Technically Speaking: Trading the Trend | James Boyd | 4-15-21 | Longer Term Trends with Patterns
hello and welcome to technically speaking trading the trend weeks to months my name is james boyd we welcome you here we'd like to welcome terrence fez shauna rhonda aaron amy neil are ah better not dom elizabeth from socal welcome to uh all of you we also have with us cameron may initial cm in the chat a fellow instructor so as we go through just know if there are some questions and you see a response coming back has initial cm that's cameron may have fellow instructor and we welcome him and we thank him for answering as many questions as possible and i will also be scanning those as well so your tag team here today uh so uh we welcome everyone as we talk about trends we talk we talk about really how thursday is trend thursday trends really being maybe longer term or shorter term we're going to talk about that get comfortable with actually seeing trends and looking for entries in the shorter term that match a longer term trend okay now you can follow cam or myself on twitter we post educational content there daily uh you know twitter's a great resource to actually see educational examples not recommendations but examples and also for example just great updates uh different things articles things like that that we share that's like our investing family we just kind of you know teach the classes there but then we actually throughout the week also add content there as well so check that out you can go to twitter.com type in cameraman and you can actually see him there as well now just real quick as we're getting started remember that with what we talked about here today if we talk about options remember that options are not suitable for all investors especially risk inherited trading options uh you might have some questions about that so go ahead and you can ask remember that in order to demonstrate the function of the platform we're going to use actual symbols past and current remember the td ameritrade doesn't determine suitability of any security or strategy it's up to the investor to decide what they want to invest in and also remember that all investing involves risk and there's the option greeks there as well now what i'd like to actually do is kind of start out with doing a quick quiz and i like to kind of see how sharp you are in terms of actually what you've been monitoring in the market so be ready for this we're going to take a look at the indexes and sectors first then we're actually going to go down to identifying longer term trends using weekly charts i mean this class is called trading the trend weeks to months so let's do that and then what we're going to do is kind of focus in on really looking for shorter term entries in longer term trends application of orders then what i want to kind of do is go down to what i call frequently asked questions or recently asked questions and so i'm going to incorporate that here today and answer as many questions as possible but our goal here today is really look for three setups in the short term where we see a short term upward move in a longer term upward trend so we won't actually say we're finished with this class until we put on three example trades and talk about why okay now as we do this what i want to do is i want to ask you a question now okay so be ready so if i were to ask you what indexes for example have led as far as this week go ahead and actually type that in now you got you got four indexes right s p nasdaq dao russell which two indexes have actually been leading this last week go ahead and type that in i don't have jeopardy music so i'm trying to make it up as i go but the biggest actually thing is if we were to ask that question which two indexes are actually leading for the week and why do you care well this kind of also kind of helps us determine kind of posture in general right well when we actually look at the market watch and this is what was just a list i made okay uh if we look at let's say returns in general it's actually the nasdaq that's actually leading the week 2.11 and then followed by the s p which we know is top heavy and technology now the second part of this question is here is it a good sign if you actually see the nasdaq leading would that be a good sign or a bad sign is that a good sign that people are buying kind of more pro tech stocks or well it's indetermined okay we would actually say if you actually see nasdaq at the top that kind of shows that there's risk taking and investors are probably those probably buying those more risky assets that have more volatility with those and then we actually see the s p now what i thought was actually kind of interesting is it's a little unusual when you look at the whole column called that's a bounce a bolus bounce we see that on all four indices all four and then when you look at let's say well the indices that for example that would be hitting a 20 day high here here here three out of the four are hitting 20 highs and three out of four leaving out the russell gary where are you okay three out of four are also hitting a 55-day high so we just have a lot of things here that are hitting some highs okay that's that's not a bad problem to have i mean the paper money account loves that now if i were to ask you the next question and said okay name me the sectors that i've actually been leading for the week what would they be name the sectors that have been leading for the week what would they be now i'm going to go ahead and actually bring those up i'm going to bring them up in just a second now christina actually says good side that's that's true if the nasdaq is actually leading those higher beta higher implied