Cash Secured Puts & Short Put Verticals for Potential Income | James Boyd | 12-9-19
Hello. And welcome to all about option series my name is James Boyd great to be with you here this evening. December. 9th maybe, he did a little Christmas shopping going, into the holidays. Here I know I went by the mall and it was loaded people, were loading up there take a look at their watch list and buying. Those. Presents. Going into Christmas time great, to be with you hopefully I had a good weekend we're right back at it as. I mentioned, my name is James Boyd I normally teach at this time and, so, you can also follow me on twitter at jade, underscore. TDA we, like to welcome Jerry and drea Alfred, Fred Charles Ricardo, Lisa, and many others by, the way Lisa and PDX Lisa how you doing all, right so just real quick remember that as we talk about options here tonight remember. That options are not suitable, for all investors special. Risk inherit or trading options please, make sure you've read the previously, provided copy of the characteristics, and risk of standardized. Options also, remember that when we talk about options, remember that in order to demonstrate the function out of the platform we, will be taking a look at actual, symbols, remember, that TD Ameritrade, though does not make any recommendations, determine. Suitability of any security, or strategy, you, get to pick what you want to invest in and the, strategy, I kind, of think of it like going into the grocery store there ghosts or doesn't tell me what. I have to buy or whatever I get to choose what I want to buy so, there's some similarities, there now. Remember, when we also talked about the option Greeks be aware of Delta, Gamma Vega theta, know, the definition, and how it applies for the strategy now, what we're going to talk about here tonight is we're going to take a look at the SPX. And look. At the difference between the raht I think, there's some very interesting things happening. Here in the market especially, from. Volatility. That we'll probably the word of the day here tonight now. We're also going to take a look at the short, puts, and short, short. Put verticals, we're, going to talk about the similarities, and, the, differences now. What I want you to kind of be thinking through that is I to get into this what, are some of the similarities what. Are some of the differences and we're, going to take a look at some new examples, of both and they're going to be some different examples we might not always be looking at I'm. Going to also talk about current, management examples, and I think, this is something where when you go to a class. 80%. Of what they're talking about is like the structure, of their structure, I'm, going to do probably. 50/50, where we talk about the management, management. Management. For half the time so, be aware of that now, the learning outcome, you should, be, able to identify the difference of differences. Between short. Put verticals, and short. Puts and when. To consider, each, now. With that said no further ado let's just, tip it off and let's, go ahead and, just get right on the big board let's get nice and comfy, and let's, go talk really what we're seeing on the SPX right now so, first off kind. Of seemed interesting, price action right we, had that prior, high go back about let's say seven. Or eight days ago that, prior hired about 38, 31, 50 then. Actually, last week we actually saw a drop down this being the lower low and then, last week we had on Friday an, unbelievable. Jobs report not only jobs report from for Friday but.
It Was actually the revisions. Of the prior month where, we saw that the indexes, got pushed back up to some. Of these all the highs and I'll really zoom in quite hard for us now, what you're going to notice is the index, of the SP, did, not break out to new highs it did not what, you're kind of seeing right now is we kind of see a run up pull back run up pull back we, kind of see that, little double top action, now. If, you take a look at this we're going to see in just a moment, what we're seeing on the volatility, but, interesting. With. What we've talked, about recently. So, remember just recap this this, is a low this. So far, is an. Equal, low okay, now, when we take a look at this one thing I want to kind of make mention of is we saw these two red lines and when, those two red lines, when. We get those lines. Where, both of them are red again. That's a little concern that maybe might be some selling, pressure now. Let's, go ahead and do this what I'm now going to do is let's go back just real quick and I'm going to take a quick look at. What we're sitting on the row so real quick so if I bring up the Russell, and I, post this on Twitter today, the. Russell did, make a brand, new high it. Did and you're gonna see that right there and if you take a look at it also it kind of looks more like perhaps, an. Ascending. Triangle, on, the Russell but, did. Poke to. A brand, new high it. Did okay. So the Russell, being different, than the other three SP. Dow and Nasdaq, not, going to bring new highs, but the Russell, poking, its head above that high yes. Now. I think the probably the chart of the day and I put this on Twitter earlier if, you. Take a look at and I'll just show, you what it looks like this. Way I post on Twitter and I. Think, it probably has to be one doesn't have to be but it could be maybe. The most unbelievable. Chart all day long okay and if, you take a look at the VIX we'll talk about why and I'd, like to hear some of your thoughts on this I'm not looking at the weekly, chart you're, gonna notice that. Remember. There's that low again, let. Me kind of draw that there so. Where there's that low there. There. Was the high and what, you're going to notice is with the index. SP. Nasdaq. Dow, not. Going, to a brand new high we.
