Short Term Momentum & Trend | Technically Speaking: Trading the Trend

[Music] hello and welcome to trading the trend weeks to months my name is james boyd welcome everyone here we'd like to welcome bill dom george texas uh vijay chris b scott j annette and many others a little fun here my family was inflicted with covid our house was actually really a hospital everyone went to a different corner of the house and we've been in isolation jax is doing fine but he doesn't know what to do with himself because no one's playing with them right now so uh hopefully wherever you are you're nice and safe and uh my lesson learned uh here from the first time actually being under the influence of that nasty thing is it's always great to be above support and my gosh i would love to teach a webcast at any time rather than have that foul whatever you want to call it so just real quick as we get started i want to welcome everyone actually here and just want to give us a quick reminder that you can actually follow us on twitter we do post educational content there we also do have my good friend michael fairborne as well real quick as we get started remember that the content is intended for educational informational purposes only non-investment device recommendation of any security strategy or account type also options are not suitable for all investors there's special risk inherited trading options and also when we talk about options there is a pamphlet called the characteristics and risk of standardized options most people have heard it probably a lot of people haven't read it there's some really good material in there i'm just going to tell you right now i'm going to reference page 62 to 68. i uh of that i'd like you to actually look at that i think it'd be some great content for you to look at it's a free download right off google or or just go right just google it and you actually see it's a free download page 62-68 i want you to take a look at it now also remember when we talk about uh doing examples today demonstrate the function of platform we're going to use actual symbols and also remember when we talk about the paid money platform we're going to do it for educational purposes only we will actually talk about options here today on some examples and we'll actually talk about option greeks but we'll actually make it english so we can understand what the option greeks are telling us so with that actually said i want to actually uh just take a quick look i got three points that i actually really want to cover here today number one is i want some market sectors and i want to talk about scripts second thing i want to talk about is momentum and i want to talk about trend and the third thing i actually want to talk about is i want to talk about the importance of position sizing and i want to talk about strategy selection and the last point that i brought up there is position sizing and strategy selection really important because have you ever seen the market actually go up and you said geez uh the market's going up but my account's not really going up and that could actually be because the investor might be a maybe in a small position size lower than what they normally would and then second there may be in strategies that have a very low delta i want to talk about that okay now i want to make sure that we're talking about correct position sizing and then maybe changing or going up if you will in strategy or delta to try to take advantage of some of this momentum and trend so well let's actually go ahead here and i want to actually just take a look at pull it up i'm going to pull up first off let's just start nasdaq let's just get it out there so if we actually take a little look at the nasdaq okay this is the one that you know i like to call this really a risk-taking measure if this is actually going up investors are more comfortable if this is actually going down okay when you say actually more comfortable what do you mean more comfortable with taking risk this is an index where 50 of it is tech based stocks we're talking about more growth oriented companies okay and if you actually look at the ndx ah you'll see that and again make this as simple as possible but whenever you actually see and again we want to talk about momentum here okay if you see that the price is above that blue line where it has really been since uh july 15th if it's above that blue line there's momentum if you actually have the blue line above the red line which is the 30-day moving average you also have a trend okay now this has been unusual here because you know he had a long-term downward resistance for so long and then actually the price got above that so this isn't like just a like a little up move this is a pretty substantial where it got above the diagonal it also got above the horizontal and it's had a moving average crossover so this is actually you know just not like a little oh it's up this is up above two different levels of resistance and the moving average crossover now we have also take a look at maybe an area that was just absolutely trashed okay this year was discretionary we're also seeing discretionaries now this is well welcome sign here okay if you see some of these discretionary stocks which would be like retail etc you're seeing that those look very much like the nasdaq if you pull up the the technology sector looks very much like the mass deck of course if you even actually pull up the area that had been maybe a little black-eyed for a little bit the financial space some of those stocks that were maybe sold off maybe a little aggressively some of those was trying to start to reverse and even if you look at the area of let's say industrials still sold off quite actually a bit trying to actually come back so when you actually look at kind of some of the strongest sectors it is being led by the discretionaries in tech and they're above resistance and making or have made a higher low above that resistance so now if you actually take a look at this now i'll talk about page 62 in a minute crispy okay now