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0:05 spk_0
Welcome to Stocks in Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blicker, your host, and with me is my co-host, Yahoo Finance senior reporter Brooke De Palma, who’s here to connect the dots and to be that bridge between Wall Street and Main Street.Today we’re gonna dig into some options, basics, and talk an options trade. We’re also gonna touch on the huge sell-offs in metals and crypto, and throw in some tech tickers as well. Our word of the day is hedge. Do you really need financial insurance in this market? And why many hedge funds don’t hedge at all. And for today’s market show and tell, we’re gonna break down a way to play home improvement giants with the leverage that you need in the options market.And this episode is brought to you by the number 74,500. That is the latest low in Bitcoin as silver and gold come off their worst day in decades. What happens when the so-called hedges themselves blow up. And today we are welcoming back Bob Lang, who’s the founder of explosive Options.net and a veteran options technician.With extensive experience in risk management and trader education, he has authored a book on how to use options along with technical analysis called Know Your Options. And we’re excited to see you, Bob, back here today, Bob. Uh, so just, you know, 2026 is off to a bang, stocks closed up, uh, in January, so where do you think we are right now?
1:32 spk_1
I have to look at the small caps here, Jared and Brooke, and seeing that the the impressive moves that that that the small caps of Russell 2000 made in January, up almost 10%. Now, you, you can’t expect that pace to continue for the rest of the year. That’s the pace of the market being up 120%. I, I, I think that you and I can both agree thatThe small cap stocks are not going to go up 120%. That’s, that’s a pretty safe bet in, uh, in 2026. But still, coming off of a pretty strong year in 2025, um, the small caps are up, uh, still double digits, coming in with another double digit gain in just this month is, is very impressive. The nice thing about the Russell 2000, Brooke, and Jared, is that it’s a very widespread, uh, index, and it tends to lead the markets up or down. So when the markets, uh, in Russell 2000, the small caps.up strong, it tends to lead the rest of the market, even the the NASDAQ stocks, even the MG 7 stocks, the S&P 500 and the Dow Industrial. So, um, we’re seeing that good leadership starting to show up in, uh, at the beginning of the year. It’s a positive thing. And then don’t forget, you know, as, as the saying goes, as January goes, so, so goes the rest of the year. That’s been the, the, uh, the coining phrase for the past couple of years. Even last year when we had the market down sharply in April, still finished positive. So
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somewhat of anIndicator there, but we do need a term to our word of the day, and that is hedge. Now a hedge is a position you put on to reduce damage and limit losses if you’re wrong and the market moves against you. It’s like financial insurance, and importantly, it’s not free. It does cost money, but you can hedge in the options market in futures or derivatives, even ETFs these days, and you’ve probably heard of the term hedge fund. When they first started popping up in the 1980s and 19990s, most of them did hedge their market bets to limit loss.But these days there are so many different fund strategies that many don’t hedge at all. But the name stuck. And Bob, I know you’ve been discussing the need for investors to hedge and how to balance that with the cost of insurance. So how do you think about hedges these days? Well,
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with the Dow industrials having been up 9 straight months in a row, you know, an investor might look at that and say, Well, why do I need to have insurance? Why do I need to even bother buying puts or shorting?Stocks or, or even having a lot of cash. I, I, I, I guess that, you know, that argument sort of holds water a little bit. But you know, if we look at the time frames over a longer term period of time, you have to have some insurance in place to to hedge yourself against market drops. And we have had some severe market drops, and, and let’s face it, you know, when the market is going down, people are getting scared and worried and nervous, and uh they they tend to do the wrong thing, which is probably sell stocks when they should be actuallyStepping in there to buy. So I, I think, yeah,
4:19 spk_0
that was really interesting, you, you mentioned cash as a hedge too, and, and that’s uh, that works well when we have interest rates at 4 or 5%, they’re still above 3%, it’s not bad. But it’s interesting when I remember in the 2010s, when we had basically zero% interest rate policy or near that for a long time, that was also a time when the small caps didn’t really do that well. They were not leading for almost a decade. I don’t know if there’s a correlation there, you could maybe argue that, butUh, in this environment, I mean, it seems like things have changed. Has your mindset for trading changed since the pandemic as opposed to that huge chunk of time before? Well, I,
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I, I go back a little bit further than that, even further back than the pandemic. I look at the financial crisis back in 2008, 2009, and even further back down to the uh to the dot com days of uh late.90s, uh, 1999, 2000. And uh those are times when, um, when I was trading, I wish I had a lot more insurance on, it would have certainly eased the burden of some of the, some of the pain that, uh, that we, I and other traders suffered when the markets went down sharply. Don’t forget the NASDAQ went down 78% from late 1990.99 into the early part of 2002. So that is a huge drop. I mean, we’re talking, you know, 8 out of 10 stocks basically down, um, uh down for the count from during that period. But, um, I, you know, getting back to your question, I, I still think it’s necessary to have, um, to hedge yourself, to have a lot of cash. Listen, um, it’s cash can be a position.And sometimes it’s all about the return of capital, then the return on capital, especially when you’re heading into some really volatile times and
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uncertainty. Return of and that you want your capital back. Yeah, nothing.