Saw Volatility, so off again, back down to 12 and, what you'll notice is it pushed and it almost swatch, he almost closed at 16, okay, so. What you'll notice is this was really the. Horizontal. Breakout. Here. Okay. Breakout. I'll just mark that there's the breakout, ran. Back up to high pullback, and I. Don't know if you want to call that a hammer but, that has a really, tall, candle. So, whenever the volatility, for an option. Seller. Whenever. The volatility, breaks out you start, to get a little uncomfortable whenever, the volatility, breaks out and checks back to where the old support level us and, a tale, that you can measure a first down with. Again. The game of football, some of you picked that up you. Can measure first down. With. The tale that it leaves. It. Just kind of makes. You maybe think a little bit could. Investors, maybe buying, some protection, in the year end to, number one try to lock in some of their gains that's an option could, investors, may be buying, puts because they think the over our market, might pull back sure okay. There, could be a number of reasons there they could be buying those options just, because they're, those, puts are becoming very, inexpensive. Relative. To the current stock price it just might be a way to do, some risk, management. Okay now. What I want to do is just so this, is probably, the chart that starting, out the week really. Want to be watching if we, see volatility, opening, up tomorrow there, could be some pressure on the individual, stocks and especially. The indexes, okay so, be. Careful. On that okay, now, let's what I'm going to go ahead and do is let me just bring up let's say I'm going to zoom in real quick and I'm, going to kind of get where we have like a little a whiteboard, to work with and let's kind of go back to work what, I want to kind of do is. Let's going to talk real quick about some. Differences, and this is where I like kind of some your input and what. I'm going to do is I'm going to really write SP, for short, put ok, short, put and I'm. Never really right right here where it says short. Put. Vertical. SVP, short. Put short, put vertical and what, we're really doing is we're talking about the similarities. Now. I'm going to kind of get the ones out of the way that we would probably say you. Know we, get it I'm, going to say that both of these I'm just going to label this obviously, it's bullish, same. Thing here both bullish, we get it now, I'm going to say this though in terms, of how much bullish, well if we went out the money like we normally talk about in, the examples, that doesn't have to be like this it's, a bullish trade if we went out of the money buy two strikes, we, might have a delta between let's say 30 to 40 somewhere, in that ballpark if. We, looked at let's say a short, put vertical that. Delta might be let's say between 10, and 20. So, the short part vertical, not nearly, as, bullish, okay. As. The. Short put now. One thing I really, want to emphasize here is wonder. If the stock, goes, down this. Is a major and it's so major that. I want to change it to a different color so. If the stock down so, listen to this if the stock goes down the, Delta. Increases. Okay if. Stock. Down. This, is huge so if the stock actually drops the Delta, will increase, showing. Us that, there's a greater likelihood of the stock. Being. Put, to that investor, the. Short vertical put, it's, kind of more neutral, doesn't really, change as. Much the. Volatility. Over on this side volatility. V. I'm going to say volatility. Negative. Volatility. Negative, because of volatility, expanded. And you. Had already sold those options, they, become, more expensive. To. Buy back, that. Would not be good for short puts with, a short put vertical this. Is kind of again for volatility, we, would say more neutral, both.
All Label, t for. Theta, both, are positive and, if, we kind of look and said well which one is more which. One clucks potentially, more from time well, since we're just selling. We. Would actually say the, short, put is who, really collecting, a higher credit. Relative. To the short put vertical okay. So. Here's the deal when. An investor. Sells, a put the. Idea, is they're more confident. In the direction, of the. Trend of the stock and, they're. Probably not as fearful, in terms. Of volatility. Expanding. Okay. Number two, if. The, investor, actually does a short put vertical they're. Bullish, on the stock their. New triplet bullish on the stock but, they're thinking you know what I'm, a little, bit or concern, that volatility. Might, expand, now, hold on go back to the learning outcome we, want to be able to see the similarities. And the differences between, short, puts and short put vertical and I. Want you to be able to see when you consider both that's what we're just talking about right now, if you take a look at this what I want to do is I want to go back to the table real quick I don't, want to look and see if there's anything, that we missed, is. There anything we missed. There, and. Let me just kind of go back and see if there's anything that we missed oh maybe. Not, but. If we take actually a look at this I just want to see okay. Got that I've. Got some questions to questions, they're all address on just a sec but. Is there anything, that we missed in terms of the similarity and. The, differences, okay, I think, maybe one thing that I'm also seeing in the chat right now that I that I think we need a state, when. You do a short put. Compared. To the short put vertical the. Difference, in buying, power okay. The difference in buying power I think, the second thing I'm actually seeing that we could state is also. From the standpoint that, if, there's up from. The risk management. Standpoint, the. Short, put vertical being, more. Still. Has risk but, not as much risk as selling. A put, so we would we would include, that in that list okay. Now, good morning - good evening Troy, now, I just real quick when I come back so let's kind of take a look at this now this is a talk about lists let's, look at some examples, now, what I'm going to start with maybe a stock, do you guys have never heard of before and. I've. Kind of wearing, some. Pants. That kind, of maybe feel a little, close to. The example, but they're not quite okay. Now, the. Stock I'm going to look at is Lulu now the way we with the investor, picks short puts or short. Put verticals. Okay. We're. Looking for a neutral to, a bullish trend I think, we could say both on that okay, if we're.
Looking To be the seller of the option. We're, probably looking for volatility, be higher than lower right. Because. We're looking at the premium now. The example, that we're going to take a look at it Lance, good point I think we mentioned that but it's not bad to restrain, a. So, what I'm gonna do is gonna go to Lulu and in. The current market the one thing I want us to recognize, and I really want you to not just look at the numbers but know what, they mean, so when, we look at let's say Lulu coming, up in just a little bit there's earnings, and I'm. Fully, aware, of this okay, I'm doing this on purpose okay, now. What you're gonna notice is when is it coming out with learning's well let's kind of put our cursor right there it's, on the eleven so here we're on the nine so we're talking on Wednesday. And it's, after, the market, now what. Would you expect. They'll. Implied, volatility. To be again. Think it's think of it like a balloon. Right. We're coming, into the event, we. Don't know what the area is gonna be have an idea but we don't know for sure right, so, when there's that type of speculation. That implied. Volatility. Might be pretty high boy, we can see it so. If we come down to today's off some statistics, you're. Gonna see that down here you're going to see, okay. The, 52 a 52. Week IV, high 52. Week IV. Low and what. You're going to notice is if we went let's say somewhere out let's say 30, to 40 days we can look at both of these and you're, gonna see that we're right at the, 41st. Percentile. Maybe, 44th. Percentile. Somewhere. Right in there, okay now, where's, there well. If we're at the 44. Percentile. You'll, notice that we are the forty-four percent. For the implied volatility, the annualized, number, we're. Closer to the high we're. Not closer to 19 we're closer to the high and what. You're now going to see is worth the seventy-first. Percentile. Okay. Again. Closer to the high and so. Now there's two things here it's, good that it's high but. We're, that good that it's being high there's. Also, a high. Market. Maker move that. Expected. Deviation. Of the stock which by the way if, you zoom in it says. Up or, down it's, not just up don't just read what you want to hear or see, ok, up, or down so, what we're going to do is if we know that there's a volatility, event let's kind of practice. Being a little bit more conservative, let's. Practice doing maybe a short putt vertical, where.
