This is Roger Hutchinson along with my son who'll help me through this presentation. Today we're going to talk a little bit about fear in the stock market and how we deal with that and may be even we make some money from it. And before I get to it further, I just think it's funny, because the Investing Dad concept is just I am an at home dad with the son and trying to do something that will bring income for the family. At the same time, I was being an at home dad, and just like the transitions some of you are probably familiar with like just went from reading the Clifford book, and I am Emily Elizabeth and I have a dog. My dog is a big red dog, and then you go from that to talking about Options and -- anyway it's just kind of an interesting brain tweak that's taken me while that it used to, but I can do better now than I used to.
But anyway, back to fear. So we've a fear with stock market. Yeah, he's saying hi. Fear in the stock market which causes volatility which -- if you've been watching the news, you've heard a lot about volatility and you may be even heard about the fear index which is the VIX, and you could look that up, and it's at an all-time high since they have been recording this for 20 some odd or 40 some odd years.
So what does that mean. It's like okay, everybody is freaking out and so what do you do with that. How do you make money from that. Well the way options or probably stock options are not like stock options you get from any company but options that you can actually buy.
Volatility, is built into the equations called the Black-Scholes Equation that prices these things. So it makes them more expensive if you are buying the options, but on the flip side, it also -- you can make more if you are selling the options. So one strategy that seems to be consistently good, for dealing with, for taking some advantage, making a little bit money off of the volatility, the fear, is to sell these options and you do that with what's called a Credit Spread.
And with the Credit Spread, you essentially sell an option, that's what they call out of the money, and you hope that it stays out. Basically it means if you have a security or stock that's worth $10 and it you think it's going to go -- I will make it $100. If it's $100 and you think it's going to go down, then you might buy an option at $100 or so and a option at a $110, collect the money for that and then to offset the cost, because it will still be expensive and because the way the rules work, you might sell one at $105 and -- I am sorry buy one at a $105, $110 and it sort of offsets the cost of what you are selling. Trust me, it works out. Then you basically get to collect the difference between the prices. The money shows up as a credit in your account. You don't actually collect the money until your options expire, because Options have an expiration month.
So the options have an expiration month. So you want to this within the same month so you can collect your money within the same month and you are fairly confident that the underlying stock value, say, $100 is going to continue to go down within that short time period and not go above the Options that you sold, because you're going to actually have them, and it's because if they did need, and you thereafter back out of the trade or come up with the stock and sell it to the person for the straight price of a $110. So I sell something you want to get into.
So as long as you're trending down and you get to collect your money when the Options expire. So -- and it works better when there's no volatility like right now, because of the -- again because the volatility is a number that's built into the equation that prices Options, your selling Options, you make money out of that.
Okay. Sorry if that went too fast, but the kid wants to do something else. So good luck! Talk to you later and weekend's coming up, so enjoy!
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