The MapleMoney Show » How to Invest Your Money » Investing

An Introduction to Options Trading, with Jerremy Newsome

Presented by Willful

Welcome to The MapleMoney Show, the podcast that helps Canadians improve their finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.

We’re all familiar with different types of insurance – home insurance, health insurance, car insurance – but what about stock insurance? Jerremy Newsome is my guest this week, and we’re talking about a subject that we haven’t tackled before here on the show – options trading.

Options can be complicated, but Jerremy does a great job of breaking things down and making a complex topic much easier to understand. According to Jerremy, options are a type of insurance contract, plain and simple. Is he right? Listen in and find out!

If you’re a regular listener to the show, you know that my investment style leans to the boring side. I like to keep things simple and don’t stray too far from my buy-and-hold ETF strategy. If I’m feeling adventurous, I might buy a dividend stock or two.

So it’s no surprise that I’ve stayed away from options. But as Jerremy explains, options aren’t inherently risky, if you know what you’re doing. To illustrate, he uses hypothetical examples of Bank of Montreal stock to explain how you can make money trading options, both on the upside and the downside. We chat about puts and calls, even covered calls. I have to admit that by the end of our interview, I was intrigued.

This episode of The MapleMoney Show is brought to you by Willful: Online Wills Made Easy. Did you know that 57% of Canadian adults don’t have a will? Willful has made it more affordable, convenient, and easy for Canadians to create a legal Will and Power of Attorney documents online from the comfort of home.

In less than 20 minutes and for a fraction of the price of visiting a lawyer, you can gain peace of mind knowing you’ve put a plan in place to protect your children, pets, and loved ones in the event of an emergency.

Get started for free at Willful and use promo code MAPLEMONEY to save 15%.

Episode Summary

  • What are stock options?
  • How stock options offer downside protection
  • Why options have the same risk profile as regular stock trades
  • How call options work
  • How do you buy stock options?
  • What happens if an option expires?
  • Jerremy explains how covered calls work
  • What exactly is a strike price?

Read transcript


We’re all familiar with different types of insurance. Home insurance, health insurance, car insurance. But what about stock insurance? Jerremy Newsome is my guest this week. We’re talking about a subject that we haven’t tackled before here on the show, options trading. Options can be complicated, but Jeremy does a great job of breaking things down and making a complex topic much easier to understand. According to Jerremy, options are a type of insurance contract, plain and simple. Is he right? Listen in and find out. 


Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. This episode of the Maple Money Show is brought to you by Willful. Did you know that 57 percent of Canadian adults don’t have a will? Willful has made it more affordable, convenient, and easy for Canadians to create a legal will and power of attorney documents online from the comfort of home. In less than 20 minutes, and for a fraction of the price of visiting a lawyer, you can gain peace of mind knowing you’ve put a plan in place to protect your children, pets and loved ones in the event of an emergency. Get started for free at and use promo code Maple Money to save 15 percent. Now, let’s chat with Jerremy…


Tom: Hi, Jeremy. Welcome to the Maple Money Show. 


Jerremy: My man, Tom. What is up? 


Tom: I’m glad to have you on because one of the things we’ve never covered on the show and I don’t know much about is stock options. I’ve researched it a little. I’ve never actually done it. I’m normally a boring investor. I do the ETF investing. I just buy regularly and don’t necessarily worry about what that price actually is. I do sometimes invest in stocks. But again, I just buy them. If something looks like a good deal where maybe it’s had some bad news, but I know it’s good company, I’ll buy a little extra. But I’ve never used stock options. Can you explain what a stock option actually is? 


