Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted by Melanie Schaffer each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
In this exciting series, you'll have the rare opportunity to join Melanie Schaffer as she connects with prominent thought leaders for captivating discussions in real-time. The Lead-Lag Live podcast aims to provide valuable insights, analysis, and actionable advice for investors and financial professionals alike.
As a dedicated listener, you can expect to hear from renowned financial experts, best-selling authors, and market strategists as they share their wealth of knowledge and experience. With a focus on topical issues and their potential impact on financial markets, these live unscripted conversations will ensure that you stay informed and ahead of the curve.
Subscribe to the Lead-Lag Live podcast and follow @leadlagmedia on X to stay updated on upcoming live conversations and to gain exclusive access to a treasure trove of financial wisdom. Don't miss out on this incredible opportunity to learn from the best and brightest minds in the business.
Join us on this journey as we explore the complex world of finance and investments, one live unscripted conversation at a time. Be sure to like, comment, and share the Lead-Lag Live podcast with your network to help others discover these invaluable insights.
Stay tuned for the latest episode of the Lead-Lag Live podcast, and remember to turn on notifications so you never miss a live conversation with your favorite thought leaders. Happy listening!
Lead-Lag Live
Collar Strategies: Protecting Downside While Keeping Upside Alive
Learn how professional traders use the collar strategy to protect against downside while keeping upside potential alive. In this session, Greg and Eric from Options Animal break down:
How collars act as a dynamic “insurance policy” for your portfolio
Why risk management matters more than stock picking
Real trade examples with Apple & Nvidia
How to think about diversification beyond “more tickers”
Perfect for investors who want smarter strategies, real-world adjustments, and consistent returns without blowing up accounts.
Start your adventure with TableTalk Friday: A D&D Podcast at the link below or wherever you get your podcasts!
Youtube: https://youtube.com/playlist?list=PLgB6B-mAeWlPM9KzGJ2O4cU0-m5lO0lkr&si=W_-jLsiREjyAIgEs
Spotify: https://open.spotify.com/show/75YJ921WGQqUtwxRT71UQB?si=4R6kaAYOTtO2V
Sign up to The Lead-Lag Report on Substack and get 30% off the annual subscription today by visiting http://theleadlag.report/leadlaglive.
All right, let me start off by just saying thank you to everybody here that's joining several advisors. I see several individuals. Some of you are familiar with our webinar, some of you are not, but this will be a very good educational conversation that is going to be led by my colleague, Melanie Schaefer, with the good folks of Trader Oasis, Trader Oasis and Options Animal talking about options, and they know a little bit about this space. So Melanie's going to lead off. For those that are here for the CE credits, I will be emailing you after this webinar. Just check your email. I'll get your information. I'll submit that information to the CFP board and, if you happen to be among other people that are into options or maybe are curious about options, tell them that this is happening. It's going to be a relatively quick, 30 minute conversation, but one that I think everybody will enjoy. So with that, I will hand it off to Melanie and thank everybody again for joining.
Speaker 2:Thanks, michael. Yeah, and welcome Eric and Greg. As Michael said, it's half an hour, so we're going to get right into it. Guys, let's open with something every investor can use right now the collar strategy. How do you get real downside protection while still keeping upside potential alive in a market that's this jumpy?
Speaker 3:So I'll take that one. Eric, you know the collar trade is a very dynamic tool if you think about it. You know, if you go to Vistapedia or Wikipedia or wherever you want to, to get the textbook definition of a collar, it's a. It's a very locked down, safe strategy where you're combining a protective put option and a covered call option to basically collar your stock Right when whether it's an earnings fear that you've got in front of you, whether it's a potential big sell off in the market because you feel like the AI bubble is going to burst, and it's a pretty static trade, and then people are familiar with it from, again, the textbook definition. But I think the way to do it that gives you a little more dynamic approach is don't think of it as a static trade, but rather think of your three instruments that I just described. You know you've got your long equity position, your short call position and your long put position, but think of them as individual instruments that you can move in and out depending on the trend of the stock. You can structure them in different strike prices and different time frames to really fit your investment objectives. So, if you wanted to still give yourself downside protection, it's a strategy that you can employ that gives yourself a lot of flexibility.
