Catching Falling Knives | Active Trading Strategies
well hello investors and welcome to our session here today so interesting day in the market you know it took a little bit of a gap to the downside we were fading but as we're getting closer to the close we're starting to see some strength these type of changing market conditions what would be some active strategies that would come into play we'll take a look at that right after we pop through our disclosure so let's go ahead and go through those now you want to open here to active trading strategies my name is ken rose as always it's great to be here to discuss investing in the stock market particularly in this area we look at it from from a shorter term perspective with regards to being active with our strategies this little reminder you can follow me on twitter my twitter handle is at krosc underscore tda i post things on twitter related to this area as well as other areas of investing looks like we have bart armstrong with us here in the chat window great to have our good friend barb here with us today very knowledgeable in this area as well as many others investigate encourage you to follow barb on twitter as well i'm sure she'd be more happy to send her twitter handle to you over there in the chat window in wave disclosures here today just reminder that our content is intended for educational informational purposes only it's not investment advice or recommendations of any security strategy or account type spread strategy multi-leg option strategies can't tell substantial transaction costs including multiple commissions which may impact any potential return you want to keep in mind that short options can be assigned at any time up to expiration regardless of the in the money amount and the money option has a higher risk of being assigned dirty it's important to keep that in mind because the paper money virtual trading application user here will not assign a short position only we also do do be mindful that we do use the paper money software application for educational purposes only you want to keep in mind that successful virtual trade during one time period does not guarantee successful investing of actual funds during a later time period as market conditions do change continuously there's some additional important disclosures related to futures i'll discuss those today commissions be mindful that and while this webcast does discuss technical analysis other approaches including fundamental analysis may assert very different views all investing does involve risk including risk of loss and also investors in order to demonstrate the functionality platform we need to use actual civil tower td ameritrade does not make recommendations or determine the suitability of any securities strategy for individual traders any businesses you make in your software account is solely your responsibility is what i you know looking looking at the mark a little bit earlier today when the market had kind of pulled back and was falling to the downside i thought today might be a good time to first of all review review market highlights to see where we're currently at and then discuss strategies related to falling nigel and we'll define what a falling knife is and we'll look to demonstrate a paper money trade on the thinkorswim platform in relationship to falling knives with the changing market conditions things made a little bit made things maybe maybe look a little bit different but i think we're still going to be okay following our agenda here so to do that let's go ahead and pull up thinkorswim platform here and just you know just taking a look a look at the overall market again as i indicated when i was looking at the market earlier today actually opened up and we were sliding down sliding down actually below some key support levels but as we've as we've gone further on towards the day the market has seen some strength and it has been moving up nicely it looks like we're currently trading above where we were at yesterday and we can see that on our chart right here this is this this is the resistance level that the s p 500 broke about since then the s p 500 has been testing that old resistance level of support it continued to test it today it's been going on now for for it looks like about six days so with regards to that test i guess when when someone actually looked at from a technical analysis standpoint is when are we going to break get a bounce and a break out of this resistance level or are we going to roll over and move down here and pull back one of the key aspects of the market is coming up and breaking above this resistance level we have made a higher high we pull back and we get some kind of a bounce coming off of a higher low let me be justified looking at the market more from a bullish standpoint rather than a bearish standpoint it would have a higher high and a higher low which does constitute the beginning parts of an uptrend that's the s p 500 coming over here and taking a look at the nasdaq see the same type of thing on the nasdaq we broke above this key resistance level we've been testing it as well on the nasdaq it's been a little bit more it's been a little bit weaker because we have actually broken down and closed below it on a couple of days today we were well blown but now we're moving up it looks like we could be closing above it so again same same type of a situation with the nasdaq would be we'd be looking to see if we if we can break above it this has also given us a little bit of an idea that you know currently with regards to overall market conditions it appears that growth stocks and perhaps a high technology area isn't as strong as the market overall is represented by the s p 500 now one area that is stronger as the overall as the overall one area that is stronger in relationship to the overall market as represented by the s p 500 would be the small cap area one of the reasons for that is small cap stocks don't tend to have exposure to what's going on on a international level so take a look at those we'll pull the russell let's go ahead and do that we'll pull the russell right here and you can see in looking at well actually