Technically Speaking: Trading the Trend | James Boyd | 4-22-21 | Volatility Fear or Opportunity?
hello and welcome to tech technically speaking trading the trend weeks to months my name is james boyd we welcome you here today today's date april 24th and uh we'd like to welcome uh elizabeth mike hero um charles nat grace tobin fez and many others peter terry and anyone else i did not mention uh scott dom jonathan good morning and good afternoon to you wherever you're actually uh currently at so just real quick want to get down to actually talk about market action here probably about 90 minutes ago we actually had some speculation of raising the the tax rate for uh ultra wealthy investors up to 43 we'll talk about that market action in just a moment and just real quick you can uh also find me on twitter i do post uh content throughout the day maybe things that maybe market participants might be looking at or maybe not looking at i do post throughout the day and throughout the week remember uh also you can uh remember as we talk about educational examples here today we will probably talk about options remember that options are not suitable for all investors they're special risk inherited trading options uh there's a pamphlet called the characteristics and risk of standardized options so we'll give you all the details and your questions also we're going to demonstrate the function of the platform how to do a bullish trade how to do a bearish trade maybe how to use options in combination with stock etc but understand that td ameritrade does not make any recommendation determine suitability of any security or strategy it's up to the investor to decide really what they want to invest in and last but not least when we actually talk about uh trading remember that you should be looking at the transaction cost when evaluating the trade and last but not least the option greeks now one thing i also want to kind of bring out here uh trading futures and forex involved speculation some of you might have questions on futures i'll show you an example and so we'll talk about that so in just a second we're going to take a look at the indexes and the reaction to what's actually come from that increase in the potential uh tax rate to 43 on the indexes and the sectors we'll talk about some individual positions like netflix chevron micron as far as management considerations and then we're going to actually talk really also about potentially some bearish positions and maybe some stocks that actually could could pull back now i welcome questions as we go do not wait until the very end of the 45 minutes say i got a question at the last second just ask questions now and you know me i could do two things at once or three things at once i have four kids okay so i have to multitask i don't have one per i don't have one of me for one kid we have to kind of divide and conquer ah now someone said happy birthday james yeah my birthday's on the 24th i'll be 29 again okay for the second time yeah april 24th by the way it's always nice to have a birthday uh celebrate that birthday you don't want to miss one that would not be good so let's go ahead and actually hop right in and let's talk about uh the dow jones first now it was really about two weeks ago we started to talk really about the volatility in the market being uh low and we said there's a risk with that is that stocks are highs markets are up near resistance okay we talked about that two weeks ago i was two weeks and two days ago we actually did a bearish trade on the index we did a small con small position and then there was last tuesday where we kind of got a little grip on that index okay where we went out of the both portfolios there was only one bearish trade in each but the one bearish trade was really being bearish the index in terms of a product called the futures now futurists a lot of people think it's really complicated i actually think it might be a little bit more straightforward than maybe index options or index options on an in etf etc and we said one of the main advantages of the futures over options really comes from the standpoint is that uh you don't have that daily time decay that's a big difference in other words the position doesn't have to move to break even now when we actually take a look at a day like today and these yellow ovals i'll start with the dow it really represents the higher lows okay and yesterday we actually had a decent bounce really right off the 10 period moving average didn't necessarily break above let's say the all-time high but it was a nice bounce at the support level okay of the 10 period moving average now today if you look at this this would actually flip and actually turn this into what we call a bearish bounce okay down this is when the price closes below the low of that most recent or lowest green candle so this is a bullish bounce call hold and it did it closed above the high of the lowest most return candle the 20th yes that bounce only lasted for about a day and then you're now seeing the price not totally bullish in golf but if we were to close here we would be closing below that low of yesterday and that's what they call a bearish bounce so again threatening here to potentially break support now you're thinking on a down day like here today what is it doing to the account well it's kind of actually interesting the account yesterday was 169 280 and the account