The Trillionaire Mindset - 3: How to Lose Money

Episode Date: October 18, 2021

Special offer for The Trillionaire Mindset listeners: get 10% off your first month at https://betterhelp.com/Trill  You’ll get a free stock worth up to $70 when you go to https://Public.com/TRILL and create an account. Get started today! *This is not investment advice. Offer valid for U.S. residents 18+ and subject to account approval. See Public.com/disclosures/ Trillionaire IG: https://www.instagram.com/trillionairepod/ Trillionaire Twitter: https://twitter.com/trillionairepod TMG Studios YouTube: https://www.youtube.com/tinymeatgang TMG Studios IG: https://www.instagram.com/realtmgstudios/ TMG Studios Twitter: https://twitter.com/realtmgstudios BEN https://www.instagram.com/bencahn/ https://twitter.com/Buncahn EMIL https://www.instagram.com/emilderosa/ https://twitter.com/emilderosa *DISCLOSURE: THE OPINIONS EXPRESSED IN THIS VIDEO ARE SOLELY THOSE OF THE PARTICIPANTS INVOLVED. THESE OPINIONS DO NOT REFLECT THE OPINIONS OF ANYONE ELSE. THIS IS NOT INVESTMENT ADVICE. THE VIEWER OF THE VIDEO IS RESPONSIBLE FOR CONSIDERING ANY INFORMATION CAREFULLY AND MAKING THEIR OWN DECISIONS TO BUY OR SELL OR HOLD ANY INVESTMENT. SOME OF THE CONTENT OF THIS VIDEO IS CONSIDERED TO BE SATIRE AND MAY NOT BE CONSIDERED FACTUAL AND SHOULD BE TAKEN IN SUCH LIGHT.*

We'll share it for just getting hammered this morning. I'm Ben and as always Fossil bear or something walk a walk a Before we get started, please check the disclaimer in the description. It's very important for everything that we're gonna be talking about You know, it just says that we're not professionals and please don't sue us, etc. Go for it if you want. Let's dive right in. We got these, yeah, sue us. Who cares, right? We've got trillions of dollars to afford proper counsel. We had some more funny comments to read this week.

Just right off the bat. We want to read a few. Yeah, let's pull some up here. Faraz Ahmed says, the white guy looks like a dollar store Lego man. He's got the Lego haircut and the monotone voice. The Hawaiian guy is also cool. You don't look like a Lego store Lego man. He's got the Lego haircut and the monotone voice. The Hawaiian guy is also cool. You don't look like a Lego man to me. I don't know who they're talking about.

I don't know who they're talking about either, but he's got the wrong channel. You or what? Well, no, I'm not gonna disclose what my race is here, pal. We don't have a Hawaiian man working on this. Yeah, I don't know who's Hawaiian. But I think you're the dollar store Lego man. At least I hope because I'm getting a lot of flax in the comments as we'll see.

Also, does that imply that there's a premium Lego level dollar store Lego? I mean, what I'm like a cheap Lego man. I resent that. Yeah, you look even worse than a regular Lego. I'm just going to operate like this the whole time. This is Lego hands. And I said you have a monotone voice. You fully did a-

I don't have a monotone voice. You fully did a- You did two very good impressions last. Two. Oh yeah, I did the wrestling man and I did a- Nick Cage. Let's go to the next comment. What have we got here?

Emil looks like Gladys Barrajikian. Barrajikian. Barrajikian. And we had to look this woman out. This one hurt. Apparently she's a member of a... of Parliament in Australia or something, so I googled it and they're not wrong. They're not wrong.

And... But I need to be wrong. I don't want to be mean. I'm sure she's not happy that she looks like me. No. Somebody's got a tweaker, let her know. And for just audio listeners, if you can't see, Gladys Spirit jickly and she kind of looks like,

like a young George Clooney, but I guess a bit more rugged and handsome. She's also racially ambiguous. You look at her and you're like, I don't know what I'm getting. I would imagine she's Armenian. Because of the last name. Yeah, that's Puzom Shewis,

but she could be white. I've never met someone with an IAN who wasn't. But yeah, I shouldn't assume. I, it's okay, I look like the guy who played Napoleon Dynamite, John Heater. A little bit. No, like watch, pull them up real fast. John Heater, H-E-D-E-R.

It's like the same person. I'll take off my glasses. I have, even though I have glasses. Yeah, yeah, it's the same guy. Wow, you do look like... I look a same person. I'll take off my glasses. Even though I have glasses. Yeah, yeah. It's the same guy. Wow, you do look like... I look a lot like him. If you take the glasses off, I know.

I feel like I look like Mill House. But he's kinda handsome when he's not. Are you saying that I'm not or that I am? No, no, no, just that it's not. Yeah, you... No, no, so you were trying to make me feel better by saying it's all right. I look like John Header.

Uh-huh. But he's not. No, no, so you were trying to make me feel better by saying it's all right. I look like John Header But they're saying I look like Gladys Baradjicklian. Yeah, I do look like some women I look exactly like my mom, but I don't have photos of my mom obviously if you were to Google her, but there I do remember being compared to My brothers used to say I look like Hillary Swank and boys don't cry. But that was my old license photo because I had short little bangs on accident. It's not accurate. Anyway, what's our, what we got, do we have any more comments we wanted to look at?

I'm looking forward to a meal trying to make a Justin Bieber reference every week. Yeah, that one's gonna be tough. I don't know if I know any other one or stuff. There's baby baby, who. And I did never say never. Yeah. I don't think I have anymore. Maybe I'll slip peaches in somewhere, but don't tell them.

Is that a song? Yeah. That's like his most fit. I don't want to sing it. I love peaches. I'm Justin Bieber. I love peaches in the can. It's like heaches in the can.

It's like he's in the room. All right. Oh, here's one last comment that I really liked from Summer Wood. The government doesn't raise money through death. Ben just does. Huh. I'm getting nervous. There's a lot of people in the comments.

