This episode explores the dynamic world of options trading with Jon and Pete Najarian, the renowned Najarian Brothers of @MarketRebellion. With decades of experience and a unique approach to navigating market volatility, they share invaluable insights on using options to maximize profits and mitigate risks. From their NFL background to their disciplined trading strategies, discover how they leverage their expertise in the ever-changing financial markets.
John Najarian 0:00
They came in whoever they are, and bought some December call options, and they bought those options for $1.15. Well, the stock over the next several days popped from $49.08 That’s when they entered the trade 253 44. So, if you bought the stock sure you made a nice trade you made, you know, let’s call it $4 and couple cents. That’s a nice trade, but you had to commit. If you bought 1000 shares, Eric that would have cost you $49,000 Why is that? 1000 shares times $49. But if you bought these options for $1.15, those options went from $1.15 to over $2.50.
Eric Chemi 0:58
Welcome to Wealthion, I’m Eric Chemi. Today, we are going to be talking all about options trading. There’s so much volatility in the markets right now, especially on the macro side, that sometimes you need options to actually better hedge your risk or to better take advantage of that volatility. So you get a trade portfolio profit that’s beyond just the directional move, but you can get a volatility profit as well. And if there’s a real downside move against your trade, you can protect yourself so I’m bringing in the Najarian brothers they are my favorite Options Experts they have been doing this for so long, John and Pete are are the true pros at this they have their own following on on their channels as well which we’ll get into in a little bit but quick bio before we get in because they’ve done so much in the option space that I really want to get this right so Jon Najarian has 40 years experience in financial markets including a 25 year career as a 25 year career as a floor trader and member of the CBOE the Chicago Board Options Exchange the New York Stock Exchange the CME and CBOT a lot of acronyms there a lot of training P Najarian, who has been recognized as one of the top 100 traders by trader monthly became a professional options trader after playing several seasons of NFL football with the Minnesota Vikings and Tampa Bay Buccaneers. And I think we see that gopher pin on the jacket there. Together John and Pete serve as co founders of market rebellion, a company they formed shortly after completing the acquisition of their previous company, trade monster by E trade in 2016. Founded by the Nigerian brothers that you see right here, market rebellion is on a mission to challenge the status quo of trading and investing by empowering independent investors like yourselves with guided trading services, insights, trading education, content and tools so that you all can trade with confidence. So John and Pete, thank you. Thank you so much. And I’ll just start, I’m gonna start with John because your screen is bigger on my screen right now.
Pete Najarian 2:49
He’s older. Much older,
Eric Chemi 2:55
when you look at the macro environment right now, and you’re looking through your sort of more micro options data as well. What do you see? Do you see a Fed that’s got us on a soft landing path? Or do you see a real implosion coming up ahead?
John Najarian 3:07
Great question, Eric. And thank you and Wealthion for having us on. It’s great to be on here. I think the market is still sort of whistling by the graveyard. And the reason I’m using that analogy, Eric is because the Fed has been extremely transparent. Pete makes this point all the time that Jay Powell has said what they’re going to do, which is they’re going to keep hitting inflation with higher interest rates until they beat it to death. And I think they’re gonna get their wish, I think eventually, they’re gonna have to stop. They’ve taken two pauses in a row, maybe in December, we’ll see the third pause. We hope so. But if we get any kind of hot reads, Eric, I think that the Fed is likely to continue the only medicine they have for higher interest for higher inflation, and that is higher interest rates, the Fed can do nothing else in terms of that in terms of bringing people into the markets, they can lower interest rates. And that’s what I think they’re going to have to do in 2024. Because I think, unfortunately, just like that battleship analogy that we use, that it’s so difficult to turn that battleship, that they’re going to have to go too far to beat inflation down far enough, and they still won’t get to 2%. But the damage to the economy will start to be larger, and thus they’ll have to actually start cutting rates. That’s what I believe will happen. So the options are really kind of reflecting in certain industries that the Fed is likely done or close to done. So at least that’s a good thing in my mind, Eric,
Eric Chemi 4:58
how often do you agree or disagree with your brother when you heard everything he said there? Do you think he knows what he’s talking about? Are you guys had a mind meld? Or do you get into fistfights because you can’t agree on something.
