Differences in Short and Long Put Verticals | Trading a Smaller Account
[Music] [Music] hello and welcome to trading a smaller account my name is james boyd you're actually saying you don't look like barbara armstrong that's true because barbara armstrong is on the ski slopes in big sky montana right now so all right she and i actually had a discussion about teaching this class looking forward to it to be with you we'd like to welcome ellen jules dom lu jason rogue dragon ryder neil sandeep and many others good morning to you we also have cameron may a fellow instructor here and there's the bell so we like to welcome everyone actually here today we got cameron may with us as well you'll see him in the chat cm fellow instructor does a great job check out his classes and his twitter page he does post educational content there daily just real quick as we're getting started as we uh with what we discussed here today the content is intended for uh educational informational purposes only options are not suitable for all investors especially risk inherited trading options we'll talk about what some of those risks are here today also understand if we talk about let's say spreads or straddles or multi-leg option strategies you want to actually review what the transaction cost is okay also uh when we talk about demonstrating the function of the platform we're going to use actual symbols td ameritrade does not make any recommendations or determine suitability of any security or strategy for any of individual traders and also remember when we talk about investing all investing involves risk and also when we talk about options know that we want to talk about and kind of emphasize the option greeks which we will here today and last but not least remember when we talk about uh if we talk about stops remember remember a stop will not guarantee an execution at or near the activation price okay they compete with incoming market orders now our agenda here today is kind of talk about current market conditions we did see job job payroll numbers for january 467 000. we saw the interest rates go higher kind of want to talk about how that might be affecting current market conditions and maybe could the nasdaq again be under attack a little bit second we're going to talk about uh reviewing uh an open position i want to talk about rolling okay a position and why would an investor do that versus exiting and i have an example here that we're going to bring up on that third we're going to talk about discussing potential entry criteria for short verticals now we could also include long verticals with that as well but i want to kind of talk about the entry criteria the trend the timing of the entry etc and does it really matter and then what we want to do is we go down i'll pause every so often and see if there's any questions as well so let's go ahead here and hop right in now i'm looking at the camera but i'm going to be working on my right hand screen i've been kind of testing out uh kind of using a little bit bigger screen here okay now if we actually take a look at this the nasdaq actually here and i'm i'm actually going to start with the tnx does anybody besides me and that's a joke watch the tnx now remember the and x is the 10 year yield okay and if you actually take a look at this it's going to show 19.01 but you want to take that decimal over one and we actually saw interest rates actually kind of in an upward trend kind of had like a little pennant pattern if you will and this morning it really kind of broke to the upside now this is going to be kind of interesting because what area if we go back just in this area before like late december early january we saw rates they were down at 1.3 percent
and they went up you know quite a bit about 40 percent what index got hit when we actually saw that interest rate go up what index and i think sometimes we forget about this okay what index became hit when we saw the interest rates actually go up well one of the indexes that got probably well number one is it was the russell for sure okay but the second index was really the nasdaq itself okay now if we actually pulled the nasdaq those growth areas of the market and if we actually take a look at this the nasdaq actually here so far kind of holding in a little bit we had some good numbers from amazon overnight on their earnings but if you actually take a look at that we're still seeing where the nasdaq is still below the 30 with a downward sloping moving average and we're kind of maybe trying to find a base really on the nasdaq which i don't know if we really have yet we have a low we kind of have where a hook back up but then it's actually kind of struggled to kind of come back up now the other thing that's kind of maybe creating a little pressure is overnight we actually saw crude oil i know this is depressing okay well it's not depressing if you own a scooter but if you take a look at this we saw crude oil go overnight to 92. so some of us might be really thinking about hey are energy stocks actually still going up might that be an example there and the interest rates going back to that are going to affect the financial companies in indexes differently okay so let's kind of sum this up we have oil actually at 92 fresh new highs we have interest rates at actually new highs see that kind of sounds like inflation potentially right and some companies could actually benefit from the rise in the rates okay we talked about financial companies and we emphasize protection companies protection companies like berkshire hathaway or metlife aig et cetera could those protection companies that are not just banks could they benefit from the rise in the interest rates okay now just real quick when we actually take a look at uh and i'm going to pull up just the spx if we actually take a look at the spx kind of the bad thing actually here a little bit today we saw the vix go up a little higher today vixx was up about 25 26 where are you and it's right there 25 bounced off its 30 period moving