Earlier this week, I sat down with Shahryar Rahmani, a Canadian options trader and founder of the Meta Trading Club - an educational club to learn about and maximize profits from options trading.
In our chat, I had the opportunity to ask Shahryar about his journey, got him to break down options trading terminology in simple terms, and asked him the best tips for traders looking to get into options.
Here’s a transcript of our conversation.
Ketki Saxena: Yeah, thank you so much for joining us today, Shahryar. Great to see you again.
Shahryar Rahmani : thank you for having me.
Ketki: Absolutely. So I'm really keen to pick your brains and I'd love to start with your journey. How did you decide to start trading and why did you decide to focus on options?
Shahryar:
So, my story's a bit different. I didn't study finance – I was actually an engineer back in my home country. But when I came to Canada in August 2017, I realized that being just an engineer wouldn't cut it with the high living costs in Toronto.
That's when I discovered trading. A few months after moving, I started with stocks. I soon learned that if I wanted to make real money as a stock trader, I needed at least $10,000 to $15,000. But as a student, I didn't have that kind of cash.
That's when I got into options. Instead of buying actual stocks, I could buy these contracts that control the stocks. They let me control a hundred shares of a stock for way less money.
It was a long road, though. I started with around $1,700 to $2,000, and it took me a year, maybe even a year and a half, to grow it to eight or nine thousand dollars. But with a lot of effort and learning, I eventually turned that into a high six-figure account.
This year, I've jumped into real estate. I'm doing investing and renovations, spreading out my money and exploring new ways to grow it.
Ketki: That's very interesting journey, Shah. And my next question it's about the next stage of that journey.: In terms of what you're doing six years ago, you were just starting to learn stock trading basics, then you move to options, got pretty good at it. And now you have your own Meta Trading Club. Tell me a little bit about that. How did you decide: I'm not just going to trade, but I'm going to teach people how to trad?
Shahryar:
It all started about two years ago when people began reaching out to me. Friends and folks on social media were interested in learning how to trade, so I began offering one-on-one teaching sessions. I did this for a year and a half, and then I launched Meta Training Club, an educational platform focused on trading and investing, designed as a group-based program.
At Meta Training Club, we cover everything from the basics to advanced strategies for trading various securities, including options. We also cover topics like risk management and the psychology of the market, which is a crucial aspect of successful trading. Our main objective is to assist our members in crafting their own personalized trading system, one that aligns with their unique psychology, risk tolerance, lifestyle, and availability.
But it's more than just education; it's a community of traders who share common interests. We have a vibrant group of 300 members who trade together, exchange knowledge, and socialize, providing support and camaraderie in the trading journey.
Ketki: I think that's why I'm really excited to talk to you today. You do have this wealth of experience education people on options, answering their questions.
Ketki: So, I'd like to start with a very basic question. Options trading, futures trading is also a type of derivatives,…
Shahryar: Yep.
Ketki: Could you outline for our readers, the difference between trading futures and options?
Shahryar:
Option and futures contracts are both types of derivatives, but they have some key differences. In the case of futures contracts, the buyer is obligated to purchase the underlying asset at a specific date in the future. On the other hand, with option contracts, the buyer has a choice whether to execute the contract or not.
Within option contracts, there are two main types: calls and puts. When you hold a call option, you have the right to buy the underlying asset at a predetermined price within a specific timeframe. Puts work the same way but give you the right to sell at that price.
Another notable difference is that future contracts can have negative values, as we saw in 2020 with oil futures. However, option prices cannot go negative.
In terms of price action, option contracts tend to be more volatile compared to futures, which can lead to larger returns on investments if you're actively trading them. As an option trader, you benefit from leverage, thanks to the Black-Scholes formula, which determines option pricing. Futures, on the other hand, often involve brokers allowing the use of leverage and margin accounts for trading.
Ketki: Yeah, and I'd like to elaborate just a little bit more on something you touched on, which is two of the main kinds of options, calls versus puts. How would you explain those terms ?
Shahryar:
Absolutely, let's break down call and put contracts in simpler terms. A call contract gives the buyer the right, but not the obligation, to purchase the underlying assets at a specific price within a set timeframe. In this scenario, the buyer has the option to buy the assets, but they're not forced to do so. On the flip side, the seller of the call option is obligated to sell the shares if the buyer decides to exercise their right.
Now, for put contracts, it's the buyer who has the right (again, not the obligation) to sell the shares at a predetermined price. If the buyer chooses to do this, the seller of the put contract is obliged to buy the shares at that specific price.
