Trading Technically Overbought Stocks Using High Probability Options Strategy | Technically Speaking
hello everyone market's still moving we've had an unusual seasonality with august pretty strong open to august uh so strongest we've seen in the markets for for the last uh uh four months plus again that unusual seasonality with with august so if you're looking at stocks and stocks or and you have that fomo that fear of missing out but you also don't want to chase those stocks some people don't like to chase high flyers what can you do well we're going to take a look at the technicals we're going to take a look at wrapping some option strategies around those technicals so stick around good afternoon and welcome everyone to technically speaking technical analysis and options my name is pat maloney i'm joined in the chat by my good friend for a couple decades as you all know we have all spent a lot of time together and that is the one and only brent moore's and he is there to assist in the chat he's another td ameritrade uh education coach i was going to say technician but he's a technician he's also a fundamentalist uh as well uh and you can follow brent on twitter at bmore's underscore tda if you can see that in the chats there you can also follow me on twitter at p malali underscore tda as you can follow all of the great td ameritrade education coaches on twitter with that same type of handle there all right let's um jump out there get to our important information and that is that this is for educational informational purposes only not investment advice options are not suitable for all investors there are inherent risks to options trading spread straddles other multi-leg options strategies will entail uh extra transaction costs and short options can be assigned at any time up to expiration regardless of the in the money amount and then the money option has a higher risk of being assigned early and paper money virtual trading application will not assign a short option position early which is going to be very different from a real trading account any probabilities discussed are theoretical in nature not guaranteed now we're going to discuss technical analysis but there are is other approaches that include fundamental analysis that can assert different views past performance meaning security does not guarantee future results or success all investing involves risk including the risk of loss and any investment decision you make in your self-directed account is solely your responsibility uh as well how did i get that in there if we got an issue with the slides here i seem to have wiped out a bunch of slides all right so i've lost my uh agenda slides my apologies there but the agendas today is uh is going to be a discussion of uh technical analysis define some technical analysis uh concepts as well as look at some uh look at the look at uh options uh and to find some option strategies around that i'm just a little bewildered as what's happened to my uh to my slides here let's let's get past that let's move on here and get uh get rolling i want to say hello of course to everybody uh in the chats wayne chubby saul frank michael todd as well as uh vijay and chris and wayne and krishna and doug in georgia texas dan chuck rangao grace and everybody else as they come rolling in here and of course everybody in the archives uh watching the recordings welcome we really appreciate all of you so let's get to the discussion today and that is the fact that the markets are continuing to move higher but with that inside of that there is the the fact that a lot of stocks get ahead of themselves so how do we define that technically what are the concepts we look at uh from a technical analysis uh standpoint well from a technical analysis standpoint there's a few things you want to consider and that is going to be what's the trend that means is price in an upper trend sideways trend downtrend what's the long-term trend short-term trend intermediate term trend where is support and resistance and once we've defined all of that we can start looking at magnitude and velocity of the runs how do we do that well sometimes we're going to look at a couple different things volume gives us some kind of a volume is going to give us some kind of a an idea about the strength or the demand underlying the the recent move in the stock as well as the momentum which will use the rsi uh as well as take a look at if something's outperforming as far as relative strength goes so to do that we're going to use these charts here and this is on the left hand side is a weekly chart you can see i have fslr here this is one that's uh up quite strongly off of its off of its lows i want you to note that uh the the pullback from about 123 down to around 60 that's a you know a pretty good chunk to the downside but also the move back up is also very strong and that's where we look at the weekly volume that weekly volume there uh was three times when that when we saw this take off that week there was three times the amount of average weekly volume and going back for uh for quite a while and then of course it runs into this longer resistance up in here so when we start looking at this on a weekly chart then the we can see that well it's this had a pretty there was a lot of selling that occurred up in that area now we've we've retraced a lot of that selling in this weekly chart over here very quickly very rapidly which means that the the velocity the the quickness the speed of that move off of the lows uh may put this into into some territory of maybe a time to pause now that doesn't mean that it's going to turn bearish and turn into what we saw back here it could anything can happen it could keep going and push through the upside but the fact is is that something has also happened here and i'm going to expand uh this screen here by right clicking and coming down and clicking on maximize cell and let's put this on a 15 year oh let's go 20 years make sure we got it all in there i went back here 20 years on fslr you can see the strong run we had back in 07.08 and then it went sideways for a while well this sideways action right here this consolidation back here we are get a correct drawing tool right tool for the right job here we're above those lows over here so over here on the right we're above those lows we're coming in to if it can break out to the upside possibly all the way up here to 169 okay 169 but there's some issues along the way those issues along the way are uh the selling that occurred in here the the rsi if we go back when was the last time that the rsi was uh was this over bought up above uh you see this is on a weekly chart by the way don't forget that we're looking at a weekly rsi here at 73 when was the last time that happened back here in 2020 june of 2020 and you know what it was in kind of a not much of it not that much of a different situation if we zoom back in here it was breaking out uh you know up against uh and above some resistance in here breaking out wasn't near as strong it became strong over