Robert Leonard (03:15):
How did you two meet and how did you guys begin working together?

Chris Naugle (03:18):
Oh, this is such a great story. With The Money Multiplier and what we do with privatized banking, Sodhii had seen one of the podcasts that I was on and he got ahold of me, he set up a time to talk about how that banking system could work for him. Well, in that call, I found out that he was a trader and doing options, which I had a ton of experience doing on the institutional side when I was working in Wall Street, and we just got chatting about it. And I said, “What’s your big draw to the privatized banking? You’re making great money in options trading. You are really good at that. What are you looking to do with the privatized banking?”

Chris Naugle (03:51):
And he said, “Well, it just seems like it would make sense, that’s a better place for my money to go first since I’m going to earn uninterrupted compound interest.” And he started talking about how he’s going to make deposits into his banking, then take the money out, put it in his brokerage to start trading options with it. Clearly, the light bulb went off in my head and I’m like, “You’ve got to be kidding me, I never even thought of that.” And that’s where that whole thing began.

Priyeshwar Sodhii (04:13):
That’s actually very true. And actually, it was one of your podcasts that I heard Chris. I was really excited about the concept, but like Chris said, I just really wanted to know if that would be possible. And I’ve been doing it for a while, have multiple policies now, so it’s one that works. And if you’re willing to put in the effort, I’m sure there are some other on thought ways of using that policy that even Chris and I haven’t even thought about yet.

Robert Leonard (04:34):
The majority of the listeners that are listening to the show today are young or just relatively new. Some have a little bit of experience in options trading after listening to some of the previous episodes that we’ve had that cover it, some are entirely new and may not know even what options trading is. Before we dive deeper into our discussion on options trading define for us the key terms in what options are, the different types, and give us an overview of how it all works.

Priyeshwar Sodhii (05:03):
Sure. I’m going to try to keep it as simple as I can, but there will be some terms that I will say that the audience may not be familiar with, but I’ll try my best to explain all of it. So at the very core, options are a derivative financial instrument that is basically based on the underlying securities, such as your stocks and ETFs. They’re called option contracts. They basically offer the buyer the opportunity to buy also depending on if you buy a call or put respectively. The beauty is the holder is not obligated to buy or sell the asset. There are two kinds of options, your calls and puts, and everything else in the options world, all the other strategies are basically just a combination of the two mixed together.

Priyeshwar Sodhii (05:52):
So now basically if you understand calls and puts at the very basic level, you can mix and match them and you’ll learn all the other strategies or you might even create one of your own. So there’s a lot of different terminologies used to explain options, the Greeks, which is basically the DNA of options of how options actually work. But again, if you understand just what calls and puts are, calls or your bullish objective, so to speak, and puts are your bearish objective. So if you can start to understand that you will cross, okay, if you want to be bullish, you would deviate more towards calls, and if you want to be bearish, you would go more towards puts, builds that very basic foundation that we can go off from to add more stuff as we go along on the podcast.

Chris Naugle (06:35):
And one thing I want to add to that because that was a great explanation, but a lot of people when they invest money because it’s an attractive thing, especially right now, you have a lot of people talking about it, and especially millennials and younger individuals are looking to put money in the stock market and get ahead early. Well, most people only know how to make money one direction of the market, and that’s if the market’s going up, everybody piles in and the market goes up, but what happens when the market goes down? Well, most people will say, “Well, we lose money.” Well, not in options. With an options trader, the opportunity to make money can come from a market going up with calls, from a market going down because you can buy, puts. Some people say shorting, but we’ll just keep it to the options of puts.

Chris Naugle (07:15):
And also, if a market’s going completely sideways, and Sodhii is really good at doing, is creating income and making money on a completely sideways market. So now you have an opportunity to make money with the market going up, with the market going down, or the market going sideways. So really, if you can learn options trading, you can benefit from any market cycle.

Robert Leonard (07:34):
I have to say that exactly is what drew me to options. When I first started investing, I always thought you could only make money when the market went up. And then I learned of options and of course, short trading, but I didn’t necessarily like all of the risks that came along with shorting, so I learned of options, how you can mimic similar results with options, with limited risk or capped risk. And that’s what really drew me into options as well as some of the income that you can generate. But yeah, Chris, that’s a great point. That’s exactly why I personally got interested in options.

Robert Leonard (08:02):
Sodhii, you just said that calls are generally bullish, puts are generally bearish, talk to us about how you can actually flip that to make puts bullish and calls bearish.

Priyeshwar Sodhii (08:13):
Sure. One concept that we stress on when we teach people options trading is getting familiar with the idea that you can actually sell an option without owning one. Also, we use the term shorting an option just to eliminate the buying-selling confusion. So if you were long an option, which is what we talked about earlier, if you’re long a call, you’re bullish, but now if you short a call, if you sell a call, all of a sudden that same call now becomes your bearish strategy. And if we do the same thing with puts, so now, like Chris mentioned, he puts our primarily, if you want to make money in a downward market, you’re buying puts, your long puts.

Priyeshwar Sodhii (08:53):
Again, if you just reverse that, your short puts, your selling puts, now all of a sudden that’s a bearish strategy. So you can see how the same calls and puts in a combination provide you four different strategies, four different ways to trade them. Now, if you were to combine this, one can only imagine the different kinds of scenarios and the flexibility that it provides. So now you can create strategies like Chris mentioned of being able to make money in an up-trending market, down-trending market, and even a neutral sideways market. So now you have a mix of all these things available to create the exact strategy that you need for your objective.

Robert Leonard (09:32):
If somebody is new to the stock market, is it good for them to jump into options or should they focus on other more basic strategies and assets first?

Priyeshwar Sodhii (09:42):
I get that a lot because everybody has always heard that options are complicated, options are difficult, options are for pros. I disagree because to me, if you’re starting to learn anything, it’s going to be a little bit new to you. Well, it’s going to be a little bit complex in some ways regards. Even when it comes to investing in the stock market, that’s not easy either, when people say, “Are options that difficult?” I’m like, “Well, investing in the stock market is not easy at all either.'” You still have to do your research, you still have to do your homework, you still have to understand and learn everything. What it comes down to is building a good foundation.