today is at 170 114 so it's actually 800 higher now how is that possible well probably actually has that bearish protection of the es or the the micro version it's kind of helping us out here if we went let's say for example to the ira what's the performance there not as good there but we actually see five 532 900 and then today it's probably down about twelve hundred and fifty bucks but twelve hundred fifty dollars on a portfolio that's about a half million dollars that's not necessarily bad okay so if we kind of net those two off the portfolios that are probably about three quarters of a million dollars they're down about 750 bucks okay now are there any questions with what we just said okay so i i'm trying to kind of take a look at what's happening with the candle and then what's actually happening with the with the index value or the portfolio value efrain actually says i have a question does hopefully i have an answer does the low day have to be a red candle uh we like it to be the the so when we're talking about cold this day one on 4 19 the second day on 4 20 okay so right here if on 421 you did get a close above the high of the low day the low day that we talk about is the lowest most recent red candle now there's only two of them so we would we would look at 420 as the low den when we say low day the terminology we give or the wording is the lowest most recent red candles which of those two is the lowest now why why do you phrase it like that well i've had a lot of chances to look at many cohorts over the years there's a reason why i kind of say that okay feel free to go back and back test it if you like but uh some investors might like to choose let's say the lowest most recent red candle while some investors who might have not back tested perhaps i don't know find out for yourself but they might say i'm just going to take the lowest day period whether it's a red candle or a green candle in the paper one account here we're using the lowest most recent red candle okay all right there you go now what i will also want to come back to is let's take a look at the nasdaq now if i were to ask you let me kind of give you a little homework assignment here i want you to imagine that you were on the other side of the screen and i said to you hey i have a question for you if i actually wanted to trade potentially the investor says a bearish trade on the nasdaq with a target of the 30-day moving average and a stop above today's high how would they do it how what product could they actually use to trade that so if i were to ask you nat ethan dennis chalandra nat davis grace how would we actually do that if the investor said look i i want to do a bearish trade on the nasdaq okay maybe where the nasdaq might try to fall down potentially to let's say the 30 period moving average and set a stop above today's high how would they do that what product could they use now by the way i think this is very important because we always talk about callers and i i wore mine today the second thing we always talk about is maybe using a hedge of the index now the funny thing is we don't have 20 contracts of the index options we we have one contract okay mainly well one thing we could actually do and lisa says this and ray says this is forward slash mnq that's the micro m for micro and the enqueue that would be what's called the standard contract now let's kind of stay in this in the shallower side of the swimming pool because i don't want to drown okay i can't swim now if i look at this what you're now going to see is i'm going to right click right on the current price okay now we're not saying the nasdaq is bearish long term we're not saying that we're just saying and i've said this for two weeks and two days is that there could be a risk of the market consolidating and or pull back go back and view anything i've talked about the last two weeks and two days well if we take a look at this the investor can now come down to well first off let's bring up the product forward slash m and q now that's what they call the micro okay now what you're going to notice is in this case is this so for the enqueue standard contract it'd be 20 dollars per point but for the micro that's like 10th scale it would be how much for each point well if it's ten scale standard one was twenty dollars a point it would be two dollars a point now what i'm gonna do is i'm gonna kind of put my cursor my pencil right at the current price action right click and this paper money account is going to show an example of setting a bearish trade with a target and a stop now when we do that that's really called with an oco bracket so it's placing an entry first okay get in and then it's going to have a stop above now wait why is the stop above well on a stop on a bullish trade is below but a stop on a bearish trade is above and when someone does a bearish trade the target is not to the upside a target on a bearish trade you want it to go down the target is to the downside okay now let's kind of follow this so if we said it first okay what is the 30 period uh ma well we can kind of see that it's right on the right hand side 13 383 now i'm not going to kind of nail it right there that at that price level we want to go to that first row in green we're just gonna say 13 400 okay so 13 400. now how many points is that so from the current price level of about thirteen thousand seven twenty six down to thirteen