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Whoa holy smokes folks look at this we’re back in front of the white board once again today i want to tell you guys why i’m seriously thinking about buying 90 000 worth of put options in a particular stock here now in this video i think the most important thing is not actually what stock i’m thinking about buying 90 000 worth of put options on i think the most

Important thing today is to kind of figure out my thought process around something like this like why would i consider buying 90 000 worth of put options on a particular stock so this is going to be more of an educational video rather than a video around uh this particular stock i just want you guys to get into my thought process on how i think about like wealth

How i think about you know potentially hedging a position which today we’re talking essentially about hedging positions okay and hedging wealth and this could get to more of a very very complicated subject but i’m going to do my best job possible to break this down literally as simple as possible so even if you’re newer to the markets which i know maybe half my

Audience is like you know first you know year of investing the other half of my audience you guys been doing this for a long time whether you’re been in the market for a long time or a short time i hope you really understand this so yeah all i ask in return is that you guys smash that like button that’s literally it guys for the youtube algorithm i appreciate you

Guys in a massive massive way to let me know that you guys enjoy a whiteboard video like this where i’m getting into an educational process on kind of how i think about something like this okay now in regards to stock it’s rh okay uh restoration hardware which is a high-end furniture store now i’m personally a customer of rh i spent a lot of money with rh in the

Past year as i you know bought especially my the you know one particular home that i bought a ton of rh furniture like six figures worth of rh furniture so i’m a customer of theirs i like their product i like their business okay i want to be very very clear about that first and foremost okay doesn’t mean um always you’re going to necessarily agree with valuations or

You know potentially things that could happen here okay so right now the stock’s around 730 dollars a share the it’s right around a 15 billion dollar market cap or so here today okay the company has great earnings like you look at their earnings they just reported amazing okay absolutely amazing great earnings the business is red-hot okay and the stock is red hut

The past 12 to 18 months like you look at a stock chart of this stock for the past 12 to 18 months it’s red hot it’s right around its all-time high okay so everything’s going great for rh in the short term there’s no debating that like like literally you look at all their numbers it’s super impressive all right now keep in mind with businesses like a furniture

Business things don’t always stay hot forever and this is very important to keep in mind okay now in regards to hedging a position or something like that it’s very important to kind of take into account my personal financial situation right so i have three houses one is the one i’m recording at right now the arizona house right this house is worth about eight

Hundred thousand dollars maybe a little over eight hundred thousand dollars right now i have a house in henderson nevada that one’s worth uh you know 900 000 plus then i have my main house in nevada which is 1.7 million plus okay so i have definitely a you know a good chunk of real estate out there right i obviously have many millions of dollars in the stock market

As you guys know so needless to say you could call me very very bullish on u.s real estate and on equities over the long term right i wouldn’t have all this money in stocks and in real estate if i believed like we were in a doomsday scenario or i didn’t believe in the us economy long term or anything like that right i would have all my money i don’t know maybe i

Don’t even know if i would have it in cash in that situation right but i certainly wouldn’t have it invested in all these things right i wouldn’t be willing to hold big real estate assets and stock assets i’m a believer in the economy over the long term i’m a believer in the us stock market over the long term i’m a believer in the us housing market over the long

Term which is why i’m willing to put my money where my mouth is and have a substantial amount of money over there but the issue is i am so heavily invested in things that are gonna you know go right over time right and so as i start to think about this i’m like okay sometimes your positions of strength could become your positions of weakness right something very

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Important to keep in mind there right we got to ask ourselves two questions right what if the u.s economy goes through any rough patch over the next two years if the u.s economy goes through any rough patch like let’s say a recession something like that over the next two years obviously this stuff wouldn’t be looking good now i don’t think that is a very probable

Scenario however it is a scenario right so something to take into account there it can come out of nowhere right also what if real estate in the u.s slows in a major way over the next two years we know the real estate market is red hot like you know especially in markets like i have houses in arizona nevada red hot right you look at any of the data out of those

Markets it is insane how much homes have appreciated and are looking to appreciate in the back half of this year right some folks are even starting to get priced out of the real estate market because you know prices have gone up so much right so eventually this is going to have to slow right you got a lot of people in pretty good financial situations you have the

People with a lot of money that have had more money to buy more real estate right and then you tag on super low interest rates on all that like lowest interest rates we’ve pretty much had at any time period ever in the us economy right and you tag on all that right i mean i have some refinances i did in the past year that are at two point something percent interest