average the s p bullish investors probably wanted that 45 38 to hold it didn't so far and the price is actually back down near the 10-day moving average now i'm going to ask you a question okay are you bullish or bearish in the short term and when i say short term are you bullish or bearish in the next 30 days what would you say you bullish or bearish with what we're seeing in the marketplace how do you think rising rates will be absorbed higher crude prices higher cost how do you think that might affect stocks bullish bears what's your take okay now i got some examples here that we're gonna pull from so if if some of you said james you know what kind of based upon this kind of backdrop some stocks might be at risk of down trending not just shorter term but maybe intermediate to longer term okay now what i want to do here is i'm going to take a quick look at a stock and i'm going to bring up one that is let's go to our second agenda item and our second agenda item i want to kind of talk about reviewing open positions okay and one of the positions i really want to take a look at that's in the paper money portfolio it's a position and i'm going to just pull it up where we can actually see it right here now this position that we're looking at right here i'll magnify that can anyone actually tell me what that is is that a short put vertical or is that a long put vertical now if if we were saying a short put vertical the strike that is sold would be the higher strike that's not what this is okay so this is where the investor has a strike the 175 higher than the strike that is sold so that's that's opposite to a short put vertical so if you actually have a higher strike and you sold a lower strike that is a long put vertical now what's the most the investor can make on a long put vertical hmm got a five dollar wide excuse me ten dollar wide spread excuse me ten dollar widespread and the investor if you kind of take a look at this they really paid okay get my calculator out here left they paid 11.75 for the put they paid that they collected 755 they received that the debit here was four dollars and 20 cents okay 11.75 subtract 755. so they paid 420 to get into this position so if you take a look at this you have a 10 spread the investor paid paid 420 the most the investor could really make in this position would be 580 if we go over here to the right hand side what you're going to see in this case is the profit loss open is 510.
so right now it has 510 of the 580 what would you consider undoing now we're talking open position we're talking about maybe a position that's maybe reached nearly a maximum gain and might the investor consider rolling the position okay now if we take a look at this we're going to go to the chart and zoom z ticker symbol zm it's been in a downward trend to say the least okay now if we take a look at this we've really over time been making lower lows and lower highs you could just kind of take a look at the angle of the moving averages and kind of see really in essence a downward trend now it's not just necessarily on a one year daily chart when we go let's say to a three year weekly chart through your weekly and you take a look at this it also has that same look to it the moving averages both turn down so this is not some just short term drop okay we're talking about weekly chart here and we've had a really tough time getting above the blue moving average line which is the 10-week moving average that's acting like the ceiling the investor might say look i don't want to just maybe profit take on the existing position but they might want to roll the position set up a new one if they thought the price could continue lower okay now if i'm gonna if i ask you a question and said hey potentially where could zoom drop to if i said where's the support on the chart where do you see it so if i said hey we're falling down but it's falling down to support let me kind of guide your eyes a little bit but if i were to go back to let's say this area right here we kind of might say this old area of resistance was right around a hundred there might not be a whole lot of support from where it is now to maybe the next level of potential support so the investor might say number one is i want to exit based upon having a large percentage of the maximum gain number two is they say it's still in a downtrend and you actually have a support level that still might be pretty far away and you also have earnings upcoming which for some of these tech stocks have not really been favorable okay now let's kind of talk about how the investor could do this i'm going to go back to the monitor tab now as you as a listener whether you're live or watching on the recording you might say well yeah this does i don't have actually in my paper mining account zoom well as soon as this paper money account exits off this it's going to establish a new position rolling is a new position okay we're going to right click on that we're going to say create a rolling order okay now when we bring this up this is going to look like complicated but you just need to kind of almost forget about the bottom two lines when we actually say create a rolling order let's pick on that top line right there we're now going to go ahead and it's going to give us four lines the four lines here at the bottom this is just these bottom two those are the existing positions as soon as we exit the only position that's going to matter is the two lines at the top here and here we want to know what expiration we want to know what strike okay and as soon as we change that it's going to change what the debit is okay now let's kind of take a look at this if we were to set up a new position guide me through maybe what expiration month you'd be looking at what might kind of stand out to you and i'll kind of close this down what expiration month or week would you pick now as you're telling me that my eyes are going to go over here to the right-hand side and look at the annualized implied volatility and oh my goodness