thousand four hundred well i didn't that looks like 326 points to me okay if it were to fall 326 points each point being worth about two dollars are we okay with saying maybe six hundred dollars in the ballpark okay that's what it really is and if we were to say let's say james i want to set a stop above today's high now what i'm going to do is i'm going to even say 10 points above or 20 points above today's high well we can actually see what that is 13 9 44. we're going to set a stop above today's high about 13 964. okay nine 1396 four and we're gonna now change it day to gtc day to gtc now james here is only practicing and showing one contract okay now one of the other differences in the future versus let's say options contract is when people say well i'm gonna go do a short call spread on the on the on the index etf do you know how many contracts you'd actually need to actually be bearish you need a lot and if you need a lot of contracts you need a lot you have to pay commissions okay this is really kind of using a more focused or a laser tool to kind of really kind of get the bearish exposure now in this case we're only showing one contract it's a micro a tense scale okay so this is like we're riding a bike with training wheels where if it goes up or down is it going to be really super risky i mean if it goes up okay we're really talking about if we talk about the stop well from 13726 up to about 13 964. it's about 240 points each point
being worth two it's about a risk of 480. now if the investor is okay with this we're paying a commission of 225 for the entry and exit buying power twenty two hundred dollars gonna send the order phil's so trade number one we're actually doing here today is being bearish the nasdaq in the shorter term now i need you to understand we're not saying long-term bears we're just saying is there a risk of the price falling back down to the 30 we're not making a target way down at 12 000 835 which maybe it could go to we're just kind of doing a shorter term bearish trade now fez actually says could you do the delta negative trade on the qqq since i'm not allowed to trade the future yeah so that's what i was kind of saying is that someone might take the index etf but they're just going to be doing more contracts right so absolutely that's the option just understand that they don't have the same leverage as a future futures like options you need actually the approval but one of the great things about paper money is you can learn to trade some of these futures in a paper money account and it's going to give you that same bearish exposure you might have been doing on the index to begin with but with less uh with a little bit more precision and you don't have the time decay where the price has to move to break even that's a big difference now i want to kind of go back to something just real quick very important to kind of show this we want to kind of take a look at what is the directional exposure to the or the correlation or the covariance to the market in general now some investors we talked about this on tuesday we talked about wanting the portfolio to be a little bit more flat now when i say flat what is what does that mean now if i said i want the portfolio to be really long or really bullish we would be thinking about having as hot maybe a high delta okay well when we actually beta weight to the spx i'm talking about the cash index here you're going to notice that the only bearish trade that is in that portfolio outside the nasdaq which we just did is really the micro the s p micro the nasdaq all these other trades they're all positive so that means those are all bullish trades and what you're going to notice is the sensitivity to the market in general so the market were to go down it's pretty much flat so we're you know the forecast is if the market goes down this portfolio might be able to kind of weather itself a little bit better than the index the average investor knows this yeah right okay they don't know this this is why the average investor when the market goes up they're doing well and then they don't sell into those targets or raise stops they don't know how to put protective puts on or callers they don't know anything about indexes and their account goes up and it goes right back down how do you know that because i know a guy that looked just like me that that was the experience so now if the market were to pull back let's say a little bit further that's going to be something we want to watch and we said that's what the goal was is have the portfolio stay closer to the high the highest closing value on this portfolio the big one 534 000 it's currently sitting at 531 890 so it's within two thousand dollars if it's high okay now someone said uh gopul says can you please repeat that what part of it okay so when i actually said let's say the portfolio is really more flat we're really saying it's less sensitive to or is i'll just say when we beta weight it it's the weighting is really neutral it's actually negative 0.42 when you go look at the margin account i got one that says n a on that there might be one in here so it's this one right here corn uh which wheat excuse me that one actually right there is also gonna be probably about flat too now this would be an important thing to do go look at the beta weight bait how do you beta weight okay so go to the monitor tab go to actually the three lines right