Low volatility ahead of FOMC | Mike Follett | 9-17-19 | Market Volatility
Welcome. This, is Mike Follette speaking, you, found your way to market volatility, we, do this class every Tuesday afternoon I'm glad you could join me if. You want to follow on Twitter I'm, at M Follet underscore, t da you know all the coaches are kind of following that same pattern there with, the first, letter of their first name and then followed by their last name underscore t, da and the, coaches have some awesome content it's. Very fun to track the coaches, also, to make it easier to follow this channel, you. Could hit, like and subscribe to the video and, that'll help you to stay up to date with new webcasts. That get archived. And also, any new webcasts, that are currently streaming. So, glad you could join me here and hopefully, that gives you some things, that can help you with the technology all. Right I'm gonna hit some disclosures, as we get starting, started, here just, carefully. Consider, your investment, objectives when whenever, you're getting invest, getting involved with investing, whether, it's options, options, are not suitable for all investors, there. Are special risks and arin to trading options, that could expose an investor, to potentially, wrap it in substantial, losses, futures. And futures option trading well that's speculative. Make, sure you understand, the risk disclosures. And in, order to trade those things you have to have approval, to do it again, make, sure they're suitable products, whenever. You're trading there's. Going to be Commission involved, and fees, too I should say transaction, costs actually and. Just remember, trades. Involving minimal profit. Benefit they're going to be more influenced, or. More impacted, by those, transaction. Costs, in, order to demonstrate the functionality, the platform, we need to use actual symbols, however, TD is not making recommendations. Any. Investment, decision you make and your self-directed account, is solely your responsibility paper. Money is a software application that, we use for educational, purposes only and. Also. If. We use technical analysis, just remember, there's other points, of view past. Performance, does not guarantee future, results or success probability. Analysis. Is just, that it's probability, it's not guaranteed, outcome analysis, and also, back testing, is looking at historical, data you do that in hypothetical, way does, not guarantee the future is going to hold out that way no, soliciting, no recording no taking pictures no part of this presentation should be rebroadcast. Without. The written consent of, TD, Ameritrade, also, there's a quick look at how those transaction, costs might appear in your portfolio, and over here on the right we've, got Delta. Gamma, theta and, Vega and those are all measurements. Measurements, of how. An option might be subject, to changing, price time and implied, volatility. Alright so thank, you for, joining me today and wow what. A couple, of days we, have had, if. You are. Looking. For volatility, look, no further look, no further than crude, oil, these. Energy, markets, have been a sight, to behold, and, just, taking a look at these futures, that, tracked crude oil it looks like here we are going, into the day and and it. Looks like right now end of, the regular trading day for equities anyway we've, got crude, oil that's at $59. And 12 cents, and, when we talk about the, range on crude oil it has been quite. Quite. A move, that we've seen here, apparently. I, was just checking, out this Twittersphere, and it. Looks like based, on some of these news feeds that I'm seeing out of Saudi Arabia, that the. Saudis actually, have 100%, of their, oil, distribution. Back on line, so, wow, what an amazing thing the. Technology, that they must have to, to. Kind of rebuild, that, infrastructure, and, restore.
Oil, Production to a full capacity, and part. Of that is probably. What's influenced, this volatility, in oil it's just the uncertainty about the. World's oil supply. And. You. Know how long is there going to be some. Sort of an outage affecting, oil supply and you. Know it goes from a very uncertain, thing, which is what we saw yesterday. To. You know the certainty of ok well we're back on line and it looks like oil has. We made that big move, down from here although, it is interesting. To think of maybe some of the trickle effects, that could be in place, here, you, know a couple of days worth of disruption. Still. Could mean in the downstream, there. Could have greater effects, so quite. Possibly that's why when we look at oil we're. Seeing oil although we had a big drop back down it actually, just pulled back to some of the significant. High levels. Here in fact this, 58, 61. Level, oil, pulled back but just to about that point and, note this it's, kind of wild when you dig close. And you and you look at some of those price points it. Kind of looks like these price levels were. The previous. Resistance. Right, so that old resistance. Quite possibly, now. Behaving. Like. New. Support levels I don't. Know why that oval isn't working for me now but, hopefully you're able to see, what I'm talking about talking about that high and that high right there and that was pretty much the bottom for oil today and with. That in mind you. Know with oil actually having, moves like this a lot, of these oil stocks, are having big moves as well just. Some names that come to mind and you can see the reversals, that have taken place here, Hess. And. Actually, it looks like Hess has. Found, a little, bit of support, after. Breaking, out and then a big sell-off intraday, today looks, like maybe they did find a little bit of support but this is um an, oil. Exploration. And production company.