volatility names that's typically actually saying that investors are actually willing to take risk that's a better sign okay now if we go to that second question which was what sectors have actually been leading when we actually take a look at let's say the sectors i'll pull that up when we actually look at let's say the sectors there we go and we're just going to rank these by the one week percentage performance when we do so what we're actually going to see is not completely surprising there's technology the chart will show in just a moment followed by number two now what is ixv ixb is healthcare okay gotta get my second coven shot tomorrow i'm getting ready for it okay even if it has a 50 delta it could be in the money see if it helps it off we'll find out now third basic materials it's also up there which kind of goes back to the infrastructure idea then discretionaries then utilities so when you kind of say well what is kind of missing from the higher beta area it's really energy and financials that's been soft we know financial has been soft because where you saw the the yields go probably the last week or so kind of been just a little softer but tech is leading ixv could be biotech included basic materials and discretionaries as people get those checks or checks plural hey we saw in retail sales here today are just yeah retail sales we saw also job numbers they're favorable okay so when we actually look at now the other thing i thought was a little interesting is when we look at the seasons column what do we see a lot of summer time okay that means the prices are above the 10 and the 30 period moving average the only one that's kind of showing maybe a little maybe up near a potential area resistance is financials and then you're going to see a multitude i'm going to change my word from plethora to multitude as we see a lot of cohorts there and five uh examples of 20-day highs and 55-day highs five out of probably about the 10. okay now if we take actually a look at this let's just pull this up so when we actually take a look at let's say the technology i mean here's what it looks like okay straight up and you have to kind of say is is this now like a continuation if we actually look at let's say healthcare which we know that unh has really been ripping pretty good for a larger cap name if you look at healthcare you're going to see right there a continuation so you'd have to say that on the healthcare you're seeing a continuation slash break out okay now what i want to do now is i want to kind of take one more comment here before we actually go into let's say uh if i were to ask you the question what top five what stocks in the dow name the top five stocks in the dow now why are you asking me the questions well i'm just looking to see if you do a routine because see i think a lot of people they talk about a routine they'll do a routine of someone asking them but they don't i don't think they really do a routine i don't i'm calling their bluff okay so these would be questions that on a daily basis you want to say what two top indexes are actually performing the strongest or relative strength wise what top three sectors are actually leading what does that kind of tell us about market sentiment because it does and also with that we actually see that maybe what are some of the top performers in some of these higher indexes and those are the ones that are actually probably leading with relative strength and when someone was trading the trend short term or long term those are probably the ones they might be looking at initially or already in so if now we actually bring up the public list we'll go to dow jones what we're now going to do in this case is kind of just take a look at the one week performance here let's categorize that again and if we actually look at this we're actually seeing a couple of these stocks that are actually up in there now first off we see that number three position unh now we just saw healthcare and one of the stocks that's actually done one of the stronger ones is unh if you look at the number four stock there honeywell okay it's about five percent for the week goldman sachs with the earnings uh fifth position and there's a little stock there called apple and if you look at apple or if you look at a stock like microsoft on the relative strength it's been coming up over and over and over again in the dow in the nasdaq in the s p as far as showing you relative strength okay good jill good grace if you can answer these questions it's telling me that you have a routine you don't can't answer the questions these would be some questions you'd probably ask yourself on a daily basis and just be a quick way to check now now let's kind of talk about here longer term trends yes but then also some shorter term potential entries so remember we talked about three different index indices and we talked about the dow the s p 100 and the nasdaq 100 because those are the names you have to qualify to get on those indexes certain fundamental metrics price and volume metrics but also maybe what that is there's an increased chance of having options too that could be more liquid so we tend to just focus on those three fishing holes okay it doesn't mean that you have to it's just this paper money account does now i'm going to actually bring up a couple stocks and i'm going to kind of show i'm going to go to the example in this case of apple okay now if we take a look at a stock for example like apple i want to first start off with the weekly trend okay if you asked me what was the most stupidest thing or probably the top three stupidest things you've ever done in your trading i would actually say not looking at the weekly chart