know we haven't gotten into puts yet,

but remind me a little bit later and I'll give you an example of how it's very similar to insurance. But let's say we stick on the calls because I know on this call side, usually you learn one first and then you learn the other. You're going to learn about calls first, which we said, you know, it's that idea of you're almost paying a little deposit or a down payment, hoping to lock in that price for a certain time period, right? But on the zero-sum game, you said there's somebody else on the other side selling you that right to do that. Um, just like with the car example, again, remember if you do that and, uh, you know, take that thousand dollars and agree, okay, I'll sell you the car at 20,000.

This sounds great. What if 90 days from now, that car is worth 30, like our example, you're kind of kicking yourself and being like, oh man, I could have got an extra 10,000, but I promised to sell it at 20 and I took money for that promise. Right. So you're exactly right. That is a zero something. And in the fact that it may not work out for the buyer either, it may not, you might pay that thousand dollars and you don't end up buying the car because maybe it wasn't worth it or you didn't have the money anymore, but you lost that full thousand. So yeah, just something to, I remember learning that. I'm like, oh yeah.

So that's something that's just keeping them back of your mind. You mentioned that options, and I know this is pretty common. The reason a lot of people get into options is for a source of like insurance or protection. Do you want to kind of explain a little bit more? What do you mean by that? Yeah, for sure. Yeah, I know we're going kind of quickly here. But you know, if we're as if you said, there's tons of information, there's so much to go through. So I'm just kind of going to ask some of the I think key things people want to know. And then if people really want to dive deep, that is why there's literally a slew of videos that TV has for

options education month that we obviously don't have that much time to go through in one podcast episode. Oh, for sure. And we just launched a YouTube link to maybe I can give you that a little bit later on, but that has an actual playlist on YouTube to go from the very beginning to what you want to know. And it's really well thought out as well. But yeah, going back to your question on protecting yourself, because that's one thing you can do with an option. And I know from your podcast, you're saying a lot of times you're telling people you want to invest for the long term and you want to be within your comfort zone and safe investments and things like that. A lot of people, as soon as they hear

the word options, they're like, oh, wow, that terrifies me. I'm scared. I'm running. I'm running in the other direction. I don't even I'm running. I'm running in the other direction. I don't even want to look at these. And that's sometimes it's justified. There are like some pretty advanced and extreme strategies and things like that. But there are a number of strategies that are very simple. And they're actually even ones you can do in your registered accounts as well, like your TFSA and your RSP and your disability savings plan or your RESP, all of those registered accounts. And the reason I veer to those strategies is because they are the safer ones, right? So the Canada Revenue has said, okay, well, we'll allow options in here, but we're only

going to allow you to do the safer strategies, right? And you said on the protection end, you can own a stock. Let's say if I buy any stock, for example, even if we say TD or another Canadian bank stock, and we're a little bit worried about an upcoming drop in the market, remember I mentioned that put option. You can put shares to somebody else, or you can buy a put, and remember I said put down. You're bearish. So think of it from the perspective as I'm expecting a stock to potentially go down. If I bought TD at, it's in around the $80 range or 87 or something like that

at the moment. If I bought it at 60 a couple of years ago, I'm like, oh man, I've got a pretty good profit on here. I don't want to lose some of that profit if it drops in the next little while. You can buy a put option and it's pretty cheap. It's like, this is where I can give you that insurance example. It's like buying insurance on your home where you don't want to have a disaster happen, like a flood or a fire. So you're going to pay a small amount, maybe a thousand bucks for a year to say, you know, Mr. Insurance company, you're going to replace and recover my entire house if it burns down, right? So it's a much better value. This is the same thing. You can use a put in the same way. They always go in multiples of 100. So every option contract you'll see quoted as it might be saying like $2. So that would cost you