There's, Risk. Defined. And that's a major difference right, now if, we come back let's say to the monthly option so I'm going to bring up let's say the. 17. January's. 39. Days now, let's kind of just touch upon just. Briefly, the topic, okay if. The investor, is doing, short. Puts they're selling. Puts they. Might do those where it's just a couple of days out they might even go out a hundred days out okay. What. Are the investors doing short put verticals, if they are they're. Probably, doing, these probably, 40 days or less, could. Be doing further yes, likely. Maybe not okay. The idealist short put verticals, is the. Options, really start to decay fast and faster especially when you start to get inside just. A couple days to expiration or maybe, less than two weeks inside. Until. That option, expires. So. If you go out let's say seven, days on a vertical it, is. Gonna be very. Slow. Okay. That's, why those who are selling, verticals, it tends, to be more shorter, term could be the weekly options could be those monthlies here we are with. 40 days left we're not going to go any farther in these, examples in 40 days tops, for. Our examples, now. What we're going to look at is maybe the option, that we're gonna sell, again this is that balance between higher. Probability. And, premium. Okay. So, if the investor, picks something to strikes. Out of the money, that, is going to give us the Delta of 34. Now, that option right there what you're gonna notice is we're, gonna sell, the. 220, okay. Selling. The 220, for, $8.00. And let's say 15. Cents, if we. Got somewhere, there in the middle okay, now. James. The, market, maker move is $16. Wonderful. At 2:30, and the stock goes down 16. Where. Does, that put, the, stock she's funny you should ask that question well. It's gonna get us down to 214, is that, saying that I mean how do they know really know okay. How. Do they know it's gonna go down to 214, stop how do they know it's gonna move just 16 the thing is it could go worse than that so. Let's say we want to be a little bit more careful. Here let's. Say we chose something let's say L lower Delta, for that reason and we. Pick let's say the to Tim and maybe. Somewhere, in the middle we got five ten five fifteen all right so, let's right-click on that bit right, click on it sell, and then, vertical, now, the first thing we need to need to kind of state, is why. On earth what. An investor, even do these strategies to begin with the, answer the. Stocks or these, options, or the stock. Doesn't. Have, to, move so. If I talk to my friend your friends, your friends at work your other friend your mom your dad your brother. Cousin whoever you're talking to. They're. Most like in positions, where their stocks have to move their ETFs, whatever, they got they. Have to have those stocks move now, what. James wanted to make dividends well that's four times a year typically, typically, okay, these. Type of options, they don't have to move, that's. A major difference okay. This is why it's probability-based. Now, if we take a look at this what you're going to notice is 210. 200. Members, I, uh two hundred to. Make it where there is a downside. Maximum. Loss okay. That's, huge that's the, buying, of the put to limit. The. Risk, okay. Now. If we come and take a look at this let's, look at these numbers let's. Type this in, let's. Take a look at this now. What I'm going to do is I'm going to take let's say that max profit which is 209. That's. Assuming, that the stock stays above, both. Strikes, at expiration the. Max loss. 791. So. What you're going to notice is if you take these two numbers and again think like a banker, here okay, think. Like a banker, type, in two or nine divided. By 791. And it's. 26%, you.
Might Have a certain, percentage threshold, that is for, you the. Required, rate of return that you would like to see from, a premium, perspective. Okay, you. Need to kind of know that if the number said five that might not be enough to. Put your. Capital. At risk. Okay. Now, James why is this number not higher well. Because remember we talked about moving, that strike price down that we're selling. Be. To. Try. To weather. That. Fluctuation, okay. Now, what I'm going to do in this isn't going to come back single. Order first. Triggers, seq, right. Click right on that line and say, create opposite, order now, one thing we're going to do in this case is we're going to say look if we could buy it back for. Let's say, 20. Cents. Of what it is currently, well. If we could buy it back for 20 cents of what it is currently, that's. Only 41, cents, okay. So. Again. We're trying to sell, the, option when it's high and the, goal is to buy it back when it is low and you're, now gonna see if we take a look at that you're, going, to see okay. We're, trying to make that difference, now. The big thing here, so think again think about this if, volatility. Drops. What. Happens. To the value of those options the. Sold option, will benefit, the. Bought put the, long put not. As much okay. They're. Gonna offset a little bit but. The biggest thing is we just want the stock to not move by that quote. Expected. Move okay, really. Have the stock stay up above that support. Level, because, it is a bullish trade and the, biggest thing is just to have time click away and the stock to actually continue. To hold, support, and/or move. Higher now, the one thing that I think is very important, is always be thinking in your mind when. You sell an option, there's. That pending, obligation. To buy the stock, at the strike price that. You sold it for and the, big thing to remember there, is that any time not. Just an expiration, okay. Now. What you're going to notice is they're gonna say does. This account, have some money set aside. To. Buy that stock at the strike price and, they're.