now i wonder if you say well james i'm a i'm a short-term type of trader that would still and i'm talking about for me okay even if someone is shorter term trading not knowing what's actually happening on the weekly chart can disorient someone that's in the short only trading in the shorter term so if we actually look at let's say what's happening on apple is the stock over time creating higher lows yes or no oh no we're playing the yes or no game well yeah let's play it okay it's one of my favorite now i i'll give i'll be honest i love these color candles differentiation here because really these color candles here really kind of help us identify the higher lows so whenever the color of the candles are orange purple or red that's really telling us these could be areas of the lows now what you want is over time that these areas that these lows are higher so if you knew nothing about how do i see higher lows if you just went back and said i'm going to kind of look put a little v here where there was these color candles when i say colors i'm saying orange purple red and if you can kind of put a little b there where number three is number two is number one is we see over time that there's actually higher lows over time now what you're going to notice is if you take a look at this we kind of see that if we're talking about resistance we kind of see like a flat horizontal resistance with like an upward trending support line okay now earnings so first off we're talking about a longer term type of trend there is a longer term upward type of trend we're on a three year weekly chart and we kind of see where the shorter term moving average that 10 period moving average has been above the red so that blue line that's the 10 period and i'll also tell you that right there and the 30 period moving average that's what that is when the 10 period is above the 30 we're seeing momentum and that 10 period moving average got really close to the 30 but then now starting to show a little potential separation when those moving averages or the blue starts getting wider and wider from the 30 that momentum could be starting to increase okay now i see a question on how do i bring up the chart so let's just kind of touch touch on that right here okay now what i'm going to do is i'm going to kind of share this in one of two ways i'm going to talk about this first here so if someone actually said hey uh you're you're asking about this caller chart okay uh what i just sent out in the chat you can copy and paste i want you to watch very closely and james is going to go slow because he can prove it okay here we go so now at the very top right of that of the platform we see the gear and we're now going to go down to where it says open shared items so the very top right open shared item now if i click on open shared item now what you're going to see is it will say shared item url and i'm just going to copy and paste what was sent out in the chat and now what you're gonna see now by the way you can just copy it just copy and paste it so where do we go to put it in the top right click on the gear okay what do we do now we go top right go to open shared item right there and we just copy and paste now if we click on preview preview that now what you're going to see in this case is once we do that it will say well what can we do well i want to import this i want my chart to look like this or at least kind of see some differences if i click on import now now what happens is i have a little mini chart because i open that shared item and this chart looks like the one that's on behind it there you go okay now i'll talk about the other way in just a moment so now when we're actually coming to let's say a one-year daily chart we're gonna actually look for an entry okay now if i were to ask you okay when you look at this chart what type of strategy might you consider if you were seeing a longer term upward trend okay and you were seeing for example in the shorter term a recent upward move what type of strategy would you be thinking about okay so here's our kind of what we saw when it bounced on the weekly chart when it bounced on the weekly chart it was really the price breaking up through resistance crossover ish et cetera on the daily okay so that's not where we are okay we're now up here what type of trade would you consider with earnings upcoming stock trade long call long synthetic short put short put vertical tell me what type of strategy you might be thinking about so if we actually look at this earnings is actually on 428 it's literally in about 13 days what type of strategy now one thing that an investor might say is they might say well james i'm a little concerned that you know this recent up move in the stock it's just gone almost straight up okay so whenever the price is above the 10 and the 30 we get these green colored candles okay so when the price is about the 10 to the 30 not up near in area potential resistance you get a green color candle that's why the color the candles are green now a couple dj says a long call vertical why would you do that david says has a cover call why jill says a short put or short put vertical why why would you do those now when you do a long call vertical your delta might be only let's say 10 or 20. so it's it's it's less sensitive to direction david case has a covered call i'm not disagreeing i just want to know why so david k might say might he wants a bullish trade but he's also thinking about maybe selling a call where in this case if you're close to earnings the premium is higher the applied volatility is higher and that is actually in essence affecting the premium the investor higher implied volatility higher premium well that's