I think they're joking, but they are saying they might kill their parents. They better be joking because that is not a trillian or mindset activity to partake in. Like I said, hugging parents is very good. And something that should be done because your parents, you only got two of them. Sometimes one, sometimes one, sometimes none. So actually you've got anywhere between zero and two parents. And depending if you live in some kind of communal living space, you could have multiple parents. Yeah, if God is your dad or something,

I don't know if you ascribe to that sort of beliefs. God, God as many people's dad, they call me father. You sound like the big old boss guy. You are not my boss, you of beliefs. God, yeah, God as many people's dead. They call them like the big old boss guy. You are not my boss, you are not my God, you are not my father. Big old boss. Oh, bless him. So other people wanted to get to know us a little bit more

in how we met. Everyone wants to know how we met for something. Yeah. You want to start it off? We have a mutual connection that fatefully connected us. Sure. My very close friend said, what's his name? Who is this guy?

Should we tell him who it is? Sure, it's our friend Phil. It's our friend Phil. He said, I got this, and he's never done this to me before. No, I don't think anyone really has. He was like, I got this guy I want you to meet. I think you're gonna like him. What does he look like?

You said, no, I said, okay, and then I just kind of didn't really think about it. Yeah, he said the same thing to me. He's like, you got to meet my friend to me. You guys are both idiots. You're both gonna hit it off. You both are gonna love each other. Just know what you gotta come.

So he invited me over to a party at your house. Right, and he comes and I was like talking to people and he comes and he's working at the end of the night and he comes and grabs me and he's like Ben's here. You got to meet Ben I was like okay, and then He just like put us together and he was like Ben. This is me. Oh me. Oh, this is Ben. And then we just kind of went Hey, hey man, nice to meet you. Thanks for having me. And he was very disappointed because he thought, he thought sparks were gonna fly. Yeah, and I was a little disappointed too.

I was like, damn, this guy doesn't like me. He's like, he's not like immediately being like, whoo, whoo, whoo, whoo, whoo, whoo, whoo, whoo, we're supposed to be friends. I didn't know what to do with it. Yeah, well, so then it kind of was a dud that night. The party continued, it was nice, and then I left. And then I don't even remember the next time I saw it,

we might have gone to the beach together. It definitely all came together at the beach. Yeah, the beach was a big thing. We used to, yeah. We're gonna have to give a photo of the two of us at the beach wherein you are on my shoulders. Oh yeah, which we've done many times. Yeah, it's a fun bit where we went to the beach

just like every damn Saturday, this big group of us obviously Emile and I and then we fell in love with each other. Come on love. Good times. Became really close friends. Start climbing together. Yeah, climbing, bouldering. You're a much better climber than I am. This guy so strong. You should see him without a shirt.

You'll see it in the photo. Yeah, then try to call me Gladys Barer, Jiklian. Yeah, try to call him that without his shirt on. He'll just, he'll get those pecs going to doing the peck thing. We can both do that. I don't even know how to do it. You don't know how to do it.

You just wiggle your boobies a little bit. You think we'll still be as close to friends? Well, this is going on or you think we'll just become like work friends. And I'll be like, that's just Ben, we go to like escape rooms together. I certainly hope not, man. We've already climbed once since this thing.

I need to give it. I don't know. I had that party. I feel like we didn't talk that much at it because it was like, we're always talking now. There will be more parties. And there will be more talking. And plenty more podcasts. God willing.

Right. If you keep liking and subscribing, people, I mean, come on. Keep liking and commenting and rating five stars, doing all the things, smashing your keyboard, smashing it, breaking it. So next on the docket, we wanted to do some education. Yeah. I want to, you know, so on the first episode we went heavily into your story. Yeah. And it sounds like and we'll eventually get to yours. Yes, yes, story. Yeah. And it sounds like and we'll eventually get to yours. Yes, yes, yes. But people are really, they want this kind of like 101 type of thing. And you, you got into, you mentioned that you started, things started clicking for you when you got into the options trading. Yeah. And I want, I want to know more about that. Everyone wants to know more about that.

What options are there? Yeah. I want to know everything about it. Everyone wants to know more about that. What options are there? Yeah, I want to know everything about it. It's a, I think everyone understands the basics of stocks, you probably have stocks, you own a little bit in a company, you watch it if it goes up you sell, if you lose too much dump it. Right. So options are a thing that for me really made it all click

in the sense that it opened the floodgates for realizing just how big the whole thing is, the whole industry, just how many moving parts there are, it is so much more complex than just simple buying and selling of stocks. There are mechanisms at work that just make you go, oh, whoa, there's way more ways to do things and make money and lose money. And there's so many more powers and influences that most people don't even realize exist. Right. And that's a big key to that is there. I mean, the big name is derivatives, but options are the thing.

Right. You've probably heard of options before. What do you, well, so options, I mean, there's options contracts outside of the context of stocks, right? It's a contract. You can buy an option in a house and be like, I want to be able to buy it for this price.

And then you pay for it. You Google something about options, because I remember when you Google options explain, there's a very popular video where they use buying a home as an example. And it's a good example. I think that's probably the most popular example. Yeah.

I'll try to dive in right now and explain what an option is. And then we'll get into the function of how they fit in with stocks and whatnot. And then some of my trades and how I use them and how it can bring you from just a little, using a little bit of money to make a lot of money, right? So an option is, oh boy man, this is gonna be tough.

This is gonna be complicated stuff you guys. It's complicated. It's complicated. I'll make it exciting and funny. I'm gonna try to, just, the biggest thing I always try to emphasize with this is just don't overthink it. It's a very simple, it's not at all complicated. I mean, it is complicated, but at its core, the concept is very simple. So I think it is simple, but then it gets very complicated.

Yes, it does. But so what is an option? It's a contract between a buyer and a seller. The person selling the contract is also known as the writer. They're writing the contract for you, the buyer. And it's basically giving you the right. It's saying, hey, you have the right to buy the, it's called the underlying, meaning like, if it's a house, the house is the underlying thing that we're writing the contract for. Makes sense? Yep. And it's locking you into a price at today's,

you know, it's locking you into a set price, but with the ticking clock element. So like locking you into, you know, $200,000 today and we've got this contract that says, yeah, you get to buy the house at $200,000, no matter what, a week from now on. even if the value shoots up to a million bucks, you get to buy it because you've got the contract. Hey, you said that you would sell it to me.