there we want to select the old layout oh layout okay right there once we do the old layout there would be we and we want to check the box where it says beta weighting now there's two symbols that we could type in here we could type in the index etf you know which one i'm talking about for the s p 500 but for this account we're going to just use the sp x okay and what we want to kind of see is the higher the number the more sensitive it's actually going to be to market direction okay all right other questions now esteban uh we're we're not talking about really complex math okay we're really kind of talking about just adding and subtracting here okay now i want to go back and kind of take a look at maybe a position that has not been not by the way i want to look at one other position before we talk about new examples etc but one thing that when i woke up today i kept thinking in my mind uh is the vix finally gonna get above the 30 period moving average here today we've been talking about the last two to three days how the vix for the first time in about six or seven weeks how it got above the 10 period moving average yeah and then if we zoom in what you're going to really see is the vix again closing or pushing right up against that 30 period moving average so this is going to be something we want to watch the higher that the vix goes the more direction negatively that we're seeing in the portfolio from our bullish trades okay so that would be something to watch if we see the market going into the the end of the day we see the vix rallying to the close that means more and more investors are placing placing bearish type of protection measures on their portfolio and or positions rising volatility means angst fear okay uh or risk protection they're saying look it's now it makes sense to buy that and it's raising their forward expectation of volatility now ricardo says can we do a rating awaiting with the the index etf for the nasdaq sure go ahead type it in you could also do a waiting towards the ndx as well okay sure you could type in djx okay so when you actually do that whether you take the index etf you take the the ndx the djx the spx etc it's just gonna do the math for you and weight those okay all right now let's actually go down to maybe one that has not been as helpful and there's a position called netflix now it actually had earnings the other day the earnings was good but the subscribers was actually less than forecasted and i think was a little softer now two days ago we did a bullish trade on this in this paper money account and the trade that was placed was a short put vertical now i won't tell you why it was a short put vertical it's because number one is if it had an adverse price move we wanted there to be downside protection now had the investor sold the option by itself the put option that investor would have been down really about 13.65 unrealized loss but
as the stock went down the protection went up in value how do we know which side is the protection the protection in this case is the side of the trade that has negative delta okay so negative delta so remember short the put that's th well that's not what i want short the put that's the bullish side of the trade the long put think of it as the safety net below and that safety net is actually working out pretty nice now remember what we said before is if the safety net is making money what does that tell us about direction uh if if the puts becoming worth something the long put that actually must mean the stocks down now the position is down 367 dollars okay that's it sell the position well oh wait not so fast okay so the stock actually went down and so let's kind of review these numbers real quick five twenty five ten there's ten dollars and then we wanna just say okay that's a spread ten bucks but then what was paid i mean wonder if we're pretty close to the max loss anyway so we collected 11.90 that's what the pay money count is short but then for example in this case it also okay paid nine let's just say nine dollars okay easy math okay forget the 905 okay just nine dollars easy math so the credit was two dollars and ninety cents spread 10 max gain 290. so we know that the max loss is right around 710 so if we look and see well max loss is 710 the position right now is about 50 percent of its way to the maximum loss if netflix went to zero it can lose about 355 more dollars so this right now is about 50 of the maximum loss and and the reason why we actually did a short put vertical is just in case of the adverse price move the adverse price move happened and remember when we actually did this trade we talked about the delta and let's say the delta was 30. there's a 30 chance it's gonna close below the strike but whatever the deltas initially if the delta was 30 there's a 60th percent chance the stock is going to be below that strike price uh from now until the time till the expiration so right now we're in that sixty percent of the time where the stock is below the strike so if you're asking me hey what's the paper money account gonna do it's gonna ride it meaning it's gonna let it play itself out we've identified it could lose about 350 more dollars but we're already halfway to our back being up against the wall anyway and what's another 350 okay stand actually gain more number one you could get the 350 back potentially and make the 290 and you're only risking 350.