Rate that’s insane and then for one of these properties this one i took out a jumbo loan and that jumbo loan is at a three point something percent interest rate on a jumbo loan this is something very important to keep in mind a jumbo loan at a three percent something like that just numbers you really haven’t been able to hear about in the past right absolutely insane

Right so we got to ask ourselves what if either of these scenarios play out okay it’s definitely a possibility it’s not a first sort of thing but what if it does happen well i’m all along here oh okay so i have some cash i always keep some cash you guys know i like to keep 10 to 30 percent of my wealth and cash at all times right just so i’m ready to buy deals ready

To take advantage of deals sleep well at night things like that right but i don’t have any bets on anything going bad right i’m all long and strong i’m long and strong on the markets and and things like that right i don’t have any shorts any short positions i don’t have any put option position at all in the market right so when you get into this situation you start

Thinking maybe i should at least hedge myself a little bit just in case the stuff hits the fan right just in case that happens i’m hedged a bit right so that’s where i start to think about this right and so in something like rh i’m thinking i’m considering buying 90 000 worth of out of the money put options out of the money meaning you know it’s nowhere close to

Whatever the price is right now 730 dollars right i’m talking about strike prices that are way way way below whatever the stock’s trading at right now right so the thing is like i’m thinking like okay stocks at 7 30 today maybe it continues to trend higher over the coming weeks or the coming month or so right maybe that stock just continues to drift up and then

It’s at 750 770 800 and so that valuation continues to get pushed and pushed and pushed it’s definitely a possibility right so the stock just keeps getting pushed then guess what happens next week put options come out call options as well but 2024 options come out they’re released okay and so i’m going to be able to take a close look at the put options on rh at

Different strike prices strike prices i’m looking at i’m looking at 400 i’m looking at 300 i’m looking at 200 when it comes to all three of these obviously they’re way out of the money when you consider the stocks trading at 7 30 and who knows maybe it goes higher than there but it’s also very important to take into account that it wasn’t that dang long ago that

That this stock was in the 200 to 400 range okay something very important we know the furniture business can be very very cyclical it’s going to go through some great periods like right now is you know i i don’t want to call it as good as it gets for this business but dang it’s pretty darn close right and then they have some time periods where it gets tough right

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And especially when the high end of the housing market starts slowing right and maybe all of a sudden you get some some things kind of tacked on there so my bet would be to hedge my long possessions so essentially if the real estate market went you know and really slowed down a major way if the real estate market slows down a major way rh’s business slows down in

A major way right and so if that happens i’m going to at least make some money there right meanwhile this stuff might you know go down a bit right and i have more money essentially that i can buy stocks with during a time period like that right so here’s how this kind of plays out right the company’s been reporting such amazing earnings getting back to the great

Earnings right well when this happens to a stock analysts just keep raising their price targets on the stock they keep raising their revenue estimates their eps estimates their gross margin estimates all those things just keep raising raising raising and you you have all these emails just start to also become almost too bullish on a stock right because maybe they

Were not bullish enough and now all of a sudden the you know company keeps beating earnings keeps beating earnings you know reports this great we just saw you know rh say revenue is gonna be even better next quarter than it was this past quarter when you hear all that right as an analyst you start to think man i gotta hike my price target i gotta hike my revenue

Estimates my earnings estimates and what ends up happening even to great companies is the expectations get too darn high right and then the company just can’t hit those numbers because everybody’s just too dang bullish on it and when you have a high flowing stock even if you do hit those insanely high estimates you can still see your stock price go down we’ve

Seen it a million times before in the stock market right where a company will hit their numbers but you know it’s just it wasn’t that crazy beat that people were expecting and because your stock price has been flying so high you know you end up getting getting your stock hit right i mean tesla i’m a tesla shareholder i’m sure you know decent amount of you guys

Watching this video are tesla shareholders right the company’s been reporting amazing numbers last few quarters doesn’t mean the stock’s gone up right some very good food for a thought and that’s tesla that’s a little different animal than an rh no disrespect to rih okay something else to keep in mind here right what if rh business starts to slow slow down in

2022 uh in a major way you know and it’s definitely a possibility they’re coming off this red-hot year in 2021 where the high end of the housing market’s been amazing right and they’ve you know basically just had a lot of customers to buy their furniture right if people are buying million dollar houses left and right guess what rh is gonna thrive in that sort of

