Managing Vertical Trades Review | John McNichol | 11-27-19 | Trading Vertical Spreads
All. Right well good afternoon for, those dedicated, learners. That want, to keep learning about the markets, as we go into Thanksgiving. Thanks, for being here John, McNichol, and this is going to be trading, verticals, spreads. Reviews, so stick around. Once. Again good afternoon thanks for being with us here whether you here live or listening to the archived session, to, appreciate, being with, us today as, well as your support, for TD Ameritrade education, let's, take care of our disclosures, and we'll get right into it also, make a note I am your host John McNichol you can see my Twitter. Handle on, the title page there, as. Well as on the lower part of the screen so. If you wish to follow myself, as well as some of my fellow instructors. And coaches here. At TD Ameritrade education. That's, how you can do it there so, let's take care of our disclosures, options, are not suitable for all investors as, a special risks inherent to options traded may expose investors, potential rapid and substantial. Losses carefully. Read the provide. A copy of characteristics, and risks of standardized, options, spread, straddles, and other multi leg option. Strategies. Can entail substantial, transaction, costs include multiple Commission's which may impact any potential, return also, advanced option strategies often involve greater and more complex, risk than single leg option. Trades now. In order, demonstrate function out of the platform we will be used in actual symbols keeping in mind TD Ameritrade does not make recommendations. Or determine, the suitability of any security or strategy for individual, traders any. Investment, decisions you make in your self-directed account, are solely, your, responsibility now. We have a demo account for, our practice, trades that were utilizing it looks like a real account but it is not you, have the ability to practice what you learn here today by using paper money that software, is, for educational, purposes, only and successful. Virtual trading, during one time period does not guarantee successful. Investing, of actual, funds during later time period as those market conditions change continuously. A past. Performance of a new security strategy, does not guarantee future results nor, success and transaction. Cost commissions and other fees are important. Factors should be considered when evaluating any trade. That 0 Commission, applies, to online US, stocks. Exchange. Listed stocks ETFs and, option, trades that, 65%. Options. Contract, fee applies, to option, trades. All. Right. So. We're going to do today as we go, into the holiday season together, we'll. Take a look at some, of the existing. Open. Verticals. That we have we'll. Take, a look, at. Some. Of the ones that have already been closed out you know over the last month, or so kind. Of get a a review, of some of the trade, management, there and also see some of the potential, outcomes, when, it comes to, utilizing. Vertical traits, we'll, also go ahead and see if we can initiate.
Some. Additional. Practice. Trades, I'd, like to do a little focus, on. Long. Put. Verticals, something. We may not have talked as, much about now, with the market being at those all-time. Highs one, may think well there may not be any stocks that may. Have potential, for going down or are going down and there, may be some out there so we'll, see if any of those are setting. Up our. Learning. Objective, for today is once. You, get through this session here you, should be able to know how to review. Open. Positions, on, your, paper money account likewise. Being able to initiate, a, practice. Trade on a, long put vertical, now if you have any questions, feel, free to utilize the, chat we'd love to hear from you and as I mentioned again you can see down on the bottom of the screen my, twitter handle if you'd, like to go ahead and follow to. See what. I'm teaching I'll. Push out some good, educational. Information, on what we have here at TD Ameritrade as. Well as you probably learn a little more about myself. Alright, so let's go ahead and get right into it I'm. Gonna go ahead and share the thinkorswim platform. We'll, start, off by looking. At some existing, positions. Here. Point. Your attention. Towards. The center, of the screen here these, are a couple of open, positions we currently have, now. Two of them I actually initiated. I believe over the, last, day or so in, our swing trading class which, is every. Tuesday at market open. Did. A little, directional. Vertical. Trade there so. Just. Initiated, so there's still some time, those positions first. One we'll talk about is, the. SPX. Position. That we have now. The xpx, position, this