Also Setting, aside the max loss just, making sure that the, account, has sufficient. Resources, to. Whether that loss. Now. What you're going to notice is since we have two options here 65. Cents a piece times, two we, get to a dollar 30 all right now. What I'm going to do is going to go ahead and say let's. Put that right there in the section of verticals. There. We go we're gonna come that section just a moment send. The order now. What I want to do is I want to kind of take a quick timeout and let's. Take a look and see if there's any, questions. Okay, so, Troy, says selling the 220, put not. Let. Me just go back and verify that so Troy says hey you're selling the 220, I went. Back on the monitor page, and. Monitor. Page and what, you'll notice right there we're checking which, ones we're selling. Okay. So, we're selling, the higher, strike, and we're, buying the lower strike, so we, just wanted, to verify that. The. Initial, one we looked at was 220, but, we said just to make sure maybe, we're giving it some breathing room we, went to the lower strike, and, it. Is, correct, 210, and the 200s, okay, so we're. Good on that yes, repeat, remember, what, we said earlier, loulou. Does have earnings okay. It's on wait excuse, me it's on Wednesday. After. The market and that implied. Volatility, or the IV percentile, was, about 71%. Now, some of these ones we're gonna look at in just a moment what, you'll find out is they, don't have an implied volatility, that high now, what I'm going to do is let's take a look at another one just real quick now for. Some of you that are living let's say in the Illinois, area, okay, I'm. Gonna choose the company, John, Deere. Now. John, Deere is actually one that is maybe now we're gonna talk about different, now the first one we talked about was something that was going up op op op op op right, like. Lulu a 45. Degree angle that's, kind of what it looked like and then. What you're going to take a look at us when we take a look at let's say John Deere, it's, really had a pullback.
But. The pullback has, really gone down, to, this. Kind of old, area. Of, support. Okay, so. This is probably more of your classic, where the stock has been pounded, down it falls. Down to a horizontal support, perhaps has a divergence. Perhaps, not all the time but. Then maybe all of a sudden we're starting to kind of see perhaps maybe. Where these lines are starting to cross over and maybe you want to take, a shot. At. Buying the stock at that, strike price or maybe, near, that strike price so. First thing what I'm going to show is when we go back to let's say John Deere let's, take a quick look at let's say what the implied volatility, is now. Remember. Because, of where the VIX is in the market, okay, and today, it got down to 12 didn't close there we talked about that the, IV, percentile. Is at, 11 okay. Now here's the deal, put. Your banker hat on okay. You. Get your capital for, 2% but. The people that want to borrow your capital, will. Only give, you are willing to pay you 1%. Well. You might not choose, to lend your capital, you, might just sit, on your, capital until, you. Can get a rate of return that is higher than your cost of, capital. That. Shouldn't be too hard to understand now. What you're gonna notice is if you take a look at the colonel percentile, so. Many stocks in the market their. Current, implied volatility, is very. Low, in, terms. Of the range and we're. At the 11th. Percentile. This. Is where we need to be careful because this. Is what what can happen is it can revert, to. Its mean so, what I mean by that and I'm just going to state this quickly if. 47, was, the high and, low. Was, 20, okay. And right. Now let's say if we went out let's say 40 days we're, at 22, the. Idea is if we're in the lower end, if this is plotting, implied volatility, we're cly closer, to the low, the. Idea, is that we could revert, back, to, the middle, okay. And, there's. A problem with that because. If the implied volatility, reverted. Let's say to the middle range was I don't know what, 32, if we. Sell an option, today and the. Volatility. Increases, oh. That. Would it be awesome for the person who hadn't sold it yet but. That's the problem we'd, already sold it so, if the investor, sells that put an implied. Volatility. Reverts. To the average. Or the middle. The. Problem, is those options become more expensive when we lose on, volatility. Which. Is like air, okay. Maybe. It doesn't even directionally, go down but. Just the volatility, goes up be careful of that now. The one thing I want to kind of bring out and I'm gonna do this example so I stated with the racecar but. I'm gonna look at the stock and where it is in terms of its falling, down to the horizontal support sitting, on that that, level and I'm, going to practice. Selling. The, put okay. And I'm gonna choke really, kind of look at some different strikes, and I'm gonna kind of I'm doing this one on purpose okay so. First thing when the investor, sells a put, and I'm choosing that strategy, right now okay, when. The implied volatility, is low and, that implied. Volatility, is at 23, what. You're going to notice is if we sell a strike, that, has a 39. Delta, stating. 39. Percent chance of stock closes one penny below that 61. Percent chance of closes above that that's, the odds are, right now now, remember, odds change. The. Georgia, Bulldogs, on Saturday, probably, thought. Now. Troy you're not allowed to say anything I'm just joking with you I'm just waiting for you to come in here. Georgia. Bulldogs, on Saturday probably thought there was an 80%, chance of victory and. Until. Those LSU, Tigers, said. Let me tell you about Delta son oh. It's. So funny for the winning team my, team's not LSU, okay but it's. Still funny now, if we take a look at this now don't worry my team's not even in a ball so yeah. You could tell where I'm at now if we take a look at this the Delta is 39 Delta. 26, and now, what you're going to see in this case is there's the RO ours okay. Now. One, thing what I want to just make sure can. Anyone tell me where they're getting that ro are number one in the world does. That mean, what. Does it mean okay. Now. This kind of comes back to you so let's go back to the board just real quick can anyone tell me what this ro R means, that. Number right there where are they getting that number why does it matter okay.
