Trading a Smaller Account | Barbara Armstrong | 2-19-21 | How to Choose a Trading Strategy!

all right everyone it is friday afternoon three o'clock eastern one o'clock here in salt lake city mountain time welcome to trading a smaller account as always we have a jam-packed 45 minutes lined up for you today and today um i wanted to start with a thank you because tons of you filled out the survey last week i so appreciate it as i said i reach each i read each and every comment and one of the comments was how do you choose which strategy to trade on which stock and so we're going to kind of examine that today along with all of the other great things that we do so stick around there's lots of great stuff coming your way [Music] all right i want to also start by thanking all of you who show up live each and every week to join us in this class i love teaching it and i know that a lot of you find value and love attending it it's a great way to head into the weekend i want to thank mike fairborne who is joining us in the chat today so we are fortunate to have him if you have questions between mike and i hopefully we've got answers and they tend to come in fast and furious so we appreciate your patience but i will pause as we go through and just make sure that we've got all the questions handled if i miss something i do go through all of them at the end and all post responses on twitter if you were one of the many oops sorry i'm on the wrong thing here if you are one of the many people just a minute let me make sure i've got this feed up here yes if you were one of the hundreds of people that watch this in the archives and you have a question um don't worry sorry about the black screen guys i hope you heard all of that yes it was a screen sharing error mark um so if you're catching this in the archives you too can ask questions just put them into the comment section if you loved it you can put that in the comment section too it tells other people that they're finding you know that this this might be of value to them okay okay so now we've got like full color right so and just before we get into it otherwise i'll forget at b armstrong underscore tda is my twitter handle there's lots of great content you won't want to miss so make sure you follow both mike and i mike's is at am fairborn and he'll type that into the chat just if you're curious about the spelling underscore tda um yeah and if we have a minute i'll go out and show you you know i post uh a synopsis of what has happened on the nasdaq and the s p at the end of every day and it's just a great way to see which stocks were leading which ones were lagging you know how did the market do overall that kind of thing so there's lots of great stuff there okay let's get through our important information options not suitable for all investors as they may expose investors to potentially rapid and substantial losses we know that we acknowledge that and we discuss that each and every week the other thing is if you're brand new is there anyone here that is brand new to this class for the first time if you are feel free to type a greeting into the chat if you're new to td ameritrade you have to apply for option trading privileges so um be aware of that because when you go from your paper money account all of a sudden you're ready to place the trade in your live account and then you can't do it that's just a wee bit of frustrating and it takes a couple of days to get that set up also know that we um use tons of symbols in this class well maybe not tons but you know many hundreds of pounds of symbols so you know it's a great way to demonstrate the concepts the functionality of the platform but it's not to be construed as recommendation so any decision you make in your self-directed account that is your responsibility my friends and know that all investing involves loss the potential for loss including um you know if you're buying a stock okay so tom geezers here this is his second visit hopefully the second of many to come right okay so the trade journal just let me take a sec because this has been something that people have been waiting for for so long um is if we come out to the thinkorswim platform and if you go to the archives and then you put in my name for last week's class and if you start scrolling what you want to find is last week's trading a smaller account so here is trading a smaller account for last week we were using bullish trades and here's the trading journal you just click on that link and it will be posted with every class in the archives and i believe it's also posted with every class coming up and so you just click on that and then you can save it and it will download it see now i have a blank trading journal you know it's amazing how little patience we have what it hasn't come up in half a second yeah so here's our trading journal so you know i often say if you want to you're trading to treat pay you like a business you need to treat it like a business and businesses track the results and i like to use starbucks as a a way uh also you know if you're you're here for the first time you're saying what have i missed well you can go back to january 8th and i think that if you just want to see trading a smaller account if we come up here and you choose i think it's active trader it's either active trader or whole let's see there we go whole portfolio management you get all the trading and smaller account classes because we wipe the slate clean on january 8 so you'll see every trade that we placed in the account year-to-date and why we placed it okay so that leads me into how are we doing today okay so how are we doing not too badly we started with 20 000 we're at 23 294 as of today and you know um that's about a 15 return and we're in the middle of february so that doesn't mean that you know if you extrapolate that to the