In simpler terms, if you're feeling optimistic about the market and expect prices to rise (bullish), you might want to buy call options because they grant you the right to purchase the contract at a set price, and you anticipate that the price will go up.
Conversely, if you have a bearish outlook and believe the underlying asset's price will drop, you'd consider buying put options. This is because the value of the put contract tends to rise as prices fall. Of course, this is a basic way to look at it, but it captures the essence of call and put options.
Ketki: Okay, I love that you provided a dictionary definition but also you could explain it to me I'm five. I also wanted to touch on two more terms which you often hear about in options trading - strike price, premium, and expiration.
Sure, let's simplify those key terms in options – strike price, premium, and expiration date, using a real estate example:
Imagine you want to invest in real estate. You set your sights on a two million dollar house, but you don't want to shell out the full two million upfront. Instead, you strike a deal with the seller. You say, "I want to buy this house, but not right now. Let's make a deal that lets me buy it for two million dollars within a year." The seller agrees, but they want to be sure they get at least two million for their property. So, they say, "Alright, but to secure this deal for a year, you need to pay me $50,000."
In this scenario, you're essentially paying the owner $50,000 for the privilege of being able to purchase the house for two million dollars within a year. This arrangement is much like a call option. The two million dollars is what we call the strike price, the $50,000 you paid is the premium, and that one-year timeframe is the expiration date.
Now, here's where it gets interesting. If the house's market value climbs to 2.5 million within that year, you still have the right to buy it for two million. You can then sell it in the market for 2.5 million, even if it's only been nine months. Your return on investment in this case is remarkable. You put in $50,000 and made $500,000.
On the flip side, if you'd taken the traditional route, you'd have to invest the full two million to make the same $500,000. This is where options, like call contracts, give you a significant financial edge by minimizing the capital you need to invest upfront.
Ketki: Thank you so much for the iintro to options trading and an explanation in a way that’s very relatable to Canadians, wanting to buy a home and it’s two million dollar house.
Shahryar: Yeah, that's the normal kind of pricing. I wanted to go for $500,000. But no that’s not us.
Ketki: Exactly right. Very on the nose. So yeah, so thanks Shah so much, for those explanations. What I'd love to do is to dive into some questions for investors who might want to start trading options, but they're not sure if it's right for them.
They don't know how to trade options, or maybe they just think it's a little bit too risky because that is a common conception with options trading.. Is options trading, something you would advise only for more experienced investors? Is it too risky?
Shahryar:
So I will start with a quote from Warren Buffett: the risk comes from not knowing what you're doing. In life, everything carries some degree of risk, whether it's depositing money into your savings account, starting a business, or even being an employee (given the possibility of job layoffs). Risk is a part of every endeavor.
Now, let's talk about options. Many folks view options as riskier because they seem more complex compared to stocks or futures. With stocks, it's simple: buy if you're bullish, sell if you want to short it—end of story.
Options, however, introduce additional variables. You've got to understand the strike price, expiration date, and how option contracts function. It can seem overwhelming.
But here's the reality: options trading was initially created for hedging, to manage and reduce risk. Think back to our earlier example: instead of buying a two million dollar house, you can control it with just $50,000. As an option buyer, you're not putting a large amount of risk on the table. You can easily control a hundred shares of a security (which might be worth tens of thousands of dollars) with just one option contract, costing a few hundred bucks.
The key is education. Options require a bit more time and effort to understand, but once you grasp the concept, you can effectively manage the risk. The fear should stem from uncalculated risk. With options, you can calculate and manage your position, making it a potentially more lucrative option with higher returns on investment.
Another advantage of options is their versatility. You can profit in any market condition—whether prices rise, fall, or remain flat. Options strategies empower you to adapt to the market's whims, which is a significant benefit.
Ketki: So, it sounds like the largest barrier to actually trading options is not this risk, but rather a lack of knowledge. It can be a little daunting, especially to know how to start. How do you recommend someone the options trading journey?
Shahryar:
When you're getting started with options trading, it's essential to start with some basic knowledge. You definitely shouldn't rush into it without a strong foundation. So, take the time to understand price action, get a handle on trading strategies, and wrap your head around the whole idea of probabilities in finance. You need to pay attention to managing risks and understanding the psychology behind market movements – those are key things to know.
