Things To Consider When Trading The End of September | Technically Speaking

well this week's one of the more bullish weeks but next week one of the more bearish or least bullish weeks of the year how do we trade that especially around the FED meeting next week we'll talk about that and more so stick around foreign good afternoon good evening good morning everyone and welcome to technically speaking technical analysis and options my name is Pat malali and I am joined in the chat by my geared friend Brent Moore's and uh he is another TD Ameritrade education coach he's there to help answer any of your questions Brent does several webcast as well and you can follow Brett on Twitter at bmore's underscore TDA and for those in the recording and watching recording of the archives at B Moore's that's spelled m-o-o-r-s underscore TDA you can follow me on Twitter at Pima Wally underscore TDA as well so let's get out there and get rolling we got some interesting things to talk about today but first and foremost this content's intended for educational purposes only not for recommendations you are uh uh or excuse me options are not suitable for all investors there are risks that are inherent to options trading short options can be assigned at any time up until expiration uh regardless of the in the money amount and in the money option has a higher risk of being assigned early the paper money virtual trading application will not assign short option positions early that's going to be very different from a real trading account probabilities shown or theoretical in nature not guaranteed and we're going to discuss technical analysis but there are other approaches which include fundamental analysis and that can assert very different views past performance video security does not guarantee future results of success all investing involves risk you are responsible for any investment decision you make in yourself directed account all right uh any trailing stop or stop loss order will not guarantee execution at the activation price so the agenda for today is going to be a quick review of market conditions uh and one of the reasons for that is we're going to look at in a trade on the SPX based off of the information that we have going into the end of this week this is uh this is options expiration week and the next week is the week after expiration which is a some pretty interesting uh pretty interesting history behind it and then of course we'll Define some technical Concepts around the idea of providing ourselves with some option strategies based on what we're going to discuss uh today and of course place that sample paper money trade and we're going to look to manage an existing uh position on existing options position as well so let's get out there and get rolling all right I'm going to start off with the markets before I start off with the markets of course hello to everybody in uh the in the chats and that is uh Rebecca and Juanita and Krishna and AP 514 Paul uh Kathy Grace Suzanne uh W Velasco W excuse me uh Willow uh Willow puff George in Texas dan t wrong Yao uh Doug K Wayne Uh and John and everybody else in the room and in the archives all right so the S P 500 presently up uh still following through from the big rally up off of support last uh Friday or last week excuse me last Tuesday Wednesday Thursday uh and um continuing uh today so that's interesting because we are up a full percentage point it's been a little bit back and forth today but continuing to move uh to the upside we do have some resistance coming in overhead one of the things that you might do real quick here that might help us in our decisions in a little bit here is I'm going to come up here and draw a Fibonacci from the highs the uh the January highs uh to the uh June lows and look to see where we are we are trading right now presently at uh the uh 38 percentage percentage mark up off of the high the highs in here another way we can do this and it's going to it looks like it might be tracking to get up into 42 uh 29. another thing we can do a different way we can do this is to remove that drawing and we will draw from the highs the low again and just do a look to see where we bounced and that came in right at the uh 30 or excuse me the 61 retracement down in here or excuse me know the yeah yeah 61 retracement above uh the uh above the um what line is this here give me some lines here above that uh 61 so that's really above the 23 percent so looking for price to continue higher in here if you are of a bullish ilk all right now with that uh how many fibonaccis have I drawn in here there we go all right so with that we've got strong breadth uh again we had the uh somewhat superficial 90 update on Friday and uh today right now 83 percent of the trades happening on the New York Stock Exchange are on the uptick so bullish uh the McClellan oscillator back above zero so we're in that uh kind of I want to say Danger Zone after a fashion because the reason I say that is we would look for we don't want to see this fail up in here and come back in down in here and start making a uh a more of a complex bearish look to the look to the momentum real quick with the NASDAQ zooming in on the NASDAQ let's squish this down here maybe there we go uh NASDAQ above the uh down the short-term downtrend line as well as getting back above the uptrend the intermediate term uptrend line Looks like uh you know a little bit of strength in there the RSI down here at the bottom rejected the oversold area back above 50 percent we'll see if it can over time here make it back above the 70 percent area again as the NASDAQ got up into the 200-day moving average up in here it failed on the RSI to continue its momentum all right and then one last look the Russell 2000 moving back up into its resistance area now all of this is occurring of course in options expiration week and the