Jerremy: Hundred percent, man. Stock option is an insurance contract, plain and simple. When you trade the markets, you can make money if it goes up or if it goes down. Most people are very familiar with making money as it goes up. Buy a stock at $60, it goes to $100, you’re making money. But there’s another side, shorting. You short at $100, hoping it goes down to $60, so you make $40 a share profit on the downside. So there are two types of options—and only two. You have a call option and you have a put option. A put option is literally stock insurance. Just like a home. You own a house or a car so you have house insurance, car insurance, stock insurance. I’ll paint you a verbal picture. If you buy a stock… let’s say Bank of Montreal at $60 and it goes up to $100, you have a $40 per share profit. Then you say, “I want to protect myself because maybe it goes down from here,” so you buy a $90 insurance contract. That will protect your stock and give you the right to sell at $90. So if Bank of Montreal crashes on COVID and goes from $100 to $40, you have the ability to (in hindsight) exercise your option and sell the stock that you bought at $60, at $90 when it’s at $40. It’s literally creating downside protection. 


Tom: That’s interesting. I wasn’t thinking as much about the sell side. We’re saying the stock’s at $100 when you can buy an option at $90. So you’re willing to lose the $10. That’s fine. But you’re just making sure that you’re sort of protected from a crash? 


Jerremy: Bingo. That’s 100 percent correct. You still have to buy that insurance product. But just like a car, you don’t get mad that you don’t crash your car every year. You don’t say, “Dang it! I spent $1,000 in car insurance. I’m such an idiot. I didn’t wreck my car.” But you’re protected. And that’s generally what stock options were created for in the 1970s—1973 to be exact. You have the ability to protect yourself. And on the flip side of that, Tom, if you can buy an insurance contract, then someone out there can sell that insurance contract to you. Not only can you buy stock insurance, you can also sell stock insurance, which is extremely lucrative with a very, very high percentage win ratio.  Just like an insurance salesman wants to sell you insurance on a car that you never crash, you can sell stock insurance on a stock that might not ever crash, either. 


Tom: Can you give us a similar example of what that looks like? Let’s keep using the same prices we’ve used already. 


Jerremy: Absolutely. Let’s say, for example, we buy Bank of Montreal. Let’s say Bank of Montreal is at $60. You don’t know for sure if it’s going to go up or not. Right? You’re kind of thinking maybe it will. Maybe it won’t. I don’t know. But I would not mind owning it at $50. At $60… maybe, maybe not. But at $50, it’s a done deal. Sign me up. I’m in for $50. You can sell a put option. Again, this is an insurance contract. You sell an insurance contract to someone at $50. It gives them downside protection, $50 or lower, but it gives you the ability to own the stock at $50, if it goes down to $50. And if it doesn’t go down a $50, you keep your insurance premium. You make what you sold to the person who bought it from you. And in a situation like that, oftentimes on insurance premium, it would be something like one to two percent, and you will always get that money. That money is guaranteed. That money comes into your account in cash. So it’s actually 100 percent that you’ll always get your cash. The worst case scenario, Tom, is that Bank of Montreal goes down to $10 and you had to buy it at $50, so now you’re down $40 dollars a share. 


Tom: Okay, so you still have to buy it no matter what?


Jerremy: Yes, you’ve still got to buy it. If you sell an insurance contract at the price and the stock goes below your price, you have to buy those shares. It’s just like if I write you a car insurance policy and you crash your car, I now have to fix it. I have to pay out that money. But you were giving me $100 bucks a month, so hopefully you gave me $100 a month for maybe six years. I’ll have had enough money collected from you to pay for your vehicle and still make money. That’s the goal with selling a put. But here’s the cool thing, brother. If you do sell a put, Tom, you get paid to buy a stock that you want it anyway. Remember, you wanted Bank of Montreal at $50, so you got a dollar to buy it at $50, so your cost basis is really $49. Let’s say Bank of Montreal goes down to $40. You have to buy the stock at $49. It’s up $40 and you’re down nine dollars. You hold it for three years and it goes up to $140 (where it’s at now), you’re absolutely crushing it. And you literally got paid to do that trade. 


Tom: In the example where you said it goes down to $10, though… I get that if you’re getting paid for these options long enough, hopefully it covers it, but it sounds risky. The last thing I would want to do (options aside) if I were just buying stocks is be forced to pay more for something than what it’s worth. 