this is not the russell but we'll shift gears here real quick so we can look at the russell right here on the russell you can see that we are in more in a up trending channel where we we we broke above this resistance level we came back to it we bounced off of it and now we're moving up and we're hugging the upper part of this channel here today and we earlier today we opened up we slid down here so we actually had a bearish golfing pattern but now we've come back above that now and we're challenging the 50 period moving average a little bit more bullishness with regards to what we're seeing here in relationship to the russell i want to come over here to see what sectors are doing well we can see that energy is doing well information technology industrial healthcare financials the materials sector communication services all of these are up with regards to those sectors that are down consumer staples is down utilities is down and real estate is down it's also it's also a little bit surprising to see consumer discretionary down here one of the reasons i say that is because consumer discretionary has been the strongest sector if you look at overall performance going going back for about the last week it's it's it's been a little bit of a toss-up between consumer discretionary and energy but overall i would think i'm thinking that i think that i think the consumer discretionary has been the strongest one backwards so we could possibly be just seeing possibly some nervousness and maybe some profit taking in the consumer discretionary area it's also important to keep in mind when you have utilities and consumer staples underperforming the market that basically does represent the word that we are that we are more of a market where we're looking at a risk on type of situation investors are willing to to accept some risk to accept some risk to get in the market because utilities and consumer staples is usually somewhat of a an area where investors go when they're concerned about what's going on with the market see investors moving out of those and some of these other sectors moving up that's more of a risk on type of situation that's basically what we're seeing currently as we're moving towards the close but this has been a volatile market we know things can change relatively quickly well having said that then let's look at a let's look at a couple of example stocks here and um i'm going to come over here for just a second and why don't we take a look at there's a russell there and there's the same wrestle there but i'm going to shift gears here let's pop an example of a star that is showing um what some would consider to be a falling knife type of a technical pattern to do that we're going to bring up a t and t and when we talk about a falling knife type of a situation the first thing we're looking for is we're looking for a stock that is currently in an uptrend and we can see here with regards to att we moved up here actually i'm going to change my drawing tool around here just to touch you can see that we moved up here we created this peak right here then we pulled down from that peak then we moved up here and we created this peak down here and we pulled down here right now we're pulling down here but we really haven't gotten a a visually impressive bounce at this time so when you have a stock that's in an uptrend like this it's going up and it's making higher highs and higher levels as it's pulling down right here that point that right there folks that is sometimes referred to as a falling knife i'm just going to abbreviate things here okay that's referred to as a falling knife now once you get the bounds like right here if we come over here and take a look right here right here that is a falling knife right there once you get the balance where we bounce we started to head up right here then which you have looking at this little area right here and what you have right there is you have a sometimes referred to as a bull flag and again i'm going to abbreviate things they both like balance so can you can you make a trade when you're moving down like this and you haven't got and you have not gotten a bounce yet well you can and there's there's a couple ways to do it one as you can see if the underlying security is approaching a previous resistance level if it's approaching or is at a previous resistance level and what you can do investors is you can assume you can basically make the assumption that the underlying stock is going to find support at that previous resistance level and put together a trade related to that i would say one of the more one of the more commonly used trades in that type of situation would be a short put vertical where you set up your short put significantly below that resistance level planning for it to hold up the support there there are there are two advantages that one is typically it's not always the case but typically as underlying security is moving down implied volatility is moving out if you're an option trader and you have an option strategy related to that for example a shortcut vertical which gets a significant part of its return on risk from selling an option by entering that trade as implied volatility is moving up you tend to get a healthier or a fatter premium which is sometimes referred to that is one advantage a second a second advantage is that by entering that trade as it's moving down towards that that support level when you're setting up a shortcut vertical typically you can go further down below that below that theoretical support level than if you wait for a bounce if you wait for the bounce typically when you set up your shortcut vertical in order to have a return on risk that's acceptable to you you're going to have to go a little bit higher with regard with regards to set it with regard to setting that up it's going to put you closer to that support level which is which is sometimes considered to be in it to be an area of protection however we do want to keep in mind that in entering in that type of a trade under those circumstances where you have that falling by there's no guarantee that that support level is going to hold up so the real risk