end of the year that we're going to you know be up on average you know 10 a month that would be a hundred and twenty percent by your end it's possible um but it we could end the year down so you never know but what we really try and do in this class it's a short-term trading class um whether we're buying stock or we're we're doing another type of trading strategy and like a couple of weeks ago we just rang the register in our paper money account and we could have gone out and had a lovely paper money dinner with our paper money profits but we had a nice profit on a lot of short puts that we'd sold and a number of other trades and so we try and make a habit of taking small wins and when we have a win we you know cash that win out and and recognize those gains so that we're not snatching defeat from the jaws of victory um you know which the first time i heard it i just love that expression so i don't remember who said it or i would absolutely give them credit but um yeah i i we have any of you ever had this happen you had a trade you were up you were like practically throwing your shoulder out for patting yourself on the back because it was going so well and then that stock turned around and all your gains went away and you ended up in a losing position i have done that i have done that i will admit it and most traders have at some point or another so you can either learn from your mistakes or you can repeat them i'm trying to learn from my mistakes and so in this class that's what we're trying to do as well yeah okay okay so here we are what is in our account and i didn't earth to barb i don't think i even went over this so we we have a quick look at the markets we look at our current positions i'm not going to spend much time on our positions current positions today i have one in particular that i want to talk about um and then we're going to look at choosing an option strategy so we have a bit of money in our account and so what we are going to do is invest that a couple of different ways um and by adding some positions to our account so we're kind of doing the last two together okay so let's come out and have a quick look at the market so spx yesterday you know everybody was um had their knickers in a twist because the s p 500 was pulling back the nasdaq was pulling back so like if we come in really up close and personal like at the beginning of the day you know when we look at this candle if you're familiar with how candles work this has a long tail which it means at one point the market was trading all the way down here and the same thing with the ndx and the point i was trying to make in classes yesterday is it's still you know above the 30-day moving average comfortably oh and now the nasdaq is pulling back a little bit but it's down by what half of one percent um it's still comfortably above the 30-day moving average so the uptrend is very much intact but you know if we come out to twitter one of the things that i posted was that you know the nasdaq gapped down on the open causing many to break into a sweat and then rallied so it was still down point four four percent but it was far from being the sea of red that some were expecting and the same thing you know this was closer to 50 shades of grey you know when we look at this chart and and i actually also just posted a picture to say hey we're uh you know we're sitting like a bird on a wire on the 10-day moving average we're on the 30-day moving average you know if chicken little is yelling that the sky is falling um you should ignore him okay so you know that's kind of some of the reason we try and bring and so there's our ndx uptrend still intact and the vix is falling today and it's close to the lows that we've seen over the last nine months still historically almost double what it's been a lot of the last five years but kind of the nice thing about having a vix that's sitting at this level is for those that like to sell there's a little more premium because when we're selling and volatility is a bit higher you know there's more premium for us okay so there's the market overview so still bullish and what we try and do in this class is trade with the trend so there's a comment in the chat from mark saying it's a good time to buy options and we're going to look at that we're going to look at buying we're going to look at selling and and we're going to have a little bit of a discussion around when to buy and when to sell and what are some of the pros and cons but so when we look at we have two trend trading growth stocks we have freeport mcmourn which is an industrial company we've done well on that we had almost doubled our money in that last year and it kind of brought a tear to our eye to wipe that one out but when we saw an entry we got back in we're up another 22 percent or 688 dollars up 333 today so old freeport and and you thought mining wasn't sexy so we got in here and this is where it's trading i'm going to make this a six month chart the other one was workhouse wkh so we got in here it went up it came back to the 30-day moving average we have our stop below the 30-day and today it's bouncing so if you weren't with us at the beginning you've just joined us for the first time and you wanted to add this to your paper money account this bounce off a support level you know might be considered an entry so you could say hey i'm going to you know go ahead and add that to my paper money position we're actually down on this one about 175 dollars right now we're down five percent on workhorse but does that mean we we should get out oh yeah somebody's saying you know um uh that they did a covered call on fcx and that i was just saying to my son yesterday i buy rights are one things and we're going to talk about a buy right today but covered calls man nine times out of ten if you've made a good decision to buy something