But you don't get that for free. You bought that contract for some premium. Right. I'm going to dumb it down to a very, very simple thought exercise here. I don't know why, but I want to use pudding. Okay. As an example. Let's say, let's say, let's say you're, I'm selling pudding. And I'm the pudding guy. And options are basically like coupons. You've used coupons before. I've used them. A coupon says what? I get a little discount on

something I want to buy. Yeah. It's either a discount or buying it at a set price. Like normally yogurt or putting, normally putting it. Yeah, yogurt on the brain, man. I've always thinking about yogurt. Putting is normally five bucks, but this little coupon says you can buy it for four bucks, right? But the thing is with options and these coupons is,

you don't just get them for free, you pay money for them. They are an entirely, they're stocks and then there's options. There's putting and then there's coupons. And the coupons, you can buy and sell freely, just as well as you can the pudding, just as well as you can the stocks. Right. And the price of the coupons is directly related you can buy and sell freely just as well as you can the pudding, just as well as you can stocks. Right.

And the price of the coupons is directly related to the price of the pudding. Is this a bad example? It's not bad. No, I got it. Yeah, yeah. So, okay, let's say I'm selling the pudding right now for $5 a pack. And you come to me and you're like, God dang, that pudding looks tasty. I got a big ol' thing, a tub of cool whip

that I've just been waiting to use to dollop onto that pudding. You put cool whip on the pudding. Oh hell yeah. Putting on cool whip on pudding is so delicious. I don't know if I've ever even had pudding. It's okay, it's good. So you come to me and you're like,

I don't really know if I wanna buy pudding just yet. It's five bucks, but the price could go up next week to $6, $7, $8, $9. I'd like to lock in that $5 price today. So I'm going to say, all right, man, I'll do that. I'm going to use this granola bars as an example. This is the contract. I lick my pen and I say,

Emil has the right to buy this putting for $5 and I'm going to give it a month. You have a month to use this contract. And obviously, that's putting a little bit of risk on me because it's a big pudding, a little risk on my hand. Oh my God. Sorry, sorry, sorry. So good.

That is pudding. Sorry. No, but it's true. It's putting a little bit of risk on my end because if I just give this to you, I could be shooting myself in the foot because putting shoots up to $10 next week, you come waving this thing in my face saying, Hey, man, you signed a contract. You got to sell it to me for five no matter what. So obviously I'm not just going to give you this contract for free.

I'm going to charge you. Let's say I charge you 10 cents. Does that sound fair? Fine. So 10 cents, you got the contract. Thanks, Bell. Right. Next week, let's say putting shoots to $6 a pack.

Ooh. And you've got that contract that you paid 10 cents for that locks you in at five, right? What is that contract now worth by itself? Don't make me do math. It's worth a dollar. Because it's the difference between the price that locked you in, five,

and the price that the pudding currently is, six, right? So on your 10 cent investment, you just made 90 cents profit, which is how much percentage? It's a 900% profit that you just made. My God. Versus if you had just bought the putting out, right? You would have only made, what is that?

20%. Okay. The $1 increase to $6. So now imagine if you had bought $5,000 worth of those... With a 900 percent? Yes. ...versus buying $5,000 worth of the putting itself, only making 20 percent on that. Does that make sense?

Mm-hmm. So now since you're betting on it going up, that's a certain type of option. It's called a call option. Right. The other type is when you're betting on it going down, because you can do option. It's called a call option. Right. The other type is when you're betting on it going down because you can do that. It's called a put option. It's the same mechanics. So if you bought a put option, it's called a strike price. Wait, but to a call is the right to buy. It's the right to buy. Put is the right to sell.

Yes. Right. Yes. You're selling short. And the puts are often managing Yes. Right. Yes. You're selling short. And the puts are often managing risk. Right? Yes. A put is what they call like a hedge. Because you're hedging your bet.

You're making, you're like, you're defining your risk a little, if you're just, I don't know if you've said this, but these are all, these little contracts. You're not obligated to do anything. These are the rights. You can buy them and sell them freely. Options are basically a side bet on the entire market.

You've got the horse race that is, I'm just throwing analogies all over the place. The horse race. I'm just sitting at the track covered in putting bet not a horse. I don't know what the fuck I'm doing. Your naked, someone's calling the cops. He got this guy yelling at him about putting in cool up.

He's never tried it before. They're trying to hose me off. Get all this putting on. Trying to buy tickets for 10 cents. We're trying to explain that the minimum buy in his 20,000. That'd be a very expensive horse race. But you've got the horse race itself that is the stock market. And it's a multi-billion dollar enterprise in itself.

And then the options market is equally big, if not bigger, people making side bets like, hey, I think that Amazon's going to go to 3000 by next week. And by next week is a key component here. There's a time, there's a ticking clock. So like, if in a month, the price of putting stays $5, the price of your contract is slowly going to deteriorate in value. It's going to decay. That's what they call it. It's going to drop to nine cents, eight, seven, six, five, four, three, two. Eventually it's going to expire worthless if the price of putting stays at $5. But if putting shoots up to $50 a pack, you're making out like a bandit. And then I'm screwed.

And I am what I'm doing is you the person who sold the option. Yeah, because I'm obligated, no matter what, I am obligated, contractually obligated to sell you the pudding for $5 a pack. Right. Now that's what's called a covered call because I own the pudding. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it.

I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not get to a nasty story about it. If I don't even own the pudding, I can still write the contracts. I'm still doing the side bet. I'm still going, dang, I see that guy over there.

He's got that pudding going for $5 a pack. I think that that pudding is going to go down in value. So I'm going to write a ton of options and sell them to people because I'm going to collect the money. It's called the premium. That's the price that you pay for the contract. Ten cents is your premium. And that's the premium that I would collect as the writer of the money. It's called the premium. That's the price that you pay for the contract. Ten cents is your premium. And that's the premium that I would collect as the writer of the contract. Is all of this making sense? Do you have it? Yeah, I'm just going back to the covered call.

That one you already own it. So no matter what, you're just losing the money. You already sunk into it. Yes. Naked call. You don't own it. You're going to have to buy the thing. That's dock to sell it at that price. Yes. So if I'm riding the contract and it goes up to $50 per pack, I have to fulfill my obligation to sell you the pudding. So I have to go buy it for $50 and then sell it to you. Yeah. Oof is right, man. Do you ever do naked calls?

Never. I don't even think you have to have a certain amount of money and you have to have a certain amount of experience to get your broker to give you permission to do it because if you screw yourself eventually you run out of money and your broker is going to be on the line. But there's all sorts of mechanisms in place to prevent that. They would likely just cut your position if it were to go against you. But I do want to know how you learned all this stuff first. Like where, like, is there?