$200 on an option for TD. In our TD example, if I say, well, if TD drops below, you know, $80, I could use something like that. If it drops below $80, I want it to be protected if it keeps going down. I could pay a couple hundred dollars, and if it drops down to $60, I've got that ability to sell my shares at the higher price, at the $80 price, within that time frame I bought that option for. That makes a lot of sense. That makes a lot of sense. That makes a lot of sense. Kind of going back to some terms that I think, again, people will come across. And I think you kind of mentioned some of

these at the beginning of our interview. There's things called, you know, strike price, exercise price. What exactly do those mean? Yeah, that's a great question on the examples I've given. We've already talked about a lot of them. So let me identify them for you. So when I said the TD example, sometimes we'll leave that out at first because we don't want to confuse people too badly on the strike price and somebody's like, what's that? So think of it simply as we bought TD at $60. That was our price to buy the stock originally.

And now it's trading at around $87. When I said I could buy a put option at $80, that's a strike price. So that number that I'm picking, and I can pick whatever number I want that's available, and it's something that's called an option chain. So think of it, all that is is just a list. It's just a big list online that you can see that shows these are all the options available for expiring this date. And there's some other ones expiring the next date. Usually they're in monthly circulations. So I could say in the next 90 days, that's my expiry date.

So that's an expiration. If nothing happens within that expiry date, if I'm buying the put, it's not necessarily a bad thing. It's like buying insurance. I was covered during that time period and I lose the $200 that I might've spent to buy that option, right? If the stock does go way down, there's another thing you can do where you can sell the option itself. You can sell that ability to sell the stock at the higher price. You don't have to sell your stock. You can sell the option and recoup some of the unrealized loss, right? So that's another thing too. But all those pieces in there, there's the expiration date and the strike price is the price that you're choosing to have that contract specified for. And there's another one called premium,

which is very similar to when you think of the insurance example. It's very fitting because when you buy insurance, they call it a premium as well, right? You're paying a premium to be covered to make a claim and to claim a brand new car or claim your replacement home or something like that if something happens. So think of the put as if something bad happened to your stock, you've paid this premium, this $200 premium that I'd mentioned. That's the cost or the fee that you're paying. Plus there's a commission. There's normally a 999 commission with TD Direct Investing. Plus there's a small fee. There's $1.25. It's a per contract fee because you can do multiple contracts depending on how many shares you have.

But you're now getting that right to, you paid that premium to make a claim in a way, to now be able to sell that stock at the higher price. All right. That's very, very, very helpful. Very, very helpful. I guess one thing, you know, I feel like we've kind of talked about some of the benefits, like you mentioned, the kind of insurance and protection factor. What are some of the downsides? Because I feel like that is always the front of mind. It's like, what could go wrong? What are some things I should be wary of? If I do want to kind of try this out for myself, so I can avoid some very costly mistakes. Yes. One of the most important life lessons, right? Thinking of what could go wrong. Everything could always go wrong, right? Murphy's law. No, and that's so true. With options, it's really important to know the risks of options. And that's where we say,

I know as educators, and I've been dealing with this for a long time, I'll sometimes say to people, oh, you know, options aren't that risky. It's no big deal. There's this and that. There's defined risk and things of that nature. And they kind of look at you like a deer in headlights. Like, what do you mean? There's definitely tons of risk here. But I think if you understand the risk, that's where it can sometimes even be less than stock. And I'll explain why here in a second. But you were saying, you know, just to answer that question first, one of the risks is you can lose 100% of your investment in a short period of time, right? Yeah. So, you know, because there's an expiration date, you know, with your stock, you can hold it forever

and it may go down and it may go up and, you know, over 80 years, it may go up a lot, right? You're still a shareholder, you hold those shares, but with an option, because there's that definitive date that's going to happen, that's when there's no value to that option after that date happens. Okay? So that's one of the biggest risks. And I know we're not getting into the complex stuff, just we're keeping it really simple. But if I buy a call option, and I'm hoping the stock goes way up, if nothing happens, if the stock doesn't go way up, it's not in my interest to exercise that call option because I could buy the stock in the open market for, you know, basically a lower price, right?