Priyeshwar Sodhii (10:19):
So what a lot of people are taught about options is just this plethora of knowledge and there’s tons of content that they go through, where they think, “Okay, calls, puts mix them up. There are these strategies.” But what’s lacking, and I think you invest in the stock market yourself and I’m sure you’ve experienced this, not having a good foundation of the basics of understanding what actually maneuvers, what actually makes options, or what makes the stocks move, it basically results in a weak foundation that won’t really enable you to succeed no matter what you learn, whether it be investing in stocks or options.

Priyeshwar Sodhii (10:50):
So for those of you who are concerned, hey, stocks may be too complicated or they may not be for me, maybe it’s better for you to just build a foundation, learn the very basics of options, and then see if this is something for you rather than just outright saying, “Oh, maybe I should just start with stock market investing.” Because that’s not easy either. So maybe just taking the time to understand the very basics of what options are, what they’re made of and how they work will help you get a better understanding. Maybe options may seem easier to you than investing in the stock market. If you’re a long-term investor, maybe there’s a lot more than you would have to do there compared to the options market.

Priyeshwar Sodhii (11:26):
So just basically understanding what options are may help eliminate or bust that myth of options are super complicated, they’re not for me, I’ve always been told they’re only for the pros because I’ve taught tons of people and all of them said, “Well, this makes sense.” Because you eliminate all the noise, you boil down back to the very basics, the very simple things that you need to know about options, and you’re eliminating all your other noise, so now you’re just paying attention to what’s really relevant. Then I think it’s a good question to other people, “Okay. Now, is this for you?” Because when people approach this initially, they’re looking at all this other complex information, they’re looking at all these crazy charts, crazy terminologies that you already don’t need to know.

Priyeshwar Sodhii (12:08):
If you just learn the basics, that really will help you understand, “Okay. Maybe it’s not so complex after all.” So as long as you think you can do that, I think you will have a better comparison between the stock market and options market to know, is this for me or not?

Chris Naugle (12:22):
Another thing on that Sodhii, it’s common knowledge to buy stocks because that’s just what most people learn with a 401(k), with mutual funds, and everything else. But this isn’t so much common knowledge because people want to think, “Oh, this is too hard, but it’s actually, for some people when they learn this, they say this is easier than trading stocks. And it’s easier because you can make money in any market environment. But the other thing too that I think it’s important to bring up about why are options an important piece is a thing called leverage. If you buy stocks, you’re always going to be restricted or capped by how much money you have to invest. But with options, you can leverage your dollars. Do you want to just touch on that real quick? Because I think that’s an important thing.

Priyeshwar Sodhii (13:01):
Absolutely. So again, I think this is also one of the reasons options have become so popular now, the leverage. People have realized that with one 10th of a regular trading account, they can start trading options and actually get the same or better returns that they would just trading stocks. Now, that’s fantastic. That’s great. But again, leverage is a two-edged sword. So if it goes against you and if you don’t understand the risks of options, like I said, if you don’t have that base, you don’t understand the fundamentals of it that leverage can work against you, but like Chris mentioned, this leverage is so, so crucial in options world that if you put it in your favor, it’s always going to work for you. It’s always going to do what you needed to do, whether it be a bullish market, or bearish market, or a neutral market.

Priyeshwar Sodhii (13:43):
Now, that leverage is helping you either make phenomenal returns or at least collect some income in any kind of market condition.

Robert Leonard (13:51):
When someone’s getting started with options, where’s the very first place that someone should start?

Priyeshwar Sodhii (13:56):
That’s a great question. Now, there’s a lot of content out there now, there’s a lot of information. A lot of it is really good. There’s some good information out there about options, what they are, different strategies. What I would recommend for anyone just getting started would be to just focus in on the fundamentals, on the DNA of this specific instrument, understanding what the Greeks are, understanding the volatility concept of it. Understanding just what basically buying and selling call options or put options means. A lot of people would love to learn those strategies, they see those phenomenal returns with options and they learn a little bit about it, and they’d dive into the deep end where they go all of a sudden learning all these crazy strategies, trying to trade them, doesn’t work sometimes, work sometimes, but now you’re like in a limbo.

Priyeshwar Sodhii (14:42):
But just taking the time going through a bunch of information about the basics of it, the fundamentals of it, will really help you understand what options really are and then how they work in different market environments. So when it comes to options trading, “environment” is [a] keyword. Since options are made of so many different variables, understanding what the specific market, what that specific underlying, its environment is, will help you pick the right strategy. So it’s important to understand that base. If anybody’s getting started, just take your time with it, you don’t have to rush it. It’s something new to you, it will take some time. You will understand, you will have questions.

Priyeshwar Sodhii (15:19):
So just make sure that you do that. Make sure you learn the terminology, make sure you understand things like delta, gamma, theta, vega, implied volatility, IV rank, things like that. As you go along with those, they will make sense, and options trading will become a lot easier because unlike stock investing, in options, there are only a certain amount of things you need to know. With stock investing, there can be other variables. There can be earnings, their investor meetings, there could be board meetings, there could be things like that. But it comes to trading options, if you can just understand those core fundamental terminologies, all options strategies run on those same things, just the environment of the underlying changes.

Priyeshwar Sodhii (16:00):
So if the environment of some specific stock is very bullish, very volatile, there are certain strategies that would fit that a lot better than others. But since you know the fundamentals, now you can pick and choose the exact strategy from your arsenal rather than having to go through all of it and just being completely confused. So the fundamental is key here.

Robert Leonard (16:20):
Sodhii, you mentioned the basics, but how does somebody know where the basics end and intermediate starts, or advanced? There’s probably a pretty blurred line there. Something that you might consider intermediate, somebody else might consider advanced or basic. And so jumping from those two different categories could be difficult. So how does somebody know when they actually have enough knowledge to get started?