Pete Najarian 5:08
It’s very rare to get to the fistfight point. But, you know, once in a while we do disagree. But I think generally, it’s something that we’re both looking at a lot of the same information. And as John said, I’ve been saying forever, Chair Powell has been as transparent as any we’ve ever seen, right. And he’s telling us exactly the data that they need, exactly where he wants inflation to be. And he’s going through this whole process, by the way, 99.8%, in December, that it’s going to be another pause. So and, and that’s not me just saying that that’s actually from the CME fed tool that they’ve got. So it gives you an idea of where we really are, are we going to have three in a row, I’m going to say that we are. And it’s interesting, just looking at the different information that we get every week, obviously. And we’ve started to see a little something helping out the markets, at least to some degree, which has been in crude oil. We talked about it all the time, we talked about gas and food and everything else. But that’s something that we were at 9090 Plus not too terribly long ago, and then suddenly, we start to drift lower and lower. And now we’re bouncing off of the mid 70s into the you know, mid upper 70s. So there’s a lot of things going on in the backdrop. I think John outlined it very, very well. But we don’t we do not disagree very often we’re looking at a lot of the same information, we’re looking at volatility, we’re looking at the commodities were trying to, you know, parse through all of that. And the one thing that I would say is, the consumer would the one thing that they don’t have is fear, you know, people can say that there’s fear out there. And I’d say, Well, if they’re that fearful, why is credit card debt to the levels that it is in the trillion plus level? So I think that folks are still trying to wrap their arms around whether or not they think we’ll be in a recession. And I always like to point this out, there are recessions, a whole lot different than a depression. And and I think a lot of the folks out there that are listening, don’t always pay attention to that. And I think it’s very important. You can go through a recession hack. I think a year ago, we went through a recession and 90% of the population had no idea. And a lot of folks still don’t admit that we did. I’m telling you, we did. But that just shows you it can be shallow, and it might be shallow, this next go around as well.
Eric Chemi 7:20
We got a couple of things to talk about here. So we’re really into that recession thing. And the second, Jay Powell, you both said very transparent maybe one of the most transparent, if not the most fed governors that we’ve seen fed Chairman’s that we’ve seen in our history, does the transparency lead to more volatility in the markets? Because you’re you’re hearing what he says you’re trading off of it? You’re ping pong going, Oh, he said this, he said that I’m looking watching all these data points was maybe 30 years ago, I don’t know what Greenspan is doing. So I’m going to sit tight, maybe not make a trade? Do you have more of an options opportunity to take advantage of volatility because of the transparency?
John Najarian 7:54
I think the transparency to me anyway, Eric says that, that we’re gonna see less unknownst from the Fed, as long as the market is walking down, you know, whatever they want to call it, the random walk or anything else. Everybody’s kind of okay. But when something comes out of the blue, like, Oh, what was that? You know, that’s when the market drops. That’s when people get spooked. So the fact that the Fed is really sticking to its guns and walking the walk that they said they were going to walk, we’re not seeing those big surprises. On the other hand, you know, go back 18 months, and you see when they moved 50 basis points, 75 basis points, those are moves that are larger than were expected. And that’s why you saw more volatility at that time. Since then, they’ve basically been taking baby steps, little 25 basis point moves when they make a move, and they’ve been telegraphing that easily and fully. So we’re not seeing the same volatility we would have seen against Greenspan, even against Yellen, or Bernanke, this guy is much more transparent. And that’s why less volatility around his decisions.
Eric Chemi 9:20
What about Pete? You said, Your you bet that there was a recession? And, and people didn’t know it? 90% of people didn’t know. But you think there was a recession? What data points? Are you looking at? That that everyone seems to be missing? What are the numbers you’re focusing on to give you that perspective?
Pete Najarian 9:35
Right. Well, I think the interesting part was just about every data point that you could point to, to say whether or not we were or weren’t in a recession, I think pointing to the fact that we were in a recession. So it just was that much more clear. The one thing I did want to point out and John was just talking about this, but I’ll tell you, Eric, it’s been amazing to see what’s happened with volatility because it’s not too terribly long ago, volatility was something that was just kind of run Going away, people were getting a little bit more fearful, obviously going back to March and the regional financial crisis that we had. That was something that spiked volatility for sure we’ve had volatilities even not too terribly long ago, into the low, mid 20s. Call it and now look at where we have fallen back to. And that’s I think, a lot to do with what the the chair and what the Fed has been presenting to us. And we’ve watched volatility gold, call it from 23. Back down to the Thirteen’s as of today. Now that’s going to move around a little bit more. But the amazing thing for me is that I think John and I are in the greatest spot in the world and others as well, when you consider the fact that where is all the volume, a lot of people I hear people say all the time, while volumes really kind of drying up, not in the options world, not in our world where we are matter of fact, we’ve had multiple days throughout November, I think we’ve had at least five or six days where we’ve traded over 50 million contracts in a day. And that’s pretty incredible. We’re averaging close to 46 million contracts per day, when you look at these numbers, there are people that are taking advantage of the opportunities, I think that that options can give you and that doesn’t mean it’s for everybody. There’s a lot of different reasons why I say that. But you better have knowledge because it can be a very difficult area as well. And you have to understand why things are moving the way they are moving. But I can tell you this, where volume is is where the options world is right now.