5:58 spk_2
That’s right. And I think it’s interesting too, because everyone talks about how to time this market. So how do you position yourself in this environment where we have been seeing record highs,
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right? And you know, I, I’m, I’ve, I’ve, I will admit to you, I’m not a great market timer, and that’s OK. I, I, I’m not trying to time the market.Markets, I think, you know, trying to nail the tops or the bottom is a very difficult task. But if you have hedges on at all the time, I’ve always told people that when I have some puts on, it actually makes it much more easier to buy calls after I have that protection on. I don’t mentality. It certainly does. And uh that mentality of being able to be a little bit more bold and in buying calls or or getting more bullish, I, I have that insurance in place.Even if it doesn’t, it doesn’t work out for me, that’s fine. At least I have that protection in place, I’ve actually lowered the volatility, I lowered the temperature of my uh overall portfolio, and it tends to work out in a positive way.
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Yeah, you don’t want to trade scared and you don’t want to trade too confidently either, that can bite you as well. Um, I think it’s great that you’re talking about not necessarily timing the market because that leads into our options trade here. So that is our, our theme for this episode of market show and tell.Today we’re using Home Depot, to show how options can be an investing tool, and not just a hedge. So, the setup is simple. Home Depot has been in a trading range the last two years, it’s right in the middle of it. It just pulled back to where a couple key technical levels fall, both the 100 and the 200 day moving averages, and the trade we’re looking at is buying the April 375 call, and it was around $16 on Friday, it might have moved a little since then, but we can work with that number.And since options contracts are for 100 shares, that means you’re paying about $1600 for the right, but not the obligation, to buy the stock at $375 before that expiration on the 3rd Friday in April, that’s April 17th, so we’re using the monthlies there. Your max loss is what you paid, and you’re making a bullish bet that Home Depot can push higher into the spring, into the spring, uh, with that recent pullback setting up kind of a cleaner entry point.So Bob, tell us why you like this trade, and just kind of how it’s not really market timing itself.
8:09 spk_1
Yeah, so, um, I look at, I looked at this Home Depot trade, it was very interesting. First of all, they, they will report their earnings in sometime in the early part of February. So, an April call really doesn’t take, uh, it takes that into consideration, but it’s further along past the earnings report that it’s not going to have that, that much of
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a, if you were in zero data the day before, it looked different.
8:29 spk_1
Sure, I mean, the, the actually the following Friday, right after reports, it’s gonna have the highest amount of implied volatility, and the highest amount of theta to decay. So if you’re, if, if you’re wrong, and, and, or if it doesn’t do the uh expected move that the market is looking for, you’re gonna get killed on on a long call. But I think going out to April is fine. Uh, the last earnings report was real strong, yet the uh the stock didn’t react very well to it. I couldn’t understand.On that, but um, here we are heading into the spring, and what does the spring offer us? It’s a, it’s a chance for people to get out of the house after we’ve had some horrible weather. We’ve certainly been experiencing that is good for Home Depot. Certainly good for Home Depot is people are going to be getting into the going into the stores and doing some repairs to their homes and maybe some upgrades. Um, interest rates still rather sticky to the upside, a little bit stubborn right now. I don’t see a whole lot ofUm, movement in, uh, moving into new houses. So I think a lot of people out there tend to give up on that. They do home improvements, right? And, you know, we, we saw that from Lowe’s, uh, the last quarter and Home Depot again.Came out with a good quarter, they came up with some decent guidance, but still the stock, um, did not perform very well. And I think that this time around, I think we’re going to see some, some good performance from, from Home Depot. I think buying this call, this April call at $16 it’s 4% or less than the price of the stock. It’s not that expensive at all. Stocks probably uh expected to make about a $15 move on earnings, so that, you know, it could certainly put it over.Uh, $400 by the time the earnings come along and this option would probably do well.