was an example of a, short. Call. Vertical that we did as, a, hedge, on the account some reason my little highlights not working. And. As. We look at the P&L you know notice we are down, twelve. Hundred forty dollars on, that, practice, trade, and that. Would be understandable, since, this was initially, put. In as a, hedge. Against. A downward, move, in the market certainly, worked, as intended. The, market went higher and. Therefore. This, position, would go negative. So, what. Does that do, well it may limit, some. Of the, upside that we had on the account the. Example that we did it was called beta, weighting, and so probably good reference, for those you that are new, to. This webcast. Welcome, appreciate, you being here a, good. Follow-up for you is if we go to the education, tab. And. Wow. Look I've, earned. A fun. Run. Badge. From. TD, Ameritrade education. For. My engagement, I guess on the website for multiple days I haven't seen one of those things pop up for a while. But. I'm on the education, tab and. If. We go. Under. Options. Under. Options, a lot of the concepts, that are discussed, in this, webcast as well, as many of our other, options. Webcast can, be covered in the. Trading. Options, course this. Is all self-paced, so. Whether you never done it good. Opportunity. To jump in on that maybe. If you've attended, that course in the past maybe, take a review, of that and see what's new, but. If we go ahead and go to the webcast, up at the top through. The education. And. From, here we can go into the, archived. Webcast, you can see our upcoming webcast by the way James, Boyd will, finish off the day as we go into Thanksgiving, with. Option. Strategies. Select. An option strategies, that'll be our last live webcast, for today and then, we'll have some, I. Guess. Rebroadcasts. Of some, previous sessions, through the rest of the day but, our last live session will be right after mine but. You can also go into the archives so if I go ahead and click archive and. You. Can select by, instructor. So we're gonna go ahead and select. Myself. John McNichol you, can see some of the previous, sessions, that I've done. For. Instance last week we discussed bearish bounce with short call spreads some, of those didn't quite pan out as the market went higher. The. Week, previous, to that sometimes. I may have a subtitle, on them sometimes, not I believe, on the November. 13th. This. Session was. So. I'm trying to bring it up. Let's. Try that one more time. And it, may not be coming up since, I'm, already on, YouTube. But. In previous sessions we did do a. Hedging. With, the S&P 500. And. As. I go back and look at the archive. My. Instructor, John, McNichol. You. Can see the note as far as with our live webcast for the rest of the day and.
Going. Down and some of the other ones. We. Just got short put verticals, which is a bullish. Credit. Spread that, was towards the end of October. And. On. The, 23rd, of October, the long and short of it trading, verticals, where we actually looked at long. Calls, long puts as. Well as short calls and short put so we'll touch a little bit on some. Long, put. Verticals, here today but, if you want to kind of get a good well-rounded understanding, of. Some of the different verticals, that are out there one. Would be certainly reviewing. The course and trading, options, and as far as the application, of that taking. A look at the archive over the previous four weeks for. Some of these same sessions, on trading verticals, alright once. Again. Eric. Says what's a fun run you, know the way the weather is across. The country I don't think many, of these runs would be very fun unless. You're a polar bear there but, Eric I appreciate, your enthusiasm there. So. Let's, go ahead and continue. To review in some of our positions, here. Look, at when. I'm. Gonna click on that and, as. We look, at Wynn. Wynn. Resorts, you know you can right-click on, that. Underlying and select. View trades this will show you when this trade was initiated, 1120, that. Wasn't too, long ago they're just. About a week ago and. As. We look at the position. You. Know some traders as you're looking at verticals. You, know may get. Confused, as far as bias you. Know is it long is it short, a. Good. Way of, identifying. At least, the bias. Of the position, is look. At the short strike. So. For instance in this example are short, strike, which is the one that was sold. Notice. By the negative twelve was, the one twenty four strike. If. We. Look at the long, strike, the. One that was bought that, was a one twenty six. So. Basically if you start from the, long. Strike to. The short strike and look at the direction, as far, as price, so, one. Twenty six. Go. Into one, twenty four. That. Would