And It. Was kind of interesting, you know when you're talking about how these. Types of. Events. These uncertain, events like oil, disruption. The way we had can. Really, affect, stock, prices, in the in the distribution network right. So. Has they. Actually, yesterday. Morning. So basically the same time everybody's, trying to cope with what's going on with oil but. Yesterday they announced that, they're having a lot of success with. New oil finds down. Off the coast of Guiana of lamps. A in that right it's, in. South america just south of Venezuela, but, just offshore there, they're having a lot of success with their. Drill rigs finding. Nice, new deposits, of, oil. And therefore natural gas as well. Deposits. And things. That are quite accessible, apparently, although they're pretty deep down there about. 6500, feet down below the surface of the water there but, the, market loved that it just was a perfect, coincidence. It was a perfect, coming together between. That, oil or simi that news, out of Saudi Arabia, which, could be a supply, and a shortage, problem. And them. Having, the. Situation, where they found you, know new oil deposits, and they were, published. There on. The same morning and the stock just had a huge move higher now, note this when you're talking, about volatility. Especially. When investors. Are thinking about maybe making, an investment, or applying. Some sort of a trade when, you see big moves like, that it's, easy to step, back and think wow there's no way this thing could go any higher and, oftentimes, you do see a pull, back after a move like that and that's what happened. Now. One, thing though that investors, might take a look at to determine whether or not there's more upside, from here as they, might check to see if there's any price pattern, formation. And. It kind of looks like yes. And this has been one of the top energy. Companies, in in. The, entire market, this entire year by the way but. Has had worked its way into sort of this consolidation, triangle. Right here in. The Triangle width, just, kind of a rough measurement, from here to here it's about a ten dollar, measurement. In the base of that triangle, and they, broke out above, 65. So, broke outside of that triangle. Sometimes. Investors, to determine, how much you know the magnitude, of movement. That could be on the horizon on, an upside breakout like that they'll. Measure that triangle, base I'm just rough estimate, ten dollars there and they'll, add that to the point of the breakout, and, use. That as potentially, a target, price, it's interesting because that break. Point was at 65, this. Pattern, base was about $10, if, you take ten add that to 65, it, takes us right back up to the the. High. From last year on Hesse and also. This was a pretty, strong, time of the year last year for that company and just you, know oftentimes you'll see energies in general, have. Pretty, decent. Have. Pretty decent runs. You. Know this time of year kind of depending upon the business that. They're in but. Right now the stock is currently trading at 67, 80 had, that big volatile, day intraday, how, far did it come down intraday, well it came all the way back down to 65, and, it looks like it rallied back up so, so. Far some, of this at least this name anyway. Certainly. Being. Exposed, to some of the volatility, in energy markets but it's holding, its own and with, that price pattern behind it you know again some traders, might actually look, for more upside, over. Time for a name like, like. Hess now, you. Know I don't mean to make this session just all about energy because, I know that you, watch the news and you've probably seen a, whole, bunch of conversation.