good because it could go up but it'll also uh in this case go down and actually give some downside protection now don jumps in says hold on maybe a cover call because it's up near an area of resistance okay okay so i'm going to kind of go with that okay you guys i'm not going to fight you guys anymore on that i like i just want to push back a little bit i just wanted you to defend the reason why you were considering that okay now what i'm going to do in this case is we're going to bring up the apple position and let's say let's say david said the cover call don says the cover call and let's kind of take a look at this okay so first off when we actually look at let's go to trade tab to place a trade we're actually now going to say okay we're going to consider doing a cover call we'll run the numbers now first off stock volume 60 million when we look at open interest thousands volume thousands kind of nice the higher these numbers are probably leads to a better chance of the bid ask spread being a little tighter now if the investor said james i don't mind in doing a cover call but but i don't want to cap the upside in the stock too quickly so in other words if the stock was at 134 and they agreed to sell the stock at 135 that's only 50 cents something you're like 50 see well when i live in the southern feet he's here if you live up north it's 50 cents okay so that's not a lot of upside okay if the investor i don't want to cap myself that quickly only 50 cents how about selling the 140 with a delta of let's say 36.
now what i want to do in this case is let's kind of run these numbers a little bit i'll bring these up we're gonna actually type in 134.49 current stock price same thing and we're going to look at actually selling the 140 okay now we cut we verbally speak to this but i just we kind of made this sheet one time in class and i think we could just talk we could make it uh we could just kind of give the numbers of it so when you actually take a look at this the bid and we're just going to take the 298 that's the option premium 298. the ambassador is actually kind of thinking about well what is that yield that they're actually getting what's the option premium relative to what well it's the option premium and i'm going to kind of put this here so that way everyone is kind of following along this is really the option premium okay divided by the current stock price that's where that number is coming from okay so i'll just kind of put that there so when we put our number there it's going to say the option premium divided by the current market price now for some investors they might have a certain yield if they can't get a certain percentage they might not even consider it this one is actually 2.2 percent now when we actually look at the upside it's 140 that's the obligation to sell the stock stock appreciation 550 see it just kind of does the math for us speeds up the process the option premium 298 that's the same right here okay right there now so when we look at our max game where we don't have to type write this down just kind of spits it out for us it's really about eight dollars and 49 cents or 849 dollars and so if that stock were to close above the strike price the upside in about 35-ish days is about 6.3 percent now some of you are actually saying hey sometimes apple tends to go down post earnings is true okay keyword sometimes but let's say the stock where maybe to go flat a little bit well if the stock were to go flat the the trade still actually can grab the premium and over time theoretically lowering the break even okay and this kind of goes back to maybe in the short term maybe it does consolidate but why is the paper money account doing the trade it's not just because the short term it's what's happening in that longer term right the longer term trend oh yeah i forgot so now the stock at expiration is any lower than 130 150 one that means at expiration it would be losing money okay we're talking at expiration let's actually put on this trade how do we do it right click on the bid right click on the bid go to where it says sell we're going to actually go right to where it says covered stock let's make the assumption the paid money account doesn't have a position and it's just going to buy the stock and sell the call when we actually do that together it's a buy right buy the stock sell the call and what you're going to notice is it didn't come up right and so that's fine we can flip the order around this is not right because it's actually saying sell a hundred shares first we need to buy a hundred shares okay we can change that not a big deal buy a hundred shares of apple stock okay good and then sell one and then there's the debit now the problem with this trade is it doesn't really have a stop now i want you to pay attention to these orders because i'm going to come back to a bracket order in a moment when we see advanced order when we typically do an order in order to get in and then in order to get out we tend to just use this first triggers scq okay 90 of all the examples are probably going to be first triggers seq first enter second once the order is in and purchased then the exit so all i'm now going to do is just right click on that green line and say create opposite order because i want the order to be flipped the green line is the entries right and if i say create opposite or this is now to get out now where would the investor consider getting out well if if i were to ask you the question where's the potential level of support where would you say that it could be because if this stock were to fall down below support define where that support area is and then we can place the order so if we were to actually look at let's say you got a lower now how can i actually see where these lower highs are well you can kind of cheat with the color of the candles okay when these what the prices actually go up and then fall back down you'll see that green and red candle that's a lower high and then if we kind of do the same thing where the price goes up and then it falls down ha green and red candles again this is a lower high and we'll actually see the same thing over here to the right price goes up down and you actually kind of see look a lower high again okay well if we were going to kind of draw a line maybe the middle of these lower highs maybe the investor says james i'm kind of seeing maybe in the ballpark of about 126. now vj is saying 124. cola says 124