nine times out of ten i regret selling uncovered call um and that's not to say you shouldn't do it but you know it's and it that's as opposed to a buy right now we have buy rights on two on this semiconductor company on on semiconductor and on marvel so these are both tech companies and we're down a little bit on marvel on on we're up so let's look at on first so we bought this one and and just if you're not familiar with this strategy because we're going to go and do another one of these today so the idea here is we sold a call and we bought the stock at the same time for a net price of 36.84 so the absolute most we can make on this trade is if we get called out at 40 dollars so the most we can make on this trade is 316 dollars on a 36.84 investment well my spidey sense tells me that's probably eight or nine percent so does everybody understand this so if i take a look and said well okay if i could make three dollars and 16 cents that's the most i can make on this trade and i i spent 36.84 to get in i could make eight and a half percent in what kind of time frame well we did this last week so it would be in about 35 days how many people think that's a horrible return eight and a half percent in 35 days know a lot of people would be okay with making an eight and a half percent return in in 30 days now every once in a while it's a little bittersweet we had some some of these on a stock apps and and it just went insane and and uh it hurt but i mean we had a 25 return and it still was a little bittersweet but like i said if you went to a super bowl party and said can you believe it i made a i only made a 25 return in in a month you know nobody's going to be passing you a tissue so so the idea here is that we bought the stock here we sold a call here and i'm just going to get rid of these and we said you know what our expectation is that it will be above forty dollars and if it gets to the point where you know we've got all but a thimble full then we'll close it out because it'll free up the cash for us to do something else but that's the goal now when we sell a covered call on a stock that we currently have because it's busy going sideways i should just call everybody and let them know i've done that because it you know sometimes a trader will do that they don't want to sell the stock they just want to make a little extra cash as it's busy going nowhere um and and that's when it kind of hurts when it blows through your strike but here we want it to blow through the strike that is that's the plan and if you're saying well i'd like to try that here's another entry you could do this with this stock today and you might not want to do the 40 entry you might come out here and say you know what i'd like to do that and i would be happy to do that with say the 45 and i'll make a dollar i'll make a dollar five on this is their volume yep i've got a 30 chance of being called out and if i'm called out we're buying covered stock what's the most i could make well just over four dollars a share so that's over ten percent yeah so that's that okay we're not going to do this one although i'm tempted because we have 8 300 left in our account that we can invest of our 23 000 the rest is already invested okay so what are we going to do well there's a little company it's uh it's in the financial sector it's called abr arbor realty trust and it's gone up nicely today just had earnings so if we hover over the earnings they were expecting it to make 34 cents a share it made 80. so what does this company do well what this company does is mortgages and it's a lot of second mortgages but the price is in our sweet spot it's under fifty dollars a share and now this wasn't working properly yes so it pays a yield of 7.43

so you know sometimes i mean i know we want to trade actively but sometimes you know if we have a stock that's up trending that is paying this kind of amount um 7.43 we might say you know what maybe doing a buy and hold now others might say this is up five percent really do we want to buy this you know when it's up trending like this maybe we should wait for it to come back and and we absolutely could but something that's had this great in earnings and pays this kind of dividend some might say you know and it's mortgages and everything that we're seeing in the mortgage arena and in the home builder arena you know a lot of the home building stocks are going up if we have time we'll look at kbh today and then there's lennar and there's all these other they cannot build homes fast enough to meet the demand there's something like in the salt lake city area and you can't quote me but i heard in the neighborhood of 2500 listings there are over 40 000 people that want to buy a home so so we i thought we will just come in we're looking at 1480 is our 30-day moving average so because we have to define our risk so if we multiply that times .97 that would be 1435 would be our exit and we're getting in at 16 11. so how much are we risking