Happening Over the last couple of days about energy and maybe you're getting tired of it but. It is kind of in the forefront it's. Something that's sort of debated. Into the background, that, I did want to get in my agenda here, along with energy. So to point out the agenda I wanted, to talk for a little bit about the Fed I wanted. To have a conversation here, about energy and, wanted. To talk a little bit about earnings, I mean we're in a, cycle. With earnings, where there's really not much going on but. Today we had two stocks that actually did report, earnings and. And. Wanted. To talk about those names and how influential. They might be on broad markets, and, then we'll circle back around and just talk about volatility, in general, and how that's a gauge of fear it's, interesting where volatility. In general is right now. Especially. In light that we have a Fed announcement, taking, place tomorrow. So, the Fed can, definitely Drive. Volatility. In markets there, is no doubt and there's, that, weird conflict. That's going on between the President, of the United States and sort of the Federal Reserve right now where. The. President, isn't showing, much confidence, in the Fed and we've. Got kind of global interest rates moving you know or have moved lower and the. The, thesis, that we need to move interest, rates lower in America. To basically match global, rates to remain competitive, and, the, feds been sort of resilient, to that thesis so it's, going to be very interesting. You know a lot of eyeballs, are probably going to be watching that Fed announcement tomorrow to. See if the, if, Powell. And company kind of holds their course for, sort of moderate approach to reducing, interest rates or. Whether, they get a little bit more aggressive, to match kind of where global, rates are and, what. The president, seems to be you know kind of tweeting about but, one thing that is kind of interesting about the Fed if you've got your thinking caps on for a minute I'm going, to show you something, that in. The futures, market can. Help you get an idea potentially. For where based. On market prices the. Market might be leaning toward the where. The Fed is thinking they might take interest. Rates tomorrow let. Me show you something here I'm going to jump over to the trade screen and. We'll bring up, /z. Q. Now, don't panic when I bring up Z Q what. This is is this is the. Fed Funds, futures. Right. So the Fed Funds is basically a debt instrument right, by. The way this thing trades, it's a very short-term. Bond. Instrument, or debt instrument, and these. Are issued, at a discount to, what they call their par or their redeemable, value. So. Par on these is. 100. Okay, and when, they're issued, they get issued, at a discount to that, par, value and, the, difference between the discount, and par, is sort, of the implied, rate if that makes any sense in the world and so, this this is the 30-day Fed Funds futures and, what's kind of interesting is, that you. Know if you've ever heard the talk about. You, know what are the current odds of, a rate cut and how they go. Through you know the CMA. Will actually publish, the. Current odds statistically. Of having some sort of a rate cut basically. They're using an odds based, or a probability based algorithm. And they're, applying that to the, current condition, of these 30-day, Fed Funds futures based. On the amount they're discounted. From that par value now. To. Replicate, you know the cme. Probability. You. Know algorithm. I'm. Not going to go into that kind of detail but, still i'm going to give you kind of an idea of how you can kind of understand. Where things, are going with this the. 13-day. Fed Funds future, that. Expires. In. September. And that's 13 days away from now from expiration. That's, the one that's going to be you know significantly. Impacted, by you know any rate decisions, that happen from the Fed and. Just. Be you know when they'll all be impacted, but that's the one that's closer to expiration so it's basically the spot. Now. The current, spot of that, of, that of that Fed Funds future, is ninety. Seven, ninety three, now. If we take 100. So. I'm going to take 100 that's the par value and, I'm, gonna subtract. Ninety. Seven. Point, nine three from. That boom. That's. Gonna come up with the rate of. 2.0. 72.7%. 2.0, seven percent it's basically two hundred and seven basis, points there so. What. You'll have a tendency, to see is the. More, the. More the market believes, that the Fed is going to make. A change in interest rate policy, this. Will, start to take on a look of that gap, being, their new target, rate talking about this yield the gap between par, and that current. Price being. The new target, rate and what's interesting is that the current price of this is right. Now two point. Zero seven. The. Current, target rate from the Fed is. Two. To two and a quarter. Is we're.