Yeah. Or I mean a better price, I should say. Like I could just buy it right now on the market and then, you know, it didn't go up so I lost. Why would I want to exercise it to get it at a lower price, right? Or a higher price. So in this case, you would lose your premium. You'd lose that amount you paid. And oftentimes it's not a lot. It can vary. It depends on the stock. It depends

on the stock itself. If it's an extremely volatile stock like Amazon or Tesla and things like that, the cost to buy these options is going to be higher. But if it's a stock that doesn't move as much, the cost is going to be a little bit lower. So that's your risk. So knowing the fact that you can lose 100% of that if you're not correct on which direction you thought the stock was going to go in within that short amount of time, then that's a big risk right there. And you just kind of saying that it kind of does sound similar to basically betting like you are kind of betting on a certain outcome. But I guess you could really say that, I guess, about any kind of investing. If you're just buying individual stocks, you're betting that hopefully the stock will go up in price. But with options, you're betting it either

will go up in price or down in price. Yes. Yeah. And it's speculation. You're absolutely right. And there's different strategies that we get into that have a little bit less, what would you call it, or a bit higher probability of being successful. And some are not as high in terms of probabilities. And you start to learn that as you trade options on which ones to identify ones that are a little bit more higher probability than others. But just like stock, you don't know for sure what direction it's going in, right? And then you also have that smaller time period. But as I did say, the big advantage, though, however, is sometimes it's a defined risk that people really like. And what I mean by that is if I were to buy Tesla stock, for example, which is in the hundreds of dollars, and I needed to buy a decent number of shares to make a profit, I might look at buying 100 shares, but I'm going to be spending $50,000, $100,000, whatever the amount is, US. I'm going to have to have that capital. And then there's a risk that that could go down quite a bit. It could go down $20 a share, and now I'm out $2,000, $3,000,

$20,000. But if I buy the option for $500 or pay $1,000, some of them can be fairly high. So you'd want to know your risk, but you know exactly what it is. If you lose it, that's all you're going to lose if it goes the wrong way. If you end up making it, the potential is unlimited on a call option, your potential gain. Which I guess is also a good reminder, don't invest more money you're willing to lose in something like this. Don't bet your retirement on this. Because I feel like there's so much, especially just what's going on with social media and just I feel like crypto and everyone is just talking about hot stocks and all this kind of stuff. Everyone wants to still get rich quick. But the thing is, it's still not a good idea to, you know, bet your house on that.

Because then you won't have any place to live if it doesn't go the way that you expected. It's just about, like you said, it's about having a, you know, defined risk, but also just like, really, you know, having a good foundation or core portfolio and just Yeah, really understanding the risk that you're actually taking and understanding Are you actually okay taking that risk? I think a lot of people just get so excited about the prospects and not don't really take into account. But you know, the other side of it, what could, you know, happen is someone who's, you know, invested in some speculative stocks and ETFs, it does hurt it like I feel like the at least for me, the feeling of hurt when you lose money is so much greater than actually making more money. Oh, for sure. I know we've

talked about that on some of our, you know, portfolio management classes, they I guess it physical causes physical pain for humans to see losses, right? You've probably heard of that before. Yeah. It's just something to be mindful of. One thing I kind of want to talk about, this is something that I remember learning when I was doing my studying about derivatives, was I feel like maybe options isn't crazy popular with retail investors, or maybe it's just like a community I'm just not part of, but it is a big thing with like institutional investors because of kind of some of the benefits you mentioned. Do you want to kind of share, you know, when I talk about these institutional investors, like what does that kind of mean and how do they use options for, you know, kind of their bigger