here is by not waiting for the actual bounds the underlying stock could go through that support level and put your trade in into some difficulty so that so that would be one way a second way and and and this will basically be the way that we'll be approaching here today is you can use contingent orders you can identify an underlying security that has moved down it hasn't quite gotten that bounce yet and you're looking at it and thinking you know when it does get that bounce when it starts to get that bounce you're not the only investor looking at individual stock when it starts to get that bounce and it moves up and maybe it's currently trading above the high the low day then you have investors are looking at that and they possibly can start moving into that stock and push it up and push it up significantly by the time you go in and you're able to look at you may you may see a large portion of that move has already occurred what you can do is you can use a conditional order to take you into the trade as as you're actually getting a balance and take you in the trade taken to take you into the trade at that point as you as you are getting the bounce now the risk related to that is we don't know if the bounce will hold there's a situation where it's bouncing it's moving above and it's going above the high the low day but by not waiting until the end of the trading day that that same underlying that same underlying security that you now have a position on could actually fade and start and start to roll over and move to the downside but we're going to play the party investor that is okay with that type of a risk and is going to position size around that type of a risk so looking at that then as it relates here to t let's take our our drawings off of here so that we can have access to our chart i'm going to come over here so this this is the pull down right here i'm just looking for the low day right here and i'm going to i'm gonna look at um you know we actually we actually had some positive energy yesterday we didn't get a close above the high the low day i'm gonna be okay we're gonna play the part of the investment that's okay with us trading just because the strength we're seeing today we're going to be okay trading above yesterday's high i don't think it's technically lower let's just let's double check i'm going to come over here a couple days i'm going to zoom in on this a little bit closer folks so that you can see it a little bit better i'm sure it's difficult hopefully that's a little cleaner so we're coming down here i'm just going to check this low right here on this day it looks like that low was at 20 80. and yesterday's low was at 2083 so there's only a three cent difference i'm going to be okay putting in a contingent order to take a trade based on trading above the high of yesterday's candlestick and those two candlesticks we had between yesterday and the day before that's actually giving us what's called a bullish harami that's where you have an underlying security let me just map this out here for you a little bit just to kind of give you an idea of what to look for under certain types of situations that's where you have a an underlying security and you have a candlestick like this that is red and then that candlestick that is red completely engulfs the body of the next day and it looks like that's what we have right here is that bullish rami right there it looks like we're getting a follow-through from that holy swami and the completion of that fault of the bullish rami would be a close above the high of this candlestick right here that's that's what we're looking at here for today so with that in mind then how far then investment when you know when we're when we're looking at when we're looking at an underlying security going to a certain price point we're thinking okay i want it to be above the high of the previous candlestick but how about but how far above that high if we're looking at a stock that's currently trading at 100 and we enter in a trade with that stock at five cents above the height of that low day that's going to be a very very small percentage of the price of the underlying stock and it may not even be meaningful on the on the other hand if we're if we're trading a ten dollar stock and we're looking at the underlying price being being say five or ten cents above the high low data then that's going to be that's going to be a higher percentage so a tool that we can use when we are evaluating these things is called the average true range the average true range is an oscillator it's giving us an idea or a measurement of how of the range of the stock on a day by day basis in other words the distance between the highs and the lows on a day by day basis going going back 14 periods now the average shoe range also takes into consideration gaps if you're looking at gaps and saying a gap is a a gap is going to kind of screw this thing up actually don't worry about that because the calculation does include those gaps and does take those into consideration so what what we'll do here today is we'll play the part of the investor who wants the stock to be trading above the high of the previous candlestick or or above the high the low day either one you know which whichever way the investor goes wants to be trading above that by 10 of the average true range the nice thing about that is that's something that that is repeatable on stock after stock after stock it's also something that you're using the actual volatility underlying stock to tie into when you're going to be getting a trigger with regards to potential entry so with that then on my chart down here i have average true range this is available to you in order to add that to the chart you just come up here and click on studies right here let me just a couple of there we go studies come down here and choose edit studies and over here under studies you can just type in atr and there it is right there there's your average true range if you want a little bit more about what's on the atr just come over here get your question point right here and that should come out there sometimes i don't get those coming out here when