reason that is uh interesting is this options expiration week in September is typically fairly strong historically uh on average stronger more uh bullish more often than it is bearish that being said the week after the week after it's typically fairly fairly bearish and uh by the way I just noticed this there is a survey in the chat page there and so anybody new uh if you're not if you've never fill out a survey but before please fill out that survey it's real simple just a couple of questions and there's one very important question and that we look at looking for information things that you want to see webcasts that you want to see things you want to learn about and we take those to heart and see if we can't build something in that uh in in the in the webcast out in out in the future so please take a chance take your time to fill that out uh you just copy and paste that link right now don't have to fill it out right now just wait till afterwards but I appreciate I appreciate you all doing that that would be fantastic it helps it helps us to help you so thanks a lot all right so I'm going to pull this down so uh so far we've got a bullish beginning of the week we had a strong week coming off we are in a bearish mode which is going to be interesting on the discussion we're about to have because the week following options expiration and that's what these uh dashed lines are options expiration at the end of this week the 16th that's what these are this was back in uh the uh August expiration July expiration and so on and so forth where you get those if you don't have those you've erased them or forgotten how to and forgotten how to get them you're just going to click on the chart settings widget up here looks like a gear and then you're going to click on time access time access and in that time axis you're going to have choices rollover lines that's for futures and expiration Friday and one year the one year marking lines so if you want the expiration on here you got to have that you got to have that checked and it needs to be on a daily chart not a weekly chart all right so with that what we're going to do is we're going to take a trip back in time we're getting way back machine here and we're going to zip back I have a 20-year 20-year chart on here um and uh 20-year daily chart you see that right up in here and we're going to look at the septembers and let's see here so I've I've marked them with these these pink boxes here so this is all the way back in 2003 and so uh I don't want to bore you but we want you to get have an understanding that the week before expiration was up the week after expiration down now down to what kind of tune That Tune is about uh since 1990 um and we don't we're not going to go all the way back to 1990 but the average the medium I think the actually the I think the average is down about eight uh to nine tenths of a percent on average after uh after options uh expiration in September now that's that's that's an average remember there's going to be some uh times where it was up a lot of flatness in there so that's the that's the point how do we trade this so if we scroll on to the next one here you can see here up to Flat uh in uh 20 uh two or 2004 uh in down in 2005 so on and so forth flat in 2006 going into the uh 2007 flat pretty much flat again so you can see not a lot of not a lot of bullish bias going into the into into or after uh after those I've lost control here here is uh 2010 and this is where things start to get fairly important actually where is 2000 and 2009 flat what happened to 2008 there it is uh up going into uh 2000 uh September 2000 or the expiration Friday and then down after that and the importance of this is what happens in a in a bearish market as well so we zoom over here here is 2011 another bearish Market we hit 20 percent about uh eight o'clock uh uh let's see that would be 10 o'clock Eastern time on this day right in here but you can see down on that day and so on and so forth as time goes on just flat to down uh down down starting to sound like a broken record down so you can see what I mean really pretty much flat uh maybe up on that on that week right there so again options expiration after options expiration fairly weak so we have a probability that's set up there right when I say a probability well if we look back historically for whatever reason one of those reasons might be that it's the end of the quarter and there's going to be some a portfolio maintenance if you will going into the end of the quarter so maybe some selling in some uh some buying so this was in 2018 when we went into the mini bear Market of uh 2000 December November December 2018. so on and so forth you get the idea right I don't want to belabor this and spend too much time looking at it but down and then back up so pretty much a flat response last year 21 2021 and then here we are today with exploration being this Friday so in a few days now that being said the question this is not necessarily uh a uh the usual the usual options expiration what else is happening next week what else is happening next week uh that it might be of some important what's what's happening this week what's happening tomorrow and uh I think Wednesday or Thursday we have some economic reports right that's the CPI and the PPI that has something to do possibly with next week so think about what's going on next week and one and think about also not only next week but the fact that we are still for all intents and purposes in a longer term downtrend intermediate term uptrend higher highs and higher lows fomc so the Federal Open Market Committee uh the FED meeting for those that uh don't know don't know what the Federal Open Market Committee is that's the Federal Reserve and they make decisions on interest rates and right now their mandate is really uh heavily weighted towards keeping inflation