more so in this case got more upside than downside and that's the case just gonna let it really ride okay now number two trade we actually want to talk about here which is that micron now someone brought up oh my gosh sunglasses please gonna need some glasses here okay don't want to see those red colored candle sticks wow well if we look at this we really see that red colored candlestick now i try to get the darkest color tints to not see that red color now on monday and tuesday we talked about for example short puts we said one of the risk of short puts in general is number one is adverse price movement okay well we're seeing that now really on micron now whenever the price gets below that 10 period moving average remember we said if the price is above the 10 that could mean potential pleasure and there's been excessive pleasure lately excessive well now if the price gets below instead of it acting like support it's now acting like resistance well that's not nice and if the price actually only goes up probably less than three days he only went up for one sold off went up for one again sold off this is what we call negative momentum now this is opposite to what we saw with most stocks most stocks went up and they pulled back for just one two three days went back up went up pulled back one two three days went back up but this is the opposite now this is the stock goes down and when it goes up one day when it goes up one day quickly the stock bends over again and then just reaches new lows now on i think it was monday or tuesday we talked about for example putting this in i got to find where that went i'll find that there it is we talked about for example buying a put this was a short put position and we said we question could this position be at risk as the stock was falling down below support we said option number one could we just get out sure got to pay more for it though because the stock went down option number two could we maybe set a stop that if it went at or below price then get out sure third option that we actually did we took that is we said what could minimize the risk not all of it but minimize it we said look in this case the investor can buy a put now i want to kind of talk about buying a put for just a second yesterday i was playing tennis my wife calls me says you need to get home it doesn't usually say that so what happened is the washing machine the cord caught on fire i said why do i need to come home i'm winning right now which that meant i just want to finish it and win she goes well because the washer and dryer room is on fire now i kept thinking about how that put protection felt pretty good at that moment in time low probability of that happening hasn't happened before but when it happened which it did okay connor was glad about that put protection now puts really they're not free okay they're not free gotta pay a premium paid a dollar ninety four and now that value has gone up now do i want that put value to really become worth something not necessarily okay but that way if that is increasing it could be help offsetting some of the losses on the bullish side of the train see i'm long my house i own my house but i also bought a little protection just in case crap like that happened and it did okay smoking the bear yesterday but we're fine today that's all matters but the biggest thing is just like in if you purchase assets the investor can also do that with their stocks and or option positions there's two main reasons to consider this number one it decreases and really holds the delta more constant number two it also in this case nums the volatility because the investors short the put and long the put and so it's trying to have less directional exposure to delta that's huge just talk to someone today when the market goes down they know what directional sensitivity is now and second is when the volatility goes up this position is not as hurt because it's on both sides of the trade okay now what i want to do in this case is uh so i'm going to hold we're we're just going to leave that okay now what some investors will do is they'll say i want to take the gain on the 8250 well if you take the gain on 8250 you actually are now more exposed to the short put position on that may 92 and a half so no not taking that 72 dollars gonna use that as protection yes this is a short put vertical but the difference is here the strikes are wider does that make sense the strikes are wider now i want to kind of go back to a couple examples here and let's kind of take a look okay so i want to kind of just take a quick look at the market see where it's at so spx let's kind of take a look at spx and kind of see it did it break down as hard as the dow it did the spx is kind of just holding at the 10. but i want to kind of bring up are we saying that all examples are going to be bearish probably not now some of the stocks that were up a lot they might have more room to drop but some stocks that were down and maybe started to come up some investors might sell the stocks that were up and buy the stocks that are closer to lows or in those basing pattern reversals does that make sense okay so they're selling out of the gainers and buying the stocks that did not correlate as much with the broad market in general now what do you mean this correlation stuff well i'm going to bring up a stock called lulu now let me kind of tell you what i mean by correlation if i look if i showed you lulu and here's the chart of lulu does lulu the chart look like the s p dal nasdaq does it look like those three indexes yes or no it looks kind of different doesn't it it was something that was kind of beaten down not just so we're clear you look at the spx over the last few months now one chart the spx went this way and lulu was going the opposite way what you will probably