purposes? Yeah, that's, I think you're right on that to some extent, Jessica, but there's also a huge trend I've seen over the last, because I've been in the industry for about 16 or 17 years now, that options have gotten a lot more popular. It's a bit more popular in the US for retail investors because I think they're a little less risk averse as we are as Canadians. But I've seen it a lot since I've started working with the Canadian retail investing where there are those more basic strategies. There are some people that are getting into the risky side. And like you said, that's kind of, not that it is gambling, but they're ones that are okay with taking a pretty big risk and they can be quite successful, especially when you see a trend in a market, like a bullish trend that we saw from pretty much what 2009 until 2019 there's certain strategies you can do that are we're not going to go into today but there are some more complex ones complex ones that

people can look at that are very beneficial for those if you have a pretty good portfolio you can generate income and do that over and over again so that's something that's really popular but also in the rsps we'll talk about a strategy, which I can mention a little bit later, that you can do that's fairly safe and generate income there as well. But I think that's where the trends are. Some people are using it because they don't have the capital, they're buying calls and buying puts. But I think income is a big trend and generating additional income, especially when there's interest rates that are almost nothing, right? We've seen that for so long.

You can't put money into a GIC or a bond or anything like that. You might still want to if you're extremely sensitive to risk, but if you're somebody that's saying, hey, I want a better return than this, but I don't really have the capital to do it in the market, but I do have some stock that I can maybe generate some income on using options. So I think that's among retail investors is extremely popular. When you said the institutional side, I've never really been involved in that directly, but I do know from just my experience and some of the reading I've done that, yeah, they do a lot of hedging with options and they'll do things that, uh, you know, they might buy certain positions of stocks and, and, uh, they can do what's called writing a put where they can buy a stock. If it goes down to a

certain point, if it doesn't go down, they, they ended up keeping the income, but they're doing this on a huge level, like a massive level. And if you ever watched the movie, like the big short and those ones that are pretty popular, that's what they're talking about, right? They're using options in that. They're using, you know, put options in many cases, or they might be buying calls, all of those things, depending on where they think the market's going to go. They're doing this on a large level to have huge profits, to leverage profits. Yeah, I suggest everyone, I rewatched The Big Short recently, and it made so much more sense now than the first time I watched it. I'm like,

I don't know what they're talking about. I highly recommend everyone rewatch that movie after listening to this episode, because I think some of these will actually be, it'll just make a lot more sense. But yeah, no, I want to, since you mentioned, so RSPs and income, can you kind of share what does that actually look like? How can people generate income through options? I'm curious what that actually means or looks like in a practical sense. Yeah, certainly. And this is what my favorite one as well, because of the fact that it's something that's simple and it doesn't hold a lot of risk. You know, there are risks to it. And I will explain those. I don't want to, you know, say that there's no risk. Some people will learn this strategy and think, oh, man, there's no risk.

This is all, this is great. I love it. There still is some risk. There's always risk, yeah. Yeah, there always is risk for sure. But what you're referring to, Jessica, is there is a strategy called a covered call. So anybody even after, if you're after this podcast, you wanted to research it and that's something you want to take away from here, look it up and it'll make sense.

There's all kinds of videos we have within TD Direct Investing and there's tons of stuff online. But think of the, there's a strategy called a covered call. And the reason it's called that is if you own a hundred shares of any stock, so lots of us do, you know, let's say if it was a bank stock or whatever it may be, there are going to be options available that people can buy. Remember, there's that fee, that premium price I can pay $2 or $1.50 or whatever amount is there for that particular

stock. But you're taking that approach of being the seller. So if we go back to our example earlier on with the car, remember Jessica was going to say, well, give me a thousand bucks and I'll hold on to that car for you for the next three months. She was a seller, right? She was a seller of an option. In this case, it would be like a call option. And you're saying, well, if the value of that car went up, or I'm saying if that value of that car went up, I'm going to come back. I'm going to have that 20,000 bucks and I want to buy it. And then I can go out on the market and sell it at a higher price, right? In this case, this is like that call scenario. So what you're doing is you're selling calls against stocks you own. So as long as you have a multiple of a hundred shares and you could do it for a thousand shares for 200, as long as they're in a hundred share multiples