the one thing i actually want to make mention is let's actually so can anyone actually name a company that actually uh had earnings last night and matter of fact is that's actually pulling up uh as far as answers to that question i'm gonna actually kind of uh just scroll down to something that i actually posted earlier today now there was a small company we've never heard before it's called ted ted can i buy a val or two yeah tesla and if you actually take a look at this this is actually the tesla the revenue of tesla over time okay now if you actually take a look at this you know back in 2008 it was point zero one point one okay in billions so they had literally a hundred million two hundred million three hundred million okay etcetera two billion three point two billion et cetera and now if we actually go up what you're now to see is the the 2021 53.8 the estimated 2022 number 50 85. so what's interesting is tesla actually came out with its earnings and we actually take a look at tesla we're going to start here okay so first off if you actually look at tesla and we said what has the trend been of tesla well trend of tesla's been horrible right you actually were way up here at 11 40 okay and that stock almost sliced well actually did it yeah pretty much did okay uh i'm not sure you know it looks like it did it was dang close it probably lost half its value and it went all the way down and then now what you're going to notice is it came back up and a couple times it bobbed back up to about 720 so if you kind of take look at this we might say hey we had some basing in here some equal levels of support equal levels of resistance now here's the thing in our current market there are not many stocks that when we just pull them up they're just going up and they've been trading trading the trend forever or just trending forever that's not what the market we're in we're kind of in a situation where many of these stocks that were in upward trends they have pulled back and they have based and then some of those stocks starting to get above resistance now i want to kind of show you something just real quick and if we actually take a look at this i said yesterday i'm a momentum trader okay we're looking for stocks above a 10 period moving average if it's that strong the stock's probably going to be above a shorter term moving average we like to use the example of the 10 period moving average second we would like to see the stock at least above a 10 but probably even above the 30 if that stock has momentum and trend now if we actually kind of use those two criterions that isn't above the 10 yes as of right now is it above the 30 yes it is right right now and if we actually look at that it's trying to slice or carve its way up above the horizontal moving average so here's the deal if we look at this and we actually said okay we now see that that is trying to get above resistance and in the shorter term it's trying to make it's made a higher high if you make a higher high can it actually make a higher low okay so the one thing we want to kind of now consider is is what type of strategy okay and if we actually look at this i want you to kind of understand something if we just talk about hey we're going to buy five shares of stock we could buy five share stock the paper money historically already owns the sheriff's stock and it's down it's down about 2 500 12 shares of stock i'm not going to touch that position we talked about that's going to be trying to be a long-term holding we talked about that as a more of a passive holding we've hit that but let's say the investor said james i already have the shares and it's gone back up a little bit it's helpful today but what about a new position well let's actually go to the trade tab and what i want to do is i want to go back to that august expiration right there and i want to go so first of all we had a nice little uh heated discussion yesterday just back and forth yesterday on twitch and we kind of talked about when when someone's looking at these 817 stock couple hundred dollar stocks we know that the spreads are probably going to be more of a challenge okay even if you look at this it said 38 million when we're talking about a couple hundred dollars i'm not expecting penny wide spreads here i'm not even expecting nipple wide spreads or diets we probably know that getting in and out of these type of trades is probably going to be harder so i've kind of just realized that fields are going to be tough we should realize that okay now if i look at this on the put side i'm going to come over here on the put side and i'm going to change it to where it says strikes all and what i'm going to do is i'm going to come over here dang there's a lot of strikes here and we're going to scroll down and i'm going to kind of look at this and kind of maybe go look at that somewhere right about the delta of maybe 30 okay so if we actually look at this what you're now going to see is i'm going to actually just look at the uh i'm going to start here i'm going to look at selling the 760 strike okay and what i'm going to actually do in this case is i'm going to look to also buy a put out of the money for downside protection so it's going to be a short put vertical now if i take a look at this i'm going to sell a strike with the delta and this is where i want to kind of make sure we're crystal clear okay if the investor sells the 760 that's the obligation to buy the stock at the strike from now to expiration it actually shows what the stated probability is that the stock closing by a penny below the strike as of right now that changes and it also if you take 100 minus 0.31 you have a 69 chance to be above that strike but you have a 31 chance to be below now 30 chance is pretty high so the investor needs to fully understand what the obligation is okay so if the investor actually sells the 760 go sell vertical and now what you're going to notice is we're going to change it to a 10 wide strike 760 750 okay and now what you're going to notice is we have a credit here of 292.