you know if we buy a hundred shares so if we said 16 18 minus 14 35 under it's going to be under 283 dollars our deal in this class is we don't want to risk more than two percent of the account value so at twenty three thousand three twenty three times decimal zero two we could risk 460 dollars so we're going to come to the trade tab right click buy custom with stop 1435 now you know is this all the research you want to do no absolutely not but you know we have such a compressed amount of time in this class so we're going to go ahead and send that in you know would i encourage you to come over to the td ameritrade page and you know start doing a little digging you know is this heavily shorted no what percent is held by institutions 43 um you know what kind of volume does it trade around a million shares a day you know all this and and then do some digging you know go and look at their earnings call um you know and they've just upped i believe it's this one where they have just upped their uh dividend they went from 32 cents the next one will be 33. there's a dividend coming up so um that's that one we don't talk about reits a lot in this class but there's a company right down the street extra space storage whose headquarters is here and and that is a real estate investment trust i used to teach a class just on reits um you know but real estate you know you what one of the things you'll notice in this class is we tend to as part of trying to use top-down analysis or as i call it stacking the deck in our favor a lot of the positions that we end up taking if you come to the market monitor tab and you say okay which sector has been leading let's say over the last 30 days well you'll notice that i'm going to make this a little bigger all of a sudden communication real estate technology energy and financials and consumer discretionary there's our top half but all of a sudden real estate's kind of coming up and communication lasts three months energy clear winner you know so if we're looking at change in trends so we often tend to be playing in in the top half of the pipeline you know as opposed to consumer staples and utilities which haven't been as strong but financials which is where this company is located because it's a mortgage um company um has been very strong okay so the next one i wanted to look at was an energy stock called devon uh sorry dvn devon energy so when we look at devon and you know if you aren't familiar with the company you can come to the analyze tab you can see analysts are split when i see that then i tend to go back to td ameritrade and do a little more digging but it's an independent energy company and so it's officially a small cap company but we can see that you know since the end of october it has been moving pretty dramatically to the upside okay and when we come up here and we see okay here was our previous high and it's now broken above and my friend vince used to say that this and i really kind of like this expression he'd say when something crosses above you don't always want to okay i've got to get rid of that okay you when something crosses above and let me just hone in on this and breaks above a resistance level whether it's a diagonal resistance level or a horizontal resistance level you want to wait for it to come back and test the ice so cross the river come back and test the ice if it doesn't follow through then it was a fake out if it bounces you've got a breakout now this doesn't always work but it's having that patience to let something come now sometimes i mean we had a stock we put a conditional order in thinking it might come back and retest and it just went to the moon and it went to the moon without us because we put in a conditional order and said hey when it comes back to retest we'll buy it then so you know that um you know that can come back and bite you but we have something that's crossed the river come back to test the ice and you know when we we've just gone through earnings so it actually didn't do as well on earnings as they were expecting and yet it still moved up pretty dramatically to the upside gapped up in fact and so that would lead one to think that their forward earnings was probably pretty strong so when we look at this candle pattern today one it's it's a bit of a doji or certainly was when i looked at it 20 minutes ago and we're still live in the market and it's also an inside day or a harami pattern which when you're looking at technical analysis and if you're new to technical analysis you want to get to cameron may's class on mondays at 11 o'clock eastern if you're a bit of a ninja already you'll want to go to pat's class and i just saw somebody said i spent some quality time with pat so he was talking about devon today um also so i feel like i'm in good company then um okay so it's saying devon has been sold and uh so there's lots of talk in the chat on devin but what i see as a technician and i do some digging on devin and you can go and look at the news is that they're expected to bounce and so how do would we want to trade this well this is a stock that's trading at just over 20 so we could just buy a hundred shares and if we were going to put a stop in where might we put that well we might say well hey we had you know what was the low on these days it was if i hover over the candle 2036 2040 2050 today 2038 and here was our previous high around 20 30. so if to be conservative if i said okay 20 30 times 0.97 if it hits 1969

or 1970 i'm going to get out so i'm going to put my stop at 19.69 okay so we could just buy the stock and if it goes up if it goes to the moon then we get to go with it or we could come out here to march and say you know what i am going to sell a put because hey it's at 2076 right now but if it comes down a little teensy bit more to 20 i could buy it for 20 and they'll pay me a dollar for it to buy a stock that i would be cool with buying anyway okay but then if the stock continues to go up and that's what we're expecting will happen then how much can i make go ahead and type in the chat if i sell a put and the stock continues to go up how much can i make on this trade go ahead and type that in so i can do that now the other thing i could do is i could walk across the road because this is the put side and i could come over here to the call side and say well you know what if i sold like the 21 call or the 22 call or even the 23 call like at the 23 call i'd get 56 cents on you know a stock that's trading around 20 dollars you know that's got to be what uh let me see when i come over here it's close to three percent you know if i take 56 cents and i divide it by 20. so let's do that yeah you're right i could make a a dollar for a share or a hundred and four dollars for a contract that's how much i can make it doesn't there actually is no upside so the only money i can make is this and you know what that's not bad because if we come over here and i put this on the chart what is my return on risk you know because i'm risking having to buy this stock for 20 and it could go to zero that's a 5.7 return