and you could collect that income. So I could collect say $200. If that happened to be the price of that option, usually you'll select a strike price. That's a little bit higher than the current market price of the stock. So if we go back to TD again, we're looking at around $87 a share. If I looked at an option chain, this is my list of all the prices, and I saw that a $90 call option in the next four or five months is selling for $1.50, that means I could collect $150 and then I get to keep that $150. And the worst thing that could happen with the option itself anyway, is that if the stock

goes way up, I just have to sell my stock at $90 and I also get to keep that premium I collected. Let me rephrase that too. When I say the worst thing, remember, you're still going to have the downside of your stock, right? Your stock could go down to zero, but you had that risk anyway, right? You had that if you owned a hundred shares of TD, it could go down to zero even without the option. So if you're comfortable with possibly selling one of your stocks, you can collect income. And then once that option expires, you get to keep that income and you get to keep the stock. That sounds interesting to me. Yeah.

Out of all the things that you've talked about, I'm like, that speaks the most to me. Maybe it's the income part. Oh, it is great. And you can do it over and over again. Sometimes there's not a huge income on really safe, you know, not volatile stocks like TD and other ones, but there's some where if you're saying,

okay, I got to pay a $10 commission plus this little fee, it's usually about $12 per covered call you're going to do. If I could collect $5 or $2 or $1.50, whatever, that's $150 I'm collecting. If I have to pay $10 or $12, that's still a pretty good amount you can make in a month, right? Yeah, definitely. Definitely. So just a few things left. I don't want to keep you too long, but I'm sure we can talk for another hour if we really wanted to. What are some misconceptions that people have about options and options trading? I feel like I probably brought up a few, but in your opinion, especially talking to some kind of beginners, what are some misconceptions that you kind of see over and over again? Yeah, I'll definitely go into that. One

thing, just to rewind real quick, Jessica, on that covered call, one thing I just want to make sure people know is I did say there's limited risk,'s limited risk and it is true. Remember we said there's risk on the downside of the stock, but the high side, what you're really doing is you're capping the high side. So this is why a lot of people get the perception. Oh, there's no risk in that. That's awesome. I can just sell my stock for a little bit higher. I get to keep this income. I was planning on selling that anyway. The only risk that can happen, and I learned the lesson the hard way myself when I first started doing options, is there's a stock called Potash. This was way back when a Canadian company. And I had bought it around $70, I think it was, a share, just like 100 shares.

And I sold some options because they were such good premiums. And I was like for a $90 call, and there was still a good amount I could collect. But what ended up happening is Potash went to like 200 within that 60 days. So now you're forced to sell that stock at that $90. And there's not really anything you can do about it. You can try to buy back the call option, but you're going to pay just about as much as the profit you're going to lose. So it's what's called an opportunity cost.

But a lot of people think you kind of ignore it because they're thinking, well, that's all right. At least I made some profit. You know, I bought it at 70. I'm selling it at 90. I collected some income. So that's why it's, it's pretty safe. And one you can do in those registered accounts, but just remember if you're ever getting into that situation, just don't say I didn't warn you. Yeah. Yeah, exactly. Exactly. Well, I think that's like,

in general with trading or just investing in general, we'll always kind of wish we bought, you know, something cheaper or sold it when it was higher, like you're always gonna be like, but it's like how many of us have actually, you know, bought right at the bottom or sold right at the top. I mean, I've only done it once and it was sheer luck, not strategy. I'm just like, oh, I want to buy these stocks and I have the money to do it. And I bought it right at the bottom, like almost right at the bottom. And my husband's like, how did you do that? I'm like, I didn't. I just wanted to buy it that day. And it was a good day, I guess. Exactly. You have that 2020 vision, right? Like that hindsight is still always 2020.