be going down in price so. Right there that should tell you that that is a, bearish. Trade. That's. An example of a bearish, trade now, the question is is. That a. Short. Vertical, or a long. Vertical. Well. That is the, result, of was. The trade a credit, or. A debit and. If. We sold, two. Dollars, two. Dollars and, two cents and. We. Bought a buck. Forty eight well. A two dollar credit, -. A buck forty eight debit should result in a net credit, in this case I believe that would be about fifty two cents, so, this would be an example of a short call vertical, and short. Call verticals, are neutral. To bearish because as we go from the long to the short strike that price is going down. Now. Where are we at right now, we. Can see that you, know PL is off a bit now, there's still 23. Days on this. Trade. The, current. Mark, is at, around 120, 195. Now notice that 120, 195, is you, know still outside, of that spread, as. A. Matter of the. Target, is prices. Should stay away from that short strike so. Let me go and look at the chart. And. We'll bring up WMD. Or not WMD. Cwy. And n and. Zoom. In on this you. Know. Again this was done back at around the, xx. When. Prices. May have been bouncing. Down you. Know found some support and trade, it up notice. Prices. Did touch. That's. Strike let's get rid that screenshot there. You. Have touched that short strike and kind of backed off of that we're kind of an inside, day right now so, it's still a little negative however this position, would have a maximum, gain as long, as the price, twenty. Three days from now stays. Below and outside. Of that spread so we'll continue matching, monitoring. That, another. Way a monitoring, for the profit is you. Have the a column, you can add which is PL, percent. P&L. Percent, you. Can simply add that by going over to the right-hand. Side of. Where. Your, positions, are at you'll see a gear. Let's. Try that one more time, if. I go ahead and click on that gear. This. Is where you can go ahead alright. Work with me mouse. Click. On the gear. Alright. The. Mouse is that I'm, trying to keep ahead of the mouse and the mouse will not allow, me to continue. Doing what I need to do so I need to go ahead and cut, this out here I'm. Gonna click on that gear, and. In. The available items if, you start typing in percent. You. Should see a P&L. Percent. Box, there. Anyone. Can go ahead and double click on it or highlight, it and select. Add item you can add that in your list and. You. Can also left-click, and drag that up, the. List if you'd like so. That's what we did previously.
And. What. You could be looking for as far as potential profit, targets now all these trades are defined risk so we define the risk before, we entered into the trade willing. To potentially, accept that max loss. As. Far as potential gain you, know looking for a, positive. Number here a positive, percentage. As a target. Some. Traders maybe target in you, know 50%, of. That maximum, gain. 60. 70, 80 % we've, used some examples, closer around 70 to 80% in, the, case of our. Short. Vertical. Examples. Because, they're a relatively, small credit, in the case of some of the more directional, long. Verticals, one, may be targeting, around a 50%. Return. On risk just a couple examples your. Results may vary something. That you can practice with. So. That's, what we got going on with wind the. Other ones we just initiated. Not. Too much to manage but to, learn a little bit about what type of spread it is again. Look, at the, short. Strike and. Then. You have the along strike as. You. Go from the long strike to the short strike 29. To 28 that's going, down so. Therefore this is a bearish. Trait what. Type of bearish, trade well. It is a vertical because. They're the same months it's. A put vertical since, we're have puts involved, and. It. Would be a short. Put. Vertical correction, a long. Put vertical because. As we go ahead and view. The trade. Notice. We bought. With. The ten contracts, sixty-two. Cents and we. Sold, twenty-eight. Cents sixty-two. Cent debit minus twenty-eight cents that should result in a net debit, so this is a long. Put, vertical, which. Would be bearish. As. Far as the set up looking, at GLW. Zooming. In on that one, could see price action making those lower highs lower. Lows. Broken. Support. Broken. Support potentially. Acting as new resistance now. Yesterday. Prices, had traded, lower but then kind of came back up, so. We don't have a confirmation, of the balance at the moment we'll. See if that occurs. In. A long vertical which. Differs, from a short vertical in the, long vertical. The. Desired outcome, is for the price in. The examples that we've gone is to trade through the spread to, that short strike and, we.