find is investors with experience will say you know what maybe instead of actually picking stocks that are highly correlated to the index maybe let's go look at some stocks that have maybe underperformed or have a lower beta you said that word three times today it's covariance relatively index stocks that haven't moved in in parallel uh with the index of the spx or the nasdaq now so here's this stock and if we were to kind of take a look at this and say okay is this a bullish or a bearish trade well when we were kind of looking at this initially we were kind of thinking maybe is this a stock that might be trying to let's say break out of where it's downward sloping line of resistance i didn't say it i did not say that diagonal okay i didn't say it took everything i could i had not to say that word okay here we go so if we take a look at this you'll kind of see that it breaks out a diagonal here breaks out a horizontal here then gets a little bounce right up near that 30 period moving average and then today even if you look at the candlestick today it's doing something completely different okay completely different than what the market is doing now i can hear someone saying but how would i find that well if we pulled up let's say the three lists that we always talk about dow 30 nasdaq 100 s p 100 it should not be that difficult if that investor looked at those lists okay if they look to the top of the list lone and stink and behold what's right at the top lulu now if someone said i didn't see that then i know that you didn't look at those lists i know you didn't do a routine i know you didn't look at those three lists because if you did because it was right on top i just want to just state that point now if we look at lulu if someone said okay james it's okay it's reversing but i'm also concerned maybe could lulu if the market drops could lulu get drugged down with it possible well what's maybe a strategy that the investor might do number one they might do a long call vertical which has a built-in max loss debit and the other side of that trade might be a short put vertical which is kind of what we just looked at now when the investor does a short part vertical they might say james if the market is a little bit more volatile but they try to give a little bit more time sure okay well instead of going 29 days wonder if they want to go a little bit further out because remember if we give it more time there's more time for the market to absorb negative news okay and try to have that longer term trend take hold well if the investor said james i want to go down and maybe sell the put option that for example in this case might have a delta 30 to 40 but we can even go lower okay so the investor might say i'm not even comfortable with that i might even go a lower strike but if the investor said james i'm comfortable with that strike that has a delt of about 30 ish this has 33 the investor is going to sell this 10.65 and then buy the put below now this by the put below it sounds so foreign but it's not okay you gotta remember you bought the house and then you bought protection you're long the asset the house you bought protection okay the other side of that trade is you bought a car and you went long that asset decaying asset depends upon the make and model car i guess and then you bought protection protection does not have a high probability of success that it's gonna get to break even or make money but the purpose is here is just to create a defined risk okay when we actually go look at this what you're now gonna see and i wanna change this to the ira account to get a really a full sense if someone was going to do this in a retirement account what would that collateral be in an iran account but one of the nice things about the vertical is whatever the max loss is that's what the buying power effect is think of buying power like the collateral to do the trade you check into a hotel they say mr and mrs boyd it's 150 for the night and there's a dollar buying power just in case you break anything they're holding some collateral on my credit card just in case for any incidentals same type of idea now when i check out they see they they're in fine he did not break anything i normally don't they get they release that buying power they release the collateral same type of idea okay now if the investor said well how many contracts could the investor do well what's the max loss in this portfolio of the ira it's really been doing about well fifteen hundred dollars seventeen fifty ish so this portfolio could probably do at least two contracts and we're gonna go down to confirm and send and now what you're gonna see is it'll say sell max law max profit break even max loss remember this is a probability based trade the probability is the trade could be above both strikes max loss automatically built in 260 is for the two contracts and the buying power for a 338 337 dollar stock is really 13.86 now
if we take a look at this send the order there it is now the comment came in from nat guys want three lists well we look at the dow 30 the nasdaq 100 and the s p 100 a large majority if not all of the examples that are done in this class come from those three lists why stock volume option liquidity some stocks in those lists are more liquid than others but the goal is just to find something that is more liquid okay now i want to kind of stop i got about 10 12 minutes here or so i want to see if you have any questions i just want to take a quick time out i've got some other stocks i want to look at but i want to kind of just kind of see where we are do we have any questions that we can address anything that i missed okay okay yeah the comment from orlando says what are the mmm so the uh if we go back to a stock so when we have a stock that really is upcoming with earnings okay