down so we'll see what the FED does if they do anything unusual one way or the other but of course nobody's nobody knows for sure everybody's got their their ideas on what the FED might be doing but historically without the FED we know we have a uh usually a fairly bullish week going into Friday expiration on options and then a week the following week is fairly uh fairly bearish uh to somewhat possibly neutral okay so that's that's we so now we have that understanding something else I want to show you is let's go back over in here and right here is the vix now there's a back let me uh open this up and uh webcast archives if they are still oops if they're still available November 17th I think I did that 2021 uh and that talks about uh what we're looking at down here so what I have down here and the importance of this is going into the CPI numbers this week the fed or the options expiration and going into the week after options expiration and the Fed the FED announcement so what we're looking at is a five-day correlation between the vix and the S P 500 and then I have the 50 50 percent uh correlation so technically are correlation wise the vix goes up as the market drops in theory and the vix goes down as the market goes up well guess what I say in theory because today the vix is up four percent a nine uh almost a full point so vix is up almost a full point and the market is up a percent a little over a percent right now and um so aren't they supposed to be opposite of each other not all the time and so when we see the the importance of what we're looking at here happens to deal with what happened last week and that's when we see the correlation get up to get positive well way positive above 50 percent and oftentimes when we see that happen within a few days to even a couple of weeks we see the vix Spike so you can go back in time and look at these things and here's one that took a little while but again this one spiked pretty much at the at the top so it's not it's not always meaning that there's going to be more but we've seen the vix pick up some speed and uh so that's telling us that there's some fear possibly some fear out there in the uh Market crazy fox says Market speculators uh uh being fomo fear of missing out here's another interesting uh factoid uh and that is the speculators in the in the S P 500 are very short when you look at what's called the commitment of Traders uh report and the the big speculators the large specs have to report their positions and they are very short which also is the what we call the commercials or the hedgers who's ever using this to hedge is are very long and that typically happens when uh when the market drops hedgers buy and when uh the market drops speculators sell so it's that give and take and so if there's a heavy and I say this because of crazy foxy uh saying uh you know the speculators fomo they may just be a little bit too short to Market and any good news May Drive this may drive this higher and and create next week perhaps some bullishness right some bullishness next week or this week but only time will tell so one of the things that I want to do here is make some decisions now we don't know what's going to happen and I since we don't have technical analysis and options on Friday or Thursday or whatever closer to the end of the week we're going to put a trade on today and that trade is going to be we have to make some decisions now you could you could be have a bearish bias thinking that the fed's going to drive this down if the CPI number comes out tomorrow and it's really a lot higher than what they thought right now they're expecting it to fall the headline number to fall and the core number taking out taking out food and energy to actually maybe tick up a little bit but if it's something that is really hot stronger than they expected would the market Fall well we don't know what's going to happen right and uh again against the backdrop of a a strong historically strong week yeah maybe it doesn't fall so far um so the thing we're going to do here is look at an iron Condor on uh on the on the markets an iron Condor why because looking at in the past yeah the Market's typically fairly weak and uh but there's there's a lot of uh gyrations around the uh the options expiration where and when we see the vix the way we've seen the vix Rising this may give us an opportunity to get further away perhaps sell a uh and for those that don't know know what an iron Condor is it's just a strange name somebody came up with for a credit spread selling a call short call spread above the market up in here and taking in a premium so selling a short call spread somewhere up in here we'll make a decision here short call spread and then simultaneously selling a short put spread um below the market maybe down in this area somewhere and taking in a uh a premium so we take in two premiums short put spread down here so we're going to take in two premiums and uh look for price to make movement but over the next week week and a half or so expect price to be somewhere in this range okay it could we don't know what's going to happen and we'll look too hot we'll look to see if we can't roll or manage that position now this is going to be a very short term position let me say that right off the bat because when pop over here to the SPX and uh put these uh roll these up now for those that are new to options this is the trade or even to think or Swim this is the trade page uh and it shows the uh price of the underlying underlying mean the stock or the index and then these are the option expirations in here okay so those are options expirations these are the average implied volatilities at expiration over in here uh percentage of the politics price movement uh there so what we're going to do is we're just going to choose a weekly option out in time not too far out and uh so we'll