i'm when i'm doing a webcast i think it's just one of those little glitches but typically when you hit the question mark right there you'll get a little bit of an explanation i've already highlighted i've already added it over here and that's why it's currently showing on our chart so we don't need to add them but we want to see where it's currently at right now it looks like the average true range is currently at 40 it's currently at 40 cents so if i want to be 10 of the average true range above yesterday's high the average true range is currently at point four if i multiply that then by point 10 and i want to be four cents above yesterday's high that would tie in to the average true range and what was yesterday's high if i roll over this i can see that yesterday's high was yesterday's high was 2105 so if i add 4 cents to that that's going to be at 2109 so my trigger then to enter this trade is going to be at 2109. again i'm taking i'm taking the yesterday's candlestick which is very close to the to the low day it's not quite the low davids but it's very close but we did have some positive acts when you have positive action sometimes you'll be okay which is saying we want to be above the height of the previous day looking at that and then and then we're adding 10 percent of the hr to that high and we're going to use that as our entry and again that entry point or the entry trigger we're going to be using here then is going to be a 2109 so that that then brings investors to the to the trade possibilities one we could just buy the stock right you could go ahead and buy the stock because because it because this is an active trading strategies class we could just buy the stock and look to possibly just get the swing out of that stock possibly a swing up to the resistance level or we can or we could establish a target related to this you know assuming that the trend is going to continue we're actually going to swing up and we're going to create a higher high in assessing a target we could use the target of the pattern itself which would be the height of the flagpole that preceded the flag and then we add the height of the flagpole onto the breakout point that would be one way to approach it another one another way to approach it is is we could use fibonacci extensions to go ahead and and establish a target if we're going to do options and we're looking for things to go relative if we want to do for example a long vertical then perhaps we might want to go then perhaps we then perhaps we may want to set our target relative to the previous area of resistance possibly go a little bit above that maybe look to see where a fibonacci extension may be something that something of those along those lines you have a problem when you have a stock that's only trading about 21 and you're looking at possibly doing a long vertical frequently it's going to make a little bit more sense to go with something that's a little bit closer with with regards to your target that sort of fits in with the with the active trader concept as well okay it's just folks we're going along here i do want to i do want to check the uh the the chat window because there may be some questions that that i'm able to answer because i have the benefit of the platform where it may be difficult for barb to address this question does look like barb's doing a great job of addressing your questions over there see from lori can can you create a search with atr's greater than greater greater than greater than a certain value um i i would think he probably could i don't know i don't know the benefit of that but but it is something that i believe you could do it may involve it may involve writing a custom script but but yeah that's i i believe that is a possibility juanita has a great question there and and juanita's question is why are we choosing 10 of the atr that is a fantastic question well the reason we're choosing 10 of the atr is just for demonstration purposes only one i would like to have this trade set up so that it so that it actually gets filled because i think i'm going to be filling in for pat next week as well and it would be nice to be able to look back on the trade but ultimately when you're looking at these things you're trying to determine do i want to go 20 percent or i want to go 10 percent during one atr the answer to what the best atr is going to be you're probably not going to be able to find the best so to speak but the answer to what could be a good atr is going to be in your trading journal so we're going to go ahead and use 10 here but in doing that keep in mind you'd want to put this trade in a trading journal you want to put in there where you set your atr and then over time you'll be able to identify when you were using 10 of the atr were you getting were you getting phase where it just faded back and kicked you out on on on more of a continual basis or or was 10 percent of the atr working out if 10 of the atar was working out then then you're probably going to need to continue to use it if you're getting too many fades and doing that perhaps you want to go with 20 or 30 or 50 percent of of the atr but that is a that is a great question we're doing it for demonstration purposes here but that is a great question but what i would encourage all of you to do is to mimic what we're doing here today but also keep a trading journal and put in there what percentage of the atr that you're using just so you'll be able to keep track of over time and find a good atr with regards to the nature of the trading that you do and the stock state and the stocks that you that you tend to trade on a continual basis okay so with that then let's go ahead and look at this we'll look at it from the standpoint of doing a long call vertical now uh well folks like just one other one that one wanted to note here pause i did notice when i look over there there's a survey over there i appreciate vijay jumping in and completing the survey that is greatly appreciated if the rest of you could just take a moment possibly open up the survey and then following our session here today if you could go in and complete the survey that would be greatly