Speaker 3:I stumbled on the trade when the internet bubble was bursting. Gosh, it's 25 years ago now. I guess it's been a long time. I've been doing this for a while and it really changed my perspective on risk. I don't have to try to time the market perfect when I use the collar and that's what I love about it is it does think of it this way it's an insurance policy that I can put on and take off when I see the hurricane coming or just during hurricane season. You know, if you live in Hurricane Alley there in Florida, you're in hurricane season right now and you know, fortunately we haven't had a lot of them, but again, knock on wood, it's still really early in the season. But if I was, if I could just buy insurance on hurricanes during hurricane season. That's essentially what the collar trade allows me to do. It's a really cool trade.
Speaker 2:Talking a little bit more about risk management and the mastery of that. Most retail traders blow themselves up with sizing. Can you walk me through how a size positions can make such a difference and can be such an expense, if not a disaster?
Speaker 3:Position sizing is important the bigger your portfolio gets. Obviously, when you're you know, when you're trading several million dollars, if you've got a larger portfolio, it's important to not to have all your eggs in one basket, but that's sometimes difficult when you're a retail trader and you're trading a $25,000 account. The beauty about the collar trade is the position sizing. You can still manage risk without position sizing. Again, the traditional RIA model tells you to diversify, and every investing house is a little bit different. Some might say I only want 2% of any asset allocated into one equity, or I might be okay going up to 10% allocated into one equity, and a lot of times your decision-making process is defined by your client too, as to what their investment needs are.
Speaker 3:Again, the beauty of the collar trade is I'm not using position sizing as my risk management. I'm using options tools combined with my equity. So, to be quite honest, I could have my whole portfolio in just Apple if I wanted to and still manage risk. And that's again. It all comes down to risk management and how you want to approach it. Now, the bigger you get, you know you're managing a couple billion dollars. Maybe Apple's a little bit too much to say I want all of my money just in Apple, and so you're going to spread, and it's not for risk management, to be honest. It's more for opportunity, because there's other opportunities for growth outside of just Apple that you may want to expose your portfolio to. So for me, position sizing isn't as much about risk management as it is opportunity management.
Speaker 4:You know, I did like to piggyback on top of that. And when you talk about position sizing and a lot of people think position sizing they think capital and that's because the vast swath of traders out there are looking at equities only, and so when you trade an equity, you buy stock. Let me, your maximum risk is zero, is whatever you paid for the stock, it could go to zero. And so, from a position sizing standpoint, you know, if you use traditional metrics of, you know maybe 2% or 5% per instrument, or you know equity that you're trading to your portfolio. Certainly, if you've got a $25,000 portfolio, you're really limited, or we have people that are trading a $5,000 portfolio. However, the beauty of the collar trade is that we will want to. We don't want to focus necessarily on capital, but we want to focus on risk. And Greg mentioned buying a put, and a put is literally an insurance policy, and there's people who trade options for a lot of different reasons and you can trade options for speculation and there's certainly a lot of that going on. We can talk about that as as as an approach or as income, but you can also combine it and do risk management, and as an example, I was just looking at NVIDIA right now. So a trader could go out and buy NVIDIA for $170.65 a share right now and get a December put at $170 and a $180 short call. So one of the benefits of when you're trading options is it's a benefit, but it's also a challenge is we trade more than just stock direction. Too many people focus on stock direction. We're also trading or making money off of time. So, theta, if those of you that are familiar with options and volatility vega, so we can make money off of options. And you talked about volatility and it's been mentioned here Options become expensive when volatility is very high. We see implied volatility go up. The VIX is a good idea or a good example of an implied volatility measure that everybody pays attention to, and we know when the VIX is high, options are expensive. So when you go to buy and put, it's expensive. But if you're selling a call as well, it's expensive too.
Speaker 4:And this caller trade that I'm looking at right now on NVIDIA, an investor could go out and do this trade with a total outlay of $17,833 and, quite literally, because they have a long put at 170, between now and December expiration, the maximum that they could lose is $830. I'm sorry, $883. Literally $883. Cannot lose more than that. And if you just wanted to sit in this trade and try and reap and it's a theta positive trade, it's a bullish trade, so it makes money if the stock goes up as well. So you, greg, mentioned previously dynamic and that could be a trade that literally you could go, you know, go on a cruise for the next three months or whatever, not come back until you know. Here we are in December and worry about this trade and see whether you're making profits or not in it.