Sold The 28, that is the target and at, the priced rates through the spread and is below that spread at expiration, this would have a maximum gain now, again some traders may look to if they've, captured half, of that game you may look to scale, out or close out the position. So. We'll see how that plays out, the other one was. AMD. And. When. I took a second look at AMD. I'm. Second-guessing, myself on what I was looking at at the time or. I may, have been looking at it from purely a contrarian. Standpoint. As. AMD, made, a swing high and had. More of an inside, day so, I was looking for more of a pullback. -. Possibly at least trade back, down into its range very, contrarian as the trend is up you. Know some traders may be considering, more of a bullish trade and looking for the prices to bounce so. I believe I did this as strictly more of a contrarian trade, and what. Type of trade was that we, go back to that monitor, tab. It. Allowed me to do that. Whole. Issue with some, of our drone tools here. Look. At AMD. Again. Look at the. Strikes. Short. Strike was 41, the long strike was 42 if we go from 42 to 41, that is down so, that is a bearish. Trade what, type of bearish trade it's, a bear call spread. It. Is calls and a. Bear call spread would. Typically. Should, be a, credit. Spread so. A short, call spread why. Because, if we go ahead and right-click view. The trades. We. Sold. 92. Cents, we. Bought. 67. Cents a. 92. Cent credit -, a 67. Cent, debit. I believe, that turns out to be in about 25, cents. So, 25 cent credit short call spread, also. Refer to as a bearish. Spread. All. Right so there's our open positions there let's. Take a. Quick. Look on some previous trades. That we did. We. Go to account statement, and. Once. Bring it brings up the account statement this, is where you can go ahead and see all kinds of things such as your your P&L for, year-to-date. From. Various, classes, you can see you, know practice, trades for everything from futures, equities, options. In. The mix there from various webcasts, that I do and also. Practice in in-between. We, can also look at previous, trades. So, for, instance up at the top here. As we go and highlight this. You. Can select an account you, can go back any number of days and you can even bring it up by symbol. If you'd, like or you, can go ahead and bring up all of those previous. Positions, by just clearing that out. Hit. Enter so you see you, know all the positions, over. In this case the last 90 days couple. Ones a note that. Marked. Down in. No particular order. Federal. Express. Just. Kind of see you. Know, different, outcomes, when it comes to some of these spreads. So. This, one's going back to an initial. Spread. Four. Contracts. Let's if it went back far enough on that. One. 45. So. Here's a spread, on. On. Federal. Express going. Back to let's. See. Going. Back to October. Sold. 145. Bought. A 50. So going from 150. To 145. That's. An example of a, short, call. Vertical. We. Sold a buck 53, and. As. I'm looking at it I do, not see. An. Example. Of us closing, out, that position, gnosis was a to open position, notice. There's no offsetting. Positions. Here with, that same expiration. So, that dollar 53, credit, was, a maximum, gain. Looking. At. 10:30. Which is about two weeks later. Initiated. A another. Vertical.
What. Type of vertical it's a put vertical. Was. This a bullish. Or bearish again, we can go ahead and look at the short. Strike the short strike. We sold was. A. 150. We. Bought the 148, so if we go from 148, to, the short strike that is higher so this was a bullish. Spread so we expected, the price of. Federal. Express to. Stay. Below. For. Correction, to, stay above, the, short strike of 150. We. Went ahead and sold 46. Cents and. On. 11-5. We've. Gone ahead and bought, it back for, 10 cents so this is kind of one of the exit. Strategies, that one may consider. As. Far as with the trade you know if one sold 46. Cents and let's, say, calculated. 80%. Of that maximum, gain well. That would be about 30, some sense so. What, one can do is take that 46. Cents, multiply. It by 20%. Which. You know let's say that would be probably about. 