It's just luck sometimes. But yeah, sorry, going back to the misconceptions, because I'm sure you see a lot. What are some misconceptions that you see often? Yeah, I think a big misconception is the fact that, you know, you can get rich really fast. Like you said, there's so much risk to that. I've seen it happen before. And like you said, it's just, it's a fluke, exactly like you just said. You know, I've had friends in my call center that I worked in for years and years would try this all the time, but you'd only hear about the ones that went extremely well, right? So there is a thing where you can look at very cheap options and you can buy a lot of them. And that's where I think people get into trouble. Because remember,

that whole amount could disappear. And the probabilities of it going above that higher, it's usually going to be a much higher strike price in the case of calls. And sometimes you'll see options on the list that are only 5 cents. So 5 cents times 100, that's $5. Like, oh, wow, I got 500 bucks in my account. I can buy 100 contracts. This is know, the probability is extremely slim that it's going to go up to that price. There's a reason it's priced so low. And that's where people are losing, you know, not huge chunks of money, but it could be a large piece of money to them. Right. So that's a misconception where people are thinking, you know, they're watching this on YouTube or they're watching it on other influencers saying, you know, I made a bazillion dollars on this particular call option. And so be very cautious of that. I think that's a

misconception that you're going to get rich really fast. People will talk about their wins. They will rarely talk about their losses, especially if there's someone on YouTube who's trying to sell this idea that they're this investing guru. Look at me. I've made all this money. Why would they want to talk about their mistakes? Yes, absolutely. Right? And you have to remember that when you're thinking of anything.

You're so right, Jessica. Yeah, we don't know the whole story. Just be aware. Everything with a grain of salt. Exactly. Absolutely. And even though I say there's a defined risk in some cases, make sure it's a risk that you can handle.

So if you're thinking to yourself, every time you jump into that option strategy and that you know the maximum loss is this cost I just paid for this option, be prepared that that's going to be gone, right? It is a great strategy and it's a leverage strategy, just like sometimes you might say you have to leverage debt in your life. You have to buy a house, you have to get a mortgage and things like that. So I think it's a strategy that way you want to consider what are the risks. And you don't be prepared to, to know what will happen in both sides. Exactly. Right. But I think from a misconception, there are a lot of people that think it's extremely risky, and they'd never touch it. And

that's okay. I think that's definitely can be risky and they'd never touch it, and that's okay. I think that definitely can be valid in a way because if you're somebody that's risk-averse and hesitates or moves away from risk, you want to only dip your toe in the water, right? Or definitely know everything you need to know before you go towards options. So I think that's, me personally, I think it's a misconception that it's just gambling and it's way too risky for anybody to ever do for the average investor. But I think if you're educating yourself, it can be something that's another tool in your tool belt for investing. Absolutely. Absolutely. Well, before I let you go, since you are an instructor with TD, what are some things that people could look forward to if they look kind of at the website? I'm going to link to it in the show notes, everyone, if you want to check it out. There's lots of masterclasses, webinars and on demand videos. What are some things people can expect if they want to kind of dive a little bit deeper into this world of options? Yeah, there's a huge level of webinars that we've done over the years. I think there's probably maybe 40 or 50 that we have archived on the website. So yeah, it's amazing how much information is there. But I would say

start at the beginning. There are a lot of videos we've done on our learning center. There's going to be a whole section that has, you can filter by all kinds of things. So if you get in there and you're like, oh, well, I think I need to back up and know a little bit more about stocks in terms of stock types and order types and things like that, that'll be there. But if you feel like you're at the level, I want to jump into options, click on, there's a filter where you can filter by option videos that are just short, you know, four or five minute videos to say, okay, here's what a call is. And here's what a put is and similar things that are going to expand on what we talked about today. But after that,

after you get through that, then jump into, there's webinars on options, mistakes to avoid. And, you know, it's going to show you visuals and things like that compared to, I've talked about some of them today, but it's going to give you a great education into, you know, what do you want to look out for when you're starting with options? Yeah. And I think that visual component, especially, you know, it's great to have this podcast to explain things, but I feel like sometimes, especially when it comes to that point where like, I want to see what a trade actually looks like, that visual component is so, so helpful. So people can find more information at td.com slash options education month. But again, I'm going to link to it in the show notes.