It took me a while to really understand the mechanics of how it worked. And understanding them, once it clicks, it's like, oh, it's very simple. It's just, you know, the option kind of moves in tandem or not with the price of the underlying. The underlying is the stock. But did you have resources you were using or? Yeah, you know I'd Google it and still try to understand it, but the thing is with a lot of these resources online,

they really stick to a buy the book definition. So it's like, it is the right to buy or sell a stock at a given price within a given timeframe. And I'm like, that, okay, that makes sense, but just make it in English. Use putting. God, can you just put it? You just put it in anything.

I can understand anything if you put it in terms of putting in cool whip. Please, invest a pd, get your act together. It's insane. Yeah. The missed opportunity, everything should be putting related. All, it's the key to life. It's the key to life.

And make the putting whipped. And all is putting. Putting is just a concoction of chocolate and cream and heavy, heavy cream and stuff. I don't know, who cares? Okay. So like, I'll use my big Amazon trade as a great example. This is a story I want to...

And this was a really... Normally, you know, you can buy an option that has a week of time value. You can buy one that has a month of time value. You can buy one that has nine months, a year that can go out to like two or three years. So what do you think the price is gonna do the further out you go? Drop. No, it's gonna be higher, right?

Because you're buying more time. If I'm giving you a three-year contract. Oh, because I'm not gonna charge you ten ten. Because then at any point you can watch it go up. Yeah, the more time I'm giving you. There's a lot more. Yeah. I thought you met once already had the contract, what's going to happen to the price? Oh, yeah. I mean, the price of a contract is going to, is naturally just going to kind of go toward zero as the clock ticks down, as the clock winds down. And if the price of the pudding doesn't move up in kind, in time, the value of your contract eventually becomes worthless, or worth a lot. So on this particular Amazon trade,

how long was your contract? It was a single day. So they expire on Fridays. There are certain index options that expire Monday's Wednesday's Fridays, but for stocks, it's Fridays. There are bigger stocks like Amazon have weekly options. So there are ones that expire this week.

There are ones that expire next week and the week after and so on. So this particular day, and it all kind of ties into the next thing, it was insane. My rationale behind it was Amazon had gone up about 20% into this earnings report, right? Okay. It had risen for a month going up 20%. It was at all time highs. Everybody was anticipating a blowout quarter. That's exactly what happened in Amazon opened up that Friday, like, I don't know, 5, 10%. It was huge. It was the only green stock that day in a sea of red. It was like the first, the market had also gone to all time highs and then had started

to plummet this Friday. I mean, the market, the S&P 500 was down like two and a half percent, which is huge. Everything, I'm talking every single stock was blood red. And here was Amazon opening way high after having gone up this much. You remember I was telling you that it's that old adage by the room or sell the news, right? So that was kind of knocking around in my head. I'm like, how much of this move is still not digested by the market? Everybody's anticipating this blowout quarter. It has already gone up so much. And then it goes up even more on top of that on a day when everything is collapsing on a Friday. I think this thing is ripe for a drop. So I placed an $8,000 bet that by the end of the day,

Amazon would be below 1530 per share, right? And it opened at like 1560. So I needed to drop 30 points in three day, like by the end of the day. And I'm like, oh, this is a sure thing. Oh my God, it's already up So let's back up. Okay, you play some eight thousand dollar bet. Yes. I bought the puts right saying 1530 if it goes below I

Score if it stays above I'm screwed, right? Mm-hmm. So what does Amazon do all day? 1560 15 1550, 1540, bounce, 1540, bounce, all day, 1540, bounce. And I'm just watching my 1530 put contracts just rapidly go down to zero. Because I've only got like six hours left, five hours left, four hours left before they expire. That's it. And it's looking increasingly like, oh man, it's just gonna stay and not do anything. And I'm just pulling my hair out and I'm like, ah, I guess I was wrong, you know, last $8,000. Last $8,000 crap. I guess I'm gonna keep my job after all, because the whole thing was, if I do well this week and kind of like, you know, I'm waiting for a sign from God

that, you know, whether or not I keep my job. In the last hour of trading, like right, I was living on the East Coast, three o'clock, market closes at four, 1540, 1538, 1540, 1537, 36, 35, 34. Plummets down to like 1505. Wow, so the options that I had bought that morning for, I don't know, a couple bucks went to like, they basically 10x, a little over 10x.

I bought them for like $2.50, meaning I had to have it go, at least $2.50 below 15.30, which would be my break even price, 15.27 and 50 cents. Does that make sense? Because I bought them for $2.50. I need it to, you know. But so once it plum, it's what do you do? You have to sell it.

I sold the conch. Real quick. I was freaking out. Because by then it was like 30 minutes till the. It just absolutely water-falled. And it dropped all the way down to, yeah, like 1,500, something like that. And I stupidly sold like, I'm gonna sell a quarter and then another quarter and then another, another,

and yeah, then I was like, oh, shh, $92,000, something like that. It was like just above 90. You son of a gun, you did it. And they had gone, I was down 95% at one point. Just all the money was just gone, but then yeah, at the last minute. So that's like the miracle of options,

that's what can happen. But that also speaks to a big risk because the people writing those contracts to me is a combination of just other traders out there, but it's also like big banks, right? JP Morgan, Bank of America, the big, smarter, more capable, more knowledgeable traders out there are using their models to predict

where the price is gonna go. They're selling me those contracts, right? So it's in their best interest to what? Hope you'd lose this bet. Yes. And how are they going to do that? By keeping the price, doing, I mean, obviously,

they don't have the money and resources to single-handedly keep a stock like Amazon afloat. But you can see how many contracts there are outstanding on a given day at a given strike price. And that can give you an idea of where the price might not want to go below or above. Right. So if everyone's betting, if everybody's, they're doing it. I said last time, if everybody's betting on a certain outcome, it's more likely than not. Sometimes that it's more likely than not, sometimes that it's not going to happen.