minutia says 125 and if we kind of take a look at that that might be the area where the investor says if the price were to go to that price or less selling number one buying the callback getting rid of the obligation and then number two exiting the shares itself so how does the investor put that on we can now go down to where we're going to click on kind of bring that order back up this is conditional the exit is conditional upon the stock going to a certain point market gtc we're now going to click on that gear now by the way you can do custom orders on this as well i won't touch on that but if we click on this gear right here we're now just going to come in and say you know what symbol apple don't have to type anything just click below it method just click right below method mark less or equal to and we're just going to say look where do we kind of see that support level what do we say like what 126. well if we took let's say 126 less 2 to 3 percent that's going to give a stop of 123.48 so there it is 123 48.
now we could go to the risk profile if we wanted to we could kind of see what that max loss would be but you're going to see that that's going to be where the stop is when we bring up this order we can now see the first line the green line is the entry of the cover call the red line is the exit but it's also saying in this case if that stock were to go to that price or less exit the position step one it buys the calls but call back and then step two then it sells the shares now obviously if it went down that wouldn't be good because we saw in that sheet that for example if it went down lower than 131.51 it'd be below breakeven so if that stock and expiration is down at 123.58 just do the math there okay it would be down about eight dollars okay there we go now what what does the investor really want the investor wants the stock to actually go up and if it did go up the game is capped because the investor actually placed a ceiling or agreed to sell the shares at a set price okay that's the idea okay but now that stock were to become a little bit more volatile around the earnings which is upcoming the cover call does sedate some of the price movement the stock is bullish but selling the call by itself is that bullish or bearish selling the call or short the call is that bullish or bearish bowler bear type that in little trick on that now is that okay apple did fill now i want to kind of just go back to just a couple other stocks i'm going to kind of fast fire through a couple so one of the stocks i'm just going to kind of pull up we've talked about kind of quite a bit about a small company we've never heard of before called microsoft and we know that's been an upward trend we saw recently it had an ascending triangle it broke out it pulled back and how can you see where the pullback is well if we can see those colored candles now when i say color candles what are we talking about the purple excuse me the orange the purple or the red and wonder if it's only orange and purple that just means it didn't pull back that much okay and you'll see that right here here here here here here okay so whenever you see orange and purple it's actually kind of saying a shorter term pullback now where are the red candles we won't get the red candle unless the price is getting down below the 30.
okay so here there was a shallow pullback which is good especially if you're trying to ride that trend okay now so when we actually look at microsoft this is a continuation brand new high i'm gonna go back to for example a couple stocks let me just kind of show some briefly and we're going to settle in on one if i were to ask you hey what's the trend on really visa is there any potential price pattern here that we're actually seeing on visa any type of potential price pattern that we're actually seeing so if i were to maybe let's say draw a potential maybe like a diagonal support maybe like a horizontal area resistance is there anything that's maybe happening on this okay now what you'll notice is it kind of broke out one time fell back down to the diagonal line broke out the second time fell down to the diagonal line did you notice how we didn't get a red colored candle here okay well you didn't get a red color candle because the price didn't get down below the 30 okay and if that price is actually pulling back shallower that means buyers are not letting it fall as much and we're starting to see that price go back up now with a lot of the stimulus etc fiscally monetarily etc this could actually be good for visa that does debit cards credit cards prepaid cards you name it where people are kind of more comfortable than let's say spend just money like everyday use or maybe buy a little couple extra items now so these are kind of showing like an ascending triangle on that weekly chart now if i look at let's say a name like home depot we know that there has been a buying house bonanza okay now i don't know if i'd say maybe