So. If we take one out, that RR it's. Really showing us I'm going to circle these two it's. Saying if we sold that the. 165. We're. Getting three dollars and 50 cent premium, divide. That back into, the, current stock price that. Current stock prices, let's say about 169, 70. Wow. Sorry. 167. 90. And what. You'll notice is it really comes out to be about 2.2. Percent, you're. Trying to make sure are you getting paid enough to, tie, up your capital, you're, getting paid a higher rate of return that you maybe you need, that. Second, number only being, 204, that's the option premium. Divided. By the current stock price here, we go and you're, going to see, 167. And that's, only giving us about 1.3, 2%. So. You might have certain numbers were you saying I'm gonna kind of give, one right now James whenever I sell but I like. To see a 1.5%. Premium or higher if it, doesn't have that you. Might choose to go farther, out. In time or. You, might choose to maybe pick a higher, strike. So. Don't just I think the thing to be careful of here is don't just start. Selling puts and selling puts I want you to think of, reward. Risk, risk. Reward right. The. Nice thing about percentages. Whether we're looking at something like Tesla or Google's or apples the, percentages. Are their percentages, and. By. The way the higher the numbers, does not always mean, better that, does not mean that but. There's a certain benchmark, you're probably looking at now in this, example what I'm going to do I'm. Going to choose to sell a strike, closer. To, the current price level, meaning. The 165. And if, we take a look at this we're going to look at the 165. We're. Gonna move the mid right, there okay, the, 355. And then. What we're going to change that to a single, order first. Triggers, seq. When. We do that we're going to have the buyback, in place, meaning. If that if we sell the option and the option, were to decline, in value if it were, could. It be could, it buy it back, when. I'm not even there okay, now. Let's, kind of set some numbers we showed an 80%. Example, before, let's. Set, let's say a. 65, percent profit. Remember. Think of this like a pie okay if if someone. Ate 65, percent of a smaller pie, that. Would only leave 35, percent left so. If we take. 355. Times. Point. Three five only. Leaving 35 percent left that. Would be a dollar. Twenty. Four now. This kind of brings out one last point I want to bring out when. We look at a short put, or we. Let's, say a short, put vertical, which. One. Can. Get to that fifty. Or sixty. Five, percent of the profit. Sooner. That's a question which. One can. The short put vertical get, to a fifty, a 65%. Sooner. Or. Is it the short put vertical, that can which one isn't you, tell me now remember you got a 50/50, shot, to. Hit this okay. Good. Call good. Ray, all. Right now now. What I'm going to do is I'm going to take a look at this now we want to make an assumption if we, said that the capital, that could be invested, was. $20,000. Assuming. That. We get put the hundred shares put means, so. For example, if. I put this to you and I said you hold it now well. Now in your hand you're holding a, hundred. Shares a stock at a, hundred, and sixty-five, dollars that's. Sixteen thousand, five hundred dollars. Think. Of what that obligation, means okay, now, if we take a look at this we're. Gonna sell. One of these now. What you're going to look at is confirm and send there's. The max profit, there's. The max loss this is making the assumption. The stock goes all the way down to zero and here's. The major difference, between, the selling the put and the short put vertical the, selling, of the put requires. More capital, being set aside because. We're buying the stock potentially.
At. 165. And the, risk is all the way down to, where. Can. You hear me right it's all the way down to zero it's. All the way down to zero because, we don't have any ball put below us that's, giving, us a floor that's. A major difference and, that's. Why that buying power is. Higher. They're, saying if you want to play that, strategy, need. To put up more capital, for that risk, that potential. Obligation, okay. I'm, gonna go ahead and put that two short putts right here and now. We're gonna go ahead and say not member also it. So the transaction, fee is sixty five cents okay, because. We're only selling one option, not to that's. What we wanted we're gonna go ahead and say send that order right there all right now, what I want to do is I just wanted before, we can look at some management examples, and your. Questions. I just, want to kind of just take a look at a couple stocks that. May be and, I want to kind of talk about them, from the point of view of the. Style, okay. So, what you'll notice is cucum has been a stock that some technicians, have talked about right you, have a stock that's kind of come down to a support, area you. Have really a stock kind of getting hammered to the downside, and then, what you're gonna kind of notice is this is something where it broke out down here, and it's. Kind of getting a bounce. Okay. So number, think about the, first one we talked about Lulu was an example of an earnings trade right the second example was John Deere the, third example we might look at is let's say something like you calm the. Other one we might bring out is maybe a stock, like. Let's say Home, Depot, something. Where you. Kind of have this longer-term support. Level longer-term. Support. Level and it's just been, pushed. Down, to. There's longer-term support, level and could, this stock maybe try to bounce back up first. We're in Lulu second, one. We. Actually talked about with John Deere third one was Q column fourth one Home, Depot then. Last two that I want to kind of just kind of put in front of the eyeballs here is maybe. Like another stock like Starbucks, doesn't, have the biggest premiums, but. From the perspective, of kind of doing that perhaps a. Basing. Pattern, and you're. Gonna see that this stock is maybe truck up easy there with the marker okay, you're, gonna see that right, there this, is one that's maybe trying, to reverse and get. Above, that. Area of resistance right. There and maybe, perhaps, try. To reverse now here's the thing when. I looked at the example of Q comes on deer in probably Starbucks, and. I'll mention one more, these might be some examples that, maybe are not as. Correlated. To the market, so it'd be interesting to see how, they hold up if volatility. Were to expand the, other one I kind of make want to make mention of just real quick before we talk about management, is. Microchip. Technology. This. Is another one where you kind of had multiple. Touches touch touch. Broke. Out and faded, and then, we're back at it again so this stock if we take a look at let's say what that weekly. Chart looks like three-year weekly this, is what we're kind of seeing is and what, you're going to notice is that diagonal.