Taking A look at this, Fed fund future again. Expiring, in 13 days right. Now it's, almost priced, as if it doesn't believe, that the Fed is going to cut rates at all, now. If we go out into October, right, if you can visualize this if the Fed cuts rates, by 25 basis, points that, means that their new target, is. 175. Or, 1.75. Percent to, two percent, you'll. See this. Value. Go higher shrinking. The difference between par. Value and, and the value of that thing even going out into October, expiration. And Beyond it's. Not until you get to November, that. This that, these Fed fund futures are pricing, in maybe right, around a 50. Basis points or excuse, me not 50 basis points but a 25, basis, points rate cut because. Essentially. If we take for example this, 98, 10 subtract. So. Subtract, or take one hundred subtract. This 98. 10. Oh, and, I, did that wrong let's try it again 100, minus. Ninety. Eight point. One. Okay. Well in October. Actually, they're pricing in more, than two percent just, barely, right but pricing, in rates. Lower than two percent and again the current target is two to two and a quarter on the, Fed Funds and. Anyhow. The more, these go above, 98. The. More the markets thinking that rates are going to be cut but take a look at that one for tomorrow that's the one that's fascinating, me that, one's actually. Pretty. Low right now it's, pretty low implying, that maybe there's a chance there won't even be any rate cut at all and, you can even look at a chart on that if you were interested you, could bring up the zq1, 9. And. Actually even just this is EQ in general, if you notice how the. ZQ just, in general has been dropping, here, and you could look at the 1 9 as well by. Just typing that ticker symbol in there but, it has gone down as, of late and with that dropping. That, means the market is losing confidence in, a Fed cut so it's gonna be alright so here's my whole, point. It's. Going to be interesting to see what happens in terms of the, response from the President and therefore. The response, from market participants. If, the Fed comes out tomorrow and says that we're not going to cut interest rates at all because market, conditions, just don't warrant it quite, yet. Right, well, we'll see what happens, but going, on to maybe another point here, if. We take a look at for example VIX. The, volatility, index, it. Has come down in the past couple of weeks and I don't know if you remember but last week I mentioned to. Keep your eye on some, of the lows in, VIX we're, talking mostly about Russell volatility, but it has done the same thing here it's. Broken through some recent, lows meaning, that a lot of confidence, is coming back into the market, subsequently. We've had a pretty strong rally in. The broad market itself, right but it's interesting with VIX, getting.
Down To this low point it's, almost like the market, is growing. Quite complacent. Right now some. Investors, who are thinking with, volatility, as low as it is and with the market sort of as calm, as it is right now if the. Fed does something, that's shocking you. Know some traders might think they could see an, expansion. Of implied. Volatility. And talking about volatility, going, up quite, possibly, market, prices going down now. I don't I don't mean to I don't, mean to you know throw fear. Out there that's not where I'm going with this I'm, just saying that right now the market is B has become quite calm. Relatively. Speaking to what we have seen and a, lot of that is getting, comfortable with the, last earnings that have been reported current, economic. Reports, that have come out and kind. Of the position of course on the trade war and sort of hope of a better future. In terms of that trade war but nevertheless volatility. Complacency. Is a little bit higher right now the market is more comfortable, that, fly in the ointment with, the Fed right, could be something, that with volatility as low as it especially, if the Fed does surprise, and, have. No rate cut at all because I think most people out there just kind of thinking for gone you, know your average Joe is kind of thinking for gone 25, basis points worth of a rate cut, boy, that you know this could be something where volatility, does go higher but, on the other hand if, it's taken different from that let's say the Fed doesn't even cut rates at all and. And. Investors. Are okay with that because they agree that the economic, data is decent. You know maybe volatility. Actually goes lower from here but let's talk for just one second, how if. Someone, were considering. Maybe a position. Right, and we don't go into positions, all that much in this class we, just kind of talk about what, types of things might. Generate, volatility. In markets but. I do feel like it's appropriate since, we're having this conversation just. In case you aren't, aware there. Are some things that traders, could do to have, positions.