appreciated we appreciate the feedback we we appreciate the comments in there so yeah if you could take just a second or two and complete that that would be greatly appreciated all right so let's see what our trade's going to look like then what i want to do here is i want to establish a target using the fibonacci extension tools we have available to us on the thinkorswim platform and to do that when we're looking at our chart i'm just going to i'm just going to click my my roller button on my mouse and that will bring up the list of the tools that we have available to us the one that has a percentage is right here that little guy right there that's going to be our fibonacci retracements and extensions tool so i'm going to go ahead and select that and then the way that you can do this is you can take you can take the most recent run okay which is going to be it's going to be this this would be the peak and this would be the trough or i could come all the way back and treat this as the trough i'm leaning a little bit more towards using this because this looks like sort of the where this where this current where this current runner originates i'm going to go with the highest close up here which is right here and i'm going to come down let's start that let's see are we going to get this going here let's try it again folks there we go and we're going to come down right there there we are i'm going to use that i want to get a little bit more roomba up here at the top here just so i can engage you know see clear some some of the targets we have available to us up here so to do that i'm going to come here and click on style and come down here and choose settings and over here i've got equities i've got price access right here and just because the nature of what we're doing here i'm going to do 10 down to the bottom but i want to do 20 up here at the top that way we can see our you can see our targets a little bit better so so one target would just be up up here to this resistance level at about 2146 we could say 2150 another target would be up here at 2178 we could round out we could round that up to possibly 22. why don't we start off by looking at that resistance level there at 21.50 and
we'll build it around that then if we're not totally impressed with the numbers there we'll come up here and possibly look at the 2178. so from here then investors we want to we want to kind of assess a time frame with regards to moving up here you can see this lock's kind of gone you know we have a strong move here strong with here kind of come down here it's kind of moving along gingerly so probably going to want to give it a little bit of time to come up here and hit that level or possibly go above it and if it goes above it then we're going to be okay with that as well open up our trade tab over here for t for t for so that we have 17 days 10 days 3 for the purpose of our example i'm going to go ahead and go with 17. now investors um i this this is basically my first time teaching this session so i'm making an assumption that you that because this is an active trading session that that most or all of you are familiar with with options trade in other words you know what it means to buy a call you know it needs to sell a call you know what it means to buy put you know what it means to sell a put there may be some of you in here however that are not familiar with options and i'll try to craft our presentation here so that it will be beneficial to you i also want to just point to some additional resources that are available to you just in the event possibly you get lost with regards to our discussion today you're more than welcome to be here okay love love love to have you here and i will try to craft things so so we don't lose anybody but just in case let me show you where there's some additional resources that may be beneficial let's come over here for just a second and this is the td ameritrade website i'm just going to come up here to the top where it says education right here again this is td ameritrade.com put in your username and password education and then under education over here under education center over here i'm going to click on options right here and this takes over here notice you have some videos here that you can watch about trading options i really encourage you to do those come over here where there's this little arrow right here and click on that arrow and that will bring into your view the the trading options course right here this trading option course assumes you know nothing about options so if you know nothing um this is going to be a great place to start if you have some familiarity with options but you feel a bit fuzzy on it this is also a great place we'll just go through a little bit get this go through a little bit quicker than someone who knows nothing about options then after completing this course and that and with from a time standpoint is suggesting about seven hours right here after you've completed that then you'd want to move over and complete this weekly options course it just takes you another step with regards to strategies and some consideration the suggestion time for that is three hours if you're basically looking at investors at an investment of time somewhere in the neighborhood of about seven to ten hours i would suggest that this would be time well spent particularly think about how much time you plan on being exposed to the financial markets you're probably going to hear a lot of option lingos if you choose not to trade options i totally understand that options are definitely not for everyone it's still nice to be able to kind of understand what people are saying about options and also and also some of the some of the some of the characteristics of options particularly particularly the greeks and what that tells us with regards to the price of the underlying stock as well we're coming back over here then to the thinkorswim come back over here we go 17 days so what we'll do here is we'll look to buy a and we'll look to buy an at the money call looks like the at the money call is going to be at 21 and our target was at our first target right up here to the top was it was at about 21.50