now the notes adjust a little bit 305. if we look at this and kind of see what is the potential max profit given a vertical given the potential max loss given a vertical and what we also see is the break even now the good part about this is it's a bullish trade but it's not like owning shares of stock if the investor had 100 shares of stock they made they were up 7 500 today if someone actually has the stock actually go up the most the investor can make is 305 bucks so some people say well if you know about options why wouldn't you just do all options well sometimes you want to have higher delta so you could actually try to be more exposed to what the stock does clearly if the investor is bullish they want to go up okay because they have a higher delta strategy okay we talked about that yesterday with long synthetics long synthetics can be like stocks if the strikes are the same but when you do a short put vertical it does not have the same type of delta risk as a stock position given a vertical now what i want to actually do in this case is if we look at this we want to make sure that we're risking what the portfolio could risk so if we said this portfolio could really risk 750 bucks we're going to actually do it to where it has one contract in the margin but also if in the ira account okay the ira we're gonna actually do one we're gonna try to get that filled in the ira we said twenty five hundred dollars so on that ira account they're gonna actually change it to where it actually has three contracts now so in the margin we we started out the year saying we're gonna risk about 750 bucks in the ira we said it's going to be about 2500. the buying power effect is pretty much what the max loss is okay any questions there any questions now robert actually says long call vertical so i just want you to give me the quick synopsis why would someone choose a short put vertical over a long call vertical why what's or or vice versa robert why are you thinking about a long call vertical compared to a short put vertical why well if we kind of gave why would someone do this well it goes back to the option breaks right if someone wants actually the long call the short put vertical the deltas are very similar the difference is does the investor want to be positive time decay if they want to be positive time decay the investor would actually pick the short put vertical if the investor says i also want to be short volatility they would pick the short put vertical okay if the investor said i don't necessarily i'm not trying to make the most but i want to have a higher probability they would pick the short put vertical okay and if we took the opposite and said i want to actually have a higher upside potential long call vertical i actually don't care about being uh positive time decay they would actually pick the long call vertical so there's slight differences but there are differences so if we actually look at this and now when we do this it's now been adjusted one contract for the margin three contracts for the ira gonna actually click on save and now it's actually gonna go in and actually try to fill those positions now here's the deal if you get a market that actually starts to go back up what happens with investors position sizing after a sell-off what tends to happens with investors position sizing do they risk more when the market actually goes back up do they tend to risk less when the market goes back up what do you tend to notice well when the market has gone down a lot of investors like a turtle and and i had nothing against a turtle okay i like turtles okay but sometimes as investors we kind of tend to put our head back in the shell and what do i mean by that well we don't tend to trade what we see because we've seen so much of a downtrend and i can't believe someone would even buy something right now well and then if they do buy something they just buy a small fraction of what they would normally buy and they don't do dollar cost averaging so the and then they don't even maybe do other strategies outside verticals because well they just don't want to have a lot of directional risk the risk with that if they don't evolve or consider it is when they see up moves back in the market they severely under perform the market so we're going to talk about maybe looking for other strategies that might have a higher delta with them okay we know that a long call vertical a short put vertical those are two insensitive delta type strategies if we're talking about strategies that are more there's more teeth if you will on that strategy we would say a cash secure put if we said well what's a strategy actually above that well we might say like a long call or a cover call above that long synthetic long stock right so now we're kind of talking about if we can see the market starting and when i say market i'm talking about the s p 500 if we see the market breaking out of resistance might the investor adapt or change the strategy so yesterday i was playing i i played a little golf out i was all by myself massed up i had to get out of the house i was like i've seen enough of these this uh these walls here i was out of school uh you're just hitting golf balls and so the one of the things i was actually doing is kind of thinking it's about how i know which club to pick well when you play golf if you can see farther down the fairway you're more likely going to use a bigger club that can hit the ball farther or has a higher delta but as i was actually at that school i said i can't use my driver or at least i shouldn't because i'm too close to where that playground is the school the trees and so i had to adjust the strategy because well if i really hit the ball i didn't want to hurt anyone nobody was out there but i didn't want to run the risk of hitting a house or whatever as i was hitting golf balls so the thing is i adjusted and in the market we want to kind of say is if we're actually seeing the stock or the index break resistance we want to say hey instead of actually hitting a nine iron a sand wedge i want to actually say can we actually look at stock can i actually look at a covered call a long synthetic etc okay now what i want to do is i want to kind of take what we just said and i don't want to just talk