Jerremy: Well, of course. But you do that all the time when you buy stock, anyway. When you buy a share, it can continue to go down lower than what you bought it for, so it’s the exact same rift profile. In fact, you can actually do this on ETFs as well. You can sell insurance… And to make it even funnier— are you ready for this? This is one of the coolest strategies on earth. There is a way ETFs, banks, literally anything—you can get into unlosable trade for a certain period of time. I’ll paint a picture. You buy Bank of Montreal at $60. It goes up to $100. You buy the $90 put to protect you at the lowest. You’re willing to lose $10 dollars a share. We already talked about this. That insurance would cost you a dollar, right? So, you buy it at $90, it costs you a dollar. You have to come up with that dollar. How do you get that dollar for free? Well, you can do what’s called a “call sale” which is the other option. So you’re now selling calls at $110. You sell a call option at $110, you get paid a dollar. That dollar you receive, you are actually renting out your stock just like you were renting out a house. So you rent out your house. If the stock  goes up to $110, you sell your stock at $110. Congratulations, you just crushed it and you got insurance for free. So you either sell your stock at $90 or you sell your stock $110. Either way, you bought it at 460. Congrats, you win on the trade. And you can do that with ETFs all the time. 


Tom: Yeah, I guess since it’s all the same. There’s a lot of talk about buying and selling. And with ETFs, I’ve only really been in the buying phase. I rarely sell anything. Unfortunately, I’ve even had some stocks that have gone down to next to nothing, just because I kept holding and holding. What’s the simplest strategy to get that good deal if I’m mostly interested in the buying side? The example of BMOs at $50—I’m thinking it’s a little expensive so I’ll just keep manually checking in to see if it ever goes down to $40. Is there just a simple way to sort of say, “I don’t want this unless it’s 40?” 


Jerremy: Absolutely. Great question. And the answer is, yeah, for sure. There’s three ways to do it. You can do what’s called a “good to buy” limit order, which is just buying the stock. It’s good to cancel. It hangs out there. It could be out there for seven months. If Bank of Montreal ever goes down to $40, you buy it without you being in front of a computer, right? You buy it at $40, no questions asked. Now you can sell a put at $40 which means you get paid to wait. What if the Bank of Montreal never goes down to $40 and you want to buy the stock? Well, you missed out on money, right? But if you sold a put, you get paid to wait, which is awesome. Then the third choice is you could buy a call option. Buying a call option gives you the right and ability to actually own the stock at $40. You pay very, very little money upfront and you get to sit on your hands and find out what happened to the stock, then take ownership of it in the future. A perfect example is, Bank of Montreal is at $50. You buy a $40 dollar call option. And you buy that for a year from now. You buy a 100 share contract. All the contracts come in 100 year contracts. So if you wanted to buy 100 shares of Bank of Montreal at $40, that would cost you $4,000. Or you could spend $800 and buy the contract because it’s so much less expensive to buy the option than the shares. You buy the option to buy Bank of Montreal in the future if you want to. Worst case scenario, Tom, you lose $800. That’s your worst case scenario. Stock goes to zero, you lose $800. No big deal. You don’t lose $4,000. If the stock goes up to $100, you have two choices. You can sell the contract and make an absolutely astronomical return— this case, the exact mathematical situation means you’d make a 700 percent return on your investment. Your $800, you’d be able to sell for $5,600. A 700 percent return on the option would be huge. Or you take possession of the stock when it’s at $100, but you only have to pay $40. How cool is that? That’s a call option. 


Tom: That’s the one that makes the most sense to me if I were to get into this. That gives you a little bit more leeway on how you buy. 


Jerremy: Yeah, it gives you leeway. It gives you time. It’s less capital and it’s a larger return if you do want to sell in the future. 


Tom: So just in general, I know there’s different brokers and everything, but how do you go about buying these? Is it similar to buying a stock? Just a different market, I believe? 