upcoming with earnings there will be and i'm trying to think of a stock let's go to apple okay and apple actually doesn't have it yet uh not yet uh let me bring microsoft so i'm just trying to bring some names that might actually have upcoming earnings and i'm gonna go to the list just real quick uh let me bring up mar so what they actually do and how do we find that okay so i went to i have the nasdaq 100 here on the left there's mar and we just have a little blue oval okay we click on that that's the earnings so that's coming up on 5 10 may 10. over here to the right what you're now going to see is it will give a forecast of the mmm market maker move okay now when this gets closer and closer to earnings this becomes kind of an interesting gauge to kind of see what is the forecast of the stock going up and down okay now why would someone care well they might place kind of or place option trades that are really based upon the outside of the parameter of that forecasted expected move but you probably won't see those really until you get probably inside let's say two weeks to earnings okay now uh schlonder actually also says dhr now dhr what's kind of interesting is i'm going to go back to the s p 100 list and if we actually look at dhr now chilandra you cannot fake me okay you can't fake me i know you probably looked at the s p1 you look at that dhr why the dhr what's interesting is there anything interesting well when you actually take a look at stock like really the dhr let's kind of take a little step back so let's say someone pulls up this up and says i've heard of it but i really don't know what it is well you can go up to where it says analyze and you can go to that area where it says fundamentals now if you click on where it says fundamentals we can see that this danaher it's in the house scarce healthcare space healthcare okay healthcare now it will also give us really kind of a description as far as what do they do all right so that's a little sense there uh of what sector is it is what what it is what sector description and then if we go back to the chart we would say why are we even bringing this up well if you kind of take a look at this chart what type of potential pattern are we really seeing on this cup just gave it away just give me the last word okay handle and that already beat me to it okay no you see i i leave the witness okay so now what you're going to see if you look at this you kind of have this kind of what we call a cup or a bowl now when we actually look at this we don't always need a perfect okay copper bowl but if the investor said okay james i kind of see this where it goes down then it goes up and first of all once you kind of notice how symmetrical that is it went up about as fast as it went down now that's kind of interesting okay and then when the stock actually went up it did pull back and for the very shorter term it really kind of pulled back or flagged okay and that is what we call the handle and also to the left it's really the what we call the cup or the the bowl okay now who cares well a lot of technicians might look at this and say james i'm projecting now projecting doesn't mean that they know it's going to go to that they're just saying look i'm forecasting that it might travel the width of that cup so we really have 245 resistance and then we really also have in this case 23 215 being support so the investor might say james potentially over time that stock might try to forecast a potential target area of about 2 75 over time so the idea is to say okay we see the stock actually getting above the resistance the stock is at 253 maybe what's let's say someone said to me okay i have a lower dollar portfolio i can't buy even 20 shares of stock 50 shares of stock i'm just getting started okay well there's things called if someone said look i want to kind of do a more directional type of trade but not tie up as much capital one of the reasons why we want to maybe try to stay in well you don't have to but the paper money is going to try to show that is sometimes when you look at some of the stocks even though they're in the doubt the s p 100 like this one is it's not saying that all of them have tight bid-ask spreads or high open interest or volume when you go look at the june expiration there's a 80 cent difference between the bid and x okay so don't think that just because it's in the sp 100 that it has to be liquid go look okay and that liquidity will change based upon market conditions okay now if the investor says what i want to do i want to buy the in this case the at the money call i want to be careful here because the payment account is going to not try to buy let's say a market price because it get ripped off probably it's probably going to try to buy in the middle like 11.40 okay in between the bin ass then what it's going to do is it's going to sell the call above now when the investor sells the call above they're paying no they're paying so we're going to right click on the ask price by vertical now what it's doing here here is is going along the 250 call it's a bullish trade but one of the cons about that 250 call is you got to pay for it which isn't a which look it's an it's a it's an investment derivative you gotta pay something for it we're not talking about an arbitrage trade here okay no certain payout but with no capital outlay we're not talking about that an investment or derivative if you take a look at this long the 250 short the 260. well why would you be short the 260. doesn't the short of 260 capped the trade that is true okay now the difference between let's say short put verticals and long call verticals which trade tends to have more upside potential typically well it's going to be typically your long call vertical so when we actually look at this you're going to see that the capital outlay cash debit whatever you want to call it the max loss is going to be what the investor pays 515 dollars we have a spread of 10 dollars from 250 to 260. 