Eric Chemi 11:26
That’s because I don’t think people realize that you always see the New York Stock Exchange the volume in the newspaper on the local news, right? What was the stock? Well, you never see options, volume, they never talk about that. Let’s let’s get into some options, strategies for how you look at stuff. I think, John, you might have even had some charts, maybe for us to just walk us through some examples of how someone can use options to better hedge risk or better take some profits in a way that they can’t do just by owning the voting the index of the security outright.
John Najarian 11:57
Sure. And, folks, don’t let your eyes glaze over, I’m gonna make this as easy and straightforward as possible. The nice thing about options are they are not a perpetual instrument. A stock like apple is a perpetual instrument. If you buy Apple, you’re gonna own it until you decide to sell it. If you buy an option, they have what’s known as expirations. In other words, you only own it for a limited amount of time. But because of that, you get some great leverage Eric. And that’s what people that trade options are trying to get. Number one, they can define their risk. Because you know, if you buy an option, you can only lose what you paid for it. And number two, you get this great levered return. So Pete and I became famous for unusual option activity. And here’s an example on the screen here. This one’s from a financial company at GNC, and it was basically middle of October, beginning to middle of October,
Eric Chemi 13:01
oh, I’ll do a quick timeout. I’ll just say anyone watching this, don’t go do these trades. Now these I think are trades that are over don’t these are examples, they don’t look at a ticker, don’t try to go buy an option. This is not a recommendation to go do this. Now this is just here’s an example of how they used options in the past to to get better returns, I just want to make that clear to anyone watching before don’t start hitting the trigger button.
John Najarian 13:24
Great advice and well said Eric. So in this case, they bought 20,000. ascertain option A put option, which is the right to sell.
Eric Chemi 13:36
Who bought the 20,000?
John Najarian 13:38
We don’t know we never know who it is that buys them. It’s anonymous, which is one of the reasons of course that people love trading options is that they can sort of stay under the radar,
Eric Chemi 13:49
can I ask you a dumb question? But somebody sold 20,000 puts to right if there’s a buyer, there’s a seller. So how do you know is this a bearish strategy? Or is this a bullish strategy? Because there’s two sides of that trade?
John Najarian 14:02
Yep. That’s a great question. And the answer is that there is a bid meaning where people are willing to buy an option or a stock, a midpoint in many cases in between the bid and the offer. So if we see somebody stepping in and paying the offer, meaning that in this case, these puts were perhaps 36 cent bid offered at 38. Somebody comes in very quickly. And then one big block says I want to buy 20,000th of a 38. And all these other guys say sold sold sold, so except it’s all electronic and silent. You don’t hear that anymore. It all just happens in the data center. Eric. So when these guys came in to buy 20,000 That represents 2 million shares short at that nine strike because again, the timeframe is November. This happened on October 12. You see the date on the top of the screen there, then they came in and paid that 38 cents, which was the offer. So to us, Anytime somebody’s buying something on the offer, that tells us they want a leveraged return. And in this case, they could only lose 38 cents if they were wrong, Eric 38 cents, is all that they could possibly lose. But if you shorted the stock at the same price at $9.04, and the stock pops to $10, or $10.04, you lose a buck, you don’t lose 38 cents. In this case, you can only lose what you paid for it. So there that you see that big yellow arrow, that’s where they bought them stock was $9.04. Over the next two weeks, the stock slid all the way down to $7.50, which means the right to sell it at nine is worth $1.50 At that point, but you only paid 38 cents for it. So obviously, you have about a 400% return on this particular trade. And like Eric said, Don’t go out and put it on today, folks, first of all, those November options have expired. They expired the third Friday in November, because when an option has a regular expiration, as we call it, that’s the third Friday of each month, unless that happens to fall on a federal holiday.
Eric Chemi 16:24
Sorry to go back. So go back to the feds. So just to be clear, when you say November 9, you’re gonna mean November 9, you mean the November options that are the third Friday of November? And it’s a $9? Strike Price? Yes. But this suggests to me insider trading, this suggests to me somebody knew something and thought they were being clever by buying options. But are you just saying are you say we think this probably isn’t better training, and we’re just following they’re following their lead?
John Najarian 16:52
Well, I know there are a lot of folks out there who follow whatever the politicians do. Yeah, there are entire services that are basically formed, so that you can do what Nancy Pelosi and Paul Pelosi her husband do. And it’s not just Democrats, it’s not just Republicans. It’s anybody that holds office in the United States. Believe it or not, folks, those people trade on the information that they get from committees all the time, Pete and I see it, and every once in a while it’s not a politician, it happens to be an insider, but those people can get taken to jail, the politicians 99.9% of them are never going to be brought up on charges, even though they might know that there’s going to be a contract awarded to this defense contractor. And they are the actual committee deciding that they’re going to do that. Nonetheless, if they buy that particular call option, which would be a bet to the upside, or a put option, which would be a bet to the downside, maybe they’re going to deny a contract to somebody. Or it could be that an insider knows that this biotech firm is about to fail in its phase two, phase three trials of a certain drug, if you knew that, that’s tomorrow’s newspaper today, you could make money on that trade. But if you do that, you better be a congress person, or you’re gonna get taken off in cuffs, because the SEC doesn’t from a rather does frown rather severely on people that trade on knowledge. That’s not public, except for politicians.