these are like 70 80 84 85 88 so this is something that has a lot of forecasted expected movement now volatility is up and down okay that's the annualized number and if you look at this it's going to give us the dollar amount up or down from now until that expiration that i'm pointing to but if we were to actually look at this and let's say pick an 18 march okay 18 march and if the investor were to say james i'm going to go look at the put side and if they said i want to keep this like a long put vertical we're going to go to for example the the put side and look at the options that are at or in the money now why might an investor pick something that's at or in the money what's the purpose of doing that now neil you're right okay i'm i'm with you on that this has 42 days to expiration now if we were to look at this and i'm going to select this let's kind of practice let's let's uh kind of practice putting that on this paper money account we're going to actually change this to 18 march that has 42 days to expiration and we're going to kind of say okay if the investor we're going to buy a put what's the first strike that's in the money the reason why the investor might go in the money is that's the option has a greater chance of the stock really being below that strike thus higher chances of intrinsic value remember these options okay at the expiration become worth the intrinsic value if that's the case the investor really wants a higher chance of having some intrinsic value now they actually might said they're going to buy the 140 and if the investor said hey i'm going to really buy the put below so really if you think about this buying the 140 that's the driver of the trade but the investor has to pay that let's say 1550 or so 1560 why is the investor selling a put below what is the purpose of that why are they selling a put maybe below the strike now remember if i told you someone is selling a put that's a credit right so if the investor in this case sells a put they're receiving a credit and it's lowering the debit overall of the trade which means the stock does not have to go down as far now i'm going to show you this on the analyze tab in just a moment but now if you actually take a look at this it's not a credit it's paying five dollars and 37 cents to get into the trade now if we actually take a look at this okay what i want you to really notice here is if we go to this and say confirm and send it's just going to load up load it up and i'm going to do that and you're going to see that if we did that it's going to show a commission here of two dollars and 60 cents and you're going to see watch it say a credit here of 537 okay now what i want to do before i set and i'm i am going to send this okay but i also want to show you what it looks like on the on the risk profile okay if we send this order and say send okay i want to bring up what this order looks like there it is we're going to actually right click and now it's actually the 140 130. we're going to right click on that let me show you what it looks like on the analyze some of you might be thinking i want to see that we're going to bring it up there it is so that if we're just looking at that trade initially the debit would be 460. okay if we right click on this and say analyze trade it's going to show a line that's a little different okay let me kind of just only have that vertical brought up down below okay so the only thing that we have selected okay is the vertical and why does this line go kind of the opposite direction on the left hand side shows the profit and loss and on the bottom really shows the stock price why is it showing the highest profit if the stock were to go down why is that why if the stock actually goes up is the max loss the worst well it's a bearish trade if this has ever turned backwards from what you're probably used to seeing we know that this is a bearish train we can look at the graph and see it the other place we can actually look at it is we actually see right here where it says delta it says negative delta what does negative delta mean negative delta actually means it is a bearish strategy it benefits if the price were to decline now on a long put vertical if we say what is does the investor collect theta well net the investor is not net collecting it's slightly negative but not bad almost neutral and the other thing that's kind of interesting is if the investor thought maybe volatility could expand the vega is actually positive so if the investor got a downward trend that'd be good and if the investor also got volatility to expand that'd be good too but remember on this there is a maximum gain and it's about 500-ish dollars okay and if we look at this trade and say what is the maximum loss it's 460 we could actually see let's max gain is 540 and if we keep looking in the bottom left-hand corner here as i point to it max loss is 460. okay that's what it is right there now any questions with what we talked about so far so i talked about an open position i talked about why an investor might roll it then what you talked about is we said hey might the paper money account set up a new position okay so the first trade was a long put vertical okay any questions on that now uh nihon actually says higher probability of success well the idea is if the investor buys a put that's at or in the money the idea is it would have a higher probability of being having some intrinsic value okay if we're talking about and let's kind of compare and contrast okay we know that if someone has a long put vertical okay you actually see two lines right here you see a red line right there and you see a red line right there why do you actually see two different red lines what's that line for what's this line for okay now again we're talking about a long put vertical and that moved on me but the reason why you're actually seeing this first red line and i'll point to it right there that's the break even as of today okay if we actually take a look at this what you're gonna notice is