It's not going to play out in that way. But the opposite can happen where you have like GameStop, where people just bought so many options that it just got out of control. Right. And there was a lot of naked selling with those options, where people were just banks and whoever were writing these contracts for which they didn't own the shares. And then when the price goes crazy,

they have no choice but to buy the shares. And it creates this feedback loop of buying shares to cover the contracts that you've just written. And it's like a wet bar of soap, you know, you're just squeezing it ever, I've just written, and it's like a wet bar of soap. You're just squeezing it ever. I'm trying to wash myself, and this bar of soap is just slipping out of my hands.

Right. Is this all track? Yeah, this all tracks. If you've got questions about this, good luck. Well, so I get questions from friends be even on the comments or tweet me. How does Ben do this? Yeah.

So I am curious if you have a, if you explain to, you explained it a little bit in your Amazon trade, but I think people are curious what your strategy is here, but I imagine it changes every time, right? You're just, yeah. Sometimes I'm buying ones that expire that day on Fridays. Option traders call them Lotto Fridays because it can feel like you're playing the lottery. It's a lot of where it's like, oh man, I could pick up this contract for five cents. Right. And you just got to hope that you get just some random surge or collapse that would shoot those from five cents to 50 cents or five dollars.

And I've seen it happen. I mean, it happens all the time, but it's a total crap shoot. Right. But I think that's the problem. Everyone's looking for an answer, but there isn't a good answer. You are, and I mean, it's all, I mean, you could be up 500% in one minute and back down to only being up 20% the next. It's all, excuse me, it's all just about risk management for your own. It's about knowing when to ring the register.

Like a good rule of thumb is if you get a double, if you're up 100% sell half so that you've at least covered the cost of your initial position and then the rest is just writing free. Okay. You know, yeah. And then, you know, you can sell half of that and then so on and so forth. But God, it is, it sounds simple. It is the hardest thing in the world to do. Right. I think that's the problem. Everyone here has been made $90,000 in a day and they're like, oh yeah, that was so lucky. Right, let me add this. That was so lucky.

Yeah. I could have exercised, I mean, the good discipline thing to do would have been to cut my losses within the first hour. Right. But I didn't, because I did see now, the other half of this is I had a plan and I stuck to it. And if you're an ambitious trader out there

who's getting started, having a plan and sticking to the plan is crucial. Like if price action starts to go against you, go back to what your plan was. Reflect on what your time frame is. Did you stick to your plan? Because it sounds like you were ready to. I did.

Because I, I, I mean, everything made sense to me. And I might also just be falsely assigning. I mean, these things might not have actually been the reason why it dropped. But for me, it was, it was plain as day. It was like, who is paying 1500 and 50, 60? I think it actually shot up to 1600 that day. I'm like, who is paying 1,550, 60? I think it actually shot up to 1,600 that day. I'm like, who is buying Amazon at 1,600 dollars a share?

All-time highs, after going up 20% into this quarter, while the market is looking like it's about to absolutely just drop for God knows how long and who knows how far. It just felt like you're literally gonna be buying the top. And what other news is gonna keep Amazon going thereafter? I mean, now it's obviously at like 3,300 to share, but at the time, that's what my thinking was.

Damn. Yeah. Suck it, Jeff Bezos. Well, Jeff Bezos! I don't know if you got one over on Jim. No, I don't. I don't know if you got one over on Jim. No, I don't think anyone's getting one over on that guy. So there's a hedge fund. He's technically not a hedge fund.

He managed, he managed, excuse me, 290 client accounts, meaning a hedge fund you're your liability as a participant is limited to what you put in. Whatever you put in, it could go to zero, that's it. But this guy was like logging into people's accounts and trading on their behalf. James Cordier. James Cordier. Therefore, if he screws up or does something bad, as the owner of the count, you're on the hook.

So this guy had a website called optionssellers.com. And what did he do as the name implies? He sold options. He sold not. Not only that, this guy, I mean, the story is so funny. This guy was like the options guy. He literally, he wasn't. He had a textbook, like from a draw hell.

He fancied, that was good marketing on his part. He was just a guy who, his whole thing was selling naked call options on natural gas futures. And futures are just a type of option. It's just, you're betting on the future price of things like natural gas, oil, gold, wheat, things like that, commodities.

So this guy, his thing, I think it was around, it was the time of year was October or November, just a couple of years ago. And he's selling, his whole strategy had been selling these naked options, just collecting the premium, the options go to zero and that's it. Just over and over. Right, he was doing pretty good on just that good. And then like a decent return. Yeah, and it works like 90% of the time.

Right. But there's that 10% long tail possibility that it can go against you and that's exactly what happened. And he lost, I think, yeah, he lost $150 million. He lost so much money. His clients not only went to zero in their accounts, but they ended up owing more money on top of it. They had to cover it.

Yes. They were on the hook because I pull up a chart, there's a chart here if you scroll down just a little bit. That's the chart for the, well, I mean, this mean, this is an ETF for it, but it's funny. They get so cute with the symbols. Do you see what the symbol is for this? Boyle. Oh, yeah.

They're like Congress when they make a new law. It's always stands for something. Yeah, it's always some kind of like the Patriot Act, everything stands for something. Oh, really? The P and the A and the T. Yeah, it's wild. The P stands for Patriot, the A stands for Patriot, the T stands for Patriot, R stands. Do you know what the insider trading law is called?

No. The stock act. Really? And stands for something. S stands for stock. Okay. T stands for stock. No, no.

Can you guess what it is? No, I don't. Stop trading on congressional knowledge. Wow. Yeah, I'm impressed. So, we've got this chart here for liquid natural gas. So, as you can see, he was selling, so like you got 400 there on the right. I'll just use that as an example.

So he's selling, he was probably selling like the $400 contract, assuming, oh, it's never gonna get to 400. And part of his reasoning was, it was forecast that the winter was gonna be warmer than usual. Therefore, people aren't gonna be heating their homes and all things like that. There wouldn't be much of a need for natural gas. But sometimes these events happen and I put the little uh-oh there because it started

to break out and kind of like consolidate in that little strip where, oh crap, it's not going down and then look what happened thereafter. And I put the, you know, no, because that's where he got absolutely blown out. So let's say he was selling those, and again, this isn't exactly what he was selling, but just to use this as an example, because this does represent natural gas. If he was selling those $400 contracts for, let's say, 20 bucks a pop, what happens when natural gas shoots up to 700? Oh, right here at the top.