i want to actually look for examples i want to actually make sure that we're talking about momentum and trend i want to make sure we're actually talking about proper position sizing in both accounts so what i want to do is i want to go back to a stock and i want to bring up one that kind of now by the way i want to kind of bring this up as well probably really just kind of find stocks from kind of a pretty simple standpoint okay and you know one of the things we kind of talk about is just making it more simple it doesn't mean that it's easy it just means that you could use tools that can help you actually do things more efficiently okay now my good friend michael fairborne here he's actually been getting into the tool world and he's found out lately wow tools can actually help your life be a little easier haven't you michael now what you're going to notice is when we actually talk about finding momentum and trend one of the tools we like to use is a script or scripts using what's called relative strength now if we're actually looking at relative strength we know that relative strength is not just one time period you could use multiple time periods to really assess what the strength of the trend is over different periods of time we're actually going to look at the dow jones just briefly and we're going to look at the stocks we want to at least be able to see them and assess what the trends are so if we actually said in the current market what are some stocks that have been in multiple different time periods green now that is not actually saying that they're going to go up if i buy them now they're just saying their past history has actually been stronger than the performance of the s p 500 given the time periods so let me just verbally speak to a couple that stand out crm okay another one that actually has been quite green has been ba shockingly enough ba has been multiple over multiple different time periods green if we actually look at another stock it's actually goldman sachs stronger actually reversal to the upside then apple has been green as well and then the other one that actually is here has actually been quite strong i just want to make sure i got that line let me actually just go all the way over it looks like it's actually it looks like it's visa as well so if i actually look at let's say those are some of the stocks that are standing out boeing goldman sachs apple we talked about a lot and it actually is now trading over the 150 which was resistance it's trading at 155 but that's not the list i really want to look at right now i want to actually look at let's say the s p 100 and if we actually take a look at the s p 100 list another stock that's actually been quite strong in that list that's been all green over multiple different time periods is amazon and if i actually look at the second list of the s p 500 list you're actually going to see that another stock has been quite strong in there is nvidia and qcom is also in that list and so is tesla i think tesla was a gray there for a second but one of the other stocks that i'm going to actually pull up that was on this i believe the third list i put in there was a stock called cdns so if we kind of just rank these by rs5 a relative string five days what it does is it kind of clumps or does clump the ones that have actually had a history of being stronger so what does that probably tell us when we actually go look at some of these stocks we're going to probably see stocks that actually probably have stronger momentum and stronger trend compared to let's say the s p 500 now what you're now going to notice is this is a stock i'm actually uh in four days that actually has earnings coming up okay cdns i'm just going to kind of verbally speak to this one this is another stock like tesla like apple that is actually getting above an area of resistance i also want you to notice look at the stock as it's going up in the earnings are bears losing control and our balls may be a little bit more hopeful as far as what those earnings might be now the one i am going to talk about made me do a paper trade on this as well is actually a stock called crowdstrike now crowdstrike is actually another one that if we take a look at this what does it really do i believe it actually does data software and it's actually in uh let me be a little bit more specific cloud delivered solution okay and if we actually look at let's say the charts what you're going to notice is that's been a chart that has been beaten down like many stocks but it has been actually showing some improvement okay and if we said what type of price pattern does the stock really actually have well if we said what type of price matter does it actually have kind of has like an upward sloping support okay horizontal resistance and if you actually take a look at that it kind of looks like it's getting into the apex of the triangle now if you actually were to look at this and said okay many of the things that we're seeing right now in the market are a lot of stocks we talked about that two three four week window four week window of what well earnings if people are going to start to kind of forecast or establish a position prior to earnings it might be in that two three four week window so a routine that you might do is say you know james i want to look for some stocks that might be two to four weeks out to earnings and i want to look for some stocks that might be bouncing off support and or breaking out a resistance okay well if we actually look at this chart and said is it bouncing off support bounce here bounce here is it a stock that's maybe is kind of uh starting to break out of resistance it's right here is it a type of bullish price problem yeah it's a seven triangle so far might that stock try to maybe go up to maybe some old areas maybe two twentieths could it could have tried to and maybe if could it even go up to maybe 214 so those might be kind of some thresholds here now we kind of talked about looking for strategies that are more aggressive so let's go back to the golf analogy we know that if you look at the golf club bag there's like bill barnhoff he might like to use a sandwich now if i actually pulled out my golf club with a sandwich it's a club face where it's open