On Just. In case, volatility. Does go. Back up talking about implied volatility, does go back up and that. The market is overly, complacent. Right now and maybe there's a shock of fear on its way which, by the way would correspond, with probably, a Down move in the S&P 500 if that, occurred, but. There are things that a trader could do to. Potentially, bet if benefit, if there, is an expansion, or an increase, in that implied volatility. They, could as long as they're comfortable, with it although it's kind of a difficult product, to trade but. You can trade options, on the, VIX itself, the, VIX, here, does. Say you know this is just an index. It is based on the. Volatility. Futures, actually, which kind of makes this a little bit interesting. When you're trading it but, it does have options. And for, example, in the, next few days if volatility, were to have a sharp, move higher if somebody. Owned a call or some, sort of a call spread something like this there's. A chance those options, could increase, in value these. Calls increasing, in value because of volatility going, higher I, could. Be a hedge, for. A volatile, increase, people, sometimes, will use these VIX options, there, is a caveat, to using these VIX options, however that. What. You see on your screen isn't. Necessarily, a strike price that, you. Might. Represent the current price of VIX, for that option it's a confusing thing I don't have time to go into it, maybe in one of my options classes, I'll address that tomorrow, in fact yeah how about my probability, based options, class tomorrow we'll. Talk about. Some. Of these VIX options, and how VIX futures, volatility. Futures, can. Impact, some. Of these option pricing, or some of this option pricing and it is kind of interesting because, just. Something to whet your palate, if you're familiar with option, trading if. We take a look at an at the money call, so, we've got the 14 strike price call here it, has a delta, of 89. Now. When you're used to seeing at the money options, those. Deltas are more, like 5050, right this, at the money option, is 89, which, would imply that, that, option is not at the money that it's kind of deeper in the money just, to give you a heads up because this.
Is Actually going to be sourced against the value, of a future that's, going to be expiring, 14. Days from now not necessarily just the volatility, index the current price but, let me show you something else that might be a little bit more intuitive, to understand, if you're. Thinking volatility, could go up and you. Know maybe there's, an option position, to explore, that, could benefit, from an increase, in volatility, and for, that what I'm going to do is switch over here and go. To the S&P 500, index. So. We'll switch over and take a look at the SPX, for just one second, and on. The SPX, note, here the SPX right, around is right at 3,000 in fact today it's at three thousand, five up, seven, bucks so the S&P. Actually, closed strong. Today and when, we're looking honestly. When you're looking at the price pattern, on this that's, kind of a bullish, looking, price pattern, in the underlying SPX. Here the S&P 500 we. Do have some pretty significant. Resistance, and the. The high that was, in July at. 3027. It's quite possibly, we're getting close to that level of resistance up here but, if you're just taking a look at that price action that's a close above the high, of the low day and some technicians, might actually consider that bullish, or better, for a low volatility condition. Or. Indicating. That volatility might drop but again VIX is already low and, if someone maybe wanted to hedge a little bit maybe. They've got a bunch of bullish investments. And they're worried that if volatility increased. They, could have some exposure, to their investments, if those investments, are correlated. To the S&P 500, anyway, and so, a big move up in VIX likely. To correspond, with a big. Move down in the SPX. You. Know quite possibly, a trader could put on a, position. That would profit, if the, SPX, drops, which. In a way that's. Actually a hedge for. Volatility, increasing. Right if you and I know that's weird, but. When, VIX goes up. Usually. Very, good chance, that the SPX, is going down especially if that happens, in a significant.
