Welcome to The Stock Market Millionaire, episode 10, Trading The SPY For A Living. Now, what is the SPY? The SPY is an ETF which tracks the S&P 500. What that means is, it takes the index, the 500 stocks that are in that index and it tracks it in what’s called an ETF, which is an exchange traded fund.

“Rob, what does that mean?”

Instead of you going out and buying, let’s say a mutual fund, you can go out and buy this exchange traded fund, which has a much smaller cost ratio, meaning expenses. There are fees built up inside of mutual funds, even on lower-priced ones, as ones that track the S&P 500, you may find this one and a half to four or 5% fees built inside of your mutual fund. And, when I say you may find most people don’t find, because most people don’t know what to, or where to even look to find that.

So what does that all mean? It means that you’re getting charged fees that they’re not really telling you about. They are, but they’re not. And what, what does that mean, Rob? Well, it’s in the prospectus, but they’re really not divulging it to you. They’re not going, “oh, page 167, paragraph six line 14, section C,” but you’re not hearing any of that, okay? You get this massive prospectus, it’s a type 4 font, you need magnifying glasses to read it. Your head hurts as you’re trying to like “uncle, I give up, I’m not focused on it anymore. I’m done.” Right? So an ETF exchange traded fund, tracks, it’s a tracking company or tracking stock that tracks the S&P 500. Unlike the indexes, which you would pay a lot of money to invest in an index, on an ETF, you can invest at a percentage of the overall index, which is phenomenal.

So you’re at about 10%, about 10% of the S&P 500 is about what it costs you for the SPY. And, there are, once again, all 500 stocks owned in a basket, so you’re actually trading those 500 stocks all at once without putting your money into a mutual fund. For me, this is a tremendous position in my 401k for myself and my wife. This is the position we focused very heavily on .401k money is meant to be long-term, it’s growth, it’s not trading in and out for me every day, so I allow it to go out and build based on the S&P 500. And, I generate some income off it also. You can trade all types of options, strategies on the S and P 500 ETF, right? Easily. You can do covered calls. You can buy protective puts. You can do spreads. There, there are all kinds of trades that can be done utilizing the SPY, and we’ll talk more about them… But basically it’s an ETF that tracks 500 stocks.
Now that’s a lot different than the ETFs that are in the QQQ and the Dow, where the Dow has only 30 stocks, the NASDAQ is only a hundred stocks, and it’s very general, not general, but very specific rather, the QQQ, where it’s all tech stocks, where the S&P 500 is who’s ever in the S&P – it’s a much broader index, but not too broad, like the Russell 2000 where we’ve got a lot of stocks in there, and there is no leader of the pack because they’re watered down with so many companies in them.

All right. So when you look at the ETF itself, as I said, it is an exchange traded fund. And for me, I love trading it in multiple ways, right? So I get, and that’s a question I’m asked all the time. “Rob, what is the best way to trade the SPY”? So, I already mentioned for me, covered calls with protective puts is a tremendous value to me, right? So I buy the ETF, I am writing a long-term covered call on the position, and I am buying a long-term protective put on the position. Well, what does that do? Well, this way, if the position goes down, I am covered, and I’m not worried about it going down a little bit. And I want you to think of protection on your portfolio, which this is my portfolio, I want you to think of insurance or protection on your portfolio this way… You don’t buy car insurance in case a kid walks down the block and snaps the antenna off your car. That’s not the reason for car insurance. You buy car insurance in case you’re driving, someone hits you, they’re not covered, they’re not insured, but you have enough to cover your vehicle, your injuries, anybody that might’ve gotten hurt in it and so forth. That’s why you put insurance on your car. Right? Well, same thing here. I’m not putting insurance on my car in case the S&P goes down a little bit, on my stock rather, in case the market goes down a little bit. I’m putting insurance on my position, on my SPY, in case we have that 40, 50% retracement that we had back in 2000 and 2008. That’s where I am concerned.