the stock would actually need to go to the left or down to break even with the long put vertical you actually have a lower break even but there's higher potential upside if you did a short call vertical you don't need the stock to typically drop okay you have you probably haven't or you would have typically a higher probability of success let me show you that on the graph so if we actually have a long put vertical we have a line right there that's the break even think of that as today and i could change that date and you actually have that another line right there the stock has to drop down to get to the break even but if we did example given a short call vertical on this okay and if the investor said hey james i'm going to sell the 155 and the 165. let's just kind of compare and contrast which one has a higher probability of success well the short call vertical let's bring it up so we can kind of see the difference and people like to see the difference that's why i'm pulling it up if we look at the difference on a short call vertical it is also negative delta which means a bearish trade the difference in a short call vertical is it has positive theta people like that and what you're now going to notice is if volatility were to expand this position or strategy would not be in as good of a situation now what i want you to notice is here is the difference is let me actually scroll down and let me kind of grab that see if i can okay there you go get a little bit more real estate on that bottom right there i want to drag that up a little bit so if we actually take a look at this it's a 290 credit this is the break even think of that as today and if you look at this why is the red line all the way over here or higher well that's the nice thing about the short call vertical stock doesn't have to drop matter of fact the breakeve the stock could actually even go all the way up up here up here up here up here up here it can actually have some give and still be below the breakeven expiration so if someone says i want a higher probability of success it would be a short call vertical if someone said i want actually a greater like a greater potential chance of higher potential profit it's a long put vertical but with that there's trade-offs with probability now white-tailed antelope says why not close position uh and buy again instead of rolling well you're just combining the trades so you could do it manually you could close it out and then set up a new one you could do that or you could actually just kind of do it in combination it's what we did there's i don't think there's actually a benefit one way or the other okay uh i think it's just faster if you said i'm just gonna roll it in general versus manually doing it okay good now nicole actually says could you close this right away and take the profit yeah absolutely so example given and i'm just gonna i'm gonna go the next example but let's say facebook for example this is a short call vertical okay has 14 days left as a trader the investor could say i got in and by the way this trade was actually placed on 127. so about a week
ago this trade was placed okay bearish if the investor decided like nicole where she says i just want to get out do i have to wait all the way to expiration the answer is no these are american options which means the investor can get out prior to the expiration would want to review what the what the cost is and the spread etc but you're going to notice they can get out whether it's a profit or a loss they're american options you can get out okay check the liquidity now let's look at for example another i'm going to kind of just take a quick look at the market here but if we actually take a look at this i will also want to kind of show one more example of a bearish example but then i'm going to show a bullish example okay now as we actually are taking a look at the market we actually see for example energy today brand new high on energy some of you maybe have been watching that okay we also take a look at let's say financials okay one of the areas that some have been watching are like protection companies maybe seeing if we're starting to get a little rotation there if you actually take a look at nasdaq nasdaq is kind of holding up a little bit i think probably the biggest part thanks to amazon today it's not it's not facebook by the way when facebook announced yesterday amazon dropped significantly amazon actually here today up 10 now this kind of drives the point okay which is a lot of these stocks lately they've been pretty volatile would you agree with that and if people are seeing that markets or stocks are more volatile they might consider strategy that is not as sensitive to directional movement now the example that i'm actually going to choose here is i'm going to actually go back to one more tech stock and i'm going to look at the example here of crm okay now i'm actually going to give you your choice we could actually choose crm or paypal which of those two if i actually pulled up paypal or cr crm which stock would you like me to talk talk about paypal or crm you choose fez i think there's actually a point to that maybe you're saying there's a higher iv i think there's a point to that okay all right so tell me which one you want me to crm or actually paypal yeah now john actually says amazon prime did increase their rates yes they went from 119 to 139 okay nihon actually says paypal sends no earnings okay so if we actually take a look at this and this is where i want to kind of bring in the volatility discussion when you actually have a stock that is downward trending we could actually go to actually click on the test tube right there we're going to click on the test tube and what you're going to see is we're just going to type in imp for implied volatility so we clicked on the test tube we went right down to where it says implied volatility now if i click on where it says implied volatility you're going to see that we're just going to view what the implied volatility has