Priyeshwar Sodhii (16:43):
That’s actually a really good question. In my years of teaching options specifically, I’ve learned that to me and how I’ve taught everybody else, the basics, the entire basic level has only been about the fundamentals, the terminologies like I talked about, understanding what the options Greeks are, understanding how options work, what happens if the underlying the stock goes up, what happens if it goes down? What happens if volatility rises or drops? So again, the terminology part, the foundation part is the basics thing. And anybody who can understand that, well, congratulations, you’ve covered the basics.

Priyeshwar Sodhii (17:22):
If you can just understand all the Greeks, you know what they mean, you understand the definitions, you understand the lingo. That to me is the basics part. When it comes to teaching options, I don’t talk about strategies. So we do coaching and mentorship. For at least the first three sessions, we don’t even talk about a strategy. We go from mindset and psychology to talking about the very basics of options going into the foundation, the base of it, that the terminologies, the Greeks, then we talk strategies. So how I like to make that line strictly beginner and intermediate is, up until you understand all the terminologies, what they mean and how a stock’s move will impact an option, you are still in the beginner phase.

Priyeshwar Sodhii (18:03):
After you’ve understood that, now you are ready to know what a call and a put, how they work, how they are affected by these. And that’s when you are now in the intermediate stage, learning about the strategies. Now, you understand calls, long calls, short calls from a very sound base. So now you will understand them a lot better, now you’re in the intermediate phase. And as we go through these strategies, and again, just to make that line even clearer, I think an advanced strategy is one where not only are you using some popular ones, like your iron condor, your straddles, but something more even advanced like calendar spreads or back ratios, now where it’s not just about the stocks move, it’s about volatility. It’s about a lot of other factors that are being played in.

Priyeshwar Sodhii (18:50):
So that is way up in the advanced section. The intermediate is all of your popular strategies from, like, just long calls, long puts, but the beginner phase is those strategies, just understanding the base, the terminology, the fundamentals. It’s very theoretical, it can seem dry sometimes, it does get boring, but again, if you don’t understand that, the rest of everything else will just be on a shaky foundation that won’t really last. So for me and how I’ve taught everyone, the beginner phase has been purely about the terminology, the fundamentals, the DNA of what an option is.

Robert Leonard (19:22):
I want to get into some of those strategies. How does somebody decide what strategy is right for them? There are so many different strategies that you can implement with options, I’d argue even more with options than with stocks. There’s a lot of different ways that you can invest if you’re a growth investor, value investor, momentum. There are so many different ways you can do it, and they all work, it’s just depending on who you are as an investor and what fits best for your personality. So with options, how does somebody know or choose the right strategy for them?

Priyeshwar Sodhii (19:53):
It all comes down to first knowing what your objective is. So like you said, if you’re a growth investor, value investor, you have certain criteria, you have certain guidelines that stock has to meet, certain restrictions that the stock might have to have, things like that. Same thing for options. So if you’re someone let’s say, you’re like, oh, the stock XYZ, expect in the next six months for this to go up 10% or something of that sort. Now, you have an objective. So there is a specific strategy. There should be a bunch of strategies that can do that. That’s where the market environment comes in. That’s where that environment of that stock comes in. Is it a high volatility environment? Is it a low volatility environment? What our objective there is?

Priyeshwar Sodhii (20:31):
That is what allows you to pick the right strategy. Again, going back to the basics, if you understand the basics, now each strategy is built on those same basics. So each strategy has certain parameters. Now you know according to the market environment of your thesis, which strategy will fit best. So again, knowing what your objective is, why you would want to play that option trade first is very important. You wouldn’t just go out and buy a call, you would have some investment thesis behind it why you would want to buy a call. At that point, you can look at the market environment and decide what exact call do you need, or is there another strategy that better fits that specific market environment?

Priyeshwar Sodhii (21:11):
So if I wanted to give you a checklist, you would want to look for something like volume as the option liquid, because there are plenty of options out there that don’t have enough activity, that are not liquid enough to be traded. Volatility, is the stock volatile? Is it a high movement stock, daily? Is it a low movement stock? Where does the option rank? Should I be long or should I be using short options here? So all those factors like using that kind of a checklist really helps you decide, pick, and choose the right strategy. So when we teach options, we have this flow chart, where going from your investment objective, if you want it to be longer or shorter stock, going to the next to the market environment, it helps you funnel out all the other strategies and boil down to like two or three from which you can pick and choose the best one for your objective.

Robert Leonard (21:55):
How important is it for somebody to have an option strategy that fits them and fits their personality and how they think about the markets and trade? When think about stock investing, we talk about how you got to pick what’s right for you. And I’m assuming it’s probably the same for options. How important is that?

Priyeshwar Sodhii (22:12):
It’s really very important. Again, since there are so many different option strategies that at the end of the day achieve the same objective, it really boils down to their personality. And again, when we teach options strategy, we teach a bunch of different kinds. So now you can use options for day trading. There are people who do that. You can be a long-term investor with options trading, where you could collect income every quarter, every month, every seven days. So there’s plenty of ways to play the strategy. You can alter the exact same strategy according to your personality. So if you were someone who was a long-term investor, you can use certain options strategies to play the long-term game. So you wouldn’t have to worry about the day-to-day price movements.

Priyeshwar Sodhii (22:50):
If you’re someone who wants to collect income, but on a very short term frame, who’s like, I want to do it every five days, guess what? You can use another strategy and alter that according to your timeframe. Again, understanding the basics of those strategies really helps, you know? Okay, how can I use this? How can I modify this to fit my timeframe, to fit my objective, to fit my personality? And that’s why options are so attractive. They’re so lucrative because you can take one strategy that somebody might have been using to play quarterly, to go out every six months, five months. You can take that same thing and do it weekly. I’ve seen people do those kinds of strategies on the daily basis.

Priyeshwar Sodhii (23:28):
So it really comes down to, like, knowing the strategy and how you want to alter it. Again, they’re all made up of calls and puts. So there is nothing like a complex strategy [that] has this third, other kind of options, they’re all made of calls and puts. So if you understand that, now you are able to mix and match and even alter an existing strategy to your timeframe. There are some strategies that will not work on short timeframes, and there are some strategies that will not work on long-term timeframe. But again, knowing that helps you eliminate or incorporate them into your investment activity.