Speaker 4:So this is the point that I want to get across is shifting your focus from just looking at capital but also looking at risk. And that's where we can really dial in with a collar trade, the risk component. And from a traditional portfolio management standpoint, risk management is diversification. Right, we hear diversification all the time and certainly diversification has its place in an options car type portfolio.
Speaker 4:It does make sense to have some diversification, but it's a very blunt and crude instrument to say that I'm going to have four different sectors and if one goes down, you know this other sector, you know might, might not. If one sector goes down, it does, you know the other three don't. Well, that works until, like you have, the global financial crisis, when the best performing sector was healthcare was down 23% and during that period of time I I my portfolio was up 35%. That during the global financial crisis, it's uh. I was loving life because you can actually structure the collar to be literally anything can be a bearish collar, can be a bullish, can be a stagnant collar can be a bullish can be a stagnant collar and I want to add to that performance in 2008.
Speaker 3:Because I've known eric for a long time we worked together for a long time I know that you were not positioned to bearishly. You weren't, you weren't uh, you know brad pitt and uh, michael burry from, uh, from the big short, and you knew what was coming and you were short credit default swaps. You know right. I was not there, not that you were betting for the collapse.
Speaker 4:I thought it was. You know I'm an eternal optimist. I thought it was over. I'm like, oh yeah, it's going to get better. We're turning around. This isn't the bottom yet. This isn't the bottom yet, but some of the best trades that I've had have been when a stock goes down and right. So in a collar trade, we're selling a call someplace, which means we're going to sell our stock. And you know, this is something that I think retail traders need to get over is is it OK to sell your stock? And if you're going to make, you know, 30 percent annualized on a trade, that might be OK, you know, making 30 percent annualized to sell your stock, it's.
Speaker 4:It's interesting how much confusion there is on covered calls. Barron's wrote an article about three years ago and in there I can't find this article and I wish, because they took it down. I wrote a letter to the author and said hey, you made a big mistake. But this guy said the risk of a covered call is if the stock goes higher and you sell your stock. And, ladies and gentlemen, let me tell you that is the exact opposite of risk. That is, if the stock goes higher and you sell your stock.
Speaker 4:And, ladies and gentlemen, let me tell you that is the exact opposite of risk. That is where the maximum profit is attained. Now you may not want to sell your stock, and maybe for tax reasons or some other reasons, and there are prudent things to adjust. And actually using a collar trade is pretty interesting because if you buy back that call, so you sell a call, stock goes higher, that call ostensibly becomes more expensive. If you don't want to sell your stock, you buy the call back and you book a loss. So there could actually be a tax benefit without selling your stock, realizing a tax loss harvest off of the call. So there's a strategy that works there. But I think most of our clients at Options Animal recognize that hey, selling your stock is something you should celebrate because that's where you hit the maximum profit.
Speaker 2:Yeah, so I want to get a little more into this and talk advanced trade adjustments. Craig trading Apple is your specialty. Show us how you'd plan the trade to fight risk and then adjust. If a stock sells, the news step by step, what do you do before, during and then after? If a stock sells, the news step by step, what do you do?
Speaker 3:before, during and then after. Well, I want to talk a little bit about Apple. I love the stock. I've been a fanboy for years and years. I mean I was a fanboy when it was just the iPod, not just the iPhone. That's how long I've owned Apple and traded it.
Speaker 3:I'm very concerned about the fundamentals of Apple and I believe Apple, from a from a product development standpoint, is losing the edge that they've had for going on almost 20 years now because they've failed to develop. I mean they're trading at a forward PE of almost 30 right now, whereas their earnings growth is somewhere in the 8% range, 9% range, forecasted for the next nine years. I mean that's an expensive stock. I know there are other companies that trade with higher PEs. You know NVIDIA, another one of those we just talked about but the difference with NVIDIA is their earnings growth is in the double and triple digits, sometimes quarters, and so it's easy to justify a higher valuation.