Support. And the, horizontal, right, there and you're. Gonna see that this kind of looks like a V, pattern, with. On the right hand side, okay. Right. Hand side kind. Of more like a pro. Long. Handle. So. Awkward. That, the bottom, is so vide it's not like a bowl or a cup its vide and on, the right hand side it's been prolonged, so, this one might be an example where maybe investors, might look to practice, selling. Plots or short put verticals, okay now. What I'm going to do is let's kind of talk about here we got the next 25 minutes to. Really talk about your questions. But. I'm going to come to for example these. Examples, of short. Put verticals, here and let's let's, take a quick look and I want to kind of add something real quick as we. Talked about a couple of these now. If I, take a look at this I'm. Just gonna add Delta and theta okay, I just, want to get. These headings, here, okay. Usually. They're there but they're not so. Let's kind of talk about these so first off let's go. To bring up what we're seeing here so and again what we're trying to do now is okay imagine we understand the structure what they are the, similarities, and difference is we, have the positions, on they, play, out over time now. What, okay, well. So first off one of the examples. We have is ba ba okay, and let's. Kind of pull this up the. Stock is ba ba ba, ba, and what. We're going to do is we're just going to go ahead, and take, this out we don't even want to look at it that's. The option that we bought so, in a short part vertical, this right here, we're. Just gonna take it out I like, to think about the long. Put, is there, rear view mirror, of this train, we. Don't care about the wavery of there why, because. We're in a bullish trait we're, looking out the windshield, the. Windshield, part of the trade is the 180, point, that's. The one that we sold if. This, trade, is gonna do well at all but, tabes I want to see that long put no, we're, not able to see it right now no not. Going to look at it it confuses, people if. This, position has made money it's. Because of what this one did they're, short put the short put was sold for 395. I like. To think about this 395. Is maybe, a beaker. Imagine. It was just full like a premium. And that. Premium, was, $3.95. What do we want that premium, to do we. Want the premium to drop down, and, now, what you're going to notice is that little beaker there only, has. 46. Cents, left to make now. I don't know what percentages. That is but I think that's greater than 10%, but. If we sold it for let's say four let's. Just say four and the, option, now has gone to 46, cents I think, that's, about, ninety. Percent. Premium. Okay. About, ninety, percent now. You this. The, hardest thing for people to do is to make a decision okay, make. A decision. So. Think. How. Do you really know like when. The consider accident well we know if you actually exit, a fifty percent there's, a greater likelihood of you getting 50, percent than, 65, percent there's. A higher likelihood of you getting 65, percent than 80 and a greater likelihood of you getting 80 percent, than a hundred percent so, think, of let's say getting fifty percent is a single. Okay. If. You actually hit let's say 80 percent think, of a triple if you, got a hot, percent, of the premium, it's. Like a homerun. Grand, Slam, but. Statistically. Those. Don't happen is frequently. So. You have to ask yourself, do you want to trade things that are more infrequent. Or more. Frequent. If you're, saying I want to see more frequent you, might pick profits, of fifty to sixty five percent if. You say James I like that double, triple percentage-wise. You. Might look at 65. To 80 percent premium, now. James you promised me you'd show me that other one I can't, stay any more show, me well notice, right now is that long put, has lost money so. If the stock goes up the poet loses. Value but. What the investor, is really getting is the net of these two now, I know what you're thinking jeez if I would have known ahead of time I would have never bought the foot I know. Where you're going with that so. The biggest thing is the, investor, is really making the net of those two. $245. Okay. So. What you'll notice is now the investor, could just buy that option, back I'm going to put by that and the answer is they can also sell, that and they can exit, the entire, trade, take. That potential. $245. And shut. That position, down they. Thought that stock could continue to the upside they, might even consider perhaps. Rolling. The. Position. Let's take a look at Bob and lo what it looks like on the chart so the reason why this position was done is we. Saw this making, 8 on the weekly chart a. Symmetrical. Triangle. Breakout. Okay. It broke out ran. To the upside got a little piece of the move so far not. Saying the moves done but. If we take a look at this and we just want to practice let's say exiting, a short put all, we have to do is hold the shift button down and, then.