Robert Leonard (23:59):
One of the fears new investors looking into options likely has is the current market conditions, specifically volatility. With COVID-19 and stimulus bills creating a lot of volatility in the market, previously, elections, and other political events, how does this impact options trading?

Priyeshwar Sodhii (24:18):
That’s already a question. What I want to say here first is, we need to know that options are an investment tool. Volatility arises in the stock market and the stocks’ prices, and thus affect the options. So options thrive in volatility, but they’re not volatile themselves. So what we need to know here is that the volatility arises in the stock market and the stock crisis, which then affects the options because options are based… they’re priced on the underlying, by themselves, they have no value. By themselves, you cannot trade them. So you’re trading them based off of an underlying price.

Priyeshwar Sodhii (24:58):
So if the overall stock market is volatile, options will thrive because they thrive on volatility. Volatility is a crucial part of them. Now, they are being impacted by it, this allows options trading to be actually a lot more effective rather than the opposite. So in volatile times, people actually tend to gravitate towards options trading because now volatility is working in your favor. You’re able to use a lot more strategies, you’re able to do a lot more to actually reach the objectives much faster. Now, in today’s times, yes, options have become very easy to trade, they’re very cheap, mixed in no commissions. There are a lot more participants in the market.

Priyeshwar Sodhii (25:39):
And there’s something called as delta hedging that I would like to introduce to your audience, which is basically what market makers do. So basically, every time someone out there goes and buys a call, for example, the market maker has to go out and buy a certain amount of shares of that underlying to balance the book, just in case the option is executed. So that means if the call buyer wanted 100 shares of that underlying, the market maker has to make sure they had 100 shares at a certain price. Since options trading has become so cheap, has become so popular, there’s a lot more of this going on, which has added to the already existing market volatility that you talked about.

Priyeshwar Sodhii (26:23):
Now, options thrive on volatility, so when people in these certain times think, well, options are not for me, maybe the market’s too crazy, I tell them, I’m like, “There’s an options strategy for every market condition.” If you understood the strategy, you would pick the ones that would thrive in this volatile environment and help you achieve your investment thesis, your objective. Whereas if you were not familiar with how volatility impacted calls, puts, or your strategy, now you would be at a disadvantage. So knowing that volatility exists in the market is not something to be fearful of, but it’s something to be aware of regarding your specific strategy.

Priyeshwar Sodhii (27:01):
One example I would like to give your audience here is, I’m sure everyone is familiar with what happened with GameStop recently. So if you were trading, let’s say before all the large, this massive increase in the price of GameStop happened, let’s say you were a put holder. You had bought a put. That means basically you were short more, you thought this was going to go down. Somehow, a lot of people were confused by this, but if you understood volatility, you would know why this happened. Puts actually went up in value when GameStop went up, that actually should not have happened. That makes no sense to an options trader like a beginner trader. They would be like, “Wait, why did puts go up? I thought puts go up when the stock goes down.”

Priyeshwar Sodhii (27:39):
Yes, calls went up because GameStop went up. However, puts went up too. And the reason why that happened was something called volatility. Like I said, the market environment, the specific environment for the underlying, in this case for GameStop, its specific volatility shot up from about 90% to add the peak, almost 500%. So that means a simple put option, which would have thrived if the stock would have gone down was thriving now on volatility. So you see somehow even the wrong strategy here that should have gone against you, somehow it worked out in your favor because puts we’re going up phenomenally in value.

Priyeshwar Sodhii (28:19):
So it’s like situations like this, where people need to understand how things like volatility actually work in your favor can impact your strategy. And even if somebody had bought a put, and I know of this, they saw their puts go up in value and they were just starting to like, why is this happening? Because of volatility. So knowing how volatility actually benefits your strategy is more crucial than having to be afraid of it and say, “Oh, the market’s volatile. I’m just not going to trade options, they’re risky.” But rather having them work in your favor with the correct strategy is what one should be asking, how can I do that?

Robert Leonard (28:51):
Millennials and new investors, I see it too often flock to options trading because they’re drawn in by the potentially large gains that could be had. What I like about what you’re saying and what you’re teaching, Sodhii is that you’re not proclaiming that people are going to get rich quick or get rich overnight with options trading, which I see too often on the internet. And I think a lot of new investors and millennials are drawn into that. But when they’re drawn into that, they don’t usually fully understand the risks that are involved.

Robert Leonard (29:20):
What are some of the risks that we haven’t discussed yet of options trading? And you touched on it earlier about how leveraged and options are double-edged swords, how can this increase the potential risk?

Priyeshwar Sodhii (29:33):
Sure. I believe the biggest risk of options trading is you can lose your entire investment a lot quicker than owning stocks because the stock would actually have to go to zero, whereas the options, the option contract itself could go to zero a lot quicker. But somehow, that actually has become a selling point of options recently, where people have started using it and realized that they could make a lot smaller bets with larger payouts compared to trading stocks, like bet one 10th of what you would, if it hits big, great, if it doesn’t, oh, well it was just a small percentage.

Priyeshwar Sodhii (30:11):
But since they are doing that, and they’re trading strategies that are already at odds against them, that already has odds against them, now, they’re consistently losing money on those trades, so to speak. And when one does hit, they think they’ve made money, but if net, net you count you, you’re still going to be under. So somehow that has become this selling point for options recently, which is amazing to see in this market condition, but it is a big risk. And Chris, this is Chris’s favorite, he always quotes Warren Buffet here, buy low, sell high, and never lose money. So you’re already violating that rule of losing money consistently just to make one big bet, it may actually never happen.

Priyeshwar Sodhii (30:50):
What we teach our 10/10, The Money School is, how do I actually use this leverage to get consistent returns? So when it comes to options trading, somehow 10% return doesn’t appeal to a lot of people. A 10% return seems a lot lower. And that’s what options have done to people where when you talk about options people think, “Oh, you’re not making 50%. You’re not making 120%, you’re not making 600%, what’s the point of trading options?” Well, the point is you have the ability to consistently make 10, 20, even 30% with your capital invested, if you are practicing it, if you’re being diligent with your strategies. And I’ve seen plenty of people do that, but somehow, 20% is no longer attractive when it comes to options trading, but a 7% return with stock investing is seen as phenomenal.