let's see what this looks like we may want to go a little bit wider but i don't know for sure i don't know how much how much wider we we may want to go some of your probably scratch fans saying really ken you're going to go with a 50 cent wide spread well before we get before we be before we just before we dismiss it totally let's just take a look to see what it looks like so we're going to buy the 21 call and we're going to sell the 2150 we're going to look at the return and we're going to look at probabilities related to that now one thing i want to point to immediately here at the start is our goal here our target here here is at 21.50 what is the probability of success on this trade well to be successful on this trade the underlying crisis security needs to be at or above 2150 on the expiration date now when i say when i when i say to be successful i'm talking about the theoretical maximum gain there's actually a point in there where we can break even there's a point in there where we can make some profit but our theoretical max gain is going to be to be at above 2150 on the expiration date so one measurement that we can use to to get a a percentage of being there is the delta right here this delta column let me grab a little pointer here so we can just identify these things and for those of you that may not be familiar with options you may want to just look at an option chain it's okay what's the probability of this stock being at or above a price point at the end of 17 days and the probability of that is going to be again it's a theoretical probability that's going to be your delta number right there so these these little guys here that's telling you the number of days of the trade okay so this is this is 17 days so what's the probability of this stock being at 2150 in 17 days being at or above 21.50 in 17 days well the probability is about is is about 30 that's basically changing between 29 and 30 percent so this trade has a probability of not being successful with regards to maximum gain of 70 percent and a probability of being successful of about 30 investors if you're looking at those kinds of numbers all right if you're if you're looking at a situation like that where you have a low probability trade in other words about a 30 percent probability of capturing your max gain a 70 of not capturing your max gain what does that tell you about the percentage return that you'll need to see in the event that you capture a maximum gain if you're saying to yourself i want to have a healthy return in these types of situations i would i would agree with you because if you're only looking at 30 probability if you're able to capture that maximum gain you'd like it to be healthy and likely to be fat to help to to to help to compensate you for those situations where you are not successful now the other consideration investors is keep in mind the delta gives you an approximation but you can use technical analysis you can use fundamental analysis there are other measurements that you can use to actually outperform the deltas in other words when the delta's giving you one percentage you can use some other you can use other tools that are available to you see if there's a confluence of indicator possibly hitting or possibly possibly possibly hitting those particular price points when you have a confluence of indicators technical analysis fundamental analysis and life and that could put you in a bet in a situation where you where you could possibly outperform the deltas doesn't mean you will okay but it can put you in a situation where it creates that possibility so this again takes us back to the trading journal because some of you may be saying okay how come you chose a 30 delta why don't you go with the 50 build or something like that well we're only going we're only going one strike price wide which is one of the reasons here okay and when we do and we do need to we do need to create create the long vertical but how about going further out where you have a higher return and a lower delta those are all things when you enter these trades you also want to put on there what your probability of success was when you entered the trade so that over time you'll kind of get an idea of what probability of success is going to be acceptable with regards to the nature of the of the trading that you're doing so with that in mind let's see what this looks like i'm a little bit nervous myself but let's come in here and pick up this 21 i'm gonna do right click on the 21 right here and i'm going to choose buy and we're going to go vertical we're talking about going 21 to 2150 okay now the the maximum loss folks on a long vertical is the debit when you enter the trade so if we're looking at this our maximum loss right here our theoretical this by the way this is a theoretical maximum loss let's go ahead and use the natural right here we may be able to get filled with the minute if we're able to get filled with the bid that's great but we'll we'll go ahead and use the natural so looking at getting filled on a debit of 24 okay the maximum gain on the trade is going to be the distance between the strike prices minus minus this debit right here that is that's going to be the maximum gain so the distance between the strike prices is what well the distance between the strike prices is 50 cents we subtract from that 24 and that puts our maximum gain at 26. so if we capture a maximum gain of 26 and we look at our maximum loss of 24 then that gives us a 100 point something percent return i'm just going to go with 100 and use and use 100 and keeping in mind that with regards to this 26 we've got right here we've got one two transaction fees going in and then we'll have one two transaction fees going out so we're going to have four transaction fees so you want to factor that in when you factor that in you know in in here we frequently use 60 cents as the cost for as a cost for a option contract that would mean getting in would be a dollar twenty and getting out would be a dollar twenty again these are these are just estimates with regards to transaction fees the overall transaction fees would be 240.