you know that's not too bad beats a poke in the eye with a sharp stick so you know we could do that now we could also come over here and say you know what i could come over here and sell the 23 if i'm really bullish on this and get paid 53 cents and if i get called out i'm getting called out at three dollars now how much can i make well i can make two dollars and call it 23 cents on the stock appreciation plus i can make another 53 cents so i can make two dollars and 23 cents which and once that that's the difference between this price and the strike at 23 and i can make another 53 cents actually we would get paid the mark uh 56 so i could make 279 this way but i have to commit 2078 dollars if i'm in a margin account i don't have to commit that much now if i'm in uh if i'm in an ira or you know they are going to be cash secured put so you'd have to commit this 2 000 so the commit would be about the same depending on your type of account so this one i can make 279 this one i can make 104. okay so there's another option right um pardon the pun there's another choice which is another option where i could both sell the put and i could buy the call and then i could make a dollar for on the put and i can make the sky's the limit there is no limit yes we can also do a short vertical that's it that's another choice so we got all kinds of choices here now if we do the short vertical again that's a risk to find so if we did say the 20 and the 18 you guys you see the point of this class isn't really for me to you know show off about how savvy we are and how much we can do it's so that at the end of the day you guys just don't even need to come anymore other than to see all your friends and you know look at some other ways to expand your thinking because you already have this and it looks to me from the chat like you guys are getting this like ah it makes me very proud okay so and you know what this is 65 cents and we're defining our risk because our risk on on the selling the put is it could be put to us and if the stock went to zero we're out two grand you know here the most we can lose on this is 135 dollars you know so you guys are really thinking okay so let's go ahead and a place some trades here so why don't we do a short put vertical and and you know we're committing so little resource to do this remember we can risk up to 460 dollars so if we did three of these um how much would we be risking confirm and send we'd be risking four hundred dollars and we could make two that's the most we can make is 200 but just think about that this is 200 is 1 if you could do one of those a week and have it be successful you'd be up 50 in a year and most of your money would be sitting safely in cash now other people might say unemployed and why would one do that but i'm just saying so let's make this a short put vertical and i'm going to come back and edit this because we're going to put our exit in because we all have busy lives we're going to come up to first trigger sequence we're going to right click we're going to say hey you know what when we've got 80 with this one you could do 80 you could do 90 you can do whatever you like so 65 cents that would be about 13 cents right would be 80 so when this is worth about 13 cents we'd like to buy it back confirm and send our max risk 405 our max profit 195. it's not actually going to be quite 195 because we're going to buy it back when we've got 80 of our max gain we're going to put that in our short put vertical bucket okay then we're going to go in and do a buy right and with this one the goal is to get called out and i like the way the system does some of the work well it actually does a lot of the work for us and so how does it do that well we're going to come here right click come to buy because we're buying the stock and then we're going to cover it with a call so we're buying covered stock i i know i call it a buy right covered call the system calls it something else but we love each other anyway so 23. the most we can make

is the difference i just want to be really clear on this so that everybody understands so the goal is to get called out at 23. and we're paying cents to get in now if this goes to zero how much are we risking well we're risking two thousand dollars can we risk two thousand dollars in this class no we cannot okay so what are we going to do well we're going to put a stop in and by the way you know 2 dollars and 80 cents is the most we can make on this right 279. so just to see what that return would be as a percentage we take 279 and we're going to divide that but by our investment to get in of 20 and 20 cents that's a 13.8 percent return and so then one has to say to oneself self would i be okay with a 13.8 percent return in 28 days well what's the downside how much can i lose excellent question so we're going to come out here and say okay if this breaks below this 2026 level it's not going in the right direction so let's knock two or three percent off that so let's say it's twenty dollars times point nine seven oops a little remedial with this calculator 19 and 40 cents actually the last time i did it it was 1969 that we were going to get out at so let's i mean we could use 1940. if we use 1940 we come back to the trade tab well what's it costing us to get in 20 dollars and 19 cents and if we get out at 1940 we haven't even risked a hundred dollars now we have to buy the callback so we don't know quite what we'd have to pay for that so let's say it could be 150.