Eric Chemi 18:34
I see. So you’re, you’re not saying that you should be the person that puts the 20,000 options on.
Pete Najarian 18:41
But once the trade happens, that’s now public information. Anybody can see that that trade has happened. So now we can all follow the trade. We don’t know why they’re doing it. But we can follow the fact that this trade now exists on the what do you call, like the marketplace, the ledger of the distributed results of everything that got traded that day? And Eric, I’d even I’d even say this, John, I would say that, you know, when when folks make a trade like this, it doesn’t necessarily mean there’s any kind of insider information at all, it could be just a heck of a lot of work. And somebody who has figured out in this particular case, in the short term, there are capitalists out there of some sort, that are going to actually press this thing in whatever direction in this case, the downside, so it’s not that every single unusual option that we see is somebody that’s an insider or somebody who’s got insider information of any kind. A lot of them are just people that are doing their work. They’re sitting on a desk at any one of the big financial companies that have figured this whole thing out. Maybe it’s a maybe it’s a, you know, pe firm could be almost anybody. But the reality is that one of the things and I wanted to point one other thing out when you said well, if somebody is on the other side of that trade, you’re right when you say that, Eric, that’s that’s very exactly right, actually, but let’s remember, they’re just making a market. There immediately. gotta lay that off somewhere else. So somebody is the other side? Yes, because there is a bid and an ask. And those are the guys that, you know, that stand on the New York Stock Exchange, or they’re somewhere else, you know, in the Ethernet of the world, but it’s trading, you know, and that’s where those things are happening. And then they’re gonna lay that off almost immediately and try to catch something if they can, they’re not going to be holding this forever, I can tell you that when they when the whoever the seller was to this buyer, I guarantee you, they went out and probably hedged immediately with stock. So there is a hedging sort of element that comes into play as well.
Eric Chemi 20:37
Okay, that’s good. So let’s, let’s see our next our next example of how this all works.
John Najarian 20:41
Okay, here was a big stock down in Chile, the trades on the US exchange, its symbol was S qm. And what were they doing? Well, just like it says there on the 13th of November, they came in whoever they are, and bought some December call options, and they bought those options for $1.15. Well, the stock over the next several days popped from $49.08. That’s when they entered the trade 253 44. So if you bought the stock, sure you made a nice trade you made, you know, let’s call it $4. And couple cents. That’s a nice trade, but you had to commit, if you bought 1000 shares, Eric, that would have cost you $49,000. Why is that? 1000 shares times $49. But if you bought these options for $1.15, those options went from $1.15 to over $2.50. So you made a over 100% return, and you didn’t have to put up $49,000. The trade off, though, is that the option only gives you that timeframe from the day it was put on until December, the third Friday in December. And then that has to be something or nothing you can trade out of it, of course, and that’s what we did. But when you see something like this, these guys, whoever they are putting on the trade like Pizzette, maybe it’s an insider, maybe it’s Congress, maybe it’s somebody who just did some great homework and said, You know what, if Argentina really does get a libertarian elected there, maybe it’ll be pushing Chile and Peru and some of the other areas of South America towards more of a center of the road policy rather than left wing. Let’s privatize everything or whatever policy. I don’t know what the story was. We only know that they bought those calls, and that the calls made people a lot of money. Well, let’s see what else is there. All right. Here’s another example. This is Cotai and Macau. This is one of the largest gaming places there. It’s called Melko ml CEO, and Melco resorts they came in. And they bought a bunch of calls that expire this Friday, November 24th. Black Friday, well, they bought them last week, and the stock was $7.27, the stock shot up to $7.76. So again, congratulations. If you bought the stock, you made about 50 cents, if you bought these options, you more than doubled your money. But again, the trade off is you only had until this Friday to be right. So it almost becomes a binary bet when the timeframe is that short, Eric? So Pete and I always say be careful if you’re trading something that only has a few days or a few hours to live, because that’s almost binary, meaning it’s going to be black or white. And you hope of course that it makes you money. But if you’re the seller, you’re hoping that the person you sold it to only has that tiny sliver of time to be right. And that’s why they’re willing to be a seller,
Eric Chemi 24:16
the binary bank you bring up a lot of this, to me looks like it could be considered gambling, right. If people don’t know what they’re doing. They’re winging it, hey, I think this is going to move 50 cents in a week. I’m just buying these options. What do you say to people who say Hey, this is just gambling. This is not investing in an actual company that that has security or not investing in the country like the s&p 500 What do you say to that?