Environment that’s exactly where rh thrives in a massive way but if all of a sudden those buyers start to go away then also you’re stuck in a situation where it’s like okay you know rh really can’t control their own fate okay they really can’t control their own fate they can control it to a certain extent from the context of like making sure their businesses run

Well making sure their brand has prestige behind it and things like that they can control that but if if if the high end of the housing market dries up for a year or two or age can’t control that and it doesn’t matter what rh pretty much does that’s just going to be what it’s going to be for the for the short term for that company right so something very very

Important to understand in a business like an rh it’s almost a little bit of a commodity business they just happen to be on the highest end of the housing market right you know a good example would be win resorts when resorts are the stock i personally own right you know beautiful resort properties in macau and las vegas well the thing with win is you know if no

One wants to travel for a time period right when their business isn’t good it doesn’t matter how much wind does you know and building their brand and making sure their properties are amazing and making sure everybody has a great experience in time periods where people aren’t traveling like it’s going to be what it’s going to be right no different than you look

At them account numbers for the past 18 plus months they’ve been awful because no one’s traveling so it doesn’t matter how much money wins spends on advertising or their brand or their hotels or anything if people aren’t traveling because they either can’t travel or they’re making that decision not to travel the company’s stuck in a tough situation with rh very

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Very similar situation if people aren’t buying expensive homes that that makes rhs business small very very tough if people are buying you know mansions left and right million dollar 2 million 5 million 10 million dollar house just often right your origin business is going to boom it’s as simple as that because they’re the highest end player in that market so of

Course they’re going to thrive right also what happens if interest rates go up a little bit okay well if interest rates were to go up and there’s a lot of talk that interest rates could potentially go up in 22 i know we’ve heard the fed say a lot about 2023 right if interest rates go up guess what the buyers aren’t as interested to move and especially when maybe

You’ve already had a big pull forward of people moving right the back half of 2020 into this year seemed like we pulled a lot of buyers right pulled a lot of buyers who might have bought in future years pulled them to right now for many various reasons right and then you have inflation you have housing prices continue to get more expensive and then if you tack on

Interest rates that’s something that could definitely lead to a potential housing slowdown let’s let’s imagine for for a moment and this is not going to happen i just want to give this for context right let’s imagine you know a mortgage rate overnight goes from three percent to let’s say five percent right that’s not going to happen overnight but let’s just imagine

Dead right immediately overnight like you know the amount of people that can afford a house or are looking to buy a house goes down substantially that’s just how it is right if the interest rate was one percent you know the people that can afford a house of certain size or a certain amount things like that goes up right that’s interest rates and so when you tack

On all these things you think about the the potential pull forward and demand when you think about my situation with being so long everything it can make sense to hedge a position no let’s say or each business let’s say i put 90 000 into rh okay let’s say or you know with the put options like right let’s say i buy 90 000 worth of put options in the stock let’s

Say the stock doesn’t go down in a meaningful way and let’s say we’re two years from now right and the stock is is you know anywhere from 600 to let’s say i don’t know heck we could say two thousand dollars let’s say the business just continue to boom and boom and boom okay well that would be unfortunate for this 90 000 right this 90 000 is now zero right i lost

Everything so boohoo for me right not really because guess what it’s gonna likely boomed if that’s the scenario these properties are gonna more than likely be worth even way more money than they’re already worth right then the amount of gains i’ll be on that were or a whole lot more 90 000 right more likely my stocks will have boomed a lot more in the markets in

General and so that 90 000 i’m looking at that and i’m like who cares i just made another nine mil over here on this side meanwhile if things do get rough and real estate stops appreciating because we go through a time period where you know the markets just you know starts to stagnate and it’s not really moving and so maybe the housing market doesn’t crash where

It’s like also in this house is worth da da da da da maybe it just slows down and they’re just worth the same okay if that scenario plays out rh is probably going to go through a tough time which is probably going to mean that 90 000 is turned into 180 000 or turned into 270 000 or turned into you know 400 000 500 000 something like that then i can go ahead and

Cash out of that and if any of my stocks are down during that time period i can plug that money in there or heck i could buy a small real estate investment property with that money hope you guys enjoyed this video as always and just kind of getting into my brain and kind of how i think about something like this a little bit of a different subject when we talk about

Hedging a position and things like that guys all i ask in return is that you smash that like button if you have any stock market related questions for me directly uh basically check out the pinned comment down there that’s where you can text me i’m trying to get back to five plus of those questions per day much love as always guys and have a great day

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