Technically Speaking: Trading the Trend | James Boyd | 11-5-20 | Picking Direction and Option Decay
Hello and welcome to technically, speaking on trading the trend weeks to months we welcome you here today. As we discuss. Not only daily charts but weekly charts as well we'd like to welcome, amy. Gary, jonathan, yoku, charles mike, scott jill bill fred ac, lewis. San fran sam, and many others let's go ahead and kick it off, now just real quick as we're getting started here today you could, also. Follow myself, on. Twitter. Show you a couple things here today that i posted, and also just real quick you could go to twitter.com. Type in jamesboyd, or any instructor, that you actually. See a classroom. Uh, at td ameritrade, webcast. So just make sure you're aware of that now just real quick as we're getting started remember, when we talk about or if we talk about options, remember that options, are not suitable for all investors especially risk inherited trading options. Also remember that when we demonstrate, the functioning, of the platform. Okay. Understand, we're gonna. Just because we talk about examples. They're not recommendations. Understand that td ameritrade, does not make recommendations. Or determine, suitability, of any security or strategy. It's up to the investor to decide what they want to invest in it's up to them, and also remember when we talk about, investing in general. Remember that all investing, involves risk and also lastly remember what the option greeks. Are and mean, now remember. Coming up this saturday we have our annual investor, conference. Coming up the following week next monday. I will kick off a class on the virtual workshop. With ray kimbrell, and scott durfee. That will be next week. Starting, monday. So if you say hey james, i want to actually kind of refresh, myself, on that make sure i art start on that, we kick that oxy, off next week that's a virtual workshop. For option strategies. Next, monday. Now just real quick as we're getting started. We will talk about indexes, okay, we will talk about volatility, in top down sector. Approach. We're going to be looking at some weekly, charts here today. And daily, charts. And then we're going to also talk about some new examples, and past examples. That we're also going to be discussing. Rolling, options. And why, why, roll the option. Versus, just exit. And profit, take, so today if we kind of said learning out to, learning outcome two pieces. Number one we would say, management. Or, of the portfolio. And we'll, say the word rolling. The second piece is identifying. Really an entry. In a longer, term chart, okay, and that's gonna be a focus that we really look at here today, with no further ado let's go ahead and uh, hop right in so i'm gonna actually go to the s p first. And if we actually take a look at the s p, okay. The s p is just up about. 78. Points. Now again. I'm not trying to kind of. Say this again but. Isn't it kind of interesting, the levels we actually talked about the levels that we actually. Uh had written down, right, 3307. 3342. When the price actually broke that it was really katy bar the door, okay, to the upside. And you're going to see that that reversal. Was quite quick, okay, so when remember, when when you start to actually see that the resistance. Breaks. All of a sudden those investors, who have been waiting, to get in.
They Try to get in also notice that really from this support, air from here. To here. Notice. Really how quickly, it goes back up okay. So. They always talk about and this is historically. As well. When you look at let's say, uh a sell-off. And then a move back to the upside. They their statistics, on this. That if you miss the first, four or five days, of that up move. That could account, for like. 40 50. Of the up move. Okay, and there's studies, done on that, so the bottom, is important. Okay, when i say the bottom i'm talking about the price as it sells off down to support. And reverses, back up okay, but the s p is actually. Right back up to the prior high. 35. 20., you only have a prior high right there about 35.80. And since this is trading the trend weeks to months. It would be sad if we actually just didn't bring this up, so if you go back and really look at this chart. You're going to really kind of see that let's kind of monitor, well let's really monitor, together. Really these higher lows. If we look at these higher lows what you're going to notice is we had a little kind of plateau, there. It ran up and then pulled back two there's a higher low, and what you're going to notice is you have really a high. And an equal high, and then what you're going to notice is we have a, massive. Large, candle here today. Now. The larger, the candle. Okay. Where the price goes from support, to resistance. The faster, that move is. The larger, that move is. It could be, increasing. The probability. That the price, breaks, out of resistance. Okay, so the faster that move is. The more the bigger it is in terms of points. Okay. It actually could be increasing the chance that it's actually breaking resistance. So that's actually something that investors are probably going to want to keep an eye on because if we go back and look at longer term trend. We're still in a longer term up trend, and we have a candle that went from support to resistance, in a very short period of time, and the investor, might be thinking well it's only done that on the s p, e, wrong. If you take actually look at the nasdaq, you're going to see that same thing, where it has more of like an ascending. Trianglish. Type of look to it, now remember the technician's. Job is to identify. What is the chart showing, and then try to place strategies. Or. Positions. That try to benefit, from that trend, okay. And what you'll really notice is here you have higher lows, equal, highs. And again you even see the nasdaq, if we were to close here on the nasdaq. This week if today was friday, which is not. But if we were to close here this would be the highest. Close. Okay. For the nasdaq. Okay the highest, close. Not intraday, or intra-week. The highest, close, okay. So, now when we go back to also volatility. Now. If we go back and we kind of take a look at this chart one of uh and i was kind of. Okay. Whenever, the vix goes up, okay. I usually tend to keep a balloon, on my table. And when that vix goes, up, right.