Jerremy: Great question. I actually work with Canadian students and traders all the time. Every single day. And the largest broker in the world is called Interactive Brokers. They’re actually a publicly traded ticker symbol (IBKR). At Interactive Brokers, it’s the exact same dropdown box. Yes, stocks are faster because all you have to do is buy or sell. But with options, you buy it open. You buy the closed. You sell it open. You sell it closed. You have different expiration dates. Whatever stock, trade you’re going to take, it might take a minute. An option might take two minutes. But it’s the same dropdown box. You do have to get approval for options because people can lose ridiculous amounts of money. If you buy the wrong option at the wrong time and you wait too long and you just let it essentially expire worthless, you can lose insane amounts of money. So when you are doing the order function, filling out the broker requirement, they want to make sure you know what you’re doing and that you’ve had the proper education. That’s where my company comes in. I teach people how to trade these options adequately and properly because with the right knowledge, Tom, without making an over exaggeration, people have an “okay” or “basic” understanding of options and can double an account every year. So you get 100 percent return on your money every single year. It adds up very, very quickly. With stocks,  as much as I love Apple, it takes two to three years for Apple to double. You buy the right option contract on Apple, it can double in a day, double in a week, a month, a quarter. You’re still trading Apple, the largest company in the world. The stock doesn’t have to double, but the option can. And that can be very, very enticing for individuals. 


Tom: You mentioned the idea that someone can lose a lot of money if they let it expire. Is that the biggest risk, letting it expire? And second, what do these expiries look like? You gave an example of one year. Is that the norm? What’s the range on these kind of things? 


Jerremy: Generally, for 85 percent of the market out there, they have a two year expiration. I’ll ask you a question, Tom. If you pay for a year worth of car insurance upfront (or two years) does two years cost more than one year? 


Tom: Two years should be cheaper, I would assume. 


Jerremy: No, you’ll spend more money.  


Tom: Oh, I’m sorry. I was thinking you meant, do I do I get a better deal? 


Jerremy: Yeah, yeah. But your cost outflow is going to be more. When you buy more time and an insurance contract, it always costs more. The longer your insurance contract, the more it costs, but the safer it is because now you have more time to figure out if the trade works or not. It’s kind of like if I can tell you the winner of the Super Bowl and in the US and they’re only  halfway through the season, that’s going to be very, very profitable. But if I do it on game day when the Super Bowl is happening, it’s a lot less profitable. It’s that time horizon. The more time you have, the more money you can make and the safer it is. So expiration can go all the way to a day. The quickest way to lose hundreds of thousands of dollars in the stock market or the options market is to buy an option that expires the same day, put all of your money into it, and gamble. That’s no different than going to the casino, taking your net worth, and putting it on black at a high stakes roulette table. It really is gambling if you’re doing the same day expiration. There are strategies that can be very, very profitable using same day expiration, but that’s a little bit more advanced and not realistic for this topic. However, if done incorrectly, the option expirations are real. About 80 percent of options expire worthless. So if you buy something, let’s say it’s $12 and you have two years. You will wait all two years, and the thing that you thought would happen didn’t, like the Bank of Montreal. It never went up. And you have this call option that you bought, right? Bank of Montreal, is at $50 and you bought it at $70. It never went to $70. Then nothing that you bought for $12 now becomes zero. And if you took your entire net worth and put it on that thing? Yeah, you’re toast. But if you put a small amount of your money, it’s absolutely okay to lose half a percent of your portfolio on a bet. That’s okay. 


Tom: In that kind of example, if you’re staying on top of this, what are your options to not lose the money? You mentioned you could sell before the expiry date, but I assume you don’t necessarily mean the day before (other than those people that might be betting on the one day options). But in general, when do you need to act? Say if you’ve got a two year expiry and things aren’t going our way? Is there cutting losses. How’s that work out? 