bonanza that's a little strong but people might be changing where they're living okay and certain areas of the country are blossoming well and they need a place to live besides motel sick so it makes sense but what you're going to see is that some of that money when we think about home depot and lowe's that is a form of retail clearly but it's a form of retail having to do with where people live okay and with a lot of the house prices going up people might kind of feel pretty comfortable about spending money on an appreciating asset recently like their home if we look at a stock for example like caterpillar what's one thing that crosses your mind when you see this chart it makes me want to cry okay well when we actually see a stock like actually caterpillar and we see how many times did it go down and kiss that 10-day movie on go down kiss the 10-day moving out go down kiss the 10-day moving average it's been using that 10-period moving average so when you think about an industrial play this has really been one that's really kind of led to the upside and i know we're thinking it can't go any higher well the one thing we know about technical analyses is yeah the chart can actually adjust itself okay so just because we think all right now it's at the top the chart automatically adjusts so just know that kind of industrials is still up there now when we also look at let's say a stock for example like travelers okay travelers is also up near like an area of resistance we might be thinking about here is could this potentially be like a continuation in terms of trend in general now i'm going to kind of flip my comments here okay i'm going to move now to the s p so the stocks i just talked about and showed these were weekly charts on the dow okay now i want to go back to a stock here and i want to bring up a little company called adobe now probably every sunday morning you get this thing that says hey you need to update your adobe reader or whatever right you get those well when we actually look at this chart kind of tell me what are you actually seeing on the chart so if i showed you this chart what do you see and as you i'm kind of getting some answers here i'm going to kind of for example in this case just kind of maybe draw some lines and if you kind of think about what is a technician a technician is really someone who likes to use colored pencils now if you actually take a look at this what you're going to notice it goes up and it falls back down and then it goes up again and then what you're going to notice is we can kind of get an idea of where the flag is because the flag portion of this okay so the the initial upside movement i'm going to label this as p for the pole when i say pull how would we know where the pole is well if you're seeing on the chart a lot of green candles in a row there's your pole if we said how would i know where the flag is wherever you get the color candles when i say colored candles what are we talking about the colored candles would be orange purple or red okay that was a flag right there that actually broke to the upside and if we actually look right here how would i know where the flag is color candles orange purple and orange purple and red why was it red because the price fell down below the 30 period moving average we can see where where we have the flag now when we draw the resistance okay this is really important because if we can't draw so number one this is very important i just said and i hate saying that because i don't want you to think that i just like hearing myself say stuff because i i really i just want to make sure you got this how would an investor see the poll they can see polls by looking to see where do you see an ex a number of green candles in a row when you actually look at this chart you can see where the poles are green green green green little orange no purple and green again so this is kind of like that pull how would you know where the flag is whenever you start getting this orange purple red this is that consolidation remember the flag is really kind of the price zigzagging up and down could be sideways or it could be zigzagging up and down maybe kind of drooping back down a little bit and giving back more off the highs now when we draw okay resistance this is think it's basic but it's not okay when we actually take a look at this i'm just gonna kind of look at these recent high points like here like here like here and what we're trying to do is when we actually look at these high points on the chart we're now trying to draw the line where we touch as many of these highs as we can so if i were to draw like a diagonal line of resistance i'm really hitting 4 out of five of those boxes four out of five now if i were to draw a line in like this and i would say how do those boxes do i touch i only touch one box we're going to take the low word diagonal line okay and now what you're gonna see is we're gonna say okay are we seeing a potential breakout now the breakout could be more diagonal but as it goes up it could even turn into let's say a horizontal breakout itself now if i would actually kind of go back to something just for a moment okay now some of you asked me this question so i'm gonna i'm gonna bring this up if you don't mind the question was asked regarding you know how how how can you kind of establish what what type of trend we're actually seeing when you look at a watch list okay so before we actually do this order before i hit neil's question i'm gonna try to hit two birds with one stone so if i had adobe in this list okay what is it showing me well number one it says summer time condition that's saying the price is above the 10 and the 30. again what does that say it