really been over time so i am implied volatility and what we would probably expect is if this stock has been in a downward trend this implied volatility might be pretty high and what you're going to notice is when the stock was up here the implied volatility was lower okay when the stock started going down the implied volatility that forecasted movement started to increase over time here's your pop quiz okay between the two verticals we talked about which vertical could benefit from volatility expanding was it the short call vertical or was it the long put vertical well the long put vertical was positive vega okay so that's the one so if the investor said hey james i want to do something where it's a bearish trade negative delta and if that volatility were to become higher i want to see if those options could benefit from that now let's just kind of take step one at a time okay we're going to go to trade tap and if we actually go to the trade tab we're just gonna go look out now we don't have to go let's say 20 to 50 days maybe an investor says james i have a longer term kind of uh projection what i think paypal could do matter of fact let me just give you a quick view of that if you go to the three-year weekly chart of this you know you kind of look at this drop you'll see what has been acting like a level of resistance and as i'm getting an answer to that well i'm going to kind of draw a line about 117 maybe about 100 or so okay when we saw the moving average cross which was right there and once the price we saw the moving average cross the price was below both moving averages we actually saw the the stock struggle to get back above that shorter-term moving average that is a 10-day exponential moving out that is showing us that we have negative momentum now the risk is where's the support okay now if there's not really a clearly identified support some investors might be thinking there could be potential greater risk of falling down hence some investors might do bearish strategies now if we go to the trade tab and if the investor were to choose something just let's say 20 to 50 days to expiration calls on the left puts on the right now we know this class is trading a smaller account let's make an assumption here that the investor said look i got fifteen thousand dollars on a portfolio i'm gonna maybe be willing to risk okay let's say example given five percent of that portfolio value you have to understand with a lower portfolio value the percentage risk is going to be higher because it's a lower portfolio value okay and we're going to talk about position sizing here and maybe we want to even do show an example of less than that let me know if the investor chose the option let's say that was at or in the money the enter in the money contracts or in the money would be the contracts that are shaded there okay they're shaded the ones that are in that black color those are the ones that are out of the money okay now if you take a look at this if the investor said look i want to buy the 125 what you're now gonna notice is if we actually clicked on this and said let me see what that looks like by itself on the wrist profile now this is actually the big point of a vertical remember think of that as the break even today and what you're going to notice is that's really the break even that second line there that's the break even as of expiration now when the investor buys a put by itself and i know that barbara's gone over this because i saw her classes but it has a higher negative delta if you actually have a higher negative delta the investor is more bearish they could benefit more if the stock were going to drop but they got to get the direction right now what you're going to notice is if the investor just buys a put by itself and i'm just showing this broken down by pieces if they buy a put by itself the theta decay is higher now how many of you don't like higher theta now remember a higher theta means that there's higher time decay and when there's higher time decay the stock would have to drop down more just to break even some investors say james i don't like that okay well that's why the investors might say i'm going to take the long put vertical and what i'm going to do is add a short put vertical to it now there's two things that's going to happen when we do this number one is we're going to see those two red lines narrow that means the stock does not have to drop as much to break even the second thing that we're actually going to see is when we look at the greeks the greeks are not going to be as negative and then we look at theta it's also not going to be as negative let's show what it looks like so now when i actually take a look at this i'm going to add i'm going to delete this we're going to right click on the 125 we're going to go into here where it says buy and then go where it says vertical it's a long put vertical a debit now when the investor does this okay they're buying the 125 put they want the stock to stay down below that strike they're selling a put below the strike to create a credit and now what you're going to see is the most the investor could lose is 240 now let's kind of go back to the position sizing because i know barbara talked about this i i saw it i saw all her recordings let's say the investor had fifteen thousand dollars and they said hey james i'm gonna risk let's say two hundred and forty dollars a contract if the investor lost the 240 and their portfolio was fifteen thousand dollars it's really like losing 1.6 of the account value just take 240 divided into 15 000. now if the investor said james i don't want to lose any more than 300 then this would only be doing one contract and i'm going to go with that okay now if the paper money account says in this case i could only risk 300 it's going to be one contract if we actually did this let's show it what it looks like on the analyze trade let's get you comfortable there we're just going to look at the vertical now okay now if we look at the vertical i said that the