go to the September we can go to the September 23rd which is going to be the Friday uh the the last uh will be Friday a week from this Friday so the end of the so-called worst week of the year uh perhaps I don't know if his worst is a great word for it uh or we can go a little bit further out and go to the uh weeklies out in here remember weekly is a short-term options and uh so therefore there could be some uh volatility could rack these around pretty good and doesn't give you a lot of time to uh look to uh to try to defend those positions uh okay um Susanna in wave says are these offered daily if you're talking about the webcast yes we have webcast daily all day long uh and uh and weeklies uh options or just weekly options uh there may be dailies coming who knows if that's what you're asking all right uh so let's start let's start looking at some information here and so we're just going to use a Delta I'm going to keep this pretty simple Delta is the back of the napkin kind of calculation on probabilities it's not it's just a proxy for probabilities it's not totally mathematically sound but what we have when we look at this is we have the calls on this side so we're going to sell a call spread over here above the market and above the market means in this white space in here and then the puts are over here and we're going to sell an option spread a put spread below the market which is going to be this white space over in here all right so to choose to choose what we're going to do since we're doing two sides and one thing to remember is we're going to look at technicals and we know where resistance is up here right so let's kind of Mark this a little bit where he's going to throw in a price level the way I get to price level let's come down in here uh to the drawing set pop that up look at the look for the dollar sign with the underline right there and then you just click on that and then you can draw horizontal lines in here let me come up here and get rid of that one um and let's go ahead and get rid of this one that's a pro a good strong support area and then maybe we sell something below where the market is trading down in here yes we weeklies are available daily as our monthlies available weekly and daily as well that's that's I like that yeah okay so now we've got now we know where these uh support and resistance areas are if we go back in time and I draw this line in here and uh we look at and let me just draw height now thicken this well not with that I won't let me thicken this up a little bit here so that's been Support over in here Support over here resistance here resistance here uh or yeah and then resistance and kind of support there so we've got this area of uh seesaw you know plurality if you will uh that we're looking to see if we can stay above or below okay so those areas are going to be up here around 40 to 4300 and down here around 38 80 or so so let's go over here and take a look at a trade and what we're going to do is come down in here we'll take a look at uh 26th of September and what we're going to do is look at we'll start off with say a a a Delta we'll use we'll think about those uh that support which is right around 42 uh 42.80 area down in here or I mean excuse me support sorry 40 not 40 280. uh 40 39.80 if I can get get this to the right so we're going to start with the puts I'll get this right here in a second somehow um and there's a lot of strikes and we'll come down in here and take a look at that uh 38 3880 area down in here on the puts that gives us a Delta of about 13. so the theory is is that if you have a Delta of 13 that there's about a 13 chance that price will be below 38.80 by

a penny on expiration now that's again a it's a mathematical proxy it's not perfect as far as uh probabilities go there are ways to ways to do that we're going to keep this fairly simple as kind of a guideline so we'll look at selling the uh 3880 at the 13 Delta out here on the 26th of September uh so what I'll do is uh from here we're going to roll down to the calls down the screen up the strikes because the strikes are moving higher and we'll look at doing uh something something similar maybe look at the 4300 area on the upside now if you have a bias a bias that the Market's going to drop be lower than you might you you could you could choose a Delta that's higher or a higher strike or a strike that's uh closer to where the money is say down here at 42.60 or or something like that we're going to start with this 12 though because we we're not quite sure what's going to happen right we know volatility is picking up if we get a spike in volatility because it's core the correlation is so high that could drive things lower we're going to start here with 4 300 I'm going to put this together just by left clicking on the bid and that will populate this order entry tool down in here and then I'm going to come back in here and uh look at buying uh something above that so if we're down here at the 4300 we're going to buy the 4325 that makes us a 25 wide uh 25 spread in here okay and so that'll be the the next one up and I'm going to hold the control key down I thought I would try that again hold let's try that again you can do the 13 Delta I'm going to buy or sell the uh sell a bit the bid price of 920. come down in here I'm going to hold the control key down and buy do the ask price and it brings in a 2.60 credit and then what we're going to do we're going to complement this on the downside with the puts and we had the 49 uh or 38 80 down in here 38.80 so we're going to