Jerremy: If I buy a two year option contract, I generally should know within four months if it’s working or not. Let’s say I spend $20,000 on the option and in four months I’m up 10 percent on that option contract, I think, okay, this looks like going to work okay. I can sell it whenever, though. Let’s say I buy something—and this has never happened, but let’s just say it does. I buy something two years away, and the next day the stock goes up 300 percent. Like Avis Rental Car did yesterday. It went up 300 percent. It was insane. Just a crazy, crazy, weird, insane move. Or GameStop or AMC that everyone might remember a year ago. Let’s say you had a contract expired. The stock went up 300 percent, the option had gone up something like 30,000 percent, which is astronomical. I mean, you would quadruple your account essentially even if you got a little bit of money in there. It’s never happened to me, but some people it’s happened. Some people get lucky. Anyway, you can sell it whenever you want. That’s the good news. You buy a two year and the next day something cool happens—you sell it and you’re out. You can also put something called a “stop loss” on an option. Let’s say you buy an option for $12 and you want to get out at $8. You’re willing to lose $4. If it goes down from $12 to $8, I’m out. Or if it goes up from $12 to $20, I’m out. You risk $4 to make $8 and you can do what’s called a “stop loss”. So if it goes $8, you get out or if it goes $20, you limit sell and get out for a profit. Then, again, you can again walk away from your portfolio and you don’t have to stress out because you’re maxed. You know you’re losing $4 and in the best case, you’re going to win $8. 


Tom: I like that because without something like that it sounds like something you’ve got to kind of stay on top of which is why I like ETFs. I don’t have to follow them too closely. With options like that—I shouldn’t use the word options when we’re talking about stock options, but with choices like that, the “stop loss,” with most brokers, is that additional cost or is it just a matter of this ticking off a box? 


Jerremy: I believe you said you’re in Canada. Questrade is terrible. If anyone is hearing me and you have Questrade, I’m sorry, it’s the worst broker on earth. Other than that, you have Toronto-Dominion. That works fantastic. Interactive Brokers works fantastic. There is no additional fee for placing the trade. You only get a fee when the order is submitted. Currently, the fees are a dollar, a trade. It’s not very much for an option. It’s very, very inexpensive. Here’s a random example. Buy and option at $12. Set a “get me out” at $8 or a “get me out” at $20. You’re either losing $4 or making $8. Over the course of three months, you notice the option went up to $19. So you move the “get me out” at $8 and take it up to $13. Now, you’re going to make a dollar. And you move the “get me out” at $20 to $25. All you do is go into your platform and literally make that adjustment. That adjustment costs you no money at all. It only costs you money when the order fulfills. 


Tom: Just a simple question, but I haven’t heard you say it yet. I hear the term “strike price.” Is that just a matter of the amount you picked? 


Jerremy: Yeah, exactly. Strike price is when you’re reviewing a stock, a chart, or a contract, you’re picking the actual price that you want to be at. Let’s go back to that option to buy a stock at $40. Forty dollars would be the strike price. There’s math based options that are extremely interesting. There’s ways to really get into deep calculus, or you can be a moron like me and kind of go, “Ah, around here…” you know? So if I buy a company whose call option I think it’s going to go up, I generally do what’s called an “out of the money” option because I think the stock’s going to go higher anyway. So the stock’s at $50, I’ll buy a $60 strike price. It’s a little bit out the money, so it’s less expensive and it’s has a bigger return if the trade works. 


Tom: How much research is required here? Say a stock  is $100 and I’m thinking, “Well, gee, I don’t want to pay more than $50 for that,” it seems like maybe that’s not feasible in most cases. I might just be wasting this money on options, on something that will never hit $50. Do I have the right idea there? Or is it just a matter of if you buy that option, someone else might be able to sell it to someone else in the future anyways? And there’s other ways to make money than just waiting for that stock to hit that price? 