one thing that's going to happen is those two red lines are going to be closer together why is that good well it means that the investor doesn't have to have as much of a drop to get to break even which is better okay it's it it's it's you got a greater probability of actually not being in the hole okay at expiration from the time decay we see that the delta is not negative 50 but it's negative nine okay so this means it's acting as if the position was short like nine or ten shares of stock not very volatile when we come over to theta what you're going to notice is it's not negative it's positive okay and so a lot of investors really like that and vega in this case is slightly positive the key word is slightly now what you're going to notice is if we go to this and i'm going to go to questions after this i want to spend about eight minutes or so and just kind of talk about quite your questions okay we're going to go to the trade tab go back to that vertical long put okay short put when we combine this it's a long put vertical and it is a debit now what you're going to notice is if i go to confirm and send we now can actually see what is the maximum profit okay 260 maximum loss okay 240. yup there's the debit right there and now what you're going to see is what's the cost of the trade well since the investor is buying a put and selling a put it's actually a dollar 30 commission notice also where it says the break even okay now i'm going to just kind of make this comment right we've seen a lot of stocks in the nasdaq go down one of the risks probably in the current market right now is if we see interest rates keep going up and up and up and up okay some of these nasdaq names could be under potential continued pressure if those rates were going to go higher if you've got to think about it's like mathematical okay you discount something at a higher rate it lowers the present value okay and that's really what a lot of these actually tech companies are struggling with rising uh cost of capital typically lowers stock prices typically now if we take a look at this if the investor sends this there it is okay now what i want to do is i got about six let's say six or eight minutes here what are your questions okay now um okay it looks like cameron got that question what are your questions now this could be market related it could be strategy related it could be stock related what questions do you actually have now uh again i want to kind of go back to some of the major drivers here today major driver here today is actually amazon if i actually kind of go back before i look at the questions i'm just seeing if you have any questions uh facebook has not turned around by the way facebook might be another example of perhaps maybe like a short call vertical that stock actually dropped down a little bit a lot of loss of confidence okay on that stock and really a kind of a pretty big broken support there when these stocks gap down like this and you've actually seen volatility rising you know someone might actually kind of choose a trade where it might be more of a short call vertical where they actually really think maybe perhaps the stock might stay below a current uh a current price now i'm gonna go to your questions now i just kind of primed the questions here's the first question timothy says james on your live webcast options strategies you flip through several studies do you have a webcast that shows us what they are and how you set them up okay now i don't know if uh i i love this question because i just happened to yesterday do a class where i talked about the study so let me bring this up i'm gonna go to education and on the left hand side i'm gonna go to where it says uh educational offer i'm just going to go to where the webcasts are okay yesterday timothy and everyone what i did is i did a class so many people have a question regarding let's say the studies and how are they used etc where could you find them if you go to the archive sessions okay so if i go to archive webcast right here and if you said james where could i actually find really a list of those studies that you use now the studies that we really talk about in this case is we really bring up for example let me actually slide that we're going to just take a look at this we actually see they're called scripts and what i said yesterday and you can find what you're asking for timothy on the archive webcast from yesterday the archive webcast from yesterday goes over those studies on how someone uses them on the market watch the charts the monitor tab evaluating their positions evaluating a watch list that webcast and let me kind of just scroll to it it's a third one down and it was actually called using technology to find trends now that could actually be up trends or downtrends now if you like that recording i'm just gonna put that right in the chat so i would probably say for about 25 or 30 30 minutes i just talked about how do you actually find the scripts what are the scripts how do how are they used on the platform on different sections of the platform why do investors use them so if i were you i'd i'd probably watch the first 25-30 minutes of that webcast all right other questions that you have okay uh jerry actually says show how to get out if facebook goes up okay so let's kind of take this last example here we got about five minutes and this is actually kind of i think this is a a good question especially if someone says hey james i have a smaller amount of capital i'm not necessarily sure if i want to be wrong at a full max loss there's two ways that the investor could do this okay let's say the investor said i want to for example do a short call spread on facebook just example given and that was the question brought up by let's say jerry okay so let's say jerry says he wants the example given sell the 250 and then in this case buy the 260 example given okay so the first thing that the investor could do is they could say look i want to sell i want to do a short call spread the 250 260.