John Najarian 24:39
I’d say it is a lot like gambling. But in Vegas, as as we both know, Eric and Pete and I haven’t been at the same table together folks in Vegas, but I’m guessing that if we were counting cards and the casino found out they kick us out all three of us if we were out acting in concert, they kick us out. But you can see this in the stock market and see that, okay, maybe it is a little bit of a gamble that I’m betting that the reason they’re buying these options is because they know something, they think something’s going to happen. They don’t beat us up, they don’t kick us out. You can stay at the tables as long as you want in Wall Street, but in Vegas, they kick you out. So I’d say this is a better deal than the betting that you do in Vegas.
Pete Najarian 25:30
Well, and I, I’d add to that, Eric, and just say, you know, sure, there’s a difference between investing and trading, but trading doesn’t necessarily have to be gambling, right? I mean, you’re, you’re using all of the knowledge that you’ve gained about a company, whoever that company might be. And you’re, you’re positioning yourself for a trade because of that. And now, the risk is really that timeframe like John was talking about? And what are the catalysts that are in front of you? These are all the things that we go through this all the time when we’re talking about the options world we were looking for? Well, what’s going to be a catalyst? Why would they buy these? What’s the thinking probably behind them buying something in the energy space at this point in time? What is it that you know, what are you we’re looking for all those answers? And if we can get some of those answers, at least as many as we can, and we and we feel pretty comfortable about it? Yeah, then you’re going into a trade because I would view gambling as just saying, hey, look, you know what, I think today, apples going up. So I’m doing this, that’s not what we’re doing. We’re, we’re going through a whole process of things that, you know, we eliminate some things and we add other things. But we’re looking for reasons why this is a trade to the upside. The downside could be Tesla, it could be any name that you could think of, could be the entire market, the s&p 500. So there’s just a lot of different ways. And maybe that trade would be based upon, hey, this is what the Fed looks like. I just the part that I don’t know is what will Powell will say afterwards, we feel pretty confident he’s going to pause, what does he say afterwards? And that’s what what we tried to do and put together. And that’s why when we do see options that pop up for us that are pretty significant in size. Those are the ones that we follow most we very rarely trade, you know, the smaller trades, we’re looking for these big gigantic trades like we used to see on the trading floor. And so I’m screaming from the other side, I’ll buy them, how many do you got? I got 10,000 Done? You know, those are the trades that we’re looking for is something of size, something that matters? And something that is a trade, in my opinion,
Eric Chemi 27:31
if so many questions. So this is good. I’m gonna get into my later question now, because you brought it up. s&p 500, the Fed, how do you trade the Feds move is there when you look at the charts right now you looking at maybe some options activity, whether it’s on the s&p Or maybe it’s on treasuries or a major commodity? Is there an example trade that you would show to someone say, Hey, this is something that that I look for on a macro point of view from a macro kind of trade?
John Najarian 27:56
Yeah, absolutely. I mean, for instance, now we’ve as Pete said, we’ve had to pauses, we’ve got a 99% chance, we’re gonna get a third pause out of the Fed. You know what they were buying Eric, they were buying the T L T, which is a 20 year bond ETF, but it’s right between the 10 year and the 30. Year, of course, it’s the 20 year, and they were buying puts in that, because they were betting that the TLT would go down. For instance, if and as bonds go down, yields go up. So they were absolutely spot on that, you know, the big bets that were being placed in that TLT. They bet on the downside of the TLT, which meant boy rates are gonna go up as soon as it looked like we were topping out on those rates. And that maybe we’d see that first pause. Well, that’s when all the sudden they started coming in and doing the opposite trade. They started coming in and buying call options. Because again, as the TLT rallies, interest rates are going down, and interest rates have come down from what for over 5% for the tenure all the way back down to 443 or something like that 4.43% The men and women who are making those big bets because like Pete said, we care about size, and we care about them being bought, because we know they want a levered return. So it doesn’t matter if they’re betting on that, or many people were betting on, as you said, Eric, the spy, which is the s&p 500 ETF, or maybe the IWM or maybe the QQ Q those would be three different ways to trade an index of stocks rather than trading the interest rate sensitive TLT or whatever it might be.
Eric Chemi 29:55
What is your advice on rookie traders new options trader If they want to get involved, they want to try to juice their returns, I’m sure you get these questions on, what are the three basic things that they should know before they put on that first options trade.