a lot i mean it's tilted back and the goal of that club is to get loft get the ball up at least that's the goal but if you actually chose a club that actually has more of a closed face it actually is designed to try to hit the ball straighter more directional well just like in the option trading world we could actually go up kind of the delta if you will and try to actually get a strategy that has more upside potential now what i'm going to actually choose in this example for this one i'm going to choose a stock position now what is the stock position like well if we buy a 100 chair let's say we buy 50 shares of stock 50 shares of stock if that stock goes up one dollar it's dollar for dollar so it's like hitting a driver you better hit it right because it's very sensitive to change in trend profit or loss so what we're going to do is we're going to right click on this profit on this on this graph right click we're going to go down to where it says buy custom and we're going to say to where it says with oco bracket now we might be asking well james why is the paper money account which we're trading why is it buying stock well the problem is if someone just does short put verticals on long call verticals and the market goes up doing verticals is probably going to lag the market okay so it's trying to actually buy some stock so that way a crowd actually goes up like the over market that there's dollar for dollar here potential that takes more capital but i'm going to do a stock example because not everyone actually trades options so let's do a stock example so let's say the investor says you know james i want to set that target at maybe let's say 210 dollars okay then actually if we're talking about support if we're talking about support if we put a stop right underneath let's say 175 okay if we put a stop underneath let's say 175 less two percent or so 175 less two percent it's going to give a stop at 171.50 okay so 170 150 data gtc okay so there it is so this actually has a stock entry it's saying when we're a buyer it's saying that price or less if you're a buyer you like to buy for that you're willing to buy up to a certain price or lower this is actually if you're a seller you want that price or better okay so buy limit if you're the buyer you want that price or less if you're a seller you want that price or higher because you want more money to put in your pocket right and the stop actually works as follows if it goes to that price or less sell the stock now if we come back and say confirm and send this we're going to do a hundred shares in this ira example and this kind of go let's go back to this briefly i'm going to actually go back to where it says whoop confirm the order we're going to go back to where it says single account we're going to say multiple accounts now first off in the in the margin account we could actually typically do about twelve thousand dollars worth of stock this is a 188 dollar stock so we're going to go on multiple accounts we're going to actually change this to where it's actually buying about 63 shares of stock if in the ira which we started out the year and said it could do about 40 000 worth of stock you could really do about 212 shares of stock we're gonna do 200 that way it leaves the door open for a potential like covered call it technically can do 212 shares but we're just going to kind of move that down a little bit and just do 200. now notice what it says down here in red with stop orders there's no guarantee that the price will be equal to or near the activation price so i want you to kind of notice that that stop is not saying it's going to get out here that's the trigger to sell that price or less okay so it can be filled at a lower price we're going to go ahead and actually send the order and see if that can actually fill now what you're going to see is when we do that it goes to where it says total all accounts why because we fired those positions out some of the shares in the marks account some of the shares in the ira i won't look at like oh martin's account's going to do this and the ira account's going to do this i'm thinking to myself why wouldn't it do it in both is it in the trend does it have momentum is it above support why would it be good for one account not the other right so it might have a different position size but it's going to be put in both okay now jesse says dumb question well i don't think so but let's if it is i'll let you know i'm just joking jesse i just want to make sure you're listening you know people say that's dumb question okay so let's let's have we just have a little fun here now dumb question here here when using toss and selecting an option on a stock for example and i condor when you select that is automatically set or do i have to create the option myself when you click on an iron condor it it has a default but that doesn't mean necessarily that you have to pick what it defaults to you can change it by hitting the drop down so that's you know kind of think of it as it feels out of default but then you can go in and adjust the expiration month the strike etc not a dumb question okay but now let's actually take a look at for example another stock and what i'm going to do is i'm going to go ahead and actually take i'm going to go back to the example of apple there's been a question here and what i want to kind of do is i want to kind of talk about something that's actually come up a little bit and i want to bring up the example here of apple we talked about stock last week of cucumb and i'll just kind of show you what cucumber's doing and if you actually look at let's say cucumber that's actually been one that's been quite strong and what you'll actually notice is on 727 it comes out with earnings so about a week and if you actually take a little apple it's actually coming out with earnings about the same time so you're gonna see that these are kind of you know within a day a part of each other i want to talk about right now about a cash secured put and i want to kind of talk about scenarios here and i want to kind of just point you towards something that i think could be helpful so let's say the investor decided that i want to do a cash secure put on apple and i'm just going to go into let's say where