This Balloon, really being like the option. Premium. And as there becomes, more uncertainty. And unknown. Right. Now what happens, is eventually, if i kept blowing, on this now some of you are like saying, blow on that james keep blowing, air into that, i want to see if it pops. You want to see if it pops i don't want to see if it pops. But the thing is there becomes, a certain point where that expected. Movement. It might not be as bad as investors, thought, and also maybe that demand, to buy those options. Maybe that demand, drops. And remember if that demand, drops. Right. If the demand, drops. Then that volatility, comes down now you're just kind of see how this is played out lately. But if you look at short puts cash secured puts, short put verticals. You'll really see. That a lot of those positions. Were creamed. In the last two days. Okay. Never forget that. Remember, a lot of investors are saying is it too late to actually do short puts or cash secured blitz, or short put verticals, well, vixx is still at 27.. But that's why, sellers. Who like to sell options maybe do more, high probability, based strategies. That's why they like to come in sometimes. And, try to take advantage, of, higher, than average, or higher than normal. Uh volatility. Okay. And and now you kind of see why they like to do that okay i'm not saying you have to do that, i'm just saying now you're seeing why some investors, like to. Now if we take a look at this let's now kind of shift a little bit okay. So what i want to shift to is i want to kind of just briefly. Kind of take a look at since we just talked about that little analogy. About the balloon, okay. Is i want to first bring up this section of short puts and when i was in my house this morning. I was really kind of thinking about. When the volatility. Goes down. Okay. We know that, really, and let me kind of bring up something here. Vega. Okay. Vega, is the, sensitivity. Of the option so if the option were to really go down one percent. How much does the option. Decay, by. Okay i shouldn't have said that word okay. So remember. Delta, sensitivity. Direction. Theta. Sensitivity. To time. Vega. Sensitivity. To, volatility. Okay. And this is on a percentage, basis. So if if, volatility, were to go down one, percent. How much is it gonna. I thought the word of the day was diagonal, resistance, okay, but we're gonna also include one more because i don't teach tomorrow. Dk. Dk. Dk, of the option. And what you're going to notice is whenever, someone actually. Does short puts, cash, uh, also short put verticals. There's. Negative. Vega. So if volatility. Were to decline. That would be, positive. For that seller. But this is also showing if volatility, were to go up. It would be a negative, experience, and that's, what we saw. Now as that volatility. Comes down. I'm not gonna blow up the balloon anymore okay, i i, just once that's it okay no more fun for us. Now what we actually see is, now as the volatility, comes down. There's just like profits. Unrealized, gains. Pouring. In. Okay don't even know where it's coming from, and you're gonna kind of see that just in like. Three days. Well it's about three thousand, bucks, later. To the good. Now, i'm just going to kind of take a quick look down this line and kind of say, maybe are there any potential, options. That might need to be the word, is, rolled. Well. So let's kind of make an assumption. That all of these short puts, really, have just, one, contract, that's it. Well we might be looking let's say for an option where the delta, might be let's say closer. Maybe in the teens, or something, okay. Because if the option was sold when the delta was 30 to 40, out of the money probably two strikes. The lower. That, the delta, goes. Again, probability, of expiring, in the money, the lower that that goes. The greater, the. Unrealized. Profit. Okay. Now if you take actually look at this one of them that stands, out, that is closer, to zero, is. General, motors, and we talked about that hung, hummer. And you're going to see that if we take a look at this it was actually a, cash secured put the 34, strike. 15, days left to expiration. It was sold for 161.. Now remember there's two ideas here, number one is to try to buy the stock at the strike price. Because the investor thought is bullish. And if they miss the chance. To buy that stock at the strike price. There is the option. Take door two, they could actually buy that option back. Okay. But the other option is they could, roll. That position. They would roll that option, they would profit take on that option. And roll it if they thought, the uptrend. Could continue, to go. Okay. So think of those as your three doors.