10:02 spk_0
I wasgonna back up a second because you use some key terminology. I was gonna kind of break down, implied volatility and theta. And uh, when we’re talking about implied volatility, that’s the expected amount of movement in the market, based on these options, prices, but it doesn’t tell you if you’re going up or you’re down, it’s just, is it gonna move and how much. Um, and then break down.In simple terms, if you can, theta and kind of that decay there.
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Well, so an option is a uh is a decaying asset, right? It’s a, it’s, it’s every single day, it decays a little bit more. But um, so that if you’re an option seller, that theta decay, that decay works in your, in your favor. If, you know, all things being equal, if the stock doesn’t move between now, today, Monday, and the following Monday.Um, the, the, the option’s going to decay a certain amount based on the the lesser amount of time that’s available for that option before it expires. So that theta decay is something that if you’re an option seller, you take advantage of, um, because what do we know? We know 80% of all options expire worthless, and that’s, that’s been documented.And it’s been researched by the SEO and the CME. So those, those, those are facts. Um, so I want to be a, you know, if I’m an option seller, I want those odds in my in in my camp right now. So I, I, that theta decay, if I’m a seller of those options, that theta decay is going to help me gain money, as long as that stock is not moving.Fast to the upside. But
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we doneed to take a quick short break, but coming up we’re talking wild swings in Bitcoin and gold and a runway showdown that gets to the existential heart of the entire options market. Stay tuned.This episode is brought to you by the number 74,500. That’s the price level that Bitcoin just dropped to in dollars. For months, $8,000,000 to $85,000 had been a floor for Bitcoin, but with gold and silver crashed on Friday, crypto, well, it cracked too, and Bitcoin sold off over the weekend, but the dip was bought, and we’ve seen a nice liftoff from $75,000.And it’s interesting to note that roughly speaking about 75,000 was the 2025 low in Bitcoin, but at the same time it was also the 2024 high. So it’s a huge level of interest as traders call it. So Bob, what are you making of these huge moves in both crypto and Bitcoin as well, as well, as well as Bitcoin, crypto, metals? Do youTo see this or see Bitcoin as a hedge in this market.
12:33 spk_1
Well, I, I used to before it started all this volatility here. And look, let’s face it, you know, some of this volatility is being driven by leverage. It’s being driven by margin. It’s being driven by people who, uh, you know, got late to the party, especially that’s the case with silver and gold. But as far as Bitcoin is concerned,I do think it’s a viable uh investment. I, I, I, it, it really got established when the Bitcoin futures market opened up and they started trading 2018. It gave it some legitimacy, right, Jared? So for, so I, I think that um.That Bitcoin here, uh, if it trades around the $760,000 to $78,000 level is, is a very important level. I mean, that’s the $78,000 last year, Jared was a spot where, um, a lot of big buyers stepped in. And it took it up to the all-time highs. Now, you know, Brooke, I’m not sure if these, um, predictions of $200,000 250,000 dollars, even Michael Saylor said in what, 10 years, $13 million. I don’t think these, I’m I’m not sure how, how, how valid these are.There’s certainly,
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you take an envelope and you write on the back of it, and there you go.
13:39 spk_1
I, they’re they’re pie in the sky, uh, guesses and estimates, right? So I mean, certainly, you know, he would love to see that happen. But, you know, at the end of the day, um, you know, it’s all about the markets and, um, you know, the parabolic moves in silver and gold is absolutely astonishing.
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That’sthe thing is, you know, with these parabolic moves, silver could have kept going. We did a show, uh, very recently where $210 was the word or as a number.Sponsor, and that’s because if you take the inflation adjusted high in 1980, the Hunt brothers run up at $50 and change. Multiply that by how much price inflation has changed, at 4.2%, you get to $210. I think we could have seen that, but the crash, when you see a parabolic market like that, is almost inevitable, and that can be triggered by something as simple as a margin call, or it could be exacerbated by the margin call. Broadly speaking though, what are you thinking of the run up in gold and silver?I was reading your notes and you think there might be something ominous going on. Well,
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causingall this? Well, in the first place, it’s a lot of momentum going on, a lot of money chasing after these things. And you know, when the media starts talking about big huge runs in asset classes, whether it’s Bitcoin or silver or gold or, or, or anything else, or even the uh the mag 7 stocks, um, you know, money just starts flowing in that direction, and momentum is a very powerful.Mover for stocks. And, you know, uh, but, you know, there’s somebody on the other side of the trade. So, you know, I’ve been reading a lot about how, um, you know, some of these big banks like JPMorgan or whatever were taking the short side of silver and getting clobbered over the past, you know, couple of months. Well, they got paid last week, didn’t they? On Friday, they’re down 32% in one in one particular day. So it’s, um, it’s one of those things that, you know, it’s like when it’s going up, it’s like taking the escalator going down, it’s like taking the window. But, um, but, but I think that, um,For the most part, you know, stay, you got to stay out of the way, you know, this is, this is meant for big money players. And, and I think the CME of having raised their margin requirements for this is, is in effect telling the small retail investor, stay out. This is
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futures is not for the average everyday, uh, or, you know, people who are just kind of stepping into trading, you don’t probably want to begin in futures.But you can hold things.