there it is and first off that what they could do is they could say look i here's the credit but i really want to get out if i actually lose a set amount that might be less or will be less typically than the maximum loss what the investor could do is they could say single order first triggers seq and they could actually say hey look i want to get out if in this case the stock weren't going to go down okay so they actually might kind of set an option price or what the loss would be on the option okay to reach a certain max loss that's a way you could actually do it many investors actually like that where they say what was the credit how much are they willing to get back and they and they type it in and that kind of creates the threshold but some investors kind of really like placing the exit a little differently they like to kind of place the exit based upon maybe the stock price going up above a certain level and some investors like this better because it's really based more on the stock price so let's say the investor said james i don't mind being in the trade as long as the stock stays below a level of resistance some technicians think if maybe that gap down area and let's kind of say maybe kind of right there the investor says james i want to stay in the bears trade if the stock stays below 247 okay so how do you put that in now we're talking about the stock value now if we were going to go over and click on that gear so all we changed here is limit to a market day to a gtc if we go over to that gear we could say hey get out okay symbol facebook method mark greater or equal to and we could just type in the number of 247. now why would an investor do this why would they actually say if it gets above an area of resistance get out are they trading the probability or are they kind of more trading maybe a certain portion of the maximum loss they're not really trading probability per se they're really kind of trading based on technical analysis of broken resistance and they're saying look i i want to get out at a percentage of the maximum loss i don't want to risk full maximum loss and they're actually saying i want to get out if it breaks above 247. if the stock were to go to 247 or higher it's going to get out of those options at their what their current market prices now here's the here's what you need to remember the longer it takes for the price to get to that level the better why is that well because there's higher time there would be more time decay okay and i'm not sure how many investors would like to say setting an accident based on the option price or how many investors would like to set on the stock price some investors like that stock price where they could actually say look only get out if the stock is reversing and breaking resistance and remember the longer it actually takes the better okay i'm out of my time here today so today what we actually talked really about is kind of placing uh talking about current market conditions keep an eye on the interest rates if the tnx actually goes up might there be continued pressure on the nasdaq think about what companies could benefit from rising rates maybe it's financial companies maybe it's in the industry group of protection companies maybe like berkshire hathaway aig met whoever is actually sitting on mounds of cash okay that actually could actually have higher potential rates return just sitting on the capitol okay and many of those protection companies do some banks as well of course now the other thing is we talked about reviewing options open position we looked at the example of zoom and we said when would the investor maybe roll and we showed that we also talked about doing the example of paypal and kind of talking about some of the the trend criteria the entry criteria and looking kind of technically where that stock could actually drop down to as we did this we kind of compared and contrasted long put verticals versus short call verticals and why an investor might do one or the other remember it mainly has to do with probability it also has to do with the investors forecast of actually do they think the volatility is going to go up or down always remember that the short call vertical tends to be a higher probability type of trade that's why the credit or the max profit is less it's okay to know both there's some times where the investor wants a higher profitability hence lower probability and that's why the investor would want to consider for them the long put vertical i'd like you to go out and practice these two strategies get familiar with actually working on the analyze tab as well i'd like to also thank you for your comments your questions and your participation thank you cam as well and uh barbara will actually be back next week and with that said i wish you a great trading day uh also if you enjoyed this session hit the thumbs up button you can also subscribe to the trader talks channel see all of our video content also if you did not see that class from yesterday regarding the question that timothy had take a look at it i'm not trying to pump my own information but it was a good content i think the presenter me was it was okay the content was really good a little fun there remember with what we just discussed here today it was intended for educational informational purposes only stay tuned for our next webcast coming up thank you so much take care bye
2022-02-05 23:39