Pete Najarian 30:09
I’ll start at John, but you can disagree or agree or however you feel about it. But I think one of the biggest mistakes, I see Eric out of people, and I’ve seen it out of guys that are professionals in the field, they all want to trade big right away, they want to jump in and just say, You know what, I’m going to trade this, just like I traded stocks, I’m going to buy 1000 of these calls, instead of buying 10 or 50, or something. And I think part of that is ego, which is another element that I think goes into trading for all of us is, you always have to check your ego at the door. That’s, that’s just a must. But I think that they oftentimes come in and they trade too big, and they get hit right away, if the worst thing that can happen is they get lucky, because they get lucky once or twice, now they think they actually know something, and they’re gonna keep doing that. And then that’s when the losses really start stacking up. Because well, I did it the first couple times, I’ll just keep with this whole thing, and they stay with it. And that’s, I think, a huge mistake, I think they have to have a game plan, you’ve got to have the education number one, but you’ve got to have a game plan number two, and I think the those that don’t have a game plan. In other words, if I buy an option for 50 cents, and tomorrow, it’s trading at a buck and a quarter. My first reaction is, you know what, I probably need to trim a little bit of this, that’s my game plan. I’m gonna I don’t have to sell it. But I can trim it I can take if I bought 100, I could sell 20 Now all sudden, I feel pretty good. Maybe I sell 50. You know, whatever the number might be. But you’ve got to go in with a plan. And that plan can’t change just because Everything went perfect. And now all of a sudden, you go I know I’m sticking with this thing. I’m staying. I’m all. I mean, it’s a lot like Goodwill Hunting or whatever. Some of these crazy things where these guys get a little bit out of hand. I think they have to understand volatility as well. There is something about every single stock and not everybody always understands that they think just the market, right? They’ve always heard John and I talking about the VIX. And every once in a while other forms of the VIX, but every single stock has their volatility that they have, which is somewhat normal for them and whatever. You need to know when it’s not normal when you’re overpaying for something unless you understand why you’re overpaying for it. So I think there’s a lot of elements that go into that. And if people are just jumping in there not paying attention to the volatility, the implied volatility, as we call it. Those can be problems. Because even when you’re right, you might be wrong. And that’s the boat. The biggest headache, I think, for somebody that’s new in the trading world, particularly with options is, you know, you bought something the stock moves in the right direction, but that implied volatility was 100. Yesterday, and today, it’s 50. Well, that’s a big pull down in that value of that option that you’re looking at there. And all of a sudden, you wonder, well, gosh, things up two bucks, the stocks doing great. Why is this thing not moving? Well, because you played paid too much for your implied volatility. So there’s a lot of different stumbling blocks, I think, for a lot of rookie traders that go out there now.
John Najarian 33:05
And if you thought about it, Eric, you’d know as well that when would that uncertainty be highest? For a stock? It would be the highest into earnings? Are they going to be? Are they going to warn going forward? Or are they going to give positive guidance? Those are things that would cause people to say, You know what, I don’t know for sure, I have a strong feeling that they’re going to report strong earnings from Nvidia because AI is in such big demand, but isn’t going to be enough that it exceeds the street expectation isn’t going to be positive guidance, like he gave the CEO gave two quarters ago when he said you know what our visibility all the way out to 2026 is that we can’t make enough chips for everybody that wants all these things. Well, that’s going to drive that stock pretty far. And so because of that happening two quarters ago, what happens tonight on those earnings is that people are uncertain. Is he going to be that bullish again? Or is he going to tamp down expectations? So he can step over that hurdle instead of trying to jump over this much higher bar that he set for himself? Because setting that bar really high? Is something CEOs rarely do. That was like an exception. When he said AI is so outrageous that we’re going to see just an explosive move out of our stock, and you did, it traded up over 500 from like 380. So that was a pretty explosive move. Anytime you have uncertainty whether it’s phase one, phase two, phase three trials of a drug, maybe a drug that could save people’s lives like a cancer drug or something like that. That is going to be a Binary that it’s going to cause volatilities to go up, it’s going to be premiums that have expanded dramatically. Maybe that option should be pricing at $2. But instead, it’s pricing at five. Well, that’s because of the uncertainty of what’s about to happen. After the bell when they announced that, hey, our phase two trial isn’t working, or let’s wave the flag, it’s working like crazy. And we’re going to save a lot of lives, that stock is going to go through the roof, look at what it’s done with ozempic. You know, the weight loss. I know it’s a diabetes treatment, but people are using it for weight loss. Well, so no vote went through the roof on that. And it’s gonna keep going up because people are going to want that drug. It’s a designer drug, that you don’t have to go into the gym anymore, I guess Pete.
Eric Chemi 35:50
this thing. Here. First,
Pete Najarian 35:52
go go into the gym together, man, we’re still go.
Eric Chemi 35:56
What about? Are you looking at options on gold? or silver? Or some of those be commodities or oil? Is there anything that someone could could take from there? Because you don’t have the same kind of unusual activity opportunities, like we talked about earlier?