Jerremy: Exactly. You would just sell a put, in that scenario. The stock’s at $100 and you don’t want to pay more than $50, just sell it for the dollar put. You would get paid to wait. And if the stock never gets down to $50… Or you, Tom, at least collect your one percent? At least you get your 50 cents waiting if it comes down to $50. And if it never does, you just keep collecting your 50 cent over and over and over and over and over forever until the stock does whatever it wants to do. If it never even gets close, then you just never get close to buying it. But at least you made some money. And that’s what’s cool with options, you can get paid to wait. You get paid to be patient. 


Tom: Mm-Hmm. I like that because you can kind of make these dream prices as long as there’s a buyer on the other end. And yeah, if it happens, it happens. But if not, you are getting that one percent. 


Jerremy: Bingo, dude. Yeah, you’re 100 percent correct. 


Tom: How far can this go? Take that $100 stock example. Could I say I want to sell a put for $10 and then the stock’s $100, would there actually be a buyer on the other end or does it just kind of float around in the broker and never get picked up? 


Jerremy: So essentially, what would happen is you get to actually see and you can scroll through the buyers and sellers and you can find out the prices that people are willing to pay you, which is amazing. It depends on the stock. I’ll give you a crazy example. When GameStop did its insane run up from $10 to $400 a week or whatever it was? Right before they turned off options on GameStop, I was able to sell a $10 put for $1. I got paid a 10 percent return on my risk to own GameStop at $10 when it was at $400. The chances of it going from $400 all the way back down to $10 (in a month) was something like .000001 percent. It could have happened. And if it does, I would have probably bought GameStop a $10 and tried to sell it at $11. I’d still have made by $1 per share of selling the put and $1 a share of actually selling it from $10 to $11. I would have made money on this trade. Right now, GameStop is trading around $150 a share. It never got down to $10. So the answer is it can absolutely happen. It’s all about the stock. Sometimes it’s called volatility—how fast it moves. The short answer, yeah. You can scroll through the market and find outrageous stocks that are offering crazy returns very, very far away. And generally, it’s because of some type of news event. Let’s take a random pharmaceutical that says, “We’re going to come out with an FDA spinal cord pill,” and who knows if we’re going to get testing or not. You can get option money at $1 if the stock’s at $100. You might make two to three percent on that risk. 


Tom: Well, I’m glad you explained this part. So, when you’re selling a put, you’re not really putting the price out there. You are just scrolling that list and seeing a few to see if you have a buyer to sell to? 


Jerremy: Bingo. Yeah, you just scroll through. And the cool answer is, and this is just my experience the last 13 years of the market. Never, have I not had a buyer. If you get into an options trade, if do the right price, you’ll get filled. The question is the pricing. And again, you can see the pricing. It’s called the “bid” or the “ask,” and if you kind of go somewhere in the middle, up or down, you’ll normally get filled. If you do a market order, I’ve never, NOT, got filled, my whole life—ever! 


Tom: Another term I’ve heard, and I think you mentioned it once here, was “covered call.” Can you explain what that is? 


Jerremy: A covered call is when you buy a stock at a certain price and sell the right to someone else to own your shares at a higher price. Why would you do that? Well, let’s simply take a real estate example. Let’s say you have a house and someone comes up to you and says, “Hey, man, I want you to sell this house to me. But not yet. Let me do some due diligence. So, to make sure that this house is mine if I want it, here’s $3,000 of earnest money. This money is yours, regardless of whether I buy the house or not.” That happens all the time in real estate. It happens all the time in the stock market, too, but people just don’t know. So you go to Bank of Montreal and buy stock at $100 and you say, “Alright X,Y, Z person…” It doesn’t even matter. Again, you just scroll through, find a buyer, and click, you’re done. It takes like a second. It’s crazy. It’s so cool. Buy your stock at $100 and sell a call option at $110. One of two things happens. It goes above $110 and you sell the stock that you buy at $100 at $110, plus your rent money— a.k.a., your earnest money (from the real estate example) which is generally somewhere between one or two percent, pretty easily. So you get a free one or two percent thrown your way because, hey, you’re awesome. Scenario two is where stock does not go above $110. You keep the earnest money and you keep your shares. You can do it again next month and get another one or two percent. And for a lot of ETF traders—people who say you can’t beat the market, I always smile at them and say, “Listen, bro, I can do one covered call, one time on any ETF and beat the market,” because I can make one or two percent extra. Even if I just click a button once, I do one or two percent extra. Even if the ETF did 13 percent that year, I’m going to do 15 percent. I beat the market, even if it was only by two percent because I did one covered call correctly. 