Way And so, what I'm gonna do is show you how somebody, could take maybe. A shorter, term trade something, inside 20 days or so construct. An option, trade in there that, would profit, on the SPX, if it had a move down which. Honestly, would, correlate, with. Volatility. Going, up right, so, volatility, goes up a bearish, position, on the SPX, could, benefit, and, so let me just show you a way that somebody could construct, maybe. A short-term, spread. Trade and as I'm doing this by the way a thought, that I have is that maybe, a trade where if it doesn't, work there's, not a whole lot of money at risk relatively. Speaking but if it does work there, could be better than maybe a hundred percent return or a very strong return. That, was the result of this working so that's kind of what a hedge type of position is is. It's a position where somebody doesn't necessarily. Invest, a ton to. Get a large payout so. If it doesn't work they can survive that there positions. They, make money if the market goes up but. If it does work it can do some good to offset some losses or some risk from, again that volatility, increase, or, a sell-off here, in the, SPX, now. I am going to choose a shorter. Duration. Series of options, here and you, know it's kind of up to the trader how short duration, they want to go some. Traders if they're thinking hey this whole. Fed thing you know and basically. Whatever, uncertainty. Could, happen if they're thinking that's going to be out of the market by the end of the week they, might decide to just trade options, that expire in the next few days that's, one of the beautiful things about the SPX, is that, there's all sorts, of expirations, that are available but. You might want to match your timeframe for, how long you might want a position, to benefit if, volatility, does have a move higher and if markets go down. But. Just for illustrative purposes in, this class I'm, gonna go with something between, ten. And twenty days I'll, tell you what let's go out what, day are we looking at right now today is a Tuesday, let's, go with these 17, day contracts. So. They're gonna be expiring, on October. 4th, and, so. Something short-term, but not really. Short-term, here and what, I'll do is look at the put option, side of the market and, on the put option side of the market. What. We're gonna do is look. At potentially. Buying a put. At a higher, strike price and, then. Selling, a put out of the money at a lower strike, price and, you can choose how wide you might want this spread. But, for you know depending upon the size of your account and how much money that you might, want to invest you, know kind of a common. Width. The traders, might use here is maybe 20, ish, wide, in terms of that spread is maybe a starting, point but I'm gonna look at a twenty, dollar wide, this. Would be a long put vertical buying. The 305, puts and selling. The. 229. 85. Puts, against. It okay, and and in, order to create that trade what I'll do is just go to these 305's. All right, click and choose by, vertical. Spread and that will get me started with a spread, trade here but, my strike prices aren't, necessarily the ones that I just pointed, out and. You know what just for a second let me just deal with this spread because, I don't want you to feel like oh if I do this I have to do a $20, wide spread it's not that, way okay choose. A spread, width that seems appropriate for your, needs right, if you're if, you're thinking, about practicing. A trade like this okay. But this is a five dollar wide spread, the. Maximum, value that this spread could have is, going. To be a value, of the difference between those strikes so that's five dollars now. What would it take in order for this spread to become worth five dollars it. Would take the market, being. Below. 3000. On the expiration, date now, the expiration, date is. 17. Days from now so, if the SP, is below, 3000. 17, days from now this. Vertical, could, become worth $5, the. Current, mid price of this vertical spread, the markets are closed so there could be some width going on in here but the current mid price of this spread is a dollar, 85. So. Just. Let's do some, math with together. Here. And. I'm gonna bring up an annotation, tool the, maximum, value this vertical, could have buying the higher and selling the lower is the strike width that's $5. The, current cost is, a dollar 85. Okay. So you have to remove that from the $5 maximum, value here but, you take five and subtract, a dollar 85, from.