Right Click and, then. Create, the closing, order right there and. Say buy that back and. Remember when we got in the. Trade, was a credit. Okay. So. Now when we leave. We're. Buying it back for, a debit. There is some, of the credit, that we're. Giving, back some, of the credit, initially. Received. I know, it's it, just chokes. Me up emotionally to give anything back I understand, but. We're saying look have. Potentially. 90%. In the hand willing. To give back some, of that money that's, 17. Cents. To. Say could we maybe look to set. Up a new position and just and. Or just take the profits, okay, so. If we go confirm, and send now. What you're going to notice is it's just going to close it down transaction. Fee there 260. Okay. We're exiting, those the vertical, and now, if we go ahead and say send that vertical, that, position. Is gone so this little move. Right here in the trend right there, about. Two hundred forty-five dollars in. That short vertical put, if we, can exit, tomorrow, for. About that seventeen cents okay. Now. Are. There, any questions in, terms of the management, of, the, verticals, and I said maybe look at those let's take the next one and I'm going to kind of choose one here that maybe is not gone. Maybe. That's. Not the one we're looking at or need to look at let me take let's say let's. Look at love nope that's a call let's. Take a look at this one okay, now. One of those that's in here is also. And again don't. Even look at the long put I know it. It's. Habit, right you're, gonna think. Of the long put as the. Rearview mirror you're. Driving your car right, look. Forward look, at the bullets position, has the bullish position, made or lost money, well, the bullish position, has made. Some. Money when I say made it, son realized okay, now what. You're going to notice is so that tells us that the, trend has been pretty, much somewhat. Flat. Somewhat. Bullish if that. Was not so this would not even be up. Second. When we do take a look at the long put the long put is actually lost or unreal. I three. Hundred and five dollars so. This position right now is down, about net. $60. Now, this kind of begs the question, now. We're getting, closer, and closer to expiration at. What, point. Do. You bail. Right. Well, I like to kind of think about this I want you to imagine that you light a candle this is a, candle, you, light the candle, and the. Longer, that you hold on to the short put vertical all, of a sudden. What. The wick that was we're up here all those dozens dropped down to here the, closer and closer that we hold on it's burning, burning burning, burning and, now we're. Starting, to feel, some. Of the heat on our, index, finger and thumb, now. This, is not a tough man or tough woman contest. We're. Not trying to hurt ourselves but. There does become a certain, point where we're now feeling. The heat and if. That comes any closer we. Don't have a lot of time to. See if they can bounce back up because. The heat is very close to the expiration, our fingers. Okay. Visual. Picture that don't ever forget it now. Here's the thing as I see sometimes a lot of Messrs they, hold on to those positions until. The very last hour, you need to understand there's a lot of risk with that it's, all or nothing, at that point okay, now. If we take a look at this if we made a decision, and said look if we, get inside 10 days expiration. I'm. Going to take whatever is there or take whatever loss that's there wonder. If you said at five days to expiration I'm, going to take whatever gain is there or whatever loss is there why. Would an investor, do that because. They don't want to get so close. To. Where there's nothing, they can really do, besides. Exit. Or be put the shares or roll. The position, if, you wait all the way to the end it's, that, position, is really being dealt to you and you, don't, have a ton of choices, exit. Potentially. Roll. Okay. Or just. Accept. Assignment. Of the stocke okay. Now. I don't, know about you but, when I light a candle, historically. I don't, like to hold on to them well, I'm starting to feel like my fingers are being burnt I just, don't like that and.
If You are saying up James, I'm in that camp then. You might say ten days for you if you say James I like to take a little bit more risk you might say hypothetically. Five days there, is no magic. Number okay. You, might say seven to ten days I want to look to exit inside. Three to five days, just. Kind of use those as our benchmark, examples, you. Might look at that and say by that time, I want, exit, profit. Or loss now. Let's say that tomorrow that. This. Position, is now 10 days, so. Let's use that 7, to 10 day window and, now. All of a sudden. We. Haven't really made anything let's say that loss was. $60.00. Down, now. If we go look at this position we ask ourselves why. Would, an investor, role, the, position. Well. They would roll the position, typically. If they. Thought, that. Stock. Was. Continued. To be neutral. Or. Bullish. Now. If, they don't think that stock is gonna be neutral, bullish, they. Might just say I don't want, to stay in the position so. When we look at this position right now ran to the upside pullback, and it's struggling right, around this 300, or so okay, and if, you're saying James I don't like that upper. Shadow right. Near the moving average the, bearish, engulfing and, the potential, risk I'm gonna be checking back or, checking, back to you here you might say James I want to walk away with. That small, potential, loss assuming, we get filled with the current prices and maybe. Avoid that pullback, so, you might say I'm going to exit. The position and, try. To maybe look and see if it can't pull, back to. Maybe. Some lower levels, and, see if you can get a better entry, on it but, the initial position. Didn't. Work, now. This. Is something that's just interesting. Okay, you. Could take a look at some very very. Very, good football. Teams basically any sports teams you want although, their, plays. Don't. Work. Sometimes. Their trades go bust, okay. I won't. Get any sports team it makes me want to get, emotional too I won't even tell you my team is but. The biggest thing in training it's very similar that when. The bank loans money, the clients, or customers, not. Every, customer, pays them back I know you're, shocked, up-up, tell you, so. We just need to have a realistic. Understanding. Not. All of them are gonna work even. If they're high probability. Okay now. What you're going to notice is if we go to create. Closing order by. We're. Just saying we're gonna buy this short put back sell. The put and now. What you're gonna see is we're buying that option back for let's say. 175. Now. If. We go ahead and actually go to confirm, and send and send, that order we're. Gonna go ahead and November. There's, the transaction. Fee and if. That's what we want to do we're going to go ahead and send. That order okay, so, when we look at let's say this short vertical, split, section, and, I'll just kind of highlight this area most. These traits are doing fine Bobbo will come off the. Example. Netflix will come off, love. Is a ship. We. Can tell which ones are bullish or bearish bullish. Bullish. Bullish. Bullish. Okay. That. Right there with the checkmark, bearish. Bearish. So. We have four, bullish. Positions, and two. Bearish ones we, know they're bears because. They're, negative. Delta, so. If Netflix, and, imbaba come off we're. Really going to have really two, bolas positions, and two, bears persistence, we're a little bit more balanced right now okay, now. What. I'm going to do is let's take a look at one of the examples, and one of you had questions on. Nvidia, let's, take a look at a video so, Nvidia has been a stock that's been moving to the upside, had. A little snag, here, stock. Runs up pops. To 221. Stock. Goes down, falls. Down to 200, and it's amazing, out of this stock can move 10%, and it's only like been a couple days stock. Runs back up kind. Of hitting its head a little bit on that moving average the, 20-day. Moving average, and now, what you're kind of seeing it's it's kind of level. Here now. Here's the deal what. Are we watching are we watching the chart, or are we managing. The. Position, oh the. Answer is we're managing the position, what, is it that we're managing, managing. The potential, profits, if, there are ok. Now. We're, going to go back to the monitor page let's take a look at what we see and I'm, going to put Delta and. Theta. Back in in that. Section. I'm. Just going to put those back in the call and now. What you're going to notice is on that as we put those in there. We go let's. Take a good look so the option, was sold for. 797. 86, the. Mark, value. Now, is. 395. Ok, so, what we're looking at is how much have we made. $391. Unrealized. Relative. To the.