11. To, 12 cents to shy about lemon, sense and change so, when. The value, of that, credit drop down to 10 cents, one, can buy it back and lock, in that game and with. Our example here, that. Also freed up capital. The. Expiration. On, this. Spread, was November, 29th. We. Closed it out on 11, 5 so, that was easily. About 25. Calendar. Days that. Were still there. And the. Question is do you wait 25, days, just. To try and capture that. Extra, 20%, some. Traders may consider well. Captured. Most of the game can, free up the capital, and do, something. Else ok. Also. Had a stock, position, there that. Closed out this may have been as, I'm. Thinking about it. One. Thing that probably happened. In this case, at. Least on a couple it could be in a previous spread I may have had some stock put, too. Although, that doesn't, line up with this and may have been on a previous, trade that, can happen as well where one may result in a, position. If. The. Options, expire in between, and I think I have a good example of that with, the. Vidya I think. It was in the video let's. Bring that up. MBDA. You, can see a series, of verticals, that we've done over, the. Last two months and you, can see different results. For. Example, you. Know if we just go and look at the net price you can see which, ones are debits and which, ones are credits, so, on an open, a call. Vertical. That's a debit that should be a bullish, trade, again. Looking at going from the strikes, going. From the short strikes we have going, from, the. 177. Down to 182, or I should say up to 180 - okay. That is a bullish, trade, so. That. Was position open for a, 2.45. Cent debit if. We look for the offset on, that. That. Was this vertical, here. That. Was on 925. On. October. 11th. You. Can see that same spread here same expiration, same. Strikes closed. It out for a four, dollar and five, cent credit, so. That was about a buck. Let's. See that would been about a buck. 65. No. Buck 55 about a buck 60 -. Commission's. On. Contract, fees there so. That was pretty, close to about 50%, of that, maximum, gain. Since. It was a $5 wide. Looking. At some other examples. We. Have. Let's. See. The. Example on the credit, we, kind of overlap we had a a credit, and a debit so, we can see on the. Put side. We. Had sold. Eight November's. 170. 172, this, was a 70. Cent, credit. Now. Again kind of calculate, you know what's about 80%. Of that maximum, gain. You. Know on about 70 cents that's probably about 15. 17. Maybe about 17, cents. So. Going from October. 9th with, the passage of time. Now. It's interesting on this one I believe. NVIDIA, actually, traded. Significantly. Higher within, two days we. Were able to buy that, back for. 11, cents so. Realize in that maximum, game relatively. Quickly not, having to wait go into 8 November. For that expiration. And. Then. Finally. We. Have an example of another. Debit. Trade. So. As we look at this this, was a dollar 30, debit. It's. A call debit, so. That, would make one imply that it's, more unlikely a, long-haul. Spread, because. It's a debit it's long and it's, a call that. Would typically be bullish, because as we look at the strikes. Going. From. 195. The, long strike to the short strike which is 197. That. Is going up in price, so. We had a buck 30 debit. And, we. Closed it out on the 19th, for, about 250, now for that 250, credit, notice how wide is, the spread it's two dollars and 50 cents. The. Most that could be made or lost on the spread is two dollars and fifty cents, so, by closing it out at 250. Essentially. That. Was the maximum. Gain on the, spread so, from a buck 30 debit to a 250, credit that, we hit her max gain on that okay. So some. Desired outcomes at least witness, seem to work out well. Let's. Bring up Marvell, mr, VL. This, was another one. October. 23rd. Was, initiated. 22. November, has came and passed that was this week, 26. Cent credit. Remember. That's per share you do, the math by multiplying, by a hundred, so. $260. Correction. 100, would be, $26. Multiplied. By ten you. Know I believe that's about two hundred and sixty. Dollars, now. Notice. There's no closing position, what happened is the. Strikes 24. And a half twenty-five. And a half if we look at the chart, and. Will, bring up Mr, VL. In, the case of the spread I believe. That was around what, 25, and. 24. Let's. Just double-check on that.