Priyeshwar Sodhii (31:37):
So that’s something that we really, really focus on a 10/10, we’re like, you don’t have to hit a home run every time, it’s about the base hits You’re going to do a lot better if you go for base hits, those 10%s, those 20%s, they will add up. And in the long run, as you are consistent with those, your returns will be a lot more phenomenal if you kept going for a home run trying to get that 100% winner every time, and you will miss out on them.

Chris Naugle (32:03):
Robert, one thing too that I loved about options when I started really trading them is, I don’t have a whole lot of time, and day trading stocks, that takes constant time, you’re always glued to a computer screen. And what I was doing, I just didn’t have that. So with options, I could literally make a trade in the morning or in the afternoon, hold that trade for roughly 24 hours or less, and then be in and out, automate almost the entire thing, and do what Sodhii is saying by just taking these small little gains. Now, we’re talking about a small little game being 10%, but most people would think, “Oh, I want that 100%.” But how many times can you make those consistent, predictable, little returns over and over and over before it’s the same thing you’d make if you made one big return and have all of it on the line?

Chris Naugle (32:48):
With this strategy and what Sodhii does is, you’re not doing that. You’re always being very calculated and very probable. And I always tell people, I’m like, “It’s boring. You’re literally doing the same thing over and over and getting consistent and persistent returns on your money.” And that never sucks. I’ll tell you that much.

Priyeshwar Sodhii (33:06):
Going back to what we said, the risks somehow of options trading have become its lucrative selling point, which is what I think is very, very dangerous because people are embracing the risks in incorrect fashion. So now it’s hurting more people rather than them being educated correctly, them taking the time to learn the impact of this risk and how to mitigate them. People are actually embracing the risks in an incorrect fashion, that’s actually hurting their portfolios as we know, they’re trading in a lot worse manner because now you’re basically like Chris said, 10, 20% is no longer sexy, is no longer attractive.

Priyeshwar Sodhii (33:39):
Now, you’re just going for these 100% winners, you’re never getting them. In the long run, you will end up losing money, and you will not achieve that goal that you wanted. Every now and then, yes, it will work out. The probability somewhere will work out in your favor, but for the long run, it probably will not. And that’s the harsh reality of options, they’re based on probabilities. That’s why understanding them puts the probabilities in your favor. So now you know how to like increase your option from 30 to 40%. And I’ll just say this because about 70 to 80% of all option contracts in the market expire worthless, 70 to 80% of all contracts expire, worthless. Only 20 to 30% of contracts actually have some value at expiration.

Priyeshwar Sodhii (34:19):
So for option traders, that’s very important to note, you need to place yourself on the right side of the trade. And again, there are risks in options that people don’t understand or embrace, another one being time decay. Every day you hold that option contract, it’s losing some value. If there’s no move happening, or if there is a move happening, irrespective of that, there is some value being lost on that option contract every single day. So let’s say you expected a move to happen in six months and you went out six months and you bought that option. Maybe by the time the move actually happens, the return on that option would not be the same because so much value would have been just lost to time.

Priyeshwar Sodhii (34:58):
Now, let’s say that move happened in the seventh month, even though you were correct, you didn’t give yourself enough time, you didn’t take that factor into consideration, you didn’t do it correctly with the checklist, now, you feel even worse because you waited six months for a move to happen, you know you were correct and you missed out on the entire return. And the last point, the options expire. They have a certain date, offer that they’re no longer traded. They cannot be traded. It’s called their expiration date. So there are certain things like this that people need to keep in mind where rather than doing that people then embrace it, which is if it works for them, that’s great, hats off to them. But when it doesn’t, it doesn’t because people don’t understand these completely and they don’t take the time to understand these risks, which I think is a mistake.

Robert Leonard (35:43):
We both have mentioned throughout this call about how options are leveraged securities, break down for us how options are actually leveraged, even though we’re not using necessarily margin or anything like that. Why are options considered leveraged?

Priyeshwar Sodhii (36:02):
Options are built on what’s called the Black-Scholes model, which is a mathematical model for the dynamics of a financial market containing investment instruments, so like options and things like that. So what that allows is to like up or leverage basically a $1 move in the underlying into a much larger move in that specific instrument. So that formula, that model, in this case, allows a $1 move in the stock to have anywhere between a dollar to about $100 move in the options pricing. So that formula itself is designed in a way that it’s a very dynamic form, it’s constantly evolving.

Priyeshwar Sodhii (36:49):
Basically, any $1 move in any underlying, depending on what option you own will have a significantly larger move because there are variables working in your favor or against you if that one move was downward or upward, depending on what it was. So again, it’s the formula that basically allows that $1 move to be liked up with certain variables. So that now all of a sudden the $1 move is automatically equivalent to $50 or $100 move in the price of an option. But again, the more we talk about this, there’s a lot more that goes into options like I mentioned earlier, delta, gamma, vega, theta, all these things are part of that formula. So then based on those, every option’s price is constantly moving with every single dollar move

Robert Leonard (37:40):
The other important piece is when you buy one stock, you’re buying one stock, but when you buy an option, you’re technically buying an option contract for an underlying pool or share of 100 stocks. So that’s the big difference in terms of leverage that I typically look at is one option contract is equal to 100 shares of stock, whereas when you’re buying stock, one stock is one stock and that’s it. So that’s how I typically look at leverage when it comes to options trading.

Priyeshwar Sodhii (38:09):
That’s a great way to do it. That’s actually a really good way to do it as well because people all of a sudden realize with $250 contract, I can control 100 shares of a stock where I would have needed $25,000 initially. And what’s even crazier is sometimes a $10 move in that stock may not even give you the same return if you were owning $25,000 worth of those stock, like that $10 move in that underlying, if you just had a simple $250 options contract, [you] may experience a 100% move, whereas the actual…that’s the underlying to the actual stock investment may only see a one or 2% move.

Priyeshwar Sodhii (38:45):
So this legging of that dollar move because of options really makes it a phenomenal investment vehicle, but again, like we said earlier, it’s a two-edged sword. So that $1 move, that $10 move could also be against you. So people also need to understand and embrace that.