Number One go to the expiration, see if the investor can buy the stock. Okay it's not expiration. So that door is closed, door two. If we actually look at this and say okay option, option two. Is there maybe any, profit. There could the investor just exit. Sold at 1.61. Could buy it back maybe ballpark, 37. Cents, and try to actually make that. Amount. Could. Or, three is roll a position. If they said you know what james i don't think that stock could continue, to go to the upside. If that investor, said that, and i'm not saying that i'm just saying if they said that, then they might take door too. If they said james, i'm kind of seeing. Okay so, door one is closed it's not expiration. We only got door two, door three door two is actually profit take, do not roll the position. Door, three. Is actually in this case, you're gonna see is roll the position. Think that the stock could continue to go higher. Well today you got the earnings. Today you actually got a little what we call the pitch. On that on the moving averages, look at where that wick is. Going down to. That 10-day moving average. And the 20, and stepping, all over it and, bouncing. Back to the upside. Hammer-ish. Like candle. Now i'm going to ask you and vote for this paper money portfolio. Door 2, profit, take. Or door three, roll the position. Because the stock, is actually still sewing bullish. All right, take kind of vote here door two or three. Now we could also say. Open the case. Okay. Now if we kind of take a look at this okay now christian, says i'm i'm for profit taking but i'm often, wrong. Christian that's a good. Point to actually bring up that and i think that's a good sign that you're honest, okay. All right now louis says raw, ronda. Ronda, says roll, okay all right let's roll, so when we talk about roll what is what is that really doing, well rolling, in this case is just saying look i'm going to buy the option, back. So it is it is in a sense or it is. Prop, trying to profit, take. But then it's actually saying okay, exit the one that is there, and then. Try to sell another one. Okay okay okay. So now, the question is well which one. This one right here is the 20 november, the 15 days left. Could the investor sell that and stay in the same expiration, month. Yes. But if they said you know what i'm going to go out a little bit further maybe something like the 18. December. 43, days. So maybe, rolling, out in time. And then maybe. Picking. A different strike. Okay so if they go look at let's say. Near, 40 days to expiration. 43, days, what you're going to notice if we kind of pick that exact same strike. Delta, 30 40. Probably two strikes out of the money, the answer, here is really going to be in this case if they were trying to do that. It could be the 35. Strike. Now let's kind of bring back up this order okay, so we're going to right click on that line let's say create a, rolling. Order, rolling just means. Exit the one now. And then sell a new one. Okay. Right click on that line create a rolling order, sell. Now what you're going to see is on the bottom, line. It's buying. Back. Okay. It's buying, back. The option they're trying to harvest. That, and now it's asking you, which. Option. Do you want to sell to the investor.
Well In this case, the one that we were actually looking at was the 18, december. 35. And by the way we're going to properly. Position, size this, because. If the paper money account could really do about 14, 000, worth of stock, so 14, 000, worth of stock and this stock is about. 3 400, per 100, shares. It would really be about. Four. Contracts. Now. In this case, i, i'm going to kind of change this so i can actually do that. I'm going to buy the one back on the bottom, check. The way i was able to kind of break that as i kind of changed that right there to custom. And i said look sell for. The december. 18. 35. Strike. Okay. There it is. And now what you're going to notice is. There's actually the cr uh. Let's kind of verify, that let's kind of see. It should actually be in this case. Dollar 32. Times. The four contracts. Okay that looks good. Confirm and send. Now what we actually see in this case, is. Uh. Get a credit. Minus the commission. Okay. Buying one back. Selling. Four contracts. If that's what the investor, is okay with. They could, send the order, and now we're going to see if that actually can roll so let's kind of verify. Yes. So it does actually take off the november, that was the one we were just looking at. And it does sell for. And you're gonna see that right there. Okay. All right. Now i just talked about rolling, i didn't change the strategy. We just kind of rolled, and stayed, in the strategy. That we were in. For this example. Okay, now could someone say i'm going to buy that option back option back and said i'm going to do a long synthetic. Yeah. Okay, so but that's changing the strategy, here we just. Stuck with the same strategy. And then in that case, uh. In that case we just. Upped the number of contracts, to four. Because, that would represent. The number of shares. Okay. Or the capital. That could be purchased in the paper money account. Now i want to just, kind of touch on one other one won't take it all the way through. But in this case if we could remember we kind of talked about the doors right. Door one is going to expiration, see if you can see if the investor could buy the stock door two, is actually maybe looking to see if the investor could grab a certain amount of that premium. Which was probably one of the two main reasons why they did the strategy. And door three is. Profit, take potentially. And try to roll the position. Well honey, well. Okay kind of wonder if they knew i mean honey. Okay, honey. That probably has nothing to do with the trade, but the biggest actually thing is, you're going to see the trade price here was 7.05. And what you're going to now see is the mark is 169.. So remember this is kind of a retail store. Sell, high, or try to, and then try to buy back, as low as possible. And try to make the difference. So if the investor, said in this case hey i want to profit, take. Door, two. Open that case. All they're really actually doing in that case is just right click. Create a closing order, and then just bind that option back. When the investor, chooses, that, if they did, they're really saying look i i don't, i don't want to continue, this journey. To see what happens, i. Just want a profit, take, okay. By rolling, you're setting up a new. Trade. By buying the option back you're, closing. It down. If that's what this investor, want to do, okay confirm and send. Send the order, you're going to see that they're giving back some of the initial, credit. Paying a commission. To get out. And now if that's okay. Send the order. And there you go on actually honeywell. Now i'm not saying in this case that honeywell, was not, bullish. Because if you actually go back and look at honey, whale.