Pete Najarian 36:07
Well, that’s a good, I think it’s a good sorry, John, I’ll just say this, I think it’s a really good question. And energy is a space that we know all year has been extremely volatile, right? I mean, not just this year, it’s always fairly volatile. So it’s why they always strip it out. But it’s interesting, it’s interesting to see how you can trade within that. And I think that what people don’t understand is they say, well, but I can’t trade crude oil, I’m not going to trade futures. That’s not what I’m gonna do. There are a lot of different stocks out there, but specifically, obviously, some ETFs, where you can at least have a fairly close mirror to what you’re seeing out of crude up or down. And you know, names like the XL E, just throw that out there, because it’s one of the biggest ones, right, and you’re talking about Exxon and Chevron and those kinds of names. And believe it or not, they those do track pretty closely. Now, the moves are definitely bigger at times than than what you’re seeing out of crude itself. But there are there are ways and that’s why you can even use individual names sometimes. So you take a look at like, for instance and axon and say, Well, it kind of tracks pretty close, it’s a little bit more volatile, it’s a little bit more movement, you know, but but they do track each other fairly close. So there are ways where you can kind of trade within the crude world without having to go to the futures that might be a little bit more fearful to go with. And now you’ve got an individual name that you can trade, either the stock or the options to be able to do it. Yeah. And there every once in a while you’ve got somebody like Warren Buffett, who we all respect, one of the greatest investors of all time, what’s he been buying all year long,
John Najarian 37:40
oxy. O, X, Y, occidental? That’s not just my opinion. Obviously, it’s disclosed with anybody that’s trading his size, it gets disclosed in their reporting that they have to do by rule, they have to report, how much have they bought? Or how much have they sold? Well, Warren Buffett’s been buying oxy virtually all year. So if we saw unusual option activity, on the call side, in oxy, which we have, it’s not uncommon to find out that Warren Buffett was a big buyer over the last several weeks, and whoever perhaps the firm is that was executing that trade for him. Maybe they were trying to not just like pizza, they don’t just sell when you come in to buy something, the person you’re buying from hedges, if they’re a trader, if they’re a customer, they’re probably selling out of what they already owned, or they might sell short. But in the case of Warren Buffett coming in buying 10 million shares at a clip. Yeah, that probably triggers a lot of option trading in that stock.
Eric Chemi 38:50
Let’s let’s talk a little bit before we go about, and I’m sorry, I’m sick today, but I am not going to reschedule. We’re doing this. Talking about your football backgrounds, right, like you guys played sick, you know, a little little cold here is not going to stop, stop, you know, from getting your skull crushed, and certainly not going to stop anything else. So how does that play into the trading mentality? Because it is a fight, especially when you’re on the physical floor. And you’re elbowing people to get those trades and talk about the transition from from football to options trading and didn’t help you succeed, or does it actually, are you successful in spite of all the brain cells you lost?
Pete Najarian 39:26
Yeah. Well, that’s that’s a two sided. Yes, the brain cell loss is absolute. But on top of that, one of the things are three of the things that I think both of us have taken away from our sports careers has been, and we say this word every day, 50,000 times a day, but the word discipline, right. I mean, to grow, to grow into the football world to get to the NFL. How do you get there? Well, you basically probably been in the gym at five o’clock in the morning while you’re in high school or college. You’ve done all of the different training that you’ve got to do. You’ve had people bite your They’ll head off about things that that you did wrong. But they also give you some a little bit of a pat on the back here about the things that you’re doing right. All of those things kind of helped develop this whole thing that we call discipline, because you know that every day, you’ve got to do that you’ve got to eat, right, you’ve got to do that. It’s just like the preparation that you get for each trading day, you have to be prepared for the day, you’ve got to know the latest news, you’ve got to know the catalysts that are moving the markets, you’ve got to know something about just about everything. It’s Eric, it’s one of the things that I think John and I always brought to the table when we’ve done television has been, you know, there are people out there who are an energy trader, you’ve got other people out there that are tech guys, you’ve got all these various analysts that are very specific in their field. The great thing about the options world that really, you know, it’s part of football, as well as if there’s a new somebody every day, you know, every week, you’re playing against a different team. And so John, and I think because of that, we gained a lot for the preparation side of things, we’re always overly prepared. I mean, we are making sure that we understand the day. And yesterday it was all about. It was all about invidia and Tesla, but today, it’s a little bit different. It’s best buy, and it’s you know, Abercrombie. And then the next day, you know, you’re you’re constantly moving around. And it really does. If you don’t if you’re not prepared, and you’ll be better beat, but it’s just like the NFL, you’ve got to be prepared every single week. And if you can do that, along with having that discipline. And the one thing I mentioned earlier, and I’d say it again, you got to put the ego at the door. It’s some of the very best players in all of sports, just like some of the greatest traders that John and I both know, their ego stops once they walk onto that trading floor or sit down in front of their computer, because you can’t go in there with an ego, you can go with confidence. So it’s kind of very much like a homes, right? You see mahomes You see him in the interviews. He’s smiling. He’s laughing, he’s great. Tom Brady, the same thing, right? I mean, Tom Brady truly is the goat and you watch him, you could hate him. But the guy just was amazing. Because he had discipline, he was prepared. And it was not about his ego. If he had to do something different than what you know he wanted to do. He would do that. Because he was in for the for the win, right? I mean, he was always that guy continues to be that guy, even post football. And that’s what I think John and I try to work on every day.