24. And 1/2 close enough 25. And 1/2 and 24 and a half looks I have it on the screen there notice. That during, most of that, period pretty much throughout the entire period the, price stayed above. That, spread, and from. A technical standpoint this is what some traders may be looking to construct, when, they're doing a short. Spread. In. This case a. Short. Put spread, they. Went the price to stay outside of the spread and construct. That spread at or below support, and the, price fortunately, stayed above that support, and when. 1122, came around, it. Expired, worthless. So. No action was taken on, that. All. Right save the the. Best for last. As, far as onto review. And. See if it allowed me to get in here. And. Once again. The, reset some drawn tools here. UnitedHealthcare. UNH. Bit. Facetious on, this because as we go ahead and take a look. On. The. Position. We. Can see a series of trades and these may not have had d-pad, positive, outcomes, that. One may be looking for. You. Know for instance just, an example of a directional. Trade, as far as with the put. Which. Is going to be a debit. Actually. This one I think was okay so basically. At, bought, it for 945 I was able to sell it for. 1180. So you know a gain of about, two. Dollars, two. Dollars and fifty cents the thing is probably one of our relatively. Short-term trades. Then. Next example we have a vertical it. Is. A call, vertical and. Again. Look at the strikes going, from long strike to short strike so, going from 232. To, 227. That's going down in price so, this, was a bearish. Trade. Had. A. Credit. Of a. Buck thirteen. And. In. That case looks. Like. This. One did. Result in, a maximum. Game as. Expired, on the 18th let's double check on that. On. 18. October. Looks. Like let's see Whizzer strikes again. That. We've been to 27, and a half to. 32, so needed to stay down below to 27, and a half and. That. Like. It was actually a little bit higher there, it's. A double check on the math on that one. 18. October. 18. October, so go to 18 October. Looks. Like that actually would have been at a loss I'm not sure why that's not showing up on the screen. Unless. I may have rolled, it. At, least part of it going. Into October, this, was a two, dollar and fifty cent credit on, the call side and, I. Ended up closing, it out albeit. Individually. And this, actually, resulted, in a loss. As. Well. Because, basically I had to sell, 550. Buy back about eight I believe, that chem somewhere at around three dollars and change there. So.
Hopefully You learned something new folks, on looking. At some existing positions, there once, again if you have any questions, let me know. Would. Certainly love to hear from you, I'm. Gonna go ahead and bring up the. Chart and let's look at a couple other stocks, as we round things off let's see. Looking at the market, as we go into. Thanksgiving. You. Know great up channel on, the S&P you. Know from a technical perspective your, prices are in that upper channel. Some. Traders that may be a little contrarian, you. Know maybe looking at some decline, in momentum, although. That. Can be pretty dicey as, the market makes new. Highs there, could be an acceleration to. The upside. One. Stand out in the market or, one. Of many standouts, in the market is the, Russell, on the small caps being. A sleeper, and lagging kind. Of consolidating. Bulls, being sneaky their 2%, move. Yester. Two days ago and, follow-through. Today, as the Russell has made a new high well, I should say a 52-week, high, we. Have to go back a little bit. As. Far as it trying to reclaim, all-time. Highs but. Another thing and this is you know for anyone's, looking at the the. Glass-half-empty, is. That's. Where the Russell had broken down back. Last year and we're. Approaching that level very. Strongly be interesting to see if we back out or. Continue. To rally to those highs but very strong move on the small caps, now. As we take. A look though. You. Know bullish, versus bearish trades well he has a matter of time. It. Looks like ice cream may not been shared there let's bring that up again, so. For those you that may missed it. Let's. Bring up SP X this. Is what I was referring to as far as that channel my. Apologies if you didn't see it they're. Priced. In the upper part of the channel add a new high not. Showing any signs of backing down as. A consolidated. Last week but did not trade lower and. Looking. At. The. Small caps are UT as a verbalized, but did not adequately, show for you. Over. 2% move a couple days ago and. Good. Follow-through today, as it's, continuing, to make 52-week, highs. But. Going back a, little, longer-term they're. Keeping. An eye on where. It had broken down. Back. Here last, October. Broken, support. Tendency. Of acting as new resistance we, basically have traded right up to that level and we'll. See if that, holiday. Momentum. And bullish. Momentum continues. After the holidays into. Next, week. So. The, point was making was you know as far as you know okay well what strategy, as far as bias, you know bullish. Or bearish well. You know if a trader believes that prices are gonna continue going higher you, know they may look at a bull. Put spread or. A long call spread as. A matter of timing you know, one may be looking for a bounce, of. That price action. Which. Would, have to result they pull back first to set that up or. If prices are at a resistance, and breaks out some traders may look for that bullish. Trade. From. A bearish perspective, they. May be looking for stocks that are at resistance. And. Potentially. May be pulling, back, and. Looking. At some of the questions. Jay, says sell a put, put vertical on. A. Honda, rut well, that would be a, if. You think about it and no recommendation, to buy or sell anything, okay the trend is up so, it's a bullish market. However. Prices. Are at resistance, if one was to look for that, bearish, bounce you. Are a bit could, be a bit contrarian, because. Of the trend being up and making, his higher highs and higher lows however. One could potentially be rewarded, if. They're able to catch, the top and some. Traders may. Struggle on being able to catch that top someone, may have thought the top was back here so it may have thought the top was back here and notice, how those markets can go higher. David, says hello. John may I ask you a general question about the vertical spread I'm.