Honeywell, Was actually one that was breaking up through 176.. Pokey, poke. Yesterday, to a new high, today to a new high, but i want to kind of show you both, i know that some of you like to roll, okay. But there's also some people that like to profit, take. And maybe, not roll as well, okay. Now i want to kind of go back to uh some questions. Now, okay, now we're going to spend the rest of the time. The only other thing i kind of want to show you, we're not going to go there. But. You're going to see. And i was kind of checking this earlier. When we talk about short puts and short put verticals. When you go back and really look at the time. In which of these a lot of these were placed. And just let's take a quick peek and then we're going to go to questions okay. 10 29. Okay. October, 29th, okay. And then if we go look at this one, 10 29. Okay. October, 29th, then you go back to this one, 10-6. Okay, then you actually go to this one, 10-15. And then you go to the next one, and you say okay 10-27. So of the five we've seen, so far. Three, out of the five. Okay i could keep going because they they show the same. Why were so many of these trades, placed around, 10 27. 10 29. Why were these, type of strategies, done why. Why wasn't it like buying stock at that time. What was, happening, on the indexes. That was making the portfolio. Go to more of a selling, type strategy. Well if we actually kind of go back and let's just kind of connect these dots. Well if you go back and say 10 27. So. Here's 10 15. Okay, that's one of the dates we saw, the other date we actually saw was on 10 27, there's 10 27. And then when you notice is the other day that we saw twice out of five examples. 10 29.. So it looked like if we saw this right which we did. It looked like the paper money account was using, the sell-off in the market. To use, lower. Delta, type strategies. Strategies. That might, benefit, from a higher credit. Okay. In a sell-off market. There was less stock, stock buying at that time because there's less potential, entries. And so now was there initial. Damage, or unrealized, losses, has the market, dropped yes. But what you'll see is in this case. Not too many days later. In most of these examples. The market, did actually see a low and then push back up, and the same thing kind of goes for these short put verticals. This is not a vertical, class, but you're going to kind of see if someone did cash secured, puts, or that is short put verticals. You're really seeing the same type of idea. Remember what we kind of said before. Whether, someone is doing. Short, puts. Or short put verticals. The idea. Is to be somewhat, bullish. And the idea is to try to collect. Time. Decay. Okay does that make sense. Because the only thing that's constant, is not direction. It's time. Okay. All right i want to go back to some questions, here okay, so let me kind of see if i can't grab a couple questions now. I saw a question that came in a little bit ago. Let me see okay, sam fram sam says, james if you have time during your webcast, was wondering what you do. I thought that's a funny question. Was wondering what you do on days not webcasting. Well if you got to take a look when i'm not webcasting, i do tweet. A little bit, okay.
So I do do a lot of tweets. Uh the other question was, not that i think you sit around and watch sports, but research. Thank you for that san fran sam, so you're right i do. Like. I do take a look at a lot of uh, companies, charts wise. Weekly, charts, daily, charts. I do read quite a bit quantitative, analysis. Financial, statement analysis, equity analysis. Fixed income, alts. Portfolio, management, you pick it i i, mean i'm an active, learner, just like you are. So i kind of take all those and of course i do some other things as well. But i i like where you're going with that. Is you're using the word research, and i'm just kind of saying. Look i'm, reviewing. Charts. But i also look at let's say fundamental, analysis, as well looking at intrinsic, value calculators. As well, okay. Now do i sit there all day long and watch the market, i don't, okay. I don't, but if we kind of said look how much time do you really i mean, for sure probably in the first hour of course i'm working two. And then maybe in the last half hour of the day. That's really the time i'm actually looking at the market, okay, just trying to give you try to answer that question. Now the one of the other questions that actually came in. Um. Something, let's say. Now uh brad actually says since you aren't teaching tomorrow. Can i. Can i get you to say, drip. Drip. Drip. Okay, so i can make it through the weekend. Drip. Drip. Drip, okay. Uh, dk. And so yeah look. Look you know. For a lot of investors. When the market goes up, that is a benefit, okay because they might be somewhat bullish but the other part of that move. Is actually, time decay. But the other part of that move is the volatility. Contraction. So if someone actually was a seller of the options. Okay, they're bullish. Okay let's say that short puts or short put verticals. They're bullish. But if they actually get in this case, time to go by. And they get. Volatility. To drop too, that's like grabbing, this pile. Grabbing, a big load of that pile, grabbing, a load of that pile. Like, for a seller of those type of options like short puts or cash secured puts. It doesn't get any better than that okay because they got three of those. Direction, in their potential, favor. Time that went by, and also at the same time, they got volatility. To drop down. Aggressively. All right. Okay. Uh. Let me actually go back to uh, one, other, one just real quick. Something. About. Oh, where is it okay. Something about. I gotta grab it because it was actually kind of funny, len actually says, he gets very energetic. When he wears, pastel. Colored, shirts. Okay. Yeah look i don't i don't know about that i i. I go in the closet, it's dark i just grab a shirt okay so i don't i don't know if they're darker, light okay. Uh some of you really enjoy those light colors, i i just. Yeah i don't know where to go with it i i guess i knew this was coming. So i tried to. Wear a shirt that was going to match my face. When i actually, was going to answer this question okay good. Now uh just real quick, uh the comment also came regarding, the seasons, okay, so when we talk about seasons we just mentioned that when we take a look at. Seasons. Seasons, is, just nothing more of saying, where's the stock in relationship, to the moving averages. Okay. And so, some people, understand, that some people are like. And that means what okay. So on monday, on the class uncovered, calls and short puts. So monday. Cover calls and short puts. I. Explained. What those were, i explained how to put those on a market watch. I explained, actually how to put the oscillator, on the bottom. And how you're going to see that over time, yes. The trend changes. Now in a many. Charts, as we now shift. You will see there has been a, number, of charts, as we'll look at. That were in a condition, and i'm going to go back to just real quick caterpillar. Okay. So what you're going to notice is on a stock like caterpillar. This is a stock we talked about this on monday. Where the shares were put to this account. Over the weekend, okay. And you're going to kind of see that yesterday. The stock, actually, went above the moving average here, and what you'll notice is the color of the candle. Matches. Down below. And it goes back up and it goes up and then what you're going to kind of see is it falls back. And it's now sitting. Right on. That moving average now. Remember, the. Seasons, are not written off, whole moving averages. They're actually, written off and let's kind of be crystal, let me see if i can't grab that chart. Yeah, so let me kind of grab this chart so we can see it that way the colors, of the candles. Match, what is seen below. So now what you're going to notice is remember we said before.
