Who are you? Yeah, you heard me. Right? Who are you? Are you an investor? Are you a trader? Are you even sure? Do you even know? Hey, welcome everyone. It’s Robert Roy. Welcome to the show today. I hope you are having a great day today. Let’s go ahead and talk about the differences between investors and traders, and maybe try to figure out which one you are – or maybe even a combination of both. Let’s go check it out.
So what’s the difference between an investor and a trader? First off, when you look at an investor, there’s really two ways that they can get involved in the market, and we’re just going to talk generally. There are others, but for the most part, what people tend to do is they buy stocks, which means they go along. They buy a stock, they own it. They hold onto it for three months, three weeks, three years, three decades, whatever it is.
The other strategy is shorting stocks. Now some of the craziness that’s gone on in the market lately with GameStop (NYSE: GME) and some of the companies like that is over a lot of what’s taken place with shorting. So you could buy a stock – you buy it, you need the stock to go higher. That’s the one caveat is the only way to make money on that. Holding that stock is for it to go higher. The other way is to short a stock or sell stock that you don’t own. We’re not going to get into the strategy here – we’ll cover that in another podcast – but for this update, I really wanted to talk about investor versus trading. So you could buy the stock and you can hold on to it. Now, there are some other things you could do with stock. We’ll get into those a little bit in just a moment, but in an investor tends to be more of a longer term.
What about a trader? Well, you’ve got day traders and swing traders, right? If we look at the definition or the difference for both Now, this is Rob’s definition. Yours might be different. Okay? A day trader to me means you get in and out of the same trade in the same day. It doesn’t have to be. I’m going to date myself a little bit here, the S.O.E.S. bandits, where you did small order execution system, you were trying to manipulate the NASDAQ system. We were trading off purely momentum. I’m not looking at that as the value or the way the day trade; I look at it as I find a candidate, it does what I want it to, I get in, and I get out before the day is over. That to me is a day trade as well.
You also have swing trades. A swing trade is more where you get into the trade and you plan on holding it for a couple of days. Maybe a couple of weeks. Now, there are longer ones than that. These are the two primary. Each person has their own definition. I’m not saying mine is right, and everybody else’s is wrong. (Well, maybe I’m saying that. No, I’m kidding!) This is just how I look at a day trade and how I look at a swing trade I’m in that trade for a couple of days. Now the importance to look at these are, what are the strategies then with that swing trader or that day trader?
Well, you could trade stocks – you could day trade stocks in and out – without a question you could. The problem is cost, right? But you could also go to very low cost stocks. The problem is the viability of the stocks – how good are those companies that you should be trading them anyway? Are they penny stocks that just came out of nowhere, and they’re moving today? No reason, they’re just moving. Not saying it’s a bad strategy. You got to decide what fits your risk profile.
Then there’s options. When I say options, there’s a lot of options, strategies, right? But let’s just focus for a moment on directional options. Buying a call, buying a put, just very simplistic.
Boom, we’re going directional. We think the stock is going up. We buy a call.
We think the stocks are going down. We buy a put. Very simple directional options.
From there we get into spreads. Now there are credit spreads. There are debit spreads. There are multiple types of spreads, vertical diagonal calendar, Whoa, Rob, you’re spinning my head. know big picture here for right now.
When I look at spreads, as soon as I hear the word spread, the first thing that comes to my mind is a credit spread. Why? I like getting paid! I’m not a fan of having to lay cash out of my pocket if I don’t have to. I love it when somebody pays me to place the trade. Think about it: You hit enter and there’s cash in your account. Hmm. I mean, I don’t have to pay for anything? No, you need some cash on hold. Absolutely. But maybe not. Remember when you, who bought that stock and you were holding onto it for three months, three weeks, three years, right? Well, you could use that stock as the collateral. There’s a lot of different ways that you can manage out that position. But to me, a spread, a credit spread, is where I am covering myself, I’m spreading out my risk using options.
So if you, if you look at a bull-put credit spread as an example – think of what I just said, bull put credit, spread. Bullish trade, using puts spreading out your risk with options. Spread.
Now there are other covered positions as well that you could do, and we’ll talk a little about the covered type positions in just a moment, but a covered call is a great example. It’s one that many people come up with immediately when they start talking covered is a covered position. And then ,there are naked trades. You could be naked calls. Naked puts. Now couple of things about that. Naked is also known as uncovered, right? But if you have a naked call, a naked call gives you limited profit and an unlimited risk in that trade. Be very cautious of doing naked calls if you do not know what you’re doing. Is there a time and a place for it? Do I do them occasionally? I am sure to call right now on something that I am waiting for the other side of the position to fill. And I’m okay with that. Naked puts? I love naked puts we’re selling something we don’t own. Now somebody can make us buy the stock. They could put it to us. And the expression is they that I was taught as a brand new trader is no one knows you’re naked until the tide goes out. Yeah. Just think about it for a second, okay?