John Najarian 42:23
Yeah, it’s discipline. Eric is the secret ingredient, if you will. And it doesn’t matter if it’s options, or if it’s stock or if it’s futures or crypto. You’ve got to have the discipline to take profits when you have them. Like Pete said, you buy an option of 50 cents goes to a buck 25. What was your plan? Well, I thought maybe I could double my money on this trade. Well, then you’ve done that. And then some, take some off, take some 50% or 60%, whatever, take some money off the table. And on the other hand, if it goes from 50 cents down to 25% 25 cents, rather, you need to cut your losses and move on. And again, not get the blinders on and get focused only on the loss. Once you cut that loss, then all of a sudden, you can feel a little relief, believe it or not, none of us like to lose. But having the discipline of always cutting your losses, and then taking your profits means you’ll be at the table a lot longer.
Eric Chemi 43:29
So good, guys, this is great. And tell us where can viewers see more of you. It’s market rebellion. Is it the YouTube channel? Is it newsletter, I know you got some books. I’ll sit here for 10 minutes while you explain all the places that they can find you guys.
John Najarian 43:42
You’re very kind. And we love Wealthion. We love all the great interviews that you guys do with folks like us that are really out there putting themselves out. And so thank you, Eric. We have a YouTube channel. It’s market rebellion on so if you go to YouTube and you typed in market rebellion, right next to your Wealthion Subscribe, click subscribe. And you’ll see you know, we’ve done over 4000 videos battling against we’re rebelling against doing it the old fashioned way. We want people to understand that there’s nothing wrong with trading stocks, but you should be a rebel and learn about options. Even if you don’t trade them, you should learn about it. And you’re sort of rebelling against the status quo on Wall Street. You know, you’d like to think that you could take advantage rather than being taken advantage of. But yeah, market rebellion either.com or market rebellion on YouTube are two great ways to follow what we do. I’ll let Pete offer his insights as well.
Pete Najarian 44:53
Well, we’ve got that book. So I’m gonna throw it out there. It comes out the 27th but it’s, you know, it’s all bout options, it really is. And it’s not an option, because it’s not an option to do something different than what you know, you have to do what you need to do. And I think that it’s, I just think that it’s really important. And by the way, and John probably gets tired of me saying this, but I always laugh about this, this one particular thing. So Warren Buffett, we all respect him, right? We think he’s one of the greatest, he’s the Oracle. He’s this. He’s that Warren Buffett is phenomenal. And he calls options, weapons of mass destruction. However, he happens to be the largest option trader in the world. So that’s kind of an interesting thing is there’s a guy who he understands how options work, he uses them himself that he but he throws it out there that you know, that’s that’s the case, they can be a protective tool, they can be something that you use to try to leverage something. And I just think people just have to be educated though, I think that’s the most important part, we it starts with that, you have to understand how you navigate the best way. And the only way to do that is to have an understanding. So we’ve got a great group of guys who do an unbelievable job of educating people into this world. And I’ll tell you, as I talked about the John, what was the volume? Do you remember your options volume when you first started on the CBOE 400,000 options a day, the an hour 46 and a half million or whatever it is, gives you a little bit of an idea. So it is the place to be and it’s what we love about every single day is it’s fun. It’s a challenge. But you know, there’s just a lot of different ways and I think market rebellion word. We’re just rebelling against anybody who wants to push a push out and say all the options are not for you. That’s yeah, they are actually.
Eric Chemi 46:40
I love it. The rebellion, guys, thank you so much, John, and Pete Najarian, everybody, thank you so much for watching. A lot of you, you might be watching this and thinking okay, maybe I need to get some financial help figure out how to invest in your future, your family’s future. If you’re already working with somebody that you trust, excellent. Stick with them. But if you’re not sure you’ve got the right person, you’re not sure you have anybody or you don’t trust what you’ve got, you can consider connecting with us, you can consider scheduling a consultation with a financial advisor at wealthion.com No strings attached, just a short form, it only takes a few seconds. It’s totally free. There’s no commitment to work with these advisors. We provide this as a free public service like you hear from John and Pete, we want you to be educated. We want you to have more power, whether you use it or not. And if you’ve enjoyed this conversation with me and John and Pete, please show your support, hit subscribe, like it forward and share it do all those things that more people can learn, and they can get smarter about their finances in the future. Thanks again to my guests and thank you for watching.