If The price, is below. The 10. Period moving average. But above the 30. We said that is what we call early winter. That's why the color of the candles. Are purple. Okay. Purple. Now. What happens if the price is below, both moving averages. Well just as you would suggest. Are you probably imagine. That at the price is below, both moving averages. That probably means, a lot of stocks are probably. Selling off aggressively. And many things on the chart. For a bullish investor. Are probably red, and that's why you see the color the candles, are red. And you're going to see also down below. It's what we call winter, time, okay. There's not a whole lot to probably buy or plant, at that time, if the investor's looking to trade a signal. Uh it's just sellers, are in control. But then why does it actually go, purple again, well it goes purple again because the price, pokes, its nose. Up above. The 30 period moving average a red line. But it's not above the 10.. And that's why you actually see it go purple. The next day you're actually going to see the price gets above. The 30. And, the 10.. And what you're going to notice is there. The reason why the color of the candle is green. Is it's actually saying hey james. Uh, that's actually what we call a summertime, condition. When the price is above. The 10, and the 30.. Now what you're gonna notice is yesterday, it was a very unusual, drop. One day. And the price, pushes, back up, so the last probably let's say three out of four days. It's actually been staying, in that, three. Uh number, or what we would call, the season. Uh, of really, summer time, okay. So now what you're going to see is if we look at this price above the 10, and above the 30 might be actually even trying to really. Bounce. Okay. Now pandu, actually says can you, please elaborate. On the duration. In a certain season. I elaborated. That on monday. So my point, my answer to that question would be this. A lot of people talk about for example, when a stock. And i'll show you this. So and i'm just going to use caterpillar, to answer your question we're going to put on about three or four trades in about 10 minutes, 15.. But if we take a look at this. So when i showed someone this they said yeah, but the seasons. Change. No kidding. So this is actually. Proving. That that person's, right, so whenever, it actually goes from a winter, time, condition. Red. To actually for example, a, what we call, summer, time. Is there any predictive. Nature. As far as how long that goes. No. Okay, now, what could magnify. The length of the duration. If the market is bullish if the sector is bullish if maybe if the company has very bullish. Fundamental, news about the company, that might amplify, it right. But if the market vice versa, is kind of more choppy, or the sector is more choppy. Then the length, of time it could actually stay, in that summertime, condition. Which is probably, where the trends, really trend. Okay. They might not be as consistent. For example, you'll actually see that it was up here, here, here, here, here, but if we go back and kind of really say in the last about four to five days, where we kind of spent more time. Well it's actually been more in summertime. Which says that it might be trying to go from a sell-off, condition. To where it's more starting to bounce and this is where you look at the technical analysis, and say, even though it's kind of gyrated, a little bit above, below moving averages. The price, is still, up above. Support. Okay. All right. Now. The whole purpose, of actually seeing different color candles is make sure people were recognizing. That the season, or the trend, could be changing. Okay. Now mark actually says so would you say the most, puts and vertical, puts were entered during the dead winter. Uh cond the early winter. Or the winter, condition. The answer for this paper money portfolio, would be yes. Why. Because that's when the volatility, would be the highest. Okay. That's when the volatility, would be the highest. So, if someone is actually going to become more bullish on stocks. What would they probably want to see, they'd probably want to see more of a springtime, condition. Spring, time condition, is when the stock gets back up above the 10 period moving average. Because that is saying momentum. And if the stock is above the 10. And the 30, you probably have momentum. And, trend. So the coloration. Of the candles. Being able to see the oscillators, trying to help the investor, understand. Trend. Change. Now. Instead of talking about it let's kind of look at some examples. So i want to kind of bring back up the example, of facebook. Okay, now if you take a look at facebook, facebook, is one of those stocks.