tells us something about trend because the price is above the 30. that's good that's good if the price is also above the 10 would that be good or bad well if the price is above the 10 that probably means there's momentum okay so we just kind of call that a summertime condition now can that condition change like in a day or two sure it was literally snowing when just a day or two ago it was nice so don't think that just because it's in the summer that tomorrow can't change watch the trend now if we take a look at this what you're going to notice is adobe's showing alcohol close above the high of a low day a setup it's also showing a 20-day high it's also showing a 55-day high so why are you going to kind of find is when you get a breakout you can kind of see where it's hitting multiple uh setups a bullish bounce and or a potential break so when we actually go look at this chart is how by the way how does someone put that this on their market watch well let me just do this just real quick okay so if you don't mind uh let me just kind of for example if you want that on the market watch let me for example just share this with you okay so for example i'm going to put this in the chat and i'm going to put it right there now if someone said now let's kind of hold that for just a moment if someone said you know so i what i did is i just put the script for the column heading that we're going to put on the market watch but before we do that i just want to make sure everyone sees i put that in the chat now what i'm going to do is i'm going to go back to the daily chart that weekly chart we're just establishing what is the trend and are we seeing any potential price patterns we saw an upward trend with we also saw they are a a potential bull flag now i'm gonna go back to the example here neil asked the question about being bullish on the stock okay now when we think about being bullish on a stock we think about being long stock which is capital intensive i don't think i have to go down that road the second way to be bullish on the stock or quite bullish or very bullish would actually be buying a long call okay so when someone buys a long call they have to pay for that whatever the call premium is the con about that is it's negative time decay now if someone actually said well james i really kind of want to do in this case maybe like a long synthetic which is a long call and a short put but i don't really want to tie up as much capital now guys and gals let's remember this okay so when we go back to this if the investor said look i want to buy a long call that's in the money that has unlimited upside but the investor pays 18.15 for that premium and what it also does in this case is the time is going against them now it's ticking it's negative time decay the investor can come over here to the right hand side and they might decide to sell a put the purpose of that is to numb the time decay the call side you're paying for the time decay on the put side selling the put options it's collecting that time decay now a lot of investors might say well james i don't want to really when i look at the what amount is actually kind of taken out or held in reserve when we right click on the bit of excuse me right click on the ask of the call buy go right to caller synthetic the the actual debit is not going to be that much but what you're going to notice is it's the obligation to buy the stock at the strike price fifty two thousand dollars now people like kind of doing a trade where it doesn't tie up that much cash but setting aside fifty thousand even if someone had an account of a million dollars that's five thousand that's that's five percent of the account that's actually tied up in buying power now guys and guys we talked about this right we said hey could the investor maybe in this case buy a put below now sometimes the investor might go down to maybe where the puts might be less than a dollar or maybe just a 10 delta something that's just pretty far out of the money so when investor sells a put that's the obligation to buy the stock if the investor buys the put that's a right to sell so the risk is not down to zero the risk is down to 465. and therefore the buying power won't be okay fifty thousand dollars in an ira now if we said okay in this case we're gonna right click on that 520 we're going to go cell and we're going to go to vertical so when you sell a higher strike put and you buy a lower strike put so in many of our examples we tend to just look for a put that might be a dollar or where maybe it's a delta of 10 or less why a delta of 10 or less in this case well we're still trying to get as high of a max gain as we can okay now when we bring up this order this is a short wide put spread it's bullish but this is not unlimited upside what are we missing here what are we missing well we don't have the long call so first if we wanted this to enter and then second buy a long call well all we need to do is go single order we went through that before right first triggers scq okay and then number two is just buy the long call so when we do first triggers sq it's saying put this order in first fill it first do that first it's kinda like what you tell your kids do your homework first before you go play with your friend do not go to your friend's house before you do your homework wait can i do whatever i said before okay i know you know where i'm going with that it's kind of annoying when your kids ask that now here it is short put spread's gonna be put in first step two then it's gonna go along the call okay long call does not you're not going to the friend's house first it's actually doing the homework of putting the short wide put spread then adding that