Yeah, Jesus Christ. So those contracts that he sold naked for 20 bucks. And he didn't own any of those? No, no. So, and then he was actually killing himself too, because he had to buy all of those that's a contract. Which was in turn pushing the price higher, which was also continuing to screw him.

But what ended up happening is he posted an apology video on YouTube. Oh yeah, it's pretty, you know, I thought I was really gonna enjoy watching a hedge fund manager cry into the camera, but it's not enjoyable in any way. It's the most bizarre. He was fine.

He wasn't on the hook for any of it. And he didn't have insurance. He didn't have any sort of hedge to... I also tried to find another video of him because I mean, we'll play a little bit, but I want to know if this is how he always talks. I've never seen someone talk like this. I think he was so in shock about what had just happened.

Over the course of just a couple days, boom, gone. There's a, so we're gonna play some clips here. I designated a couple of time signatures. Here he is. Curtin Grace and Michigan. I'm sorry to say that we never got to go bass fishing. He's talking to all of his clients. He's talking to all of his clients.

He lost their money. And he's pointing out a few individuals Just saying like I'm so sorry And he pauses a lot because the whole thing is he says these are not my clients. They're my family. Yeah, they're my family So he calls them all out. Yeah, and it's just devastated. I was just I was looking forward To going fishing and now we're not gonna do yeah I'm not wall-eye fishing on Lake Erie. It was not nearly as satisfying as had I got to go with you.

Because now you're hitting me. Client in Kansas City. Thank you so much for the barbecue sauce. Thank you so much for the barbecue sauce. I will enjoy it and thank you all of you in the future. This is what I'm talking about. For Larry and Rex.

It's for, yeah. Seconds at a time. It's traumatized. Because in his mind, you're thinking, ah! Ah! And he's got his cuff links and his nice watch and there's some other clips or great.

I don't know if he, if we'll get to, I mean, the video is 10 minutes long. Yeah, it's 10 minutes long, Pat. And he talks about his, he says that his dad used to drive an 800 footer, which is a sailboat. I was eight, I was eight feet. Oh yeah, yeah.

I can't even picture it in my head. It's so fucking big. But, and he has all these metaphors for sailing. He uses the metaphor that you all entrusted me as the captain of this ship. And every day I was steering it's nice and slow until one day a rogue wave hit. And I wasn't able to anticipate it. He's saying rogue waves, but my absolute favorite is he says he took all his clients with

his calls on speaker so that he could keep his hands like this the whole time. Boy, James. What an absolute psychopath. And he's fine now. I mean, he's got, I read an article. He's got like his, his house in Tampa Bay, Florida, or something. And is there one more clip of him that I put some more time signatures here?

Let's... So many of you chose to entrust in us the ability to navigate in the world of investing. Ugh. Come on, buddy. every time we spoke of positioning your account, the best we could. I referred back to my father. I used to say 800 footer. Okay, I can't watch this anymore.

And 800 foot. So this rogue wave is something that you, okay, so this is, there's a little bit of a lesson here too. Never entrust your money to someone who's not this kind of person who promises, like just do a little bit of vetting. I don't know, I don't just avoid. But I think that's the, like I think what you're saying about the marketing thing, I think he did do a really good job of, you know,

he was on, I think he would go on CNBC. He was on Bloomberg, or yeah, CNBC or Bloomberg or something. He had the book, it like got, you know, they did three different editions of it. It's like, and he was option sellers.com. This was the guy. If you wanna do options, he's always gonna get you your returns.

And the thing is with options, and this is a cautionary tale, is the major, I don't know the statistics. It's like 90% of options expire worthless. That's just the game. And yeah, it's, it can be more lucrative to be on the selling side of it. But if you're gonna do that, you have to have,

you have to be hedged, you have to have something in place to protect you. Like if he had bought some call options a little further out to protect him, it would have mitigated his losses and it would have made it fixed so that if it kept going up, the call options that he had would have offset

than making things. So you're saying he wasn't actually doing a good job of looking out for a horrible thing. I mean, he was caught with his pants down. Yeah, I don't know. And he keeps, and he goes on to describe, he keeps saying that I was looking out for a rogue wave. And he was like, I would go home and have a glass of wine

and check my, and dinner, he He would just like look for rogue waves. Yeah. What are you looking for? And that's the danger of things like commodities because they can be closed at that time anyway. Well, commodities trade at all different hours. Commodities are fun. I would actually like to do that at a future time where like if, for example, if you buy a barrel of oil and oil futures contract and let it and keep it until

expiration, you will get a barrel of oil. Let's buy a barrel oil. We should buy a pork belly, a barrel of oil, a thing of wheat, coffee, and just play settlers of Catan. There's an interesting onion futures story too, where onion futures got banned from being traded because there was one guy years ago who like cornered the market and just he made onions worthless like you couldn't give them away because of what I don't know he like fixed the it's a whole thing we'll have to do that another time but we could do an

episode on the onion king yeah but the onion king there's another story that I wanted to share. Oh, the ETFs? Yes, about, I believe it was from that same day that I traded Amazon. It was in February of 2018, and there's a name for what happened. It was called, people call it the Volpocalypse or the VIXplosion. Do you know what the VIX is? VIX? It stands for the volatility index. Do you know what volatility is? Oh, yeah. It is the measure

of how volatile it's based on the S&P in the pricing of options in the S&P, but all you got to know basically is that another name for it is the fear index. That when the VIX is high, it means that it's a little tumultuous. It's chaotic. Up and down, Constellate. I don't know what to do. And when the VIX is low, things are, oh, excuse me, nice and steady, unlike you. Unlike me. When the VIX is low, things are calm.

The market is generally rising, you know, roughly, that's basically what you got to know. using, you know, roughly, that's basically what you got to know. And there are ETFs that trade based on all sorts of things, but there are and were ones. Should you explain what an ETF is? An ETF is called an exchange traded fund. It is a fund that trades on an exchange. Yeah, but it's like fixed to a certain commodity. Yeah, there are. There are a bunch of different, on a bunch of different things. It's not like owning one. Yeah, an ETF like the Spy SPY is an ETF for the S&P 500. And it's basically, instead of buying the S&P 500 itself,

you are buying the ETF for it, which is the same thing. It's the basket of stocks that comprise the S&P. It's the 500 stocks that you are buying in one handy little mechanism. All ETFs have a prospectus that outlines how the pricing works, what it's based on. In some cases, there's an expiration date, I believe. There are rules in place that govern how the thing

trades, right? So there were these, there exist things called inverse ETFs that do the opposite of the thing that it measures, right? So like for the VIX, there were these inverse ETFs so that when the VIX goes down, the ETF goes up, right? So it's just a bet. It's just a bet. It's, but it's, it's inverted. Right. And these, there were a couple, the symbols were XIV, which is clever, because it's the backwards of VIX. And there was SVXY. And both of them were mechanisms for shorting the VIX via the means of going long these inverse names, right?