That And. What do you get. You. Get. 315. And. Trying. To write freehand, like this isn't as easy as it looks, but, basically get three dollars and 15 cents as long as I'm doing my math correctly there that's, the reward on this trade so, if the, market if the SP, is below, 3000. 17. Days from now it closes below 3000. This spread goes to $5 and a, dollar each five invested, if, investor, were able to get that price granted, that's the mid-price in the markets closed but, that could become worth. 315. Now, when you're talking about the return on, that, type, of investment. I'm. Going to take, 315. Three spot 1 5 and. Divide. That by the investment. Which is a dollar one, point eight five here. That's. A position that almost. Has a, 200%, return, and that's, just if the market is below, 3,000. Now, if someone wanted to maybe have. Something that could provide maybe a greater, dollar, amount, of profitability. There, and. They're anticipating, that maybe the market could even have a larger, move lower that's. Where they might decide to maybe adjust, this spread, width and, I'm going to go down to the 285, s here so, that'll make this a $20, wide spread and as, I mentioned. Before the. Spread is going to become more expensive, there's, going to be a greater investment to get involved with this spread but. Now the spread, could become, worth. $20. -. The 6:55. Investment. Now I'm just going to hit confirm and send here just so you can see this that, means it could have a profit. Of. 1345. So, thirteen hundred and forty five dollars, compared. To a maximum, loss or a risk of six hundred fifty five dollars okay, so if the, S&P dropped and it went all the way down below twenty nine eighty five and there, was certainty, that we're gonna be below twenty, nine eighty five on the expiration, that. Spread, could become worth as much as twenty dollars now let me ask you this what, do you think is going, to be happening, with volatility. With, VIX if the, market, starts. To sell off like that and granted that's not even a big sell off some of these numbers that I was just looking at there but. What do you think the market is likely to be doing or volatility, is likely to be doing if the market sells down, volatility. Is likely to be heading up and, so, in a way somebody, could use actually, just a straight, spread, on the, actual index, like a bearish. A bear put spread there as a way. To profit. On an increase, in volatility, if those vol relationships. Hold up and, and. Go from there now. Note this one thing I wanted to show you as well. And this is getting into a little bit of the more heavy analytics, on options, and I'm going to leave it at this let, me just go ahead and take this over to the analyze, page for just one second. If, I'm on the analyze, tab I can actually, see the. Greeks, that. This simulated, trade brings. Into the account and interestingly. Enough, this. Trade would actually, by, implied. Volatility. It would actually buy some of that volatility, that we've talked about and. You can see it right here, so, when. You're on the analyze page you. Can simulate that trade, and so all I did was right-click, and choose to simulate this and, that's where we are now on the analyze page there's, an area for price lysis, if, you in this price slices area just on the far right reset. Your slices, and you've got this trade simulated, at the bottom of the page if you, look close in this, slices, area you. Can see the Greeks and these, Greeks are basically, the the way this trade for. The next earth for this snapshot. In time is, designed, to make money it, can make money if the, market goes down because, it's got a negative Delta, right. Now it actually has a positive theta so in theory as day goes as days go by this. Could potentially be, a profitable, trade as well of course that could be just. Something. Going on with the bid-ask spread, there but, it's got a positive. Vega, as well as 10 which. Means if volatility, goes up this could make $10.
From That next one dollar increase, in implied, volatility, so, two things here it's just a bearish trade you. Can make money faster, if the market drops and, also, if implied volatility, goes higher this. Could profit faster, from doing something like this and that, you. Know if, someone's doing something like this especially if they've got a bullish account already it, would be kind of like a volatility, or a price, hedge for, their portfolio, okay. But I wanted to show you that. Especially. In lieu of the fact that we do have the Fed. Tomorrow and some some, you, know really interesting things, are starting to line up of, course it could be a big old nothing sandwich, who knows but. The odds it looks like of a, rate cut based, on some of these fed futures is changing. Hopefully, you were able to learn something from that and also. Volatility. Is relatively. Lower it has dropped a lot lower as of late and so, some. Traders might be thinking, maybe. A surprise comes into the market tomorrow and maybe, volatility. Is due to have an increase, this, is where a trade like that could benefit, and if, it doesn't if the markets just go higher well. Then there's a small amount investment. Amount, of investment, but if it does work there's a large amount of return. Okay, so by the way talking. About, the. Different subjects, or the different items in our agenda today that's. That's really the fear assessment, when, you're talking about VIX, when. VIX is low fear. Is down when. VIX