Maximum. Gain, well. We've. Made about we, round up about. 50%. Of. The. Maximum gain, not again I know, not everyone's a sports person I'm, not, a baseball player either but, I understand, what. A single is get, to the first base that's it okay if. The investor, gets about 50%, let's just kind of call, that a single, this. Is a single. Single. Is way more likely than a double think, of a double a 65, percent 80%. Triple. Okay just follow me and, if you get greater than 80 percent, you've. Hit the ball, back, back, and you really, got. A nice, trade. It. Happens, but, just not as frequent okay now. How do you really know what's realistic for you over. Time you're gonna see examples. Not you can't just look at two stocks and say, that's the sample size you, need 10, 15. 20. Examples to. Really see what might be more realistic, in overtime, in the market as well so. If we said James I'm gonna try to go for more base hits, well. If, we said you know what I'm gonna try to take this down all. We'd have to do is right-click create, closing, order and now. What you're going to notice is let's say by that option, back that. Mid, price is about 395. Now. This is not I don't, think based, on what we saw with the VIX. Bouncing. Off that support, and maybe. Looking, and seeing in the, short put section, could. We exit, some of those positions that are. Negative. Vega, okay. I think. That would be maybe something, that an investor might want to look at to. Say look are there some positions, that you might have 50. 65, 80 % etc, gains in that, you're not just exiting. Or rolling, those positions okay, now. If we say confirm. And send that and then, buy the option, back there's that 65, cent transaction, fee and now, what you're going to notice is if we buy that back send. That order now, I want you to think about something for just a sec what. Is the real purpose, of a. Short put vertical and, a. Short put for. A stock. Investor. Well. I want you to kind of think about this a short.
Put Could, be really the incubator. Or the potential. Inventory. That. The investor, might, later. On have. In their stock portfolio, okay. The. Short vertical puts, same. Thing those. Might be the, potential. Stocks, that. They might own so. Whether you're doing either strategy. These. Might be stocks that might land up in your. Stock, portfolio. But. Maybe on the way until that happens, Singh. If we can't try to maybe grab. Some income. As a, maybe, from. The premiums, okay. So. Remember the premiums others not free there's obligation, are tied to that in the form of a string okay. Of buying. The stock at the strike price that. We sell okay. Now. So. What. We did today is we talked about short. Put verticals, in short. Puts, based. Upon what we're seeing in the current market and I've said this for two weeks, the. Investor, might be a little concerned, that a volatility, expands. Selling. Puts might be a more aggressive strategy, based. Upon that investors, assumption, that volatility. Could expand, I don't, think that's changed okay. The. Investor, might be more looking at let's say short, put verticals, as still. A way to try to capture premium. But. Defining. That. Risk we, said the difference between the short put vertical and the. Short put is the, short put vertical tends to be shorter, in time and you, have to hold that closer to expiration, to. Squeeze, or to try to get 50, 65 80 percent okay, where. The short put that move that gain could be made sooner. And the. Investor when they sell puts they might sell farther, out in time. Okay. And so, they're not so close to the expiration okay. So, we talked about examples, of both we, talked about hdq. Calm de. MCH. P Starbucks. And Lulu. We. Also know talked about management. Of both of these okay. What. I want to make sure is that how, are you now practicing. What. Has been discussed, the, practices, is key okay. One. Thing I'm on and make mention to is make. Sure you go out and actually watch the option, option. Course material, read that course material that has embedded videos feel. Free to also on Wednesdays watch, Mike flat as he talks about high. Probability. Based strategies. These are be a great support, to. What we discuss here tonight okay, if. Your team won this weekend, I absolutely congratulate. You. All. Right it's always true it just always seems like it's Troy anyway, it I always, liked you.
Guys Joke with me so I like to joke with you as well so ah I want you to practice these strategies we talked about two. Of each and I. Want you to also write, down refresh. And remember, for yourself what, are some of the similarities and, the differences can. You write them down and remember, what they are okay. Practice, to short put verticals, to short puts and understand, that whether you do either or these. Could be potentially, stocks that. You might eventually, own someday so think in terms of do, you want to own those stocks so with that said I want to give you a quick reminder that in order to demonstrate the function of the platform we need to use actual symbols we did remember, that TV Ameritrade, does not make any recommendation. Determine. Suitability of any security strategy you, get to pick the stock in the strategy I also want to remind us remind, you that you could follow us on you, could like this channel, on YouTube smash, that like button you'll see that come up in your feed you, can also follow me on Twitter and James, Boyd and follow, me there and you'll see as I post things throughout the week thank. You so much for comments, and your participation, you've, been a very fun bunch and lively. Bunch here tonight so, I thank you for that so with that said stay. Tuned for a job, and nickel coming up tomorrow morning on swing. Training tomorrow morning thank you so much take care bye-bye.
2019-12-15 23:18