come over here and we're going to hold the control key down I'm going to sell that one and now we've added that put in 38.80 and then we'll collapse that and we'll come in here and um look we can do 25 so that's going to be the 38.55 and we're going to buy this one down in here for protection in case things drop so we're bringing in a five dollar credit on a 25 dollar wide uh spread and um that for some people is good enough some people it might be too much it might be too little uh depending on something so what we'll do here now is let's pop over here to the analyze tab here put in uh SPX oh no we won't first we'll go back to the we'll pop up pull up the trade down in here we're going to right click on that trade and analyze the trade now that'll should populate in there there we go and so make sure we've got the correct expiration up in here which we don't so I'm going to click on that put in the 26th come over here set our slices to break even widen this out a little bit and uh click the Plus in here so we can see this is where Price is Right Now break evens are out here at 4303 to the upside 38.76 to the downside now let's go back

to the charts uh 4303 to the upside so where does that put us I'm going to right click here I'm going to edit that line and put in 4303 so we know we're that's our break even to the upside and then I'm going to come down in here on our break even to the downside go back to the analyze tab and in the risk profile our break even down here is 38.76 38.77 let's say and we'll right click edit that change that to 38.77 and what have we done we have and I'm going to change this to Red so we know where our risk lies remember these are short options short options can be assigned at any time risk always lies at the short strike at your short strike whether it's a single option or a spread of any kind so there we go we're looking for price to say somewhat inside of this area so RJ brings up a a good point uh that we need to consider so it's uh we we're picking up on this particular trade we're getting five dollars with a 25 wide spread but our probabilities let's go back here click on this and this is the mistake that a lot of people I'm not saying he's making a mistake uh but a lot of people don't consider this is something they don't consider so we have a 70 chance 70 chance that this will uh 69 chance probabilities not Delta but probability 69 chance this will work out okay one thing that people one of the things that people fail to do we pop back over to the trade Tab and we look at Delta they think by looking at this Delta of 11 that they have an 89 chance right or we look at the uh which one do we actually do a Delta of 13 or an 87 percent chance well by itself there's an 87 percent chance that'll expire worthless but we have two options two spreads to consider and the other one um having some issues here the other one has a 12 Delta so you got to put those two together so 12 and 13 is 25 subtract that from 100 gives you about a 75 percent chance just on the back of the napkin uh of uh this uh expiring somewhere in between these two areas okay now back to uh the point the very important point that is is being made and that is uh that uh that is the reward is five but the risk is 25 on the spread minus the reward so you're risking 20. but you have a large uh a large probability you can't just look at re risk and reward without considering the probabilities and then there is and that's in a laboratory setting so yeah it doesn't look all that great but you when you think about something as a 70 chance of working out then you're going to your uh you could you can risk more than what you're going to what you uh what you bring in okay so that's just statistics that's just statistics it doesn't mean it's going to work out but because there's two sides to probabilities these are theoretical in nature if there's something that has a 70 chance that it's going to work because 30 chance that it won't so that means we need to manage the trade okay we need to manage this trade but we're going to go ahead and put this trade on right now and see how this works out and then we're going to look to manage another iron Condor and and kind of discuss the the what the point I'm I'm trying to make here with the reward to risk and the probabilities so we'll put this trade on out there in time and again what we're going to do is going to hit confirm and send pop this up take a look at it make sure we're doing the right thing that we haven't clicked on something we shouldn't have clicked on remember that there's a short option here short options have a that can be assigned anytime until expiration regardless of the end the money amount and these are weekly options so they're not standard a standard option expires on the third Friday of every month so standard options are expiring this Friday so or uh Futures and so are Futures options so lots of things happening this Friday and single stock futures so we're going to go ahead and send this off and see what see if we get filled over time and boom we are filled all right now to managing a trade so I'm going to pop back over here to the chart and let's go back over here and let's look at Tesla this is one we put on we did a couple of things with Tesla we have a stock trade on Tesla we put on Friday uh and uh it's moving uh to the upside we have the volume profile in here the idea was that price could make could possibly make it to the Valley of the volume profile perhaps even higher now this red dash line that's an iron Condor that we have on here these red dashed lines so we put those that iron Condor on right here now here's the thing when we're going back to the idea of reward and risk in managing your trade where is our risk on this trade so if we come back over to the trade tab put in uh Tesla open the trade up 25 days until expiration of this iron condor and here's the iron Condor right we own some stock we bought on Friday and it's doing well so far that can change totally in the next 10 minutes perhaps or even you know who knows what's going to happen but we can see that price is moving getting closer to our call spread okay some important distinctions