Speaker 3:So for me, unless Apple absolutely surprises us with and again it's what's the name of the? It's called the like Jaw dropping, Jaw dropping, Right, yeah, Jaw dropping. I hope they surprise us and that there is something in there, but the market right now doesn't show that it is. I mean, if you look at the current 30 day implied volatility on Apple, it's at around 21 right now, which is historically pretty low. So from a trade standpoint that actually makes it interesting to trade the event, both if the event becomes a disappointment or an excitement. So you know you could structure in an equity trade. If you own the shares, you just go buy the stock and you buy a married put along with it. You go buy actually, look at, I haven't looked at an options chain yet, I've got a vanilla collar right set up here on Apple.
Speaker 3:Have you got a vanilla collar? I was going to say a vanilla collar might be the best way to play. Well, that's great.
Speaker 4:So Greg's background his dad was he's a farmer from Idaho. He's also a fabulous fly fisherman. But you knowreg grew up watching his father trade wheat and so selling options around futures. He came about it from a different perspective and greg's been doing this his whole life, just teaching other people how to trade options. I looked what greg calls a vanilla caller. It's really where we start.
Speaker 4:People say this is this is a caller to look at now real quick. So if you think about what makes up a caller, it's a long put in a short call. And if this is a, this is a collar to look at now real quick. So if you think about what makes up a collar, it's a long put in a short call. And if you think of a matrix in terms of money-ness, so in the money, at the money, out of the money. And then you can think in terms of duration, it could be short-term, intermediate or long-term. So if you put that together, it's it's a nine by you know it's a nine square matrix, a three by three matrix, so you can have your put anywhere in there. And the same thing with a call, you can have it anywhere in there. So technically there's 81 different versions of a caller trade and the first caller that I mentioned is a caller that does well. This NVIDIA structure does well. If NVIDIA goes up, it's got protection to the downside.
Speaker 4:Now Greg has taught me and this is I've been doing this for 22 years, working with him taught me that if you're around an earnings event, the type of caller you probably want to look at is a 45 day at the money long put and an out of the money short call. That's maybe 120 to 90 days, and I've got one set up right now that the stock. The worst, the absolute worst thing that could happen is if the stock went sideways all the way till expiration you would lose $239, literally $239. Capital outlay on this trade is 23,781. But I've got a. I'm looking at a long put at 240 in October monthly expiration. So October 17th, 240 long put for 735. A December 19th, 250 short call for 747. So those two just basically pay for each other.
Speaker 4:This trade if the stock goes down, you make $218. If the stock goes up, you can make somewhere on the order here of I think it's $1,200, $1,246. So this trade it looks, if you look at it from an option trade that people are familiar as a straddle. So a lot of people want to trade a straddle. You buy a call and a put and the stock explodes in one direction or the other. Anybody that's had experience with that knows what happens when there's volatility crush. So the stock does move, but implied volatility goes down and you probably don't make money. You need a massive move in order to make money.
Speaker 4:This trade has a 36% probability of losing money. So for a trader who says listen, I know the stock's going to explode, it's either going to go up or it's going to go down Now. So this trade is going to make money in either direction. Now you do have a cap on the profits and, as Greg mentioned, this is a dynamic trade. So after the event, the day after the event, I'm adjusting this trade depending on which way it goes.
Speaker 4:If the stock moves up, I probably want to take the put or maybe roll the put or maybe sell a put against it. There's multiple options and if the stock's going down, I'm just. I'm probably rolling my short calls down. But in this trade this is the thing is all the emotions of fear and greed are gone. You are, before you do this trade, you know exactly how much money you can make and how much you can lose, and all you want to do, all you want to have happen, is for the stock move, stock to move and, as I mentioned, the way that you lose money on this trade is if it goes sideways for the next 45 days, and you would be crazy to stay in it for 45 days if it goes sideways.
Speaker 3:Yeah, because really you're putting this trade through the event in a week. You get through the event in a week. If the stock doesn't do anything, you tweak that you know. You close the trade down Now, you just own the stock again. But if the stock's just doing nothing now, you're still in an equity position that you could turn into another type of strategy. That's really this concept of adjustments that we teach at Options Animal is.
Speaker 3:You know, so many people use risk management in trading. They use a stop loss to manage risk and NVIDIA is a perfect example. Apple's been one in the past, but this year has been a perfect example of how stop losses are so hard to use on trading some of these big market momentum names, because NVIDIA has had so many stops and starts this year. Whether it be the big gap down at the beginning of the year that we had when DeepSeek was that China said we've got this competitive platform that's going to dethrone NVIDIA, and we had the 30% or the 20% gap down overnight, a stop loss gets absolutely blown through in that you don't get filled Again.