Tom: So, in this covered call example, what’s the risk then because with your two options it didn’t sound like there was there was any downside. 


Jerremy: So here’s the cool news, and there’s very few people will say this, but I think I’m one of the people that’s brazen enough to say it. There is no additional risk to getting into a covered call. Your risk starts when you buy the stock, because the stock you buy, like Bank of Montreal, what’s the risk? It goes to zero. It has happened to many companies in the past. There’s your risk. Getting it to a covered call actually offers no additional risk. It is the safest option strategy that you can do, and it’s allowed every broker, every retirement account. Covered calls are basic, easiest thing in the world. Very, very, very simple, risk friendly strategy. There are some people that will say, “Well, Jerremy, what if the stock that you bought at $100 goes to $180 and you had to sell it at $110? Is that a risk?” By the technical definition of risk, I made less money than I could have. That’s just called life, I think. You’re always going to make less money than you could have. You could always make an additional dollar in every transaction, ever. You’re never going to sell the exact high of anything. So, yeah, you make less money than you could have, but that’s not really a risk. That’s just a potential thing that didn’t happen, maybe yet. 


Tom: And I wouldn’t necessarily blame the covered call for that, because if you were just manually buying and selling stocks, you could have made that same decision at $140 to say, I’ve made some good money and I’m going to sell.  


Jerremy: It keeps going, exactly. You can’t blame the covered call for that. Precisely. Worst case scenario, you get paid your premium for rent and the stock tanks and you have to hold for three or four years until it goes back up. Let’s take Bank of Montreal during COVID. I have a really good friend who lives in Montreal named Roberto, and he’s a financial adviser. He called me mid-March and said, “Dude, Bank of Montreal is a steal. It is a steal. It’s $40 a share. You’re an idiot if you’re not buying it down here. They’ve never cut dividend. They’ve been around for 130 years or something. They’re always profitable…” And I said, yeah, you’re right. So I took the US dollar, converted to Canadian and bought some Bank of Montreal stock and it’s doing extremely well. It’s up almost 100 percent. That’s an awesome, awesome trade. Now I can start renting out that stock and it’s getting covered call premium. And dude, if you do it right, spend an hour or two worth of time and energy to learn how to do this, you can easily make an extra one or two percent a month. 


Tom: Yeah, I don’t want to go too deep into covered calls, but you’ve got me interested. Assuming you didn’t buy the stock under any of these options strategies but just buy it normally, then you just go through the next steps to do a covered call?


Jerremy: Absolutely. The launch is 100 shares. That’s the only requirement. 


Tom: Okay, it’s in hundreds every time? 


Jerremy: Yes, you’ve got to have 100. You can have 100, 200. If you have 150, you can only do one call option. Or you can sell a call against 100 shares and your other 50 or what’s called “uncovered” which is a perfectly fine strategy too. I have 275 shares right now in Teladoc. And I’ll probably buy 25 more in the next month. Then I’ll do a covered call on 300 shares. 


Tom: Are all options in hundreds? All the puts and calls in in hundreds?


Jerremy: They’re all in hundreds, yes. 


Tom: I guess the only other question I’ve got for you is, do you ever buy stocks directly? It just seems like if you’re willing to willing to buy the stock that day, is there still an option strategy that would make sense that you wouldn’t sort of ever buy a stock that same day? 