the investor thinks the stock could stay above so if the investor said james i think you could stay above 150 they could try to sell the 150 but let's say because of earnings they say james i don't want to really sell a strike price that close to maybe where the current price is given that there's earnings and they might even also say james with the earnings coming up i just want to be a little safer so i want to kind of talk about something that's kind of been on my mind i woke up just kind of dreaming about it today and i i think something's not really a dress that i really want a hammer home okay so uh if you take a look at this let's say the investor decides that they want to sell a strike not the 150 they want to sell a strike lower than that so we actually sell a strike price lower than maybe that delta of 30 to 40 strike okay it's going to have a lower premium and we're going to see a delta that is actually going to state the likelihood of the stock being below a penny by a strength the probability of the stock to be below the strike by a penny excuse me and it's going to say about a 25 chance now when we talk about this okay we're saying uh oh yeah it's only a 25 chance as of right now that it's gonna be below so as people we tend to hear what we want to hear i do the same thing i'm guilty okay don't you have to take me to court okay i'm guilty okay and if you want to throw it in and say that's like that's a typical man you could throw me in there i just okay i admit i hear what i sometimes want to hear see i read the book and i i i don't you think i'm making progress okay so here's the deal 75 chance that stock's going to be above but what this is my point of bringing this up we talk about this as far as being below or above but i want to kind of talk about assignment risk okay and if we actually take a look at this if the investor says i'm going to say single cell minus 1 and the 145 and sell let's say we sold one contract get 244 premium up front haven't made it yet but collect it it's going to be in the cash uh we can actually see it right in the trade journal and if we actually take a look at this we're now going to see what is the order description we know what the obligation is to buy the stock from down to expiration break even stock price max profit max loss if the stock goes all the way to zero but what this doesn't really and i think i've done a poor job okay what this doesn't really tell us is what is the likelihood of a guy or girl in south carolina fictionally someone on the opposite side of the trade what what's the opposite side of the trade here someone on the opposite side of this trade might have a long put the opposite side of the trade and that long put really has the right to do what well they have a right to sell the shares okay well whoever is short has an obligation to buy those shares so the one thing is when we actually talk about kind of doing cash secure puts it's just kind of only with two viewpoints what's your likelihood to be below what's likely to be above but what is the probability of someone assigning this to us how do we know that someone in north carolina ohio isn't going to call up the broker exercise their right to sell the shares of that strike price how do we know what the assignment risk is the answer is we don't know exactly what that is but they can call the broker and exercise their right at any time okay now remember if that were to happen we know when we get into this that that would just mean that we would receive an email from the broker and say you have been assigned a hundred shares of stock given that the investor had 100 shares of stock you're going to get an email and it will say if you have questions on it you call the trade desk etc so the one thing i want to kind of state to hear is we don't control if someone exercises but we need to fully understand do we know what that means of if we sell an option short now i want to kind of pull up something just real quick i don't normally do this but but if you go to actually uh characteristics of options uh i want to actually bring this up okay let me actually see if i can ah perfect so there's actually a spot that i think is extremely helpful we actually show it right on our disclosures so if you actually just went up to let's say uh google just type in characteristics and risk of standardized options and you've seen that before that's not an exclusive we start with that we end with that well it's actually interesting it's actually on the website of the occ.com option clearing corporation and if you actually click on this it actually will have a pdf and sometimes people kind of want to talk about or at least know what kind of happens in example given of potential assignment well right on this pdf which i think is interesting and i re-looked at it this morning i mentioned when we got started here today then on page 62 to page 68 they give some examples and if we actually go down to uh how did you know that i looked at the table of contents and if you actually look at this it actually gives on page 62 risk of option writers okay that's possible that you could have actually heard us talk about this little pamphlet a hundred times and never looked at it once i want you to actually look at it once your homework assignment is actually look at page 62 and if i actually go down to that myself which i'm going to it actually talks about give some examples very nice ones and even gives kind of some tables of an option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time and it talks about it and it talks about direction risk right and it talks about examples and now what you're going to see is it runs through two examples three examples four examples and this is really actually good for people to really understand what is actually happening so if you never read that before i would highly recommend it and i think it can clear up some misunderstanding make sure that you do that okay now one thing i want to actually do is i want to go back to the let's say the ira account and this is going to be done in the ira why why not the margin account because the margin account really can only take about 12 000 worth of stock so because the now listen the margin account can only buy 12 000.