Actually we weree at our pastor’s house. It was Christmas time. They do a big pageant outside of our church. He lives on the church. Property has every end to, you know, for dessert and, uh, and such afterwards he and his wife and we’re in the house. And it’s funny, typical party. All the men were in one room in the living room and all the ladies were gathered up in the kitchen slash dining room area. But I want an Apple cider, it’s in the kitchen. You have no choice. You’ve got to go into the kitchen to get it. And one of the women said to me, “Rob, what do you do? Your wife was trying to explain it to us.”
Now I’ve got all these women staring at me and I’m trying to explain to him what we do. And one of the women says, “wait, wait, wait, okay. I just really want to know what this naked put thing is.”
Now this is, we ended up pastor’s house. It’s a church group. And they’re asking me about naked. I did everything I could to get out of there as quickly as possible. People don’t understand what the strategy means…
Naked just means you do not have something to cover you. If they were to exercise. If someone said, Hey, we need to do something on this. I’m making you hold it to your obligation in that trade. You’ve got something there to cover it, right with, if someone says, “Hey, I’m going to take your stock away in a covered call,” I’m okay. I have something to give to them. But if I am “uncovered” or “naked,” I do not. Now, “Rob, I be one versus the other? Do I have to pick? You know, do I have to be one versus the other?” No, I don’t. I don’t have one over the other. I do a combination of both. And when we look at my diversification plan of what I do, I look at trading strategies are all short-term for me.
So what does that, then? As a trader I’m trading options. Many of them are directional, some of them are going to be spreads and things like that, but many of my trades will be directional traits right. When I look at swing trading, I look at normally less than 30 days, that’s me. Others will think it’s longer. For me, it’s less than 30 days. When I look at investing strategies, I’m okay if it goes longer than 30 days, and that could be something like a covered call, where I actually buy a stock and I rent my stock out or write a covered call against my stock. To me, that’s one of the best strategies there are and I love doing these strategies in retirement accounts. But even we’ll for the covered call, I would even rather prefer to write a naked, put – make somebody, force me to buy stock at a lower price than it’s trading at today.
We’ll have recordings for each of these strategies, breaking them down step-by-step, so if you don’t fully understand any of them yet, stick with me, I’ll get to some of those and we’ll get those recordings up there, and you’ll have a much better understanding of how each of the individual strategies work, where I’m going to delve right in to that strategy and go over all the details.
So naked puts is one, covered calls is another. A little bit more of an advanced strategy is what’s known as a “diagonal spread” or a some would call it a “poor man’s covered call.” I’ve heard poor boy’s covered call. I don’t really agree with that one, but a poor man’s covered call. It’s a way of doing a covered call without having to buy the stock, see covered call, what does that mean?
Speaker 2 (09:40):
You buy the stock and you rent your stock out. You sell a call against it. Diagona,. I’m not buying the stock – I buy a call and I sell a call against sort or rent my stock out against it. So, slightly different modality of what each of those are.
Any one of these better than the other. No. What fits your risk profile? What will allow you to sleep at night? If you can not sleep at night, holding a trade overnight, then you do not belong. Being a swing trader day. Trader is probably for you. If you’re concerned that the market moves too fast for you and you go, “WOAH!” and you just want to back up, then go ahead and become an investor. By the way, as an investor, couldn’t I write covered calls against my stocks, rent them out soon, going folks.
Speaker 2 (10:25):
There’s a lot of opportunity here. When you look at a trader and who you are, as far as the trader goes, and whether you’re an investor versus a trader, there’s nothing that says you have to pick one over the other. Why can’t you be both? I don’t want to choose. I want to do what I want to do when I want to do it. Isn’t that our right? Isn’t that who we are? Can we do that? Of course you can. And you’re not breaking any rules. You’re not making anybody mad. Right? You just find the right strategy for your risk profile. You find the right strategy for the stock that you’re looking at, right? I’m not looking at game stop. Today is a long-term buy and hold. I’m just not. Okay. Now those of you that may be watching this little bit down the road, come back and check out when this was published and go check out what GameStop was doing at that time and go look up Reddit and some of that craziness that’s happening there. And you’ll see.
All right, ladies and gentlemen, there, you have it. Have a wonderful rest of your day. God bless, stay focused on the quest of becoming a great trader. Keep crushing it. And remember folks you’re just one trade away, take care, and I’ll see you soon. Bye.