Well, I think that's kind of, I mean, I still have questions, but I'm going to leave for a future, future date. Thank you so much for joining me, Brian. It was a pleasure having you on the show. Oh, it was my pleasure. Thanks a lot, Jessica. And that was episode 285 of the More Minded Podcast with Brian Rogers, client education instructor with TD Direct Investing. As we mentioned throughout the

episode, you can check out all of their free webinars, masterclasses, on-demand videos at td.com slash options education month. Get your education on, might as well. I mean, again, it is free, so nothing to lose, right? Only things to gain in the form of knowledge. Okay, so make sure to check out the show notes for this episode, jessicamorehouse.com slash 285. Just a few things I want to share with you before I let you go for the week. So number one, reminder if you don't know, and because we are going to be wrapping up this season, you know, soon there's about a month left of this season. I am doing a huge book giveaway featuring all of the books that have been featured on this season of the podcast. I'm giving

away copies of all of the books. So if you go to jessicamorehouse.com slash contest or check out the show notes for this episode, jessicamorehouse.com slash 285. You will find a link to go and enter to win all of the books. You'll win only one of the book. I'm not going to give you all of the books, basically, but you can enter to win any of the books and good luck to you. There's a lot of books, so I think you actually have a pretty good chance of winning. And I will be drawing the names once this season closes. And I will, if you are the winner, obviously, I will email you directly to let you know. But how to stay in the loop is by getting onto my email list, jessicamorehouse.com slash subscribe is how you can do that. Another way is just by actually signing up for my free

resource library. If you go to jessicamorehouse.com slash resources, sign up, make an account, you get access to all my freebies. You also get onto my email list. And that is how you can stay in the loop. Because like I've mentioned, you know, sometimes I record these episodes in advance. And so I can't tell you about all the new things happening. And there's lots of exciting things I'm working on, especially during the summer as I take the summer off from the podcast. I'm definitely going to be doing you know, a few webinars and some exciting things that I want to let you know. And so the only way I can let you know is if I can email you. Obviously, you can also follow me on social media.

And typically, I will kind of share that information. But sometimes it's like last minute. So I'll just shoot everybody an email. And speaking of social media, make sure to check me out on Twitter. You can follow me at jessi, J-E-S-S-I underscore More morehouse or Instagram more importantly, because I'm so close to getting to 7000. Hopefully by the time this episode airs, I'll get to that point. I'm just trying to get to that stupid 10,000 just so I can get that swipe up. That's all I want. That's all I want is the swipe up, you know. But anyways, you can follow me at Jessica I Morehouse. You can

also follow the podcast specifically at More Money Podcast on Instagram. On Twitter, it's at More Money Pod. So make sure to follow me there. I'm also on like Facebook and LinkedIn. So you can follow me there. But another exciting thing that you may not be aware of is I have a YouTube. I do. I do. And I've been having a lot of fun with it. I've been putting out a lot of videos. You can find me at jessicamorehouse.com slash YouTube or just Google Jessica Morehouse in YouTube. Or I think like the actual proper link is like youtube.com slash C slash Jessica Morehouse one. So that's why I don't say that because that's like a mouthful. Anyways, putting out so many interesting videos. For example, I recently put out a video about my retirement

account, my portfolio, what the returns I've gotten over the past four years. So you may want to kind of be curious about that and check it out. So yeah, that is pretty much it for me. I will be back here obviously next Wednesday with a fresh new episode of the podcast. So thank you so much for listening. A big shout out to my podcast editor, Matt Rideout. And yeah, stay safe. Enjoy the beautiful summer-ish weather. And I will see you back here next Wednesday. this podcast is distributed by the women in media podcast network