Chris Naugle (39:02):
Robert, I remember one time, me and Sodhii were going back and forth about price movements of a particular stock. And we literally said, “Okay, if I bought this stock, did the buy low and sell high, I made this much.” And then he did the math and showed, “Well, if I had bought the option, I would have spent a third or a quarter of what you did buying the stock, and I would have made this much.” And it was pretty much about double what I would have made buying the underlying stock and actually putting more money out there at risk buying that stock versus what he did because of that leverage, the one option contract controls 100 shares of stock. He was getting all that in his favor and making a heck lot more money in just doing something very simple, like a stock.

Robert Leonard (39:45):
Behavioral finance in the study of human emotions on investing has become massively popular over the last decade, but you could say mindset and psychology are even more critical to success when trading options. Why is human emotion one of the biggest obstacles? Why do the winners feel good, but the losers actually feel a whole lot worse?

Priyeshwar Sodhii (40:05):
This is a big one.

Chris Naugle (40:07):
I can certainly take this one. I think we are brought up in a society of almost like being inherent gamblers, always are seeking that big return, that big win. They call it FOMO, the fear of missing out. And I think when the markets are doing well like they are right now, everybody feels like they’re missing out on something if they’re not jumping into it, which is really forcing people to do the exact opposite of what they really should do. If the investing rules are as simple as just buy low, sell high, and if you do those two, you then don’t lose money because that’s the component of buying low and selling high, you can’t lose money, then why is it that most people buy high, and then when the market drops, fear sets in, they sell low, and they lose money?

Chris Naugle (40:53):
It’s the exact opposite, but it’s just a mindset. It’s that FOMO, that fear of missing out that people get trapped on because they love seeing the market going up, and when it’s going up, you feel good, “Oh my gosh, it’s going up. It’s going to go to the moon.” But then all of a sudden when it doesn’t and it flips and goes down, which indeed it will, it always does, that complete opposite happens, and people immediately they get scared, they start seeing things fall apart, fear kicks in and they, unfortunately, most of them will sell. And that sell is actually a real loss when they do that, even though they know that buying for the long haul is right thing to do, they typically will not do that because of the fear and the reality of what happens if goes down.

Chris Naugle (41:36):
Now with options, I think the greatest thing is if the market goes down, you can literally be smiling ear to ear saying, I’m going to make a lot of money, but when you’re buying into the stock market, when it’s going up and up because of FOMO, that fear of missing out, you lose sight of what actually could potentially happen. And I think that’s where a ton of investors make mistakes, and I think that’s where a ton of investors are going to get hurt this time around.

Priyeshwar Sodhii (42:00):
And I would’ve thought of that. This is a big one because in our mentorship, the first thing we tackle is mindset and psychology because we want to normalize that experience, that feeling of losers feeling worse. We want everyone to know, you will experience fear of missing out. You will feel greedy, you will make mistakes, you will go through that cycle. Your trade is up by 50%, okay, five more percent then I’ll sell it. All of a sudden, it drops to 20%, you’re like, “Okay, if it goes back up to 30%, I’ll sell it then.” All of a sudden that goes back to break even and you’re like, “Okay, only 5%, I will take it.” Like this bargaining that you’re doing with the market.

Priyeshwar Sodhii (42:39):
And then all of a sudden goes back to negative and you’re like, “Oh you know what? Breakeven, don’t worry, I’ll pay for commissions, just give me a breakeven here.” Then it goes down to 50% and you’re like, “I should’ve taken that 20% loss.” So that cycle continues. And I’m sure someone in your audience can relate to that because I know I can. And that’s what we teach in the mentorship and that’s what I want to tell everyone that it’s normal that that will happen. It’s not something unique, it’s not something new, everyone goes through it because I myself was a beginner once.

Priyeshwar Sodhii (43:07):
And I have made these exact same mistakes plenty of times, but it’s okay. That’s fine, every trader will, every investor will, it’s just human emotion that you will go through. It’s important to acknowledge it, it’s important to shed light on it, to talk about it, to tell how you’re going to feel is normal. At some point, you will bargain with the market for an extra point, for an extra percentage, but the problem is people don’t know how to eliminate them or how to tackle them. They know the feeling, they go through the cycle plenty of times, but they don’t know what to do to avoid it. That’s why we have the 10/10 system where there is a checklist for everything we do, for every strategy we have, so we eliminate human emotion.

Priyeshwar Sodhii (43:51):
Like not everybody can code an algorithm, but everybody can take a pen and paper and write down a system, write down their rules, and put them in front of them when they have trading, so they have it. I have mine right next to me here, I have my own system for day trading, I have my own system for options. I have a system for every kind of training I do because I’ve been through that cycle so many times and I know every time I tell myself, next time I’ll be smarter, but in that moment, you never are. So let’s eliminate that. It’s okay, let’s build a system around them. I literally have a note on my desktop screen here and a trigger in my process that says what I’m trying to argue with myself, read the note.

Priyeshwar Sodhii (44:26):
And on the note, it says, “Something, don’t do it.” I just can’t say that something, but it just says, don’t do it. I understand what these systems are, I understand this human emotion because we all go through it. What’s important is to understand how to tackle it next time around because it will come back again and it will keep coming back until and unless you have an algorithm doing this all for you, you will experience human emotion. And one thing I would like to add over here when it comes to mindset and psychologist specifically is euphoria, market euphoria, people see other people making money, people see everybody around them making money and they feel left out, fear of missing out, they want to jump in.

Priyeshwar Sodhii (45:05):
A big question always comes, what the market crashes? What if the day I enter the market crashes? No, the market wasn’t waiting for you, it just happened to be that day. One thing I stress on, and I actually specialize in this for a couple of years, is hedging. For those of you in your audience who don’t know what hedging is, hedging is basically you’re protecting your investments, you’re buying some insurance, some kind of an option, or some kind of balancing your portfolio to protect the downside, like an insurance. And the best analogy I give is to me, it’s very surprising, Robert, that people will buy insurance on their cars, will buy insurance on their houses, will even insure their expensive products, their jewelry, but somehow, people don’t have insurance on their most valuable asset that they work the rest of their entire life and that they need for the rest of their life, their retirement.