New To strategy ask. The question the. Great thing about this webcast, you, do not have to ask a ask a question, to ask a question just ask away. Alfred. Says how do you manage max. Loss so. There's, a various, schools, of thought on that great discussion, as. Far as on max loss well. One is to find the risk before you enter the trade. So. We. Already defined the risk whether. We're risk and a half a percent, 1% of the account all the examples we've done we've, defined, that risk. Now. That. Risk. Still, can, be a maximum, loss so the thing is do you attempt to avoid a maximum, loss. That's. Something that you, have to see how your results are one, school of thought is if you, try. To minimize that loss it, may also translate, into minimizing. The gains and they have a tendency of washing, each other out particularly, on some of the credit spreads. In. The case of a directional, spread. You. Know so in one case you know let's say. You. Know one did a a vertical. As, we look at the chart you. Know and you, know let's say they shorted, the rustle or did a bearish, vertical. Based. Off of this being resistance, and then. If the price was to break that resistance. That. Could be an exit, strategy and whatever. Value, is left in that option, by closing it out you've, retained, some of that equity, but. You need to practice trade, these, exits. To see how your P&L, is how your equity, is. Because. There's a difference, you know for instance in the case of when. You. Know we're a little under, prices. Trading, to that resistance, or train that spread there's, a difference between price, touchin, that spread. Versus. Expiring, at it so. You know probabilities. Come into play here as well, now keep in mind probabilities. Are not certainty. So. That is, one way of managing, that so whether the risk is defined upon the initial entry. As. It should as far as the spread that's why they're defined risk from. A directional, standpoint, if the price breaks, opposite. In the opposite direction so. In the case of a a bullish, spread price, breaks support, or, in, the case of a. Bearish. Spread price breaks resistance, that. Could be the exit, but, what I would do if you do do that look. At what happens, going, close to expiration and seeing, if that outcome. Closer. To expiration would, be the same, versus. Do you closing an app earlier so a good practice, to do there. Let's. Say David's question is. Is. It. A bad idea to sell one half of the vertical spread and keep the other half well, that kind of goes against. The defined. Risk. Part, of it, and. Also, the. Ten he goes against. The. Bias of the market so for instance if, you went ahead and. Let's. Say in a, short put, spread that's considered, to be neutral. To bullish want. The prices to go higher stay above that spread. Well. Let's say you went ahead and closed out by. Buying back the short, put. The. Short put is bullish the, long put is bearish so by removing the short put you now have a bearish, position, so your bias has changed, now, in the case of short verticals, if you go back and look. At the, recordings, we may buy back that, short. Put because that's the obligation and. That. Is also where, the gain, is or the credit, for the most part so, that's okay as far as legging out of it but, for instance. Selling. A long. Part, of the spread is going, to result in a, short. Option. Which, is an obligation, and unless one wanted, to take. Possession of a stock whether long or short it's, something you can do but the the, idea, of the spread is to. Have it open, together and close. Out together with, a couple, exceptions that, would be if the short strike may be at risk of assignment, we, can go ahead and close out the short position, and if, the the. Long runs worthless, we can let that go but, as a routine. Typically. Not for. The other example, would be you know if we're at you, know half of our max gain or 80% of our max gain we would close out that spread, together. For. Our example, and lock, in the, gains and remove. Any obligation. Or potential, boss. Yep. Then, yet, the Russell 3-year. High. You. Know can't. Mention. On, particular, on, the other instrument, if. You have to join me on Monday to learn more about those, but. You know, prices can continue going higher Wow. We are got out of time folks. So. We weren't able to put in a new trade but that's all right you, can go ahead and join my good friend.