you need to think about here we did this trade based off of technical analysis on both on with both items price being here when we started expecting price uh to move higher but then running into some resistance up in this area and if we look at the where price was considered unfair that's that Valley nobody was there wasn't a lot of trading going on there nobody was willing to at that recently buy higher than that right and so that becomes a very important point so how do we tell they weren't willing to buy higher than that well we have a valley here and back in time though we have some strong uh volume up in there that actually was a fair amount of selling back in time and then the iron Condor comes into play so here's how we manage this we come back over to the trade tab one of the things to consider are your Greeks and again theoretical in nature but here is the put spread okay the extrinsic I have positions in here so we have one contract one spread on each side one short foot one long put you can see that with the red and the green over in here and then I have position Delta uh in intrinsic and extrinsic when anything out of the money only has time value only has extrinsic value and the one thing to notice is if we were to put buy this trade back we sold this trade for 70 cents if we uh buy this uh if we didn't want to do that if we buy us buy this spread back when we come in here right click buy vertical and so we'll buy back the the 230 strike sell the 225 strike for 17 cents okay 17 cents now that means they're 17 left in this way we sold it originally for seventy dollars if we click on if you clicked on both of these you would see the uh the uh price was 470. we sold that for 470 the one we bought we bought for four dollars so we have 70 cents well price this this trade doesn't have a lot of juice left in it and as far as the Greeks go I want you to notice the Delta is only four right now so there's not a lot of directional protection in this what does that mean it means if we go over to the analyze tab and put in Tesla and it's not going to be put in the price of today click on that plus there it's not going to we don't have a lot of Delta directional protection so we're getting up into this uh in in an area of losses there but this these are worthless down here you have a Delta of four down here right on those so they're not going to provide anything other than risk if price starts to drop and remember there is 25 days until expiration so going back to the idea that we can uh we have that we risk more than what we took in but we had a high probability of working out why mess with that probability we can close out this trade pull this up close out that trade for 17 cents uh per uh per share or with a hundred with a hundred multiplier right here so 17 dollars and at that point we don't have enough time to do it today but at that point we can decide to sell another put spread up higher if you want to do some other kind of a trade as well so we're going to close that side out because it only right now right now the only thing it has going for it is uh that it's getting close to worthless with 25 days left but if price drops hard for whatever reason those puts are going to become worth a heck of a lot more so we can step aside on those now take those off and have basically after a fashion a long a long stock with a covered uh spread a short call spread a covered position up top in here okay and then we'll look to take advantage perhaps we'll sell another call spread higher up in here uh uh or and you know even a another iron Condor perhaps that is uh something that some people will do we've done it plenty of times in this in this uh webcast so you can move these things up and down and continue to trade taking in premium then over time in theory what happens is your probabilities get better and your reward gets better so that hopefully helps answer in some form or fashion that risk reward question okay I do believe we've done what we wanted to do and um please remember that uh there is that survey in in the uh in the chats if you can fill those out so market conditions the market is is strong today but we are in options expiration next week is a pretty and the rest of this week economically can be pretty volatile historically sentiment wise uh it is very next week is very uh is is bearish at best right over time uh and so using that the idea that it could it could fall pretty far or even you know rally but stay somewhere in the middle we use that idea to put to wrap two calls for a call spread short call spread and a short put spread around that so that's the idea of the option strategy and so we placed a sample Money Trade on that and then we manage that existing position getting rid of our uh uh the side of an iron Condor that could just become worth more if we see price run into resistance which we know that is where we're getting close to on Tesla so we took off something that was gaining for us all right and with that uh down in the lower right hand corner of the screen right down here if you could click on that and uh please subscribe to the trader talks channel uh it'll help you get notified to all the great webcasts that Brent does and all the TD Ameritrade education coaches we would appreciate that it helps you it helps us as well and coming up next is Connie Hill with ETFs please stick around for that it's a great it's a great webcast but it does not get recorded so please stick around for that with that everything we're doing here is for educational purposes only not recommendations you're responsible for the decisions you make in your self-directed account thanks Brent thank all thanks to all of you and your great interaction really appreciate that every single day so we will talk to you soon take care

2022-09-14 12:29

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