And there was complacency involved at the time because people were just kind of yeah, so if you, sorry if we scroll up here I just want to read this so. read this. So leading up to early 2018, the market was totally complacent. It's just new highs, trucking along every day. And the VIX was like in the low teens, which is so low, it's just like there is absolutely no fear out there. Nothing's happening. Everything's calm. But that's a little dangerous, because people were shorting every little time it would pop up. Oh, it's another time to just like short the VIX via buying the dip on the inverse as it just keeps going higher,

right? The SVXY. So, like I said, with each drop in the VIX, the inverse ETF would keep going higher. And it all, the inverse thing almost became a proxy for the market itself. Sorry if this is like boring, by the way. I know. to fucking...

Everyone's asking for it. Yeah, everybody's asking for it. So the risk that nobody accounted for was that the VIX was so low that the likelihood for it to double suddenly is like very possible. Because it's a lot easier to go from 10 to 20 than it is from like 50 to 100, right? And in the fine print of these inverse ETFs

was basically that if the underlying, if the thing that is based on goes up 100% in a day, this thing is worthless. That's it, it's just worthless. And there was this small little hedge fund based out of Denver that knew that and placed a modest bet. So like here, this lays it out perfectly. Most conventional investments have theoretically unlimited upside potential. You buy Amazon at 10

and it could go to 10 million, right? That leaves inverse ETFs vulnerable to complete loss of value if the investment that they track posts a daily gain approaching 100%. Because their whole thing is, we do the opposite of what it does, right? Right. So what's the opposite of 100%?

Zero. Zero. Right. So in February 2018, there was a sudden drop in the market and a sudden spike in volatility. Here's the VIX. Look at that. See all that complacency.

At the end of 2017, going into the beginning of 2018, and then you had a little bit of a pop, and then it jumps up a little bit, and then that one day where it went from a low of 17 and a half to an intraday high of just about 37 and a half represented more than a hundred percent. So what happened to the SVXY, the next chart we have pulled up here,

the inverse volatility index, you can guess it absolutely Collapsed on itself. Wow. Yeah, so these guys these smart hedge fund guys had bought put options This is not accurate pricing because it has since done splits So the price isn't adjusted for what it was but just for the sake of this. Let's say they bought the $300 puts for like $0.10 $200,000 worth they bought. And they turned that into $17 million in like a single day because they saw what no one else did.

It was like a mini big short kind of thing where everybody's just greedy and complacent. And there's some cautionary tales. I found there was a subreddit dedicated that people had just made their entire trading careers out of shorting the VIX. And there was this guy, oh and here's the corresponding chart for the S&P that day. That I mean one of them is in there is the accurate one, but I think it's that first big red one, that first full, yeah, right there. That was that Friday where I showed it on Amazon because I'm like, you kidding me? It's just, it's in a free fall.

But there were these guys, there were people all over this subreddit saying that they just got completely wiped out. There was one guy who had said that he lost like, he wasn't in the army or something and he had taken $5,000 and turned it into like 3 million. And then all in one fell swoop, just gone, just poof. And he- You ever worried this is gonna happen to you? No, because I'm not doing anything like that. It's that, it's kind of, there's a, it's like picking up pennies

in front of a steamroller or nickels in front of a steamroller. It's like, yeah, you're getting a, ooh, a nickel, ooh, a nickel and it adds up. But, but you slip and fall, you can get run over by a murderous, homicidal steamroller operator. Yeah, steamroller operator. So and that's another cautionary tale because this guy had said that he had family and

friends who had entrusted him with their savings to make money. Don't do that. Don't do that. Seriously, if you know someone who's like, oh, I've got a family friend or someone who is, you know, has had some success in trading. Do not risk your money. If you want to take a small percentage and give it to them to play around with, that's your thing. But do not entrust your livelihood in someone who doesn't have the professional experience or the wherewithal to avoid a rogue wave like that.

Well, this is a problem and we've talked about this a little bit. You know, I feel bad when everyone wants to get in on this so bad because it seems like this easy way to make quick buck, but it's not. It's, number one, it's not easy. Like, I think it is so hard. I think I have a good idea because we're close friends and you tell me all this stuff, but I think You know people hear about the highs and I mean you've lost a nice. I've lost so much money.

I'll have to do some of my biggest losses and they're devastating. Oh, yeah. And they're soul crushing because people will be like, you gotta let me talk to Ben. Like he can show me how to do it. And I'm like, look, I told you, you heard about the $90,000 day, but like I've seen you like stressed out, like I'm down a lot and I haven't been for a while.

I don't think people are really. It's trading is like 70 to 80% losing. You're losing so much. Right. The key is managing those losses, knowing when to cut them, having rules in place, having a plan to follow that, okay, I'm going to cut it at 10%, or I'm going to cut it at whatever your number is. Right. And then the other side of that, that is equally hard is taking profits when you have them. Because like, oh, I'm up, you know, I'm up $5,000. What if I hold on to it and I can make 20?

And people operate like newbies, at least how I did, that's like, oh, I'm not gonna sell them and hold on. It's hard on both sides. And you don't know it until you're doing it with actual money in real time, clicking the buttons, doing it for yourself. It is,

it's really hard and I'm laughing because on our screen here, I was seeing that our trustee producer was reminding us that Succession. Yeah, so well is back. I hope that session. Yeah, so what is back? I hope that what I hope that everyone because there have been a lot of comments looking for this type of thing and I hope Yeah, I hope we got some of their it's very complicated. It's very complicated. They can options are are very advanced and they take a lot of time and don't look on Wall Street bets and get enticed by people who are yolowing their life savings into things.