From A longer, term trend perspective. It has been trending, up now there's been people saying it's going to go down it's going to go down they've been wrong. But if we take a look at this what you're going to notice is it's kind of pulled back. And then over time a low there. A higher low here. A higher, low there. This low recently, going the election emblem and post earnings. You're going to see that it was lower it actually went back and even got a smidge, below, that prior low on 10 19.. Now. If you take a look at this what you're going to notice is if you go above, if you look at the prior, high. The stock is actually, getting its nose. Above that prior high now here's the deal. There's there's investors, that might say james this stock is maybe just. Too. High, i'm not going to buy shares of the stock the investor says well. They might kind of choose that vertical, route, okay. Where there's a defined, gain, there's a, max there's a max loss, okay. So now what you're going to notice is in this case. Is, they might choose a short put vertical. A credit. Or they might actually choose let's say a long, call, vertical. Okay. Now one kind of trade is more about, probability. It doesn't, need to really move. And the long call vertical. A little bit it needs to typically, move and there's an upfront, debit. Higher. Reward, though. Okay. Then the short, put vertical, okay. Now if we take a look at this if the investor said look i want to play a higher, probability, based trade. I don't want to have something that has to move, okay. Well let's say the investor were to let's say go to. An option and let's kind of look at let's say these. Something that might burn, a little bit more quickly, meaning. A closer. Expiration. Day, okay, the 20th, of november. 15, days left. And now what you're going to notice is if the investor we're going to go down on the option, table. That's really up here, but down on the strike. You're going to see that if we pick let's say if the investor picked 287. And a half. That would really in this case be a bit of 590. Ask of 615.. Well if they were going to kind of widen this out to where it's a five, dollar width and the whole per easy answer to this is, well if you do 287, and a half of the 285, you just, double the amount of contracts. Okay. And thus it's a higher commission if the investor doesn't want that. They can have the number of comm the contracts. Okay. And uh, not pay the commissions. Okay, so that's why the investors, open up the strikes. Less. Commissions. Okay, they're clear. Okay, so now what you're going to see is if the investor, right clicks on that bit of the 287.50. Sell vertical. Now what you're going to see is the investor, can now change. The strike price not 285. But the 282. And a half. Okay. So sell, one, buy. Let's verify that that's right. There it is buy one. Short vertical. Now what you're going to see is there's, the credit. Okay, now in this case what you're going to see here. Is it'll say limit, so the credit is it's 145. A contract. And that, must mean that per. Contract. The max loss is 355.. If the paper money portfolio, can really take a risk, which is true about 12, 1300. It could really do about, three. Contracts. Position, sizing. For maximum, loss and in this account. It's typically, probably two to three contracts. On average, okay, doesn't have 20 contracts, but if we took, for example, three contracts. Confirm, and send. And now what you're going to see is that now these max profits. Max losses, have just adjusted. Credit. Minus the commission. And the buying, power, is really nothing more, than what is the collateral. And you could also say the collateral. Is also what the maximum, loss, is, as well, okay. So the 435. Goes, into the account, the moment, that the paper money account, gets into the position. How, much, of that they keep, depends upon what happens afterwards, okay. And now what you're gonna see is and then it's less the commission. This has three contracts. Selling. And then buying something, okay on three contracts. If that's okay by the investor, they could send that order, and if they do so now what you're going to see is on facebook, there it is the 287. 50. And the, 282. And a half. Now one of the other things if we take a look at this i'm going to kind of, mingle, a question in here with this new example. So i want to kind of show you something. If we actually kind of go back to. Uh. A lot of the answers. That maybe. Someone might be missing. Could also be seen on twitter as well. So remember if you go to my twitter page you're going to kind of see that i talk about for example. Certain stocks i mean this morning i talked about, maybe is a stock like microsoft. Is it building a longer term support.
Maybe On the weekly, chart. I talked about for example like apple. Identify. The trend, identify. The price type of price pattern. And also really identify. Maybe, where's the potential. Resistance. Okay. Now i also for example. Was actually working on. A little fun. Because i was kind of thinking that you might look at this, i was thinking it'd be nice if there was maybe. If some investor might out there might make a t-shirt of maybe certain type of price patterns and maybe little, slogans, to remind themselves. Key nuggets about investing in general, okay. Put that there too, so. The reason i'm pulling this up now, if someone was asking me about hey could you go back to the colors. And. About the differences. In the seasons, so i'm not only saying the class. But if you go back to what i posted over this last weekend. I probably had about four to five posts on that as well. With, examples. Okay, so i just want to make sure i'm kind of, you realize that's there i'm posting, that okay. Now just real quick uh, i'm gonna kind of bring up q-com, and now i don't really have a whole lot to say on cucumb, okay but qcom. They were the ones that actually actually uh, had the 5g, technology. And got the patents, not the, i'm not sure about the pads but the licenses. Really for that and you're going to actually see that. Uh. They took a pretty big jump here today and i posted about that earlier about their numbers. Now when you have the 5g. You're thinking well who in the world needs 5g. Well apple's, new, phone