we'll take that it would take that into consideration if we look at it on an after transaction fee type of situation what does that mean that takes us from 26 down to 25 down to 24 down to 23. isn't that like 23 i'm thinking it's about that takes that 26 down to 23. i'm just doing the math in my head and i could be wrong folks but it's around 23.60 so that brings us down below the 100 and puts it still though at a return of 90 something i'm gonna i'm going to ballpark the 96 again i i don't have a calculator so if these numbers are not correct that's fine but we're just looking to be in the ballpark with regards to our with regards to our numbers right here so the question would be then are we okay with a potential return of about let's just use a potential return of about i'm going to be real conservative and say 90 90 90 return on risk with a 30 probability of success over 17 days are we okay with that now in fact now investors another thing that we have in fact with another thing we haven't factored into this particular point is this we're going to set this up as a contingent order and by setting it up as a contingent order that that could have an impact that could have an impact with with regards to our numbers it's going to make it's going to make the 21 a little bit more expensive it's also going to make the 2150 a little bit more expensive but the delta on the 21 is higher than the delta on the 2150 so so so the debit in relationship the the initial debit that we get is is going to be a little bit higher so that makes me a little bit more comfortable just going in and looking at this from a 90 percent return on risk type of a type of a situation it could actually be it could actually be less than that so we so we do want to keep that thing in mind also we don't know exactly where we where we will get filled when we are when we're going into this trade also when we choose to actually trade we're not sure exactly where we will get built that can also have an impact with regards to our potential maximum gain okay so with that said then let's go ahead and set up our order here we'll come over here i'm going to hit this we've got that set up so this number's gone down a little bit hey if we can if we get fill the 22 we are more than happy to take that however this doesn't really come into play why because we're using a contingent order so let's go ahead and put in our contingency here investors and to do that hopefully there's our little maybe i'm not going to be able to do that here oh there's our problem i think we'll be good i just have to hit the right keys here there we are right here so this is where we'll put our contingency right here where this gear is at i wanted when you put in a contingent order like this you want to identify what the mid and the natural is the mid is at 22 the naturals of 23.