long call now when we actually come down to this the answer neil's question is cash coming out of the account okay we can kind of see that it's about a 12 credit okay paying 18. so it's really about 600 dollars now in the ira account let's say after someone had a million dollars it's now for example tying up where the buying power set aside is six thousand now i'll be honest with you i don't think six thousand dollars is a lot when you talk about a position that's fifty thousand dollars worth of stock you picking up what i'm laying down there so those are we've talked about that right but why does the investor short the put they're trying to numb the time the game by shorting the put it also lowers the break even okay that's a big deal so two points here on this trade numb the time decay lower the break even and if you do that greater chance to be potentially profitable because the stock doesn't have to move up as much to break even now if the investor actually put this in see the commission there send the order if that trade were to get filled they can now just set up the exit to sell the long call exit the short put if the stock were to go at or below a certain price so this trade don't don't be confused here it is two bullish trades long call short put remember if you do the exact same strikes your dealt is a hundred okay we don't see any price difference and if someone buys a stock like adobe where the yield is already zero to begin with they don't get any advantage of buying the shares okay the profit loss is going to be almost identical okay now when we actually take a look at this let's kind of round this out when we actually also take a look at let's say where the market is and kind of closing here we see the dow actually sitting here at 279 it's at a high it's still in the upper train now here's the deal i need you to kind of understand is like the technician sometimes they see it but they don't believe it right see it but don't believe it served that before that price is above the 10 period moving average we still got an upward trend but there's also momentum right so when we actually look at let's say the spx if the spx were to close here it's the highest close ever okay now i'm not saying that all of the stocks we look at have to be something that's at a brand new high what i would like you to do now just like i did is i would like you to go look out on the dow the s p and maybe also the nasdaq 100 look for stocks potentially that are maybe showing an example of maybe a a number one a trend and number two a break out of a price pattern that you can see it breaking out of the price pattern on the weekly chart and if it's breaking out on the weekly chart you know that's probably actually a greater chance to actually be breaking out on the daily chart okay so i'm out of my time here today but i want to kind of talk about these these things the last thing that i want to kind of bring up just briefly is if you said james i want to put that seasons on my column there how would i do that not too much different than what we showed before we go up to the very top right click on the gear open shared item and what you're now going to see is if we copy and paste that in right there same idea there we just need to rename that and if we do that say preview and then import that it's going to ask us to rename it why does it ask us to rename it well because we need to rename it because when we actually pulled the column we need to actually have an idea of what we're looking at so if i rename it like seasons when i actually click on any of these column headings and say pasta mize this is where the rename it comes in handy so if i said i am looking for let's say seasons i could say season okay that's why you want to rename it so you can find it click on ok and what happens now is we can see that in the heading so what you're going to notice is it's going gonna be very similar i'd like to do that third trade but i was supposed to be in a meeting about five minutes ago okay so lisa i do owe the class one trade but i the meeting started five minutes ago so and i have to jump to that because i told him i'd be there too oh geez it's never easy now so with that said i'm out of my time here uh so interesting uh movements in the market we talked a lot about reading the charts longer term and shorter term and also kind of helping use the script as a way to kind of see the trend and momentum okay now i'm out of my time here today i want to thank you for your comments your questions and your participation if you enjoyed today's session reach out smash that thumbs up button we also in the chat have a quick survey and what you can do and i'll kind of repost this here you can for example just click on that survey it's a quick questionnaire we read those comments i read those comments and you could just click on that and it's a quick question about what you think about the class what did you enjoy about it did you think the instructor is funny did he teach you something etc fun stuff okay it's not like write a book on their survey just a quick survey now and we appreciate you filling that out in advance now also remember with what we talked about we demonstrate the function of the platform how to use actual symbols and paper trade those remember that also td ameritrade does not make any recommendations determine suitability of any security or strategy the investor decides what they want to invest in so i want you to practice by going out and finding trends in the longer term in the shorter term look for price pattern breakouts and practice placing trades in your paper money account to get practice but where there's an emphasis on the we
2021-04-17 21:46