which. You could order that, pro max tomorrow. Okay. It has 5g, on it so what you're going to kind of see is with the stock going up 13. And with a lot of these chip suppliers, talking about maybe a tightening, of. Chip, supply. It's either a timing of chip supply, and or, it could also be just raw, pent up demand i've been waiting to buy. That new, phone whatever. Now i'm going to kind of go back and kind of take a look at this, uh just kind of mention this. Whenever we look at let's say a line, okay and i'm going to kind of look at this on a three-week, chart first. If we kind of take a look at this and if we were to kind of again. Just kind of take a look at what is the longer, term trend. Well remember. If you take a look at this if the price, is above the blue line. There's momentum. Okay. Now i know the investors, thinking james could i go back the investor might be thinking. Geez that might be an interesting time when the investor. Might, have been, able. Maybe. Just to squeeze. A little bit out of that maybe. Okay. Now if you take a look at this you're going to see a nice little run here again. And we're kind of seeing a common. Denominator. Here, and the common denominator. Is geez it kind of seems like. When the price is above the red line the 30 period moving hours but, the price is above that. Blue line, the 10. Period, moving average. Kind of seems like there's a trend. It kind of seems like there's more green, candles. Than red, candles. And if the price is above both moving averages. That actually could mean when we talk about, identifying. The strength of the train, which, season. Is the trend. It's really going to be. Summertime. And you're going to see that for a long time it was above the 10 and the 30. And it was, pegged, at least it kind of seemed like it was packed. For just now each dot. Dot. Dot. Dot. Dot. On that day it's saying hey price is still above the 10 thirds still above the ten, still above the ten or thirty still about the ten thirty still above the ten and thirty, still above the ten of thirty chase why do you keep doing that to annoy, the investor. Why do i do that, because someone could see this uh ten times and never get in at once, how do you know that i knew a guy. That used to look at charts and all about them, but then it comes back to when does the rubber actually meet the road does that make sense, so if we take a look at this and we now go back to let's say a daily, chart on this one year daily. You are seeing that on the price. And i want to kind of talk about this and the principle. That we're talking about is number one trend. The also other principle in practice we're talking about, is drawing. Resistance. And sometimes, people get caught up do you go from left to right. Do you go from right to left and the answer is, yin. Yang is the german word for ya, and nine. Yes and no, so if we actually go back and take a look at this, the investor, could number one.
Start From the left, maybe a recent, high on the candle. And the goal is to maybe, nick. Nick. The top. Rights. Of the candles. Okay, now i don't think there's necessarily. That, if someone draws, it slightly, different it's wrong. Because we know that support and resistance. Is an. Area. Not an exact. Perfect, line, okay. So if another investor were to draw from this, candle. And then draw it, down. And maybe draw like that, is it dramatically. Different at the end. No. It's not dramatically. Different. So notice what i said before is we're going to go back and when we draw a diagonal line. That diagonal. Line might be over the last, two to three, weeks. Wait where did you get the two to three weeks. Well when you go back and look at most charts. The mean. Okay. The average, time and probably a lot of charts that you'll see a pullback. Will probably be about, two to three. Weeks. Could some be shorter. Yes. Could some be longer. Yes. But probably when you're drawing, a line of support, drawing the line of resistance. It's probably going to be right about that two or three weeks. And so what do you notice actually on the price graph. Price actually yesterday got above that today's price action doink. Gaps to the upside a little bit now do you think. That maybe some institutional, investors, they might look at qcom, and say, well who are the cruds buying cucumber. Who wait where's this demand coming from who's their biggest, who's their biggest. Purchaser. So what they start to do is they say hey one of the biggest customers, that qcom has, might be, these companies, and they might say. If there's that much demand, coming through qcom. Choo, choo, the back end of that train might be apple, microsoft. Whoever the companies, are, that are the big, purchaser. Of their products. Does that make sense. So important you understand that that's why people look at maybe. The suppliers. If the suppliers, are actually being blitched. Okay, high revenue. High earnings per share, they're thinking well, who's buying that stuff oh could be the home builders, they could be selling a lot of homes right. Now. If you take actually look on, apple i want to kind of take this from a different perspective. Wonder if the investor wanted to do something where there's a little bit higher. Dollar, potential, gain. Maybe where it wasn't. As, much, about, probability. But maybe more. Profitability. Okay. So you got probability. Profitability. Higher. Probability. Is, lower. Higher, probability. Is lower, potential, profits. Lower. Potential. Probability. Is actually, higher. Potential. Profits and i know what you're thinking james, can i have both. It doesn't work like that okay, now if the investor, said james i'm going to kind of take a position but we're going to go on the call, side. So if the investor we're going to look at let's say the call side. Maybe just something over a shorter. Term. Period. Of time. Now what you're going to notice if they were going to buy a call the calls. For. Let's say the first strike, in the money is really the 119.. Okay, let's buy a call we know that's a right. And it's a right to buy the shares at 119.. Okay. So number one is they could have a right to buy the shares a hundred of them, at the strike at 119.. Great. Now, the second option is, they have the right they control.