Good. Friend James, Boyd, who's going to discuss option, strategies, coming, up so what encouraged you to do is practice on some. Of the practice. Trades we've done in previous weeks. Go ahead and take a look at the archive, you don't look at all of them but maybe pick one, whether, it's hedging. Whether. It's looking, at the long and short of it as far as what verticals, or maybe even short, puts, and practice. One of those trades if, you want a couple examples of. Stocks. That we, we, would have had a look at if we had some time. Juniper. Jnp. Are a. Pattern. As far, as a triangle, hasn't quite broken out so. Some traders may be looking for a bullish, or a bearish. Setup, depending on where it breaks I review. Breakouts. On Monday, at 2:00. P.m. Eastern Time. Bohun you know in the news you. Know price is consolidating. Again potentially. Looking, for a breakout one way or the other traders. That may be more bearish or looking for a break down that. Could be an example of a long, put vertical or a short, call vertical or if, there are more bullish, and looking for the price to break higher in. The vertical side to have be an example of a short put. Or. A long. Call. And, see if any other ones bounced, on. A material side, mos. A. Strategy. That we teach in the. Swing trading class on month are Tuesday's and we. Did a couple of these yesterday. But. Looking, at that swing. Potential. Resistance, at. Some point. See. If there's a bearish bounce that, could be an example of a bear call or, a, long, put, notice. The trend being more down. AIG. Kind. Of a similar setup now notice of trends a little more sideways. Example. Of a little more of potential, bearish bounce and. Whether. Traders. A bearish example, may be looking for examples, of a a bear, call which, would be constructed above resistance or. If they were more directional. You know maybe looking, at more of a. Long. Put, spread. Where. They would look for prices, to trade, down. And through. The spread. Okay. And. Just. Two more just, so you can get a visualization. Of what. Are some examples of bearish. Setups, you know downward, move, retrace. And up you know potential, resistance. Again. Bear, call spreads are constructed, above resistance. That. Are out of the money in. The examples of the long, put verticals, or. Possibly. Looking at buying at the money and selling. An at the money at a lower strike expecting.
Prices To trade lower, in, the case of the long, puts price. Needs to trade through the spread in the case of the short, calls, the. Idea is that the price stays outside. Of that spread. And. Last. One Cisco. You. Know notice of trend being down you. Know kind of form in these little. Rectangles. And. You. Know as a matter of time in traders may be looking for the break either way you, know if it's going with the trend to. Be another example of a bearish spread. Again. Short, call spreads being constructed. You. Know out of the money above resistance. Ideas. At the price stays outside, of that spread. If. One's looking at an example of a long, put spread you. May be starting at buying. It at the money on. Practice. Trade and sell, in and out of the money that may be close to a target, with the expectation, that price may break down and trade. To that, level. All. Right gotta. Go folks maybe a lot of you need to go to if you're traveling, make, sure that you be. Safe on where, you're going. And also be. Kind of remiss in mentioning. As well. If. You do want. To follow on Twitter, there. I am there, recently. Posted a picture on why I'm thankful, this. Was back in 2003. Spent, a little time in Afghanistan. Didn't. Have many pictures from my deployment. But. There. Was a bit of an incident that, evening. There the. Week going. Into Thanksgiving, and, prompted. Me to ask a good friend of mine to take a picture of me so, my kids knew what I looked like a, few, things I miss here is, that. Beautiful hair I, have. Some, remnants, of that you. Can also see how. Things kind of happen very quickly I kind of tossed on my flak jacket, and part, of my collar was kind of been in you. Can also see we weren't as well-equipped back then in 2003. You, know don't have those fancy optics, I do have my k-bar fighting knife from my Marine Corps days and, and. Then, I got a pretty cheap sling. Around me there but it's pretty thankful, because. After. That evening I was, able to get. Home. For. Thanksgiving, about five days later that. Was pretty surreal being. In one location of the world and then, going back home but, I was very fortunate to see my family and hopefully. You're all fortunate, to. Be with family as well and good, friends, and so, wish, you have a happy Thanksgiving. Safe, travels, and we'll. See you again next week okay, so take care everybody bye, now. You.
2019-12-01 19:17