is high fear. Is high and so right now fear, has gotten pretty low right. In front of a pretty important. Announcement. We'll have to see not, to mention we've. Got some geopolitical. You. Know shenanigans, going on with quite. Punt you know the u.s. mentioning. That hey it was Iran that fired that airstrike, and there, was even you, know more reporting, on that today, where. The u.s. is is feels. Fairly convinced that it was Iran that fired the airstrike on the Saudis but, volatility. Hasn't really moved much so, it'll be interesting you, know there could be some volatility fireworks. Coming up in these indexes, over the next couple of days now. One more thing I wanted to talk about here is. Adobe. And. FedEx. And, you. Have probably, heard as of late. Well. Just so you know these these, two names have earnings, that are reporting, today. They, are today right 917. After. The close it looks like Adobe, has, reported. Their earnings earnings came. In at, 205. The. Estimate, was about $2. So, looks like Adobe, has beat, their earnings, if. You're wondering, hey what's, stocke doing, in the, after-hours, market, on that news what. You can do is switch the charts over, and when. You're switching the charts over you can actually see the after-hours. Price action when I'm when, I say switch the charts over I switched, to an intraday, chart so I'm looking at a 15-minute. Chart right now and. Notice, after that earnings announcement, looks, like Adobe, initially. Bid, up as high as 292, but. Right now they're all the way down at about to 74. This. Is an example and we've talked about it before how. Sometimes, earnings, can look good but. Stocks can actually, sell. Off and so, I've got an assignment for everybody out there if you're willing I haven't, looked at the numbers. Right or the numbers yet because they just came out maybe. Take a look at the news and have challenged, you to do this before, but. Dig there into the news and see, if you can figure out why, maybe, the market is reacting at, least so far in, a, negative way and maybe. One of the things to look for in the news is guidance. You, know guidance, and I, just put my pointer on the word right there but, beyond earnings, how are their revenues, looking, and what, are they saying about forward, guidance, because. This has been a name that's. Been you know more of a momentum, type of company. You. Know less value, more momentum, and growth type, of name it. Has actually, sold off pretty. Aggressively, sort of following, the theme the, momentum, has been out of favor and, if the stock were open, right now regular.
Markets They'd be down at about 275, that. Would put it right near kind of support down here one, more let's take a look at this although I am running out of time. FDX. So FedEx they. Reported, their earnings just putting my pointer right on top of the number there so. Their, earnings, estimate, was three dollars and 23 cents and it, looks like their report, has three is, 305. So. Here's a question drumroll. How's, the market reacting. To that earnings, announcement, let's, switch this over to a 15-minute, chart again and boom. FedEx. Is absolutely, getting hammer, smashed, in, after hours right now it's. Down to, 157. Now. FedEx. Big transportation kind. Of bellwether name it'll, be interesting to see what happens to transports. Based. On some of this news out of FedEx but I would, encourage you to maybe dig into the news and see what some of those reports are saying about not. Only the miss on earnings, but, maybe what their forward, guidance looks, like as well. Those, types of things not just the actual announcement, but, what the company is saying in terms of guidance going forward for the next quarter that's, a big driver often for why stocks do what they do after those earnings announcements, but, you're probably going to see some volatility, on those names tomorrow morning also. Keep your eye on energy, probably, not out of the woods here, in terms of the uncertainty, that's gone on in energy, and, also keep, your eye on the defensives, like utilities. Not recommending, them but utilities, gold etc things, like that maybe bonds. You. Know those have been assets, that as the market has been weak those, those, assets have actually gone up and I would encourage you Wednesday. Evening, tomorrow night after the Fed is done, check, out Brent Moore's he. Goes through a sector, rotation class. He, does that at I, keep, getting my time zones mixed up because I get confused what the times are listed on this paper right here sorry, if I messed anybody, up on their time so far but, Brent Moore's will be doing a sector rotation inter, market analysis, it's, a my time 5:00 p.m. so, that means east coast it'll be at 7 o'clock 7:00 p.m. and that could be a good class to, look at where after all the dust settles with. The Fed and all, the volatility, that could happen tomorrow check. To see if there's been any rotation. Within markets, could give you a heads up as to what is weakening, and what's getting stronger, ok I got a run thanks, for your time everybody, here's, my final disclosures. Hopefully you're able to learn some things today and thank. You once again for your attendance and we'll talk to you in, another class hopefully in the very near future tomorrow I'll be doing weekly and, probability. Based options, the. First two classes we do tomorrow so, hopefully I can see in those classes until, then trade. Well everybody, in.
2019-09-22 08:30