10 and now what you're going to see is the max profit is going to be just the distance between the 10 spread less what the investor paid for so in this type of trade it has really more of a one to one reward risk ratio remember though the break even the stock does need to go up some so at break even or at expiration the stock would need to go up to 255 15 to break even so that's probably the stock needs to go up about a dollar 50 to break even okay now why is that well because it's because the investor's paying more for the 250 okay call now if the investor is okay with that paying 515 dollar 30 for the commission now what's going to happen in this case we're going to send the order now if we send the order someone says no we don't have a stop well we're really setting this trade really based on maximum loss and matter of fact if we're doing this in the margin account the margin account could really risk about 750 800 so this is still going to do about one contract it cannot go two will not so it's gonna do one contract and then send the order now i've got a question for james james why did you pick or did you focus on verticals can anyone actually kind of maybe guess why the paper money account focused a little bit more on verticals today without me giving more information than that did anyone actually tell me that why why did the paper money account go out and buy stock well as i'm getting some answers on that let me kind of show you something so what happens is whenever we're in a situation okay and i'm gonna for example let me just kind of bring up the dow what happens is if we start to see let's say more and more stocks fall down below their 10 period moving averages we start to see let's say trend conditions where we start to see that we're in the early winter remember early winter means the price is actually falling down below the 10 but not below the 30.
fall means price is above both moving averages but could be up near resistance and what you're going to see is you're getting a bigger and bigger chunk of stocks where you see they're more in a winter time condition what does that really mean well that actually means that the stocks are really below the 10 negative momentum and they're also below the 30. and if you think about that many ambassadors might say that's not necessarily a stock buying example unless someone's probably doing more what we would call dollar cost averaging okay just buying into a sell-off trying to build a position more like an institutional investor would so that's why the paper on account is not buying stock it's trying to do trades that are less sensitive to direction with the built-in maximum loss but it's also trying to numb the effect or the volatility okay exposure those are the reasons and i see that you gave me the right answers there thank you for that let's continue to watch this we got john mcnichol coming up right after this he'll be doing a class on really long verticals and diagonals kind of piggybacking and that's a specific class for that so if you said james this makes kind of more sense that when the volatility goes up maybe the investor adjusts the types of strategies they might look at okay now that should kind of make sense because if you go play golf you don't just hit with the driver the stock position every hit do you i mean you could okay but there's different clubs and different strategies for different trend conditions same thing in golf close to the hole might use that little pitching wedge on the green probably going to use a putter okay so the same type of idea when trend conditions change this paper on accounts adjust what types of strategies it's using went more vertical today because we're seeing a little bit more neutral to bearish price action on some of these stocks want to kind of be less sensitive to direction that's delta and also for example want to be let's say more uh more neutral in terms of volatility okay so i'm out of my time here today uh again we will continue to monitor this portfolio value we said the goal of kind of doing what we did over the last two weeks was really to try to numb the exposure to a market pullback now i expect it to pull back some but the goal is to actually pull back less or in other words outperform so i don't want to kind of see if over time is as the market fell how high or how close to the high could these portfolios actually stay with those hedges on the indexes all right so with that said i'm out of my time okay we practice a bearish trade we also uh reviewed netflix and micron we also talked about a bullish trade also on dhr and lulu we'd also like to thank pat malali and also in the chat there's a survey you can quickly click on that survey quick five or six questions about how you enjoyed today's class and uh i appreciate you if you fill that out i do read those comments thank you in advance for that want to also give us a last reminder with what we discussed here today we did demonstrate the function of the platform we used actual examples we demonstrated how you could do those on the platform remember the broker td ameritrade they don't make any recommendations to determine suitability if you enjoyed today's session take both hands just smash that like button okay smash that button and you could also subscribe to the trader talks channel and the investor insights i wish you a great day i will be posting today and tomorrow uh on twitter tomorrow's my day off but i'm gonna be posting on twitter regardless and so with that said thank you so much for your comments and your questions and uh stay tuned for john mcnicho coming up just next thank you so much take care bye-bye
2021-04-26 04:36