There's no glory in that. And it's just, but I think I had said in the first episode of, I said something like, you know, that if you don't have a lot of money, there is no way to really get in and make some money on the stock market, but this seems like a way where you can kind of make a little. Yeah, it is definitely a way to leverage what little. But it's also risky. Yeah, it's super risky because you're basically, you have to be right, you have to be directionally

right and you have to be right within a certain time frame. And that is so difficult. It's hard to put into words unless you try it for yourself. Because you've got to, it's like Wayne Gretzky said, I don't see where the puck, I don't go where the puck is, I go where the puck is going to be. And that's what options are, you've got to go where the puck's going to be. Damn, I thought you were going to do the other one. What other one? I love hockey. Which is what Wayne Gritzki famously

said, well, it's two hockey references. You're going to keep doing Justin Bieber. I'm gonna keep making hockey references. The Canadian said, hey, thanks for making it so I can understand this. Well, no, the, you know the famous Gratzki one. What? You miss 100% of the shots you don't take. Oh, yeah. Which would have been horrible advice for this.

Yeah, it would have been horrible. So go to where the puck is. Yeah. Don't take every shot. Yeah, don't take every shot. I mean, you gotta learn to skate first every shot. Yeah, don't take every shot. I mean, you got to learn to skate first, too Yeah, learn to skate Move to Canada. Yeah

So for our last segment here, we wanted to because people think we're recording these early. Yeah, no, we're recording them last Morning. Yeah, morning. They go out. It's it's wow, it's 6 a.. I'm not getting we didn't have time to pick up a newspaper We were gonna hold up a newspaper. Yeah, I didn't have time But what we can do is talk a little bit about sick last night. You see the Succession Unbelievable, I can't believe Kendall did that number one I can't I try to do Kendall sure dad Sorry I think can I try to do Kendall sure dad Sorry

He's not gonna be sorry here. He's not sorry And what's his name Logan's oh Fuck oh, I can't I don't want to I can't do him very well. I'm Logan Roy is my least I feel like Logan Roy was a good one. Yeah, I guess. Who's your best one? I like, I like doing what's his name. Roman. You know, this guy, that, I don't know what's going on. You don't know what's going on anywhere. Because if you haven't seen, I've got a shill for myself here, I guess. I, I, a couple of years ago.

Oh my god, this is two years ago. I know it. It's terrible. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be able to do it. I'm not going to be here, I guess. I, I, a couple of years ago. Oh my God, this is two years ago. I know it. It's terrifying. It's absolutely terrifying.

If you're a fan of succession, go on to my Twitter page at Buncon and check out the, I always thought it was Buncon. Bun? Why? Why Bun? Because one time years ago, I went to a Mexican restaurant and there was a thing where you could fill out your address to get 20% off your birth there or something. And I thought it would be funny to put bun instead of bent.

And I forgot about it. And then a year later, I got a thing in the mail. It says bun con. Happy birthday. Come to Casa Vega for your birthday. I was like, I don't know my name's not, I'm not even that bad. So that one really paid off. That one really paid off.

You bet, bet high on that one. Yeah. Plus someone else has been taken. And I don't, I think, I think it might be a soccer coach in the UK. Oh, well, if you're tuning in from the UK, try to get Ben's handle back. No, no, the guys really nice. We follow each other. No way. Yeah, yeah, it's names, yeah, it's names Ben. You back. No, no, the guys really nice. We follow each other. No way.

Yeah, yeah, it's names Ben. You guys talk? I've tweeted in a couple times, I think. I got to get over to the UK and go to a game and get a picture with this guy. He's apparently a great coach. Amazing. Yeah, people are very happy with him.

But anyway, yeah, I wish I could do, I wish I had to make up in the wigs to do the shvon and Marsha. Can you do shvon? Not really, it just was making a face and... Can you do Tom? Tom Wombs? Tom Wombs, Gens. Wow. It's basically just putting your, it's getting puppy-eyed and eyes up

and getting a little bit of lip and your bottom teeth out and just, you know, he's kind of breathy and chive. It's just that. That's a really good talk. The thing is with impressions like that, like I can only do a couple more. I know it seems like you kind of peed around after the whole thing.

I can't talk like him. But other ones like, you know, what's his name? Um, uh, geez Louise, uh, Culkin, what's his name? Karen Culkin. Yeah. Roman. Okay, give me a Roman.

I can do it. Yeah. He's the, he, you put your shoulders up and you just make your voice high. Yeah. That's it. And you do a little bit of confidence, confidence face. That's all it is. All right.

Okay, so we won't spoil anything, but we watched last night. It's a very good episode. There's a playing crash and everyone dies. All right, we weren't gonna tell them. It's a limited series. Yeah, one episode. So if you guys didn't watch last night, sorry.

But, man, I can't believe it's almost eight o'clock in the morning on Monday. Oh no. Geez, I'm tired. October 18th I can't believe it's almost eight o'clock in the morning on Monday. Oh no. Geez. I'm tired. October 18th. Can you believe it's already here?

I can't believe they make us wake up this early. My birthday's coming. It is coming. Yeah, Scorpio. I can't get you anything because the supply chain shortage is up there. Yeah, it's okay. I don't. Yeah.

I've got plenty of chains at home. Chains. Oh god. Damn it. Anyway Anyway this has been a great episode three. We thank you very much for tuning in. Please tell all your friends. Apple Apple podcast listeners step it up. Yeah. Please thank you everyone at Stanford Business School. Yeah, you suck. You suck, Stanford. Who needs ya? $50,000 a semester and for what?

We're gonna get, we're gonna be at a bar and some guy who played Water Polo at Stanford is gonna kick our asses. So, your nerd is gonna be like, I wanna Stanford, I respect that from Mark. I pay $50,000, I'm gonna be a big lawyer man. I'm gonna be a big doctor. I haven't decided yet because I'm a good big, big, big, loyal man. I'm a big, big, big, big, big, doctor. I haven't decided yet because I'm only an undergrad. And I, you know, you really can do podcast. It's very good.

And I tell you, you make him funny, me, and I don't know what this is. Perfect Stanford, bro. He's yoked. He's a huge dork. This guy. My name is Teddy, you know. Okay. Okay, well, that's it.

Thanks, everyone. We love you. Goodbye. Love you. I, you know? Okay. Okay, well that's it. Thanks everyone. We love you. Goodbye, I love you.