Jerremy: That’s a personal question. Not personally directed to me. It’s personal directed to the people who are individuals, trading. I know an individual’s  whose name Robert Thompson. He lives in Denver, Colorado. He manages a large IRA and does it fully in options. He doesn’t own one single share of stock, ever. It’s literally an options portfolio. Without going into it too complex, literally, there are hundreds of thousands of options strategies. You can do all kinds of really cool, finagles… sell here, buy here, do this, ensure position, sell insurance against insurance. You can have double insurance, triple insurance. You can insure every position so that your worst case scenario is always mathematically defined. You can have an entire portfolio based on options. Is it going to be more volatile? Of course. So if you’re okay with volatility and a little bit younger like me and you, and you can survive some 30 and 40 percent downs and some 100 percent ups in the course of a year, go for it. I absolutely only trade stocks on multiple occasions. One example would be a day trade. I love day trading. I think it’s a phenomenal way to create cash flow. Today is a great example on AMD, which is advanced micro devices—a company everyone on planet earth knows. They had a three dollar move today. Buy 1,000 shares at $128, sell those 1,000 shares at $129, have a stop loss at $127.50, your risk, 50 cents to make $1. On 1,000 shares you could lose $500, but you made $1,000… Boom! In and out, done. That trade took 18 seconds to set up. I made $1,000. Went to breakfast with my leadership team and came back for this podcast. It’s a really, really easy way and it was just a day trade. Again, it truly took less than 20 seconds to set up… In and out. 


Tom: Like you mentioned, the guy that had the “all options” portfolio, you would still have stocks in your portfolio but other than day trading, do you normally buy them through options? 


Jerremy: I will flex it. It just depends because not all stocks have options. They have to have a decent amount of volume to warrant trading options on them. I would say it’s a blend for me of 50-50. Sometimes I get into option trades. Sometimes I’ll just buy the shares if it pays a dividend, or maybe it’s dropping really fast. The more advanced, the longer you spend in the options education world, each individual generally find what they kind of prefer because it really does depend on how active you want to be. The more active you are, the more likely you’re going to be trading options. The less active you are, you’re going to be mostly doing shares and some very special collar strategies where it’s, set-it-and-forget-it, and let it do its thing for multiple weeks or months at a time. 


Tom: Thanks for walking us through all this, especially with the examples because to talk about this topic without some numbers to make sense of it, is tough. Thanks for doing this. Can you let people know where they can find you online and what you’re up to? 


Jerremy: Yeah, absolutely. I would say there are one of two ways. We have a huge Canadian audience and a tribe of followers, but we have a very successful, very popular, YouTube channel. The company’s name is Real Life Trading. You can go to YouTube or you can go to And all my education and stuff I just talked about, I cover for free. You can go in and get all kinds of free courses for information, free eBooks. The world is your oyster. Just go dive in. Because I made so much money doing this in helping so many people, I just figured why sell it? I’ll just give it away for free. And of course, it’s a business. I have ways to make money through certain masterclasses and advanced programs, one-on-one mentoring, and things of that nature. But essentially, my mission was to enrich as many lives as possible by giving this information away for free so that people no longer had an excuse to not learn it. 


Tom: Well, great. Thanks for being on the show. 


Jerremy: My pleasure. Thank you for having me. 


Thank you, Jerremy, for explaining how options trading works and for making it fairly easy to understand. You can find the show notes for this episode at And, if you want to learn more about options from Jerremy, I encourage you to check out his YouTube channel, Real Life Trading. Thanks, as always, for listening. I really appreciate the community we’re building both on the Facebook group and the personal messages and reviews I’ve received. I look forward to seeing you back here next week when we have Tanja Hester on the show to discuss her new book, Wallet Activism. See you next week!

A stock option is an insurance contract, plain and simple. And when you make money, when you trade the markets, you can make money if it goes up or it goes have house insurance, health insurance, car insurance...stock insurance. - Jerremy Newsome Click to Tweet