there's only a one penny difference because there's only a one penny difference we're going to be okay just taking the natural when we go in that will help to ensure that the order gets filled okay i'm risking somewhere you know we're let's let's let's just move it up and say we're going to be risking about 25 25 on each one of these and let's say we're okay going with 10 of them just just for just just for example purposes so we'll jack this up here to 10. like so i'm going to hit the gear right here and come down here this will be our condition now again when you when you hit the over over here's a gear when you hit that gear what that does is that brings up your order rules box and on our rules folks box we're going to put our conditions and our conditions here is to i'm going to click down below symbol that's going to fill in the stock symbol i'm going to say mark is greater than i want it to be greater than or equal to and what was our trigger point our trigger was 2109 right 21 0.09 we have that in there when that gets triggered that's going to trigger an order and it's going to be a limit order we want the limit order linked to we are going to go with the ask right here i have a market here i think so i i i have a mark all right but but but the mark is basically the halfway point between the bid and ask let's do this we'll start with the mark we know there's about a penny difference between the two so we'll say we're okay going with the mark price plus i'm going to go with two cents just just in an effort to get filled and i want to give this today and tomorrow so we have time enforcer versus day i'm going to change that to good till cancel but then i'm going to come over here and i'm going to pull this guy out this is where we cancel it we're here and say okay i'm good with here but let's go ahead and cancel it tomorrow i'll cancel tomorrow and i'm going to i'm going to put a time in here after the market closed the market closes on mountain time at two o'clock so that's going to be 12 i believe i believe i believe this this is a 24 hour thing so 12 13 that's going to be 1400 hours actually let's go 1300 hours and 55 minutes so this should be about five minutes before the market closes okay so let's review this i'm going to go ahead and click on save so how did we bring it up well here's our order right here we talked about that here's our condition over here click on the gear right here to bring it up that brings up the order rules box and just looking at that let's talk about what we put in here first of all we put in our condition remember earlier try that again that's not going to give it to me that's okay we'll go ahead and pass on that i was hoping to get some life there but i was hoping to be able to to be able to draw some things but that's okay i'll just point to so here's our condition with regards to price we said that t we want the price to be at 21.09 that's ten percent of the atr above yesterday's high we want to leave we want to make that a good till cancel order so time and force we chose good till cancer we don't want it to sit in there forever we want to give it today and tomorrow so we came in here and said let's cancel tomorrow five minutes before the market closes if it hasn't been filled if we do hit this threshold 21.9 that's going to
trigger a limit order this is okay i want to enter in this red i'm willing to pay the mark price which is basically representative of the halfway point between the bid and the ask for both of those options plus we're willing to add two cents to that in in in a effort to get filled so there we have that and currently we're sitting at 2103 so we've still got a ways to go so let's go ahead and we'll send this in investors we'll do a confirmation here i'm going to send this into our holding center right here here we are right there before i hit the send button i want to take one more gander over in the chat window to see if there's something here that i can address where i have the the where i have access to the platform let's see from mkr is there an advantage to setting narrow versus wider spreads um yes there is there there there there there are both there there are both advantages and disadvantages the advantage with regards to going with narrow spreads is the price of stock doesn't have to go as far in order for you to beat your maximum gain however the advantage of going with a wider spread is frequently you will you'll have a significantly higher overall gain okay we're talking we're talking this this this spread is rather unusual only being 50 cents in fact i would i would look at this spread as being unusual and the typical spread going out somewhere in the neighborhood of i would say three to five dollars okay now we'll go ahead and play this unusual one out we will track the transaction costs as well we'll see how it all turns out okay all right so i'm going to go ahead and check any other questions that i may be able to help out over here do i have access to the platform looks like looks like barb's doing a great job of helping you guys out i think we're in good shape here and let's go ahead and i'm going to click on send we'll send it over the holding center and it's sitting over there all right investors let's go ahead and see how we've done here today okay come back over here so what do we want to do here today well we wanted to review the market highlights which we did we wanted to discuss falling knives we talked about falling knives and different ways that you could approach them we decided to approach falling knives using a contingent order and a long vertical i want to demonstrate how to use a paper money trade on think or swim i think we did that as well every just a reminder love to see over there on twitter at kosc underscore tda and again big thanks to barb by the way folks um let me make sure we're coming over here all right sorry i forgot to do that just in our review here's our summary right here market highlights pulling knives demonstrate the paper again on that and again love to see over there on twitter and again a big a a big thanks to barb for joining us here today just just a little bit of a heads up to keep in mind barb teaches an excellent session on thursday it's called i think i think i think it's called managing a portfolio basics or something along those lines but that's a thursday at 3 pm eastern time so but you definitely want to circle that on your account and i said that's a great session that you don't want to miss and we're wrapping things up here for today then hopefully there we go do keep in mind investors that our content is intended for educational informational purposes only it's not investment advice a recommendation of any security strategy or account type everyone and again thanks for joining us here for today's session i hope you have a a great rest of your afternoon a wonderful evening a fantastic rest of your week best of success for investing i'd encourage you to take what we did here today and go ahead and find some paper trays make some notes in make some notes in a journal that's the way to really benefit benefit from what we have going on here and also hope to see you again here next week bye everybody we'll catch you later thanks again you
2022-06-11 21:45