Once you've got these basics down, you can start digging into the specifics of options themselves. It's important to know how changes in stock prices affect the options tied to them – that's the underlying asset. And, you should be aware of how various economic events, like earnings reports and other factors, can impact options prices. This kind of knowledge is your ticket to success in options trading.
Here's some solid advice – don't even think about using your real money right away. Seriously, it's a risky move. Instead, I strongly recommend starting with paper trading. It's a way to practice and gain experience without risking your own money. So, learn the ropes, practice, and build your confidence through paper trading before you even think about using your real cash for options trading.
Ketki: So learning about options is, obviously a big part of this of what you've highlighted and I know one of the best resource for them to learn about options is Meta Trading Club. What other resources would you recommend specifically for beginner investors or maybe that helped you learn about options trading?
Shahryar:
There's this great book I'd like to recommend, "Understanding Options" by Michael Sincere. It's a solid read if you're looking to get into options trading.
And on top of that, I've actually written an ebook where I share my own struggles and experiences in the world of trading called “From Struggles to Trading Profits”. It's a personal journey that I think many traders can relate to.
And don't forget to check out our YouTube channel! We've got a whole series on trading options in the works. It's going to be a valuable resource for anyone interested in learning the ropes of options trading.
Ketki: Yeah, and just, I'm really glad that you mentioned the YouTube because in this interview. I would love to go into what are your secret options, trading, strategies shot and ask you all about the Tricks of the trade and all the secrets that you use to get this 100% or grow your portfolio by 500%.
But obviously we don't have time on just this interview, which is why we'll be sharing all your videos on Investing.com Canada, where you go in depth into some of these strategies.
Shahryar: Thank you.
Ketki: Now that we’ve got a good understanding of options, and how beginner traders can start trading options, could you walk us through what your process looks like in determining a play and executing a trade?
Shahryar:
In terms of timing, I have a rule of thumb: I never jump into trading before earnings announcements. You see, earnings can be incredibly unpredictable, and that unpredictability can be a real wild card for traders. There are just so many variables at play that can influence a stock's price after an earnings report. So, my approach is to wait for that earnings announcement to drop.
Once it's out there, that's when I start paying close attention to the price action. I look for signs of whether buyers or sellers are taking the reins. I focus on the price movement and seek several confirmations to make my call. This includes factors like price action itself, trading volume, candlestick formations, and various other indicators. I gather all this data and use multiple confirmations and analyses to formulate my trading plan.
The next crucial step is analyzing the risk. I need to assess how much money I'm willing to put on the line compared to the potential profit this trade might yield. After this risk assessment, I'm ready to execute the trade based on my account size and the specific amount of risk I'm comfortable with for that particular trade.
Now, here's the beauty of it – at this point, I have trust in my system. I know its win rate, and I'm well aware of the average profit I can expect, depending on the level of risk I'm taking. This kind of confidence in your strategy is key to success in trading.
Ketki: Okay And can I ask if there's just off the top of your head maybe three stocks that you're looking at right now.
Shahryar:
Currently, I've got my sights set on three particular stocks. First up is Apple (NASDAQ:AAPL), especially since they've recently unveiled their new iPhones. It's created quite a buzz, and I'm keen to see how it plays out in the market.
Next in line is Tesla (NASDAQ:TSLA) – it's a stock I've traded extensively. Many traders are keeping a close eye on it, and from a technical perspective, it's shaping up quite nicely.
Then, there's Meta. I'm particularly interested in it due to the whole artificial intelligence landscape. The potential developments in this space could have significant implications for the company's stock.
Lastly, I'm also closely watching Nvidia. It had a big run, and I'm keeping an eye on whether it might pull back, given how extended it currently is. These stocks offer a range of opportunities, and I'm excited to see how they perform in the coming days.
Ketki: And that just connects back to what you said about options being such a diverse strategy. No matter if a stock is overextended or undervalued, there’s a strategy for options trading.
Ketki: Well thank you so much, Shah. We've really got the opportunity to pick your brain and help, people learn about options trading. Is there was anything else that you wanted to add for people considering options trading?
Shahryar:
Absolutely, I want to emphasize something important here – don't let the fear of taking risks hold you back. Risk isn't as scary as it might seem. In fact, it's a necessary part of growing, not just in trading but in life in general.
The simple truth is, if you avoid taking risks, you'll find it hard to make progress. It's like staying in your comfort zone, and while that might feel safe, it won't help you grow. So, whether you're dealing with trading or life in general, taking risk is essential.