Speaker 3:A mistake I think investors make about stops is they think well, it's going to protect me at 10%. A stop loss doesn't guarantee a fill price. The only thing in my experience that a stop loss guarantees it guarantees I just lost, and so for me, a better way to control risk is this collar trade idea that I can still play the name. I don't have to try to pick the tops and bottoms. Perfect, I don't expose myself to gap moves. Yeah, it takes some of the upward explosive move out of the market. I'm not going to double my money in 30 days doing a collar trade, but I'm also not going to lose money, and to me that's what I have figured out over the years of trading and investing is that staying in the game, don't trade yourself out of the game. So many people use strategies, and great strategies, to make money in the market and then they start to overexpose themselves to risk and blow their account up, and then they're gone.
Speaker 2:So we're running out of time quickly, and that was excellent, but I just want to pivot for a minute and talk a bit about diversification, and a lot of investors think that means owning more tickers. You say it's really about controlling outcomes. What are people getting wrong, then, about inflation, debt and diversification, and how, how does option structure fix that?
Speaker 3:Again, for me, diversification is still a tool that can be used and should be considered in a portfolio, but it's not what traditionally diversification is pitched for. Again, we're told that diversification is to protect against risk management, and to me, risk management and to me, most 60-40 portfolios. If you look at studies, they're 98% correlated to the move of the S&P 500. It's not really diversification and I'm going to go back to what Eric said. What I would rather do is look at risk management and diversification. I can control risk with instruments, with options. The diversification need is like I've been saying about Apple.
Speaker 3:I've been a fanboy of Apple for a long time. I don't trade it nearly as much as I used to because it's not the opportunity that, say, a name like Palantir or NVIDIA is right now compared to what Apple is. So I diversify. I know it doesn't sound a lot like diversification when I'm saying go from Nvidia to Apple or from Apple to Nvidia. Right, they're both still high tech names, but there's a lot of opportunity in other places too. Financials are great trades. Energy is a great trade right now. Particularly, it's tied to the need for the AI data centers that are being built out. Gold is a great opportunity right now All-time highs and some of the gold miners. So for me, diversification isn't about spreading my risk, because I can control risk with options. For me, it's spreading opportunity and taking advantage of other hot sectors in the market that may be a better return than Apple is right now.
Speaker 2:Just to finish off, greg and Eric, this has been a fantastic session. For anyone who wants to keep learning. Where should they connect with you to see more about the approach and get the live education?
Speaker 4:It's optionsanimalcom backslash LLM Lead Lag Marketing. Lead Lag Marketing, llm. So large language models. If you remember, so that's probably Collins yeah, so there's a yeah that'll take you to the Options Animal website.
Speaker 4:Now let me let me just throw out there, at Options Animal, we we're not registered investment advisors, although some of us have registrations and there are plenty of them in our community. We actually train a lot of the people to either manage their money or their clients' money, and there is some significant accounts that we know of. But, anyways, we use real money. And just to put things into perspective, I started sharing just one account and that I have, you know, full kimono for certain some of our premium level subscribers. On January 1st 2023, I had 113,000. Today it's 211. So it's up over $98,000. On an annualized basis. It's 32% and that's the sort of returns that I've consistently been able to generate.
Speaker 4:And here's the benefit. You know you listen to Greg talking about trading Palantir. Some of you might be thinking, oh, I can't handle the risk. The color trade is perfect for you. You can still get into these big names, these NVIDIA, even Open, which is getting a lot of. You know, it's the next meme stock. By using colors, you can really dampen the risk and not experience the same sort of losses that other people will. No, there's always a tradeoff. But to put it in a ballpark, I think 32% annualized return over the past three years is pretty good.
Speaker 2:That's amazing. So everyone can go and check out that link and thank you for joining, and Greg and Eric, thank you so much.
Speaker 4:Let's do this again, Mel. It was a lot of fun. I know it was great.
Speaker 1:Can I just say real quick, when Greg said that he looks back at the iPods, I was like so Greg is basically 207 years old, is what is how long, though, the iPod? Anyway, thank you for watching.