you know but um you know our risk is manageable is the point i'm trying to make so how do i put that in i'm going to come back to advanced order single order change it to first trigger sequence right click anywhere on these two lines create an opposite order and we're going to make this a market order why are we doing that because we don't know how much it's going to cost us to buy back the call and so we're going to come here to our little sprocket with our disappearing reappearing lines and say hey if this goes at or below 1940 it's not going in the right direction we would like to shut it down have i not done this in the past yes have i then seen a stock fall yes have i started smoking the hopium yes in other words smoking the hopium means it's such a good company it was such a great trade i'm hoping it's going to go back up and i don't get out and take a small loss and then it can become a big loss so if we get stopped out on this and take a small loss what do we do we say thank you now am i intending to take a small loss in this paper money transaction no but do i know that a small loss beats the stuffing out of a large loss you bet so and when we put this exit in before we get in we're taking the emotion out of it we're saying we are treating our trading seriously we have a set of rules and a set of guidelines and we trade by them if you go into starbucks tomorrow and say i'd like a venti cappuccino they're gonna go you know this is how i feel like making it today just thought i'd be a little a little different it's like yeah no you want it like you want it you want it to be you want them to offer you a consistent product and if you want to get consistent returns then you have to behave consistently okay i will get off my pedestal now okay so we're teeing that one up buy right covered call is the position size okay well in this class we can take up to a five thousand dollar position so our position is just fine okay so the third one we're going to do um and i'm waiting to hear the little ping our third one that we're going to do is a synthetic now what's a synthetic a synthetic is where we both sell the put and then buy the call and we're going to sell the 20 put which is the first put out of the money or the at the money put and then we're going to buy the at the money call now it's going to require you may say oh this is kind of cool so we are we're going to buy a synthetic so we are buying the 21 call and we are going to sell the 20 put and that's going to cost us a whopping 17 cents but you have to keep in mind that if the stock if this closes below 20 we can end up owning it and it could go to zero so you can set a stop on this and we can also set a target and we're not actually in this class today going to do either one but in this class and i mean we only have you know 45 minutes a week together um but you know what we we will track this and you know if you get to a point where if it breaks the support level and especially if it comes down and breaks below the 10-day moving average because we've seen it come down and kiss the 10-day moving average you know we have some time so a synthetic is the opposite of a caller a caller we would use if we owned devin and we were afraid that it might fall in value so then we instead of buying a call we'd be selling a call and instead of selling a put which is bullish we'd be buying a protective put to cover ourselves to the downside yeah so it with synthetics often we will set both a stop and we'll set a target and we may do that target next week so if we wanted to set a target where might that be well what we might do is say hey this broke out here and we could use the fibs and if you're new and you're going oh she just used like uh fib is that telling a lie nope it's a way for us to draw something and to see where we think the the price might go now some might want to draw it all the way back to here but if we draw it to here the you know we we might have a target here the 161 which should be 2273 and we might set it at 26.65 now others might also look at this and say you know what we had and i'm going to do a different drawing tool and for those of you who aren't familiar with the fibonaccis you could just say okay the last time it moved up it moved up you know almost six dollars 592 and then it came down and when it moved up again it moved 570. so i'm just going to copy this 570 line say okay where am i expecting it to go around 26 and so we could put in an exit so we will set that up next week i'll make a note but we're out of time and you know what we have mike filette coming up with a week in review he he brings such experience with him you may want to stick around and check that class out and then at the end of the day today last day for the options virtual in-person workshop with john mcnichol and tonight he's talking short verticals so if you're interested in more on short put verticals or short call verticals you'll want to join john i think it's at five o'clock mountain seven o'clock eastern you'll have to check on that okay so we'll set our target on this and we'll put that on next week um that was devin did i put the okay i'm trying to move quickly here i don't think that we put this in so we're going to say okay i want to be sure this gets filled so i'm willing to pay a few extra pennies for this we're going to move it to 20 and we're going to do one and you'll see our buying power is now down a little more than it was before this is actually a lot for this class we haven't very often had this much of our account invested and what it's saying is our max loss is if the stock went to zero our max profit is infinite and because this is a margin account they aren't holding the full 2000 aside yes time does fly it's at 7 pm eastern okay so we got filled for