so if the investor sold a put and got a sign more than twelve thousand dollars in stock that would be more than the position size that we started out with that would be a big no no no because we actually talked about in the position sizing each one of the positions cannot be more than twelve thousand dollars so if the investor understood position sizing and said i'm an adhering to a rule it's not going to actually do in the margin account this is where the investor might say i'm going to choose the account where it can handle the potential assignment so this is where sometimes investors they have a rule but they have and i'm gonna use me as an example i have a little kid inside of me okay that might wanna do what i wanna do but it's not the right thing because it breaks that rule set so it's only going to do in the ira so if we actually said this account can actually do 40 000 worth of stock it's going to do two contracts only in the ira so if this would ever happen where we had someone in maine who had a long put and they exercised by the way it will explain that as well and it even gives him bold how you can actually exercise it okay what's interesting if someone in maine has long put and they decide to exercise the broker is going to go out and actually say who is short who has the obligation so if i ever actually got an email from the broker and saying you've been assigned to buy 200 shares of stock regardless of the in the money amount now i'm not completely caught off guard remember if those shares are put to this account that we now have 200 shares i could sell some of the shares i could sell all the shares i could do a cover call and that's now we're talking okay or i could just hold the shares itself so notice that there's actually some forethought as far as what the obligation is and this is kind of like marriage a little bit if i'm saying amber i do i'm actually thinking not what i feel in the moment that i love her i'm actually thinking what is my obligation to this person but here we're not talking about a person we're talking about a position so investors tend to get themselves in trouble when they don't properly position size they actually put positions that are too big given the account size and the other thing is they just need to actually think ahead of time if that assignment were to happen are they okay with that and what are their options after that now if there was ever a situation where the james i accidentally sold it in the account that it that represents now 50 of my account value well then that investor might be a more inclined to maybe sell down the position a little bit they might say could i add funds to that account there are some options if you ever get an email saying you gotta sign it will say there are some options if you like to speak to someone about that call them up but if you said no this is 50 of my account value i want to sell half the position or all the position those options are yours okay you'd actually want to assess the liquidity and see if there's an opportunity for that so if the investor says i'm going to sell in the ira account only okay only going to sell in that ira account notice we actually now it's been adjusted the max profit has been adjusted for the two contracts max loss assuming the stock goes to zero couldn't happen it could okay and we know that at any time even though it's not august yet they could put the share to this account now since it's now two contracts it's now in this case gonna be let's say a dollar 30. now wiley actually says looks like jb's been buying some phones on a computer no not yet now it could have been fair okay maybe it was fair why do you guys have to play me okay i'll just have a little fun with you watch now we're going to go ahead and send that so now if we actually look at this let's kind of go back and recap some of the trades we actually talked about so we actually go back and say what were the orders that were actually done here today number one did a short put vertical on tesla okay trade number two bot shares a crowd strike trade number three sold the put only in the ira for apple the other part of this actually here today is we talked heavily about momentum and trend we said that this account is really trying to really find trades that really are above both moving averages the other thing we actually talked about and really highlighted is that occ document the uh the option disclosure document and on page 62 to 68 it really gives some nice examples okay that are right there and i think this could be very helpful that people would actually look at it and go through the examples they actually give i want you to do that for homework we also went through the examples of making sure proper position sizing as well and sometimes it's not necessarily the market it's sometimes things of the investor does to themselves so my time here today but i want to thank you so much for your comments and your participation with that said if you enjoyed today's session reach out and smash the thumbs up button you can also with that subscribe to the trader talks channel and also i want to give you a reminder stay tuned for our next webcast coming up right at the top of the hour and again thank you so much for your comments and your participation

2022-07-25 04:47

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