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I will say that we are getting some pretty bullish calls from the street like JP Morgan saying this morning, stay the course on gold, that they raised their year-end target now to 6300 for an ounce. And then on top of that, City last week upgraded, of course, before Friday, they upgraded their call on silver to about 150. So there’s still a little bit of bullishness on the street when it comes
16:11 spk_0
to both silver, long term fundamentals central central banks still buying gold, you know, no question.
16:16 spk_1
You know, as an aside here, uh, Jared and Brooke, I heard something the other day, that uh one group that has benefited by the by the price of gold and silver rising up are pawn shops. You know, pawn shops, they, they own a lot of gold, um, you know, jewelry and so forth like that. So some of these, uh, some of these companies out there, there’s some of these stores out there have actually, you know, seen their assets, whatever they have, um, in, in their.In their cases actually rising up in value. So I thought that was interesting.
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Yeah, you bet. Uh, we didn’t get to tech yet. I was just wondering what you think of the AI trade. We’re in the 4th year of this bull market. Uh, what do you think pops this year? month of the
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year. Yeah, yeah, I mean, it’s just been, um, the, the train just keeps on going, you know, I think a lot of people are still paying attention to what Jensen Wong has to say as the CEO of Nvidia and what what he has to say.Lisa Su is gonna be talking tomorrow after the close for she’s the CEO of AMD. And, um, you know, we’re seeing a lot of, uh, very positive comments coming out from other, other companies. Uh, Taiwan Semi came out with some good, uh, positive, uh, positive, uh, comments a couple of weeks ago. So, you know, I, I have to think that you still have to pay attention, and this is still a group that you can buy the dips on.Um, but if we dip a little bit too far, you have to be a little bit more careful. I think dips to the 50 day moving average on some of these names has been a really great spot to, to add calls. So add calls or even add stocks. Um, those, that’s where I’ll be looking at.
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I’ve been watching Oracle, and, um, yeah, Oracle is down 2/3 from its high, and that’s kind of my canary in the coal mine. But you know, given the latest news that they’re going to the debt markets and issuing new stock, I think they were up off of that. So,Maybe that’s OK. Uh, we do got pivot, we do have to pivot here, because we have got a market’s take on a classic Hollywood gab show staple, who wore better. And today’s runway is all about options, one tool, two totally different styles. On the left catwalk struts leverage mode, the turbo look for options. This Momo trader hits the spotlight in a racing jacket with bold panels, mirror visor shades, and high top boots that look built for speed. And on the right catwalk, confident.Steps risk management, the seatbelt fit for options. She’s decked out in a clean, tailored and modular look, a sharp trench coat with a harness, uh, belts detail, and sleek gloves, and a small side clutch for emergencies. This is a hedge you wear, not just a flex that you post. So Bob, who’s wearing the market better right now? Who’s the better use for this market environment? Is it leverage or is it risk management and options?