that okay so i i've been looking at the questions and the comments um as we go along yes you know what when i make a mistake guys please point it out it takes a village um and you know i was listening to someone who was a professional trader and he said one of the things you have to take into account is human error you know sometimes you mean to sell and you buy or you know yeah um alonzo i talked about that briefly today so the question was what happens on the expiration of the vertical um the the credit the short put vertical if the sale strike the strike we sold is below if it's trading below that then it would be put to us if it's below both strikes both sides will be exercised um but we never in this class let something expire worthless because we don't want to be caught in that position where it expires in between if it expires in between and the stock gets put to you and sometimes we're doing trades on apple and other you know very expensive companies that we couldn't afford to buy a hundred shares then on the next trading day you would just have to sell those shares because you'd be getting a little ring-a-ding from your broker saying uh hello you need to put you know if you had sold a short put vertical on tesla you might have to put 80 000 in your account well if you're just starting out you might have a grand or five grand you may you know and and you haven't ruined your life you know you just are going to have to sell those position that position that was put to you on the next trading day and you know if the stock gaps over the weekend gaps up that could be a pretty happy circumstance if it gaps down it might be more painful than you had budgeted for but it's not like you're going to blow up your life or you know do you know what i'm saying like it's one of the reasons that we do a lot of that type of trade in this in this account because we do have a defined risk strategy so knowing how to get into a trade is one thing knowing how to manage it is so important my friends and that's why we talk about that each and every week oh which reminds me so one okay one last thing we're running a little late um we had one position i wanted to exit and it was lee so lee we just put on last week it's an auto company and we did a synthetic so we both sold the put we bought the call we were expecting it to break above because it was breaking above when we put the trade on and now it's broken below and you know and and it looks like it's bouncing today but it it could be using this diagonal line could be serving as a resistance level so when we come and we look at lee in our account we actually have a profit and so this is one of those cases where we might rather snatch a small profit you know from the jaws of defeat like let's take our small gain we're actually up eight percent on this in spite of the fact that this trade when we look at the chart it has gone down not up that means volatility must have fallen but it's not trending in the right direction so next week if this continues to go up we can get back in again but if it goes down why would we want to risk turning a profitable position into a losing position when the technicals don't support staying in so this is one of those where we're going to take a little profit and we have two of these so one of them's up a whopping 450 and the other one's up 35 dollars but we're gonna take that forty dollars you couldn't go somewhere very snazzy for your virtual dinner but it beats a hundred dollar loss right which and you know what you may be saying wow i bet she regrets doing that because you know it if lee really goes to the upside you know we could regret it but we're going to close that out so we're going to buy those back there we go so that was the one trade i wanted to manage and exit and that was why because i think the thought process is important right okay so we've done what we said we were going to do we looked at choosing an option strategy and what we did is we chose to answer several so maybe that's showing that i'm having an indecisive day but i think that in the tracking of these whether this becomes profitable or whether this is an opportunity for us to manage a loss it will show us how these different strategies can work and we added several positions one on abr two or i think three on devin we managed some of our current positions we looked at the markets overall we crowded a lot into our time together my friends if you found this helpful could you please hit the like button um it lets other people know that you found this content to be valuable if you haven't subscribed to this channel please do so if you like this i encourage you put a comment in the chat on youtube it just helps other people find us and we would so appreciate that and of course if you have a question quest away i look at them every day and i'm happy to answer keep in mind all investing involves risk including the risk of loss we did lots of examples today but none of those were to be construed as a recommendation only you can know what's appropriate for you and your account so any investment decision you make in your live account is on you but i sure hope that you are following along in your paper money i found that that was a great way for me to learn i want to thank each and every one of you for your comments in the chat today i want to thank my fairborn for risking getting carpal tunnel by being as busy as he was in that chat and um i want to thank you guys have an awesome awesome weekend um stay safe in spite of the weather and the pandemic and you know give yourself a hug have a great weekend best of success with your trading and i will see you in a webcast coming up soon take care everyone bye for now you

2021-02-27 00:55

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