Priyeshwar Sodhii (45:54):
Somehow there’s no insurance on their retirement. To me, that is absolutely staggering. And that’s where I understood that how many people are not familiar with this, how many people don’t know this or never were taught this. Chris and I already did a lot of work on focusing and teaching people how to hedge investments, because sometimes you’ve got to do it yourself. But hedging is so crucial because that eliminates a lot of that fear, if you buy it tomorrow, the market drops the next day. And let’s say for the next 10 years, the market doesn’t come back, you’re fine because you’re hedged, you are constantly hedging yourself.

Priyeshwar Sodhii (46:26):
Again, it’s a system, but hedging itself is something that no one talks about, is not something a lot of people understand, it’s something people think in terms of stocks, oh, you can buy inverse ETF, things like that. But options are the perfect investment vehicle for you to hedge. This is I think their prime purpose, this is where I think they shine. And this is something that I really like to focus on because when we talk about very small capital requirements, very high returns, that levers that we’ve talked about, and we always talk about trying to hit a home run, let’s use that small leverage as an insurance on your investment.

Priyeshwar Sodhii (47:01):
Now on the downside, you are protected. Now, you can trade or invest on the upside worry-free. Now you can go to sleep at night knowing if something, the market tanks tomorrow, you’re fine because you’re hedged, you’re protected. And that’s what we did last year. We were hedged in all our portfolios. Nobody knew what was coming, somebody may be had, but nobody knew. We just followed our rules, we did what we do every three months and we had hedges on. And that’s where we realized that so many people were not aware of this, or were not taught of this. I had talked to so many people who were part of our mentorship that lost so much money and they sold out and then they saw the market just rally out. But if they were just simply just hedged, just one little thing, but just one little insurance, they would have just written out everything perfectly fine.

Priyeshwar Sodhii (47:42):
So that’s where we realized that this was a missing piece in the options world, something that wasn’t really being taught, something that options are so powerful and should be used and are used for, but nobody was talking about it, so we decided to do a whole mentorship session on just hedging. And that’s what we focus a lot of our attention on teaching people how to protect yourself. Options are great, they’re leveraged, why don’t you use it to protect your most valuable asset?

Speaker 1 (48:05):
It seems like both of you have gravitated towards uncommon ways to create wealth, whether it’s infinite banking or options trading. How have you gone about finding unconventional ways to generate wealth? And why have you chosen to focus on these two strategies specifically?

Chris Naugle (48:22):
I’ll start with the infinite banking concept and privatized banking. And just everybody that’s watching this, if you didn’t see the other ones, that’s usually very specially designed and engineered full life from work and serve as a banking function in your life. But it’s just like anything else. If you’re going to invest money, where’s the money going to come from to invest? It’s going to come from your income or from your checking or savings account? Well, instead of using a regular checking or savings account with a traditional bank where the bank is making all the money and you’re making next to nothing, if you change that dynamic and you just change the foundation of where your money sits, where you store your capital.

Chris Naugle (48:56):
If you were to store your capital in your bank, that privatized bank, now all of a sudden, you just increased your returns and you didn’t do anything but change one thing. And then one thing is where the money went first. Then from there, we then found out that, “Hey, with options, this is a very unique way to hedge our bets against what we’re doing in the stock market. Anybody that is investing in the stock market, if they don’t think that there’s a crash coming in the next year or two years, or you can’t time the market, but they’re completely lying to themselves, it will crash. And when it does, you really should understand options, how to use them too, I don’t want to say insure your portfolio, but really hedge your portfolio.

Chris Naugle (49:35):
And the two of them worked so well together. The private bank paid you uninterrupted compound interest, so you were able to use the money, it never stopped the flow of interest and dividends to your full value while you’re still using it. So then once you had that money, Sodhii said, “Hey, I’m going to take that money and I’m going to invest that money in options. And I’m going to make more money over here.” So where the average person makes money once, we make money twice, and we technically do it with a heck of a lot less risk.

Priyeshwar Sodhii (50:03):
Yeah. And to add to that, I started trading when I was relatively young and for me, it was exciting at the point, I really wanted to try this. So I tried different instruments from Forex, equities, futures, options. But when I came to the options world, I’ve realized that concept of leverage, and again, like I said, everybody goes through that experience, there’s a learning curve, I made mistakes, I learned from them. But when I was mentored by someone and when I took the time to really grasp and practice everything, I realized options provide that unconventional wealth creation that you talked about because you don’t need a lot to get started. But if you’re consistent, like Chris talked about earlier, you don’t have to be a day trader.

Priyeshwar Sodhii (50:43):
You can take your time with it, you can do it a week, you can do a few days. It really just started to make sense that hey, 10%, even every week is not bad. Even every day would be great, but even every week or every two weeks is not bad. That’s 20% a month, or even 10% a month is not bad. So when you started looking at numbers in that sense, that long scheme of things, that 10% adds up every time and you’re reinvesting it. I knew this was a place to be. And as I went down the rabbit hole with options and I already grasped everything and went hedging, I’ve worked years on that. And when I understood the concept of hedging with the options world, I really realized the power of two options because to protect a very large portfolio with less than 1% of capital and still balance it out, Robert, that’s something else.

Priyeshwar Sodhii (51:26):
That’s the kind of leverage that you want to put in your favor and not have to work against you. And again, when I met Chris and when this infinite banking policy concept kicked in, then it was a no-brainer. Then it was absolutely a no-brainer.

Robert Leonard (51:38):
Which habits or principles have you guys both incorporated into your lives that you think have helped lead to your success that not enough people are doing what they should be?

Chris Naugle (51:50):
The habits are the key to my success. I’ve developed a set of rules that I follow with everything that I’m doing, whether it’s how I’m using my money. All I did is the rules I follow are the rules that the multimillionaires and the billionaires and the wealthy did, and I just learned from them. And I said, “Okay, well, if they’re not keeping and storing their capital, their money in traditional banks, where are they keeping it? Great. They’re keeping it with giant mutually owned insurance companies. And then they’ve understood the banking principles in their lives, so they just apply what banks do with our money.”