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For me it’s always risk management. I’m always, I’m always looking to manage risk and, andUm, you know, we, we talk a lot about, um, the what’s called the free trade, and, and, and it’s nothing free in life, but, um,
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tell us about the free trade. How do you get in
19:04 spk_1
that? Yeah, so, so if I’m buying a call, um, call option this week on, on, on Alphabet, Alphabet’s got earnings coming out, um, later in the week. Um, let’s say I’m buying a, like a, like a 350 call, slightly out of the money, um, maybe it goes up like.Uh, it’s, it’s trading at about $10 in the stock blasts right through that, that, uh, that strike in, um, in the next week or two, maybe goes up to $370 375 dollars. Then my call suddenly goes from 10 to 20. Well, I’ve got, if I bought 5 calls at $5000 now it’s worth 10. I can sell half of those calls, or close to half of them, and, uh, take my original risk off the table, still have some.Uh, some skin in the game on that, on that particular game, the upside and you pay your costs. That’s right. And, or, and, or I could do several different things. I could sell an upside call against those and take my risk down even further, or I could buy a put, or else I could roll it up. I could do a lot of different things, but I’m in a good situation like that, when I have a free trade, once I’ve taken my original capital off the table, like.Like I’ve done by selling half the calls when I’m up there like that, then I could, I could certainly look at other names if I wish, or just hold on to my capital and still ride that name out. Love a
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free
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trade.
20:18 spk_2
It seemslike within this market though, like you still want to have skin in the game. I feel like that’s what you’re kind of getting at here. It’s important that investors are just, just in this game right now.
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Yeah, not all in
20:27 spk_1
cash. I, I, no, not at all in cash. I mean, I think it’s it’s certainly.Um, with the economy growing the way it is, third quarter, we had 4.4%. Some estimates, uh, I saw the Atlanta Fed GDP number, estimate of 5.2% from the fourth quarter of 2025. That’s a huge number. I don’t think we’re going to be growing at that, at that pace. We’ll see those numbers at the end of, towards the end of January here, but the estimates, but I certainly think that, you know, with the economy growing the way it is, inflation not spiking, as many people are expecting it to to to.Do, um, and the Fed standing pat and the market seems to be OK with it right now, then certainly you have to have some, some money in the, uh, in the markets right now, because this is the, uh, this is the place where, uh, where growth is happening.
21:12 spk_2
New Fed chair not impacting that outlook at all.
21:14 spk_1
No, not yet. I do. I, you know, if it is going to be Kevin Warsh, I’ve been talking to a lot of people. I said even before he got, um, nominated last week, he was the best choice. He’s
21:25 spk_0
institutional. He’s been there. He’s
21:26 spk_1
been there the game. And listen, he was right in the.In the middle of that whole financial crisis, instrumental for us getting out, um, and not having a disaster. Right,
21:35 spk_0
right beside the Bernanke there. That’s right. We, we got another minute. So I just want to ask you, generally speaking, uh, tell us about, there’s a new trader out there wondering, uh, what they should kind of try to avoid. What are the pitfalls that newer options investors should uh watch outfor?
21:51 spk_1
Well, um, you know, certainly following some of the poor advice out there, I think that, uh,You know, there, there is no easy way to make money in trading options, uh, Jared, and I think that one of the, one of the ways that people do lose money is they’re not aware, and they’re not taking the, the, the profession seriously. Um, this is not, this is not about part-time, uh, trading, you know, listen, I mean, in the NBA.You know, you can’t be a part-time basketball player. You have to, you know, commit to it full time and be the best you can be. Well, trading is no different, and investing is no different. So, um, I think that, that one of the mistakes that people make, that they’re not prepared, they’re not ready for some of the volatility that comes out there. And, um, you know, they they make mistakes. Listen, you can only makeSo many mistakes because you only have so much capital to lose. Once you’re out, you’re
22:43 spk_0
out. It’s not like Wall Street where you can just go back to uh the market and say, oh, we need, we ran out of cash and we
22:48 spk_1
need some more, and we just can’t print money like the Fed does, you know, every week and, and, and, and go and get back in the game. So it’s just we have limited capital, we have to be careful with our resources and uh.Um, that’s, you know, if I, if I should tell anybody what they need to do is just to be cautious about who you’re listening to. Very
23:05 spk_0
well put, no pun intended. So, uh, let’s wrap things up here. I like how we began with uh the definition of hedge, and also thinking about hedge funds. Well, a lot of them don’t hedge anymore, but that’s kind of a non sequitur.In the options trade, you can do a lot, you can not only hedge, but you can also take leverage bets, and then once you’re in the, once you’re in a trade, if you can get to that point where the trade is profitable, profitable and take a little off, then you’re in that uh free trade. It’s not free money, but it is a free trade, and then uh, you’ve got onlyThe upside from there, and that’s what it is. It’s about managing options and that’s what we’re trying to do here, because at the end of the day, you want to preserve your capital. So we have wound things down here at Stocks in Translation. Be sure to check out the other episodes of our video podcast on the Yahoo Finance site and mobile app. We’ll see you next time on Stocks in Translation.