Well, that’s why I buy an insurance policy on my vehicle, on my, my vehicle being the SPY, It’s the vehicle I use in the market for our retirement accounts.
And you can do that on other positions, not just the SPY. I don’t want you to believe that it’s relegated only to that, but covered calls, one of my favorite ways of trading the SPY, big picture long-term. But I said, one off. My favorite way of trading SPY is SPY options trading. Well, what does that mean? I am a huge fan of trading SPY options, and it could be on day trades, which I’ll talk about it in a moment, but it could be on – and let me rephrase that, that day trades using just a singular option, meaning buy a call or buy a put – but I am a big fan of options as a credit spread on SPY, right? And, our head trader, Amelia, who works with our company. She does an amazing amount of the work for us in our trading department. She goes out and she took some of the rules that I put together on my day trading SPY rules and she has built out these strategies, and the one trade we call picking up change. It’s Amelia’s picking up change trade, and she uses credit spreads. So I love credit spreads on SPY. Volatility’s lower, you’re not getting as much premium on it. I’ll give up some of the premium to take away some of the volatility since I am intraday trading my spy options, right, for my credit spreads, or I could be trading them for as much as a week (and a week is the longest I would go on my credit spreads with SPY), because remember, or I shouldn’t say, remember, you may not know SPY has options that expire not every Friday, but every Monday, every Wednesday, and every Friday.

See, that’s a home run to me as a reason for trading SPY because I can get into that position and have multiple dates to choose as an exit. If I truly want to day trade, and it’s a Wednesday, I’m going to choose Wednesdays options, because I will have very little costs, if any, (well…there will be costs) but very little cost in that trade at all. But when it comes to day trading, to getting into an SPY option, directionally because the stock moved down intraday, and I decided, did they trade the SPY as a bounce off of an 8 EMA or a moving average cross, or a pivot point set up, or a confluence of an end of day series of Fibonacci’s and moving averages, whatever your trigger symbol is, there is opportunity to day trade the SPY every single day. And, it’s a great low-cost, low volatility trade that still has decent premium, because I’m still going out and finding that 65 to 85 Delta. And normally, my rule would be this: find an option to day trade the spy with that has a 65 to 85 Delta closest to 65. That’s how I talk about all my option trades.

On SPY though, when I’m day trading SPY, it’s easier for me to Jack up to a 75 or 80 Delta because of the cost of the options are so low. I’m not looking for the big run on that lower volatility position. I’m also not going to get as big of a move today and day trading to me is like eating a hamburger; you got to look at that burger and say, you got a bun on the top, you got the meat in the middle and you got a button on the bottom. What should you eat? Well, I want to eat the whole thing. Yes, you want to, but the bread’s no good for you. Just eat the meat and you’ll be better off. (Meat’s no good for you too, but that’s a different story, right?) Just eat the meat in the middle. Why? Because I’m not trying to get the whole thing. I’m not trying to capture the entire move on the SPY or on any day trade, I’m trying to find the key spot that I can enter the trade, have some movement take place, get out of the trade, still leave some fruit left on the vine for somebody else that wants to come along. In other words, there’s no more opportunity for it to run. “But Rob, you left money on the table.” No, no, no, no, no, no, no. I got on base a lot. And I’m, I’m picking up change over and over and over and over and over again. Okay, that is much more important to me than trying to time the exact entry of the lowest price and the exact exit of the highest price. And yeah, I’ll pass.
So once again, I get asked the question and it’s all the time folks. I mean, I have students, this is a major question every single time I have a conversation with a newer student, they want to know things like, “can you make a living day trading the SPY, since Rob you’re so adamant about this SPY day trading, can you make a living at it?” And the answer is “you can, but that doesn’t mean you will.”

You’ve got to look at cash available, risk profile, time available during the day, how much time are you willing to spend during the day that to do this? I know, I know. I know for some of you it’s, “Hey, Rob, I’ll put the whole eight hours in that I do at my job because I don’t have to travel to work. I don’t have to get dressed. I don’t have to brush my teeth and do anything. I just wear a baseball cap. You don’t even know I didn’t wash my hair. I could just sit down right as the market opens and trade right till the end of the day, put in six and a half hours and go, Woo. Life is good baby!”

Yes. Okay. But do you want to put that kind of time? And in the beginning it’s alluring, it gets you out of the job, I get it. Let’s make sure that you’re not focused on the living part when you first start; let’s make sure you’re focused on getting good at placing the trade, getting good at identifying the trade, setup, getting good at saying, I have a good feeling, a good understanding of what’s going to happen next on this SPY move right now, because I’ve seen this a hundred times before, and 80 out of a hundred times, it does “this,” whatever this is, right. It bounces off of the eight moving average or Ooh, it’s 11:30 in the morning. Eastern time. I’m getting up on lunchtime. I think I’ll wait. I won’t do this trade till after one, one 32, whatever your timeframe is for lunch.
So ladies and gentlemen, there, you have it. You stay focused on the quest to becoming a great trader, keep crushing it. And remember you’re just one trade away. I will see all of you at our next update. Take care of folks. See you then. Bye.