Chris Naugle (52:22):
That’s when I said, “Okay, well, if banks are doing this with my money, well, I’m going to be the bank and I’m going to do exactly what the banks have done for hundreds of years.” So my whole success story is very simple, and to some people may be boring, I follow a very strict set of rules, I do them consistently and persistently. And I always try to keep my emotion out of it, especially when trading. And sometimes to do that, that players not trading. If you’re going to be emotional on a trade, because you’re just caught up in that particular stock or the particular turn of events, sometimes the best thing to do, walk away.

Chris Naugle (52:59):
Because once you start getting emotions involved, you start forgetting about the rules. And if you don’t have that little buzzer in your head, that a little alarm, or that little post-it note on the computer like Sodhii, you often can forget about it. And at a time you figure out that you forgot your rules, you’ve already lost.

Priyeshwar Sodhii (53:15):
For me like Chris said, having good habits is very important and you need to build your own. You really need to see what works for you. So I’m going to be very honest with your audience, I am Mountain Standard Time so I’m two hours behind Eastern Time. So mornings for me are a lot earlier, and I’m not a morning person. I know I’m not. So I made sure that I built my trading system, I built my trading activities and everything around that. So I have my system that requires okay, if certain things are not done before I trade, I don’t trade. Now, that not only puts me in a more diligent to like, “Okay, you have to make sure everything is done,” but also to ensure that I’m mentally aware.

Priyeshwar Sodhii (53:53):
I’m in that zone to those critically timed decisions that are needed when you’re trading. So I make sure that I’m following that system from the moment I wake up till I’m trading. But then for the rest of the day, I also gave myself this flexibility of not being in a system, not having to have to do certain things. That’s free time. So building your own system is very important, but a lot of people try to structure their entire day. They structure their entire day on very rigid schedules. For some people, that works, for those of you that that doesn’t work like me, because I know it doesn’t, try building system for certain activities.

Priyeshwar Sodhii (54:25):
I have a trading system. In the morning when I trade the market open, I have a certain system, certain things have to be done and I have to be off by 9:30 my time. No matter what, I have to be off by 9:30. So I know that’s my close time. No matter what the market is, even if the market’s presenting a fantastic opportunity, I refuse to do that because some other day, I may get caught up and really hurt myself. So following that system and that certain time, allows me to be consistent, be in control. But for the rest of the day when I’m not trading, when I’m doing other things, I’ll give an example, I want to learn to play the piano. So I built a system specifically for that, when it’s this, this is what has to be done.

Priyeshwar Sodhii (54:59):
But for the rest of the day, I have my whole day open. I can do whatever I want. I have the flexibility to explore, to learn, to be creative, to do other things, or I can do nothing. So I think when it comes to habits and principles, people need to experiment, they need to fail first, to find what works. This idea that you can read a book and you can build this perfect system and have these perfect habits and principles that will work for you and lead you to success is not true at all. Something that worked for someone else may not work for you at all. You might spend reading the entire book and realize, “Well, I can’t do any of that, or that doesn’t work for me.”

Priyeshwar Sodhii (55:31):
So you would have to fail a little bit, see what works for you. And then it’s okay if you’re not a morning person, it’s okay if you’re a night owl, it’s okay if you can’t do a rigid schedule. Do what works. Build a system around a specific activity. For me, that’s trading, or whatever it is for anyone else, build a system for that. It’s exactly the same. What needs to be done before? How do you want to be dealing? How do you wrap it up? What’s the end result? If you have a very simple system for each activity, you have like the same thing, the checklist, you eliminate human emotion out of it. You’re eliminating the thought process that leads you to procrastinate, that leads you to not wanting to do something or delay something.

Priyeshwar Sodhii (56:08):
All of a sudden that’s gone because you don’t give yourself time to think, you just read the checklist, you follow through and next thing you know the task is done, next thing you know your day is concurred, you’ve done what you wanted to. So I think breaking it down into smaller systems and living by that is really important because now when you’re not in a system, when you’re not in activity, you can do whatever you want. Now, you have the time to relax, do other things, to do whatever you want, and not feel guilty that you didn’t do the things that were important.

Priyeshwar Sodhii (56:32):
This applies to trading, specifically for trading because that’s how I did it, but you can apply it anywhere else.

Robert Leonard (56:38):
Sodhii, Chris, thank you both for joining me today. Where can everyone listening go to learn more about you guys and what you’re working on.

Priyeshwar Sodhii (56:46):
You guys can check out our 10/10 Programs at moneyschoolrei.com/tenten. That’s moneyschoolrei.com/tenten. And my email, I’m more than happy if anyone wants to reach out with any questions is priyeshwarsodhii, my first and last name @chrisnaugle, Chris’s name.com. So I’m here to help out any way I can, feel free to reach out, email me, feel free to check our website, we have a bunch of programs, we have a lot of resources to offer. I actually want everyone to know that hey, options trading is not as complicated as it seems. If you take the time, if you break down into the simple concepts, eliminate the noise, you can learn. You just need to be willing to learn and we’ll make sure that you do.

Priyeshwar Sodhii (57:26):
And if any questions, I’m more than happy to take the time to answer them for you and even get on a call with you.

Chris Naugle (57:32):
The best way to always find me is my website, chrisnaugle, N-A-U-G-L-E.com. And obviously, Instagram I’m on there all the time, so shoot me a message. But the other place you definitely want to check out is YouTube. We’ve got a ton of free videos on there. You can learn all about the things that myself and Sodhii were talking about, and that is @thechrisnaugle.

Robert Leonard (57:54):
I’ll be sure to put a link to both gentlemen’s resources, emails, social media channels in the show notes below for anybody that’s interested and wants to check those out, you can get those links in your favorite podcast player below. Guys, thanks so much for joining me.

Chris Naugle (58:08):
Thank you for having us.

Priyeshwar Sodhii (58:10):
Thanks a lot. It’s been a pleasure.

Robert Leonard (58:12):
All right guys, that’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro (58:18):
Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires via The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.