That Option. At the 119.. As they actually have that option what do they want the stock to do, well they want it to go up, they want that intrinsic, value to go, up. And when the intrinsic, value the equity, goes up. It pumps, up that. Premium. And that means they could potentially, sell that, for, more. Now, let's kind of take this from a different view. Some people kind of call this the poor man's cover call which i never like to say, poor man's cover call, but some people kind of like to call it that. The real name if we're gonna, in this example, long the call short the call. Now what you're gonna see is we're gonna go by, vertical. Okay. Ah. And if we take a look at this. Poor man's covered call diagonal, spread long vertical, call, simular. Okay, similar. And if we take a look at this it's just buying the option the 119. Call. And now what you're going to see is let's say if the investor, were to let's say open, up the strikes. You're now going to see let's kind of open this up to maybe five. Dollars. Wide now here's the nice thing, 119. 124. What's the debit. The debit is what the investor, potentially. Could risk. So if the stock were to go zero they could lose. Okay. Two dollars and one cent, per. Contract. Now if we actually go back and say what could the potential, what could the investor potentially, make. Well what you're going to see is, five dollars spread. But the investor is actually paying 201. So remember we kind of talked about, really. Higher. Probability. Lower. Potential. Okay reward. This is actually having a lower potential, probability. Stock needs to move. To get to break even. But, with a lower potential, probability. You're actually going to see there's a higher. Profitability. Potential. Now what you're going to notice is the stock, needs. To move. It's currently at 119.. Breakeven. Needs to be at. 121.02. So if this paper money account said in this case, hey it can risk about a thousand dollars just to be. Kind of keep it. You know, even numbers. If the investor were to do five. Contracts. Okay. So if the stock in this case, there's our breakeven. Max profit. Five contracts. And now what you're gonna see is the max loss if the stock were to go down. That's the potential, loss what does the investor. Really, want. Well, think of this almost like a cover call, the stock, actually, want the investor, wants the stock. To close, up above. Both, strikes. Right, not just 119., no no get away from 119. But to get above. Not only the 119. But the 124.. If it closes above, 124. Okay. We're actually really we're talking about expiration. It's in that max, profit. Scenario. Remember. The investors, long the 119. And there's a ceiling, or a cap. At the 124., anything past 124. Someone else has the right, to buy, those shares, at, 124. Now how much money is coming out what's the collateral. Five contracts, apple. Hundred dollar stock. Thousand five dollars, okay, if it went down to zero, a thousand five dollars, okay, so this is kind of where it's nice of the investor, if they're saying hey james some of these huge swings. Some of the higher implied volatility. Still being able to trade the trend. Trading, the trend does not mean someone needs, 50 000 to play tesla. They could trade, the trend. Through whether it's cash secured, puts, they could trade the trend, through actually long call verticals, or short put verticals. Those are options, and ways to trade the trend, to find reward. Define. Uh losses. If that's what the investor wants to do also remember there's a commission, for that. And now what you're going to see is in this case. Going to send, that order, right there. So. It will be interesting, kind of going into. Uh the holiday, season if they kind of get any updates, regarding, maybe the strength, of demand. For the new iphone, 12. And the, iphone. 12. Pro, mega, max. Whatever you want to call it, that is actually going to be uh, available, to order. Tomorrow. So that does actually fill, the idea behind that is can this be something. That maybe gets out of this maybe, bull, flag. Symmetrical. Triangle. Pinch, apex, breakout, potential. Could it start to extend. Okay, and maybe even get above, that pre-split. Area, of 128.. If it could get above the pre-split, area, that's pretty interesting because now it's getting past what technicians, call, a post-split.
Depression. Okay, so i'm out of my time here today, as you can kind of see there's quite a few examples. Of trend up there which is always nice dow sitting here. 566. Uh. S p actually sitting here at 76. Nasdaq. Sitting here at about 312.. If someone walked away from today's class and said yeah but these are just short term up moves, then they have not looked at the weekly charts. If the investor, looks at the weekly charts. That technician. Would probably see an ascending, triangle. Or sideways consolidation. Where the price. Is up closer to the resistance. That could mean potentially. There is an increasing. Potential. That indexes, might, break. Potentially, to highs, okay. And the investor, could watch that and see could it okay, so i'm out of my time here today i want to thank you so much for your comments your questions. And your participation. I also like to you uh thank you for uh, keeping an eye on me, of wearing these pastel, shirts. And uh, and i'll try to pick the dark one next time, all right, so uh. Yeah so sam says why not use the whole moving average. The whole. When we talked about those. Seasons, it was initially, discussed, as using. A 10 exponential. And also, uh, a simple, okay. And i actually put those on the chart. I put those on twitter two charts side by side. And what you'll, find, out. Is, you'll be sam you'll kind of be blown away. That it's not as different, as you would think it was i think on monday, or sunday. I post an example of the whole moving average. And also. The different style chart that we just been looking at and when you look at them, they're not as different as you would think. Check on sunday i think that's when i posted that, okay, so i'm out of my time here remember with what we discussed here today it was for educational. Uh purposes. Remember td ameritrade, does not make any recommendations. Determine suitability, of any security or strategy the investor, gets to decide what they want to invest in, go out paper money trade. Get some practice. Don't just be a learner, where you're watching. Be a learner where you watch. And you're practicing, paper money, and that's going to allow you to learn more quickly. And also be able to actually ask even, even potentially, better questions, okay. And that's really important because then you find out maybe what are some holes of maybe some, potential, misunderstandings. Okay, so with that said i'm out of my time stay tuned for ken rose coming up just shortly at the top of the hour with that said wish you a great day take care. Bye. You.
2020-11-12 07:24