in here but that took this up to the uh ultimately to these first the the overbought kind of that that overbought uh buying climactic buying in here and then a failure up in here to continue to push higher so we're back up into that area where we're up into the resistance area on the weekly chart so this is what i mean about fear of missing out and also of chasing we're looking at a uh we're looking at a so doug says wouldn't inflation affect the 20-year comparison um sure uh but uh we're not we don't we're looking at just a regular log chart we're not including any kind of dividends or any of that it's inflation is going to affect everything that we do here so not going to not going to worry so much about that we start worrying about inflation or you know lots of other things we could end up either missing a move or uh or as it moves higher or just get locked up in some things that we really personally don't have any control over in case but that's a that is a good point it's a valid point but it you you you we don't have uh i'd have to go in there and divide this by the cpi and look at all those different things not so worried about that we're worried about the speed and velocity or the the the magnitude of this recent run off of these lows that was very quick how far did this run off of these off of those lows off of the lows it ran from here up into up to here so that was a 100 point gainer 100 point gainer in six weeks 100 point gains in six weeks and so this could very well over time continue to move uh to move higher based off of this kind of action looking like there is a lot of demand coming in we pop over here to the daily chart back off a little bit here so you can get a little bit better view a lot of that velocity came from the gap uh this gap here now when we see moves like this and there's a lot of stocks out there that have had a really strong moves that are up against some kind of a resistance area they're also up against a a momentum that's just gotten maybe a little bit out of a little bit out of hand if we look at where uh the uh where the rsi is today it's at 86. so that's 86 percent uh rsi that's it can go higher yeah in theory you can go from go to 100 that's as high as it goes these are bounded oscillators or it could go to zero on the downside has it ever done that yeah there's been stocks that have gotten close uh maybe there's stocks that have actually gone all that way i don't know of any myself but this is extremely over the overbought extremely overbought but therein lies the the discussion for today not chasing but you're saying same thing you're thinking you're looking at the weekly chart looking at this type of volume looking at the uh the the news looking at all the different things that might be coming into coming into play here and perhaps it starts to uh starts to pull back and so earlier today in that vein the this possible struggle to move higher the uh idea that it could pull back lower but not go too too far to the downside what i did was i placed a uh iron condor trade on this i went out and sold an iron condor what's an iron condor it is simply the buying and selling of a call a call spread so we've got a short call spread and in this particular instance we sold the 140 strike call simultaneously we sold the 105 put now on both sides of these we bought protection basically we bought long calls in case price goes higher and we bought long puts in case price goes lower so we have those two verticals and the idea is that we expect after a really strong after a really strong run 100 off the lows in six weeks uh you know some people might say that that's you just it's just gonna struggle to go higher well that may be maybe not we're going to look at a higher probability type of a trade a higher probability type of a trade and that is we're going to sell the whoops sell that um uh 140 call spread 141 45 call spread a five dollar wide spread and a 105 put so by saying that what we're saying is let me get rid of these lines here and let's put a line up here and a line down here and then we'll adjust those for the puts 105 so we can show those so we can show where that line is make that red and we'll adjust this to 145.
that was the strike right make that red and so those are short strikes why is that important short options can be us number one can be assigned at any time up into expiration uh and through expiration as well uh and uh so it's the 140 i thought i had that wrong and so this is where the risk lies this is where uh your your spreads if price gets up into that area the spread is going to be worth a lot more versus where it is today so we sold this this trade price was uh a dollar thirteen it's presently trading at a dollar eighteen we're going to see price move up down and sideways volatilities change let me change this to 140. and so what we're saying is if somebody does this they're making in an assumption that price will not be up here or down here that price will be somewhere in between those two red red dots based off of based off of the the swiftness of the mood move but also looking at some support okay so how do you find support in such a fast in such a fast move it's hard to draw really draw a trend line here and so even the even the fast moving averages if i change this to a five day moving average you see it's following a five day moving average now that's probably uh it would be you might be hard-pressed to find anything that continues to follow something that sharp but that gives us an idea of where uh support and resistance is and then if we look at this last sideways flag where we kind of a flag in a stiff wind price gapped up rallied and then drifted sideways for six or five days before it broke back to the upside and moved so we're going to look at this area down here to be some sort of some sort of support now as far as resistance goes well we'd have to go way back in time back into that whoops sticking on the wrong thing here way back in time and look at these resistance areas up in here so ultimately making it up to 174 well and 165 that that might be the case you know from a longer term you know if we look at certain fibonacci extensions and things but inside of this area in here that's that was a number one a long time ago it may not have that much strength anymore going back into here and as well as it may not uh it may be harder in the near term so pop over here when we do this 32 days out we sold the september uh 16th expiration options okay whoops and so the idea here is that it's going to pull back find some support down in here find buyers if what if the if the technicals hold out this is often times this kind of a big volume runs are oftentimes a a marker of possible demand changes in demand demand overcoming supply and so if this pulls back here we're going to look for people to look to see if buyers come back in and push this to the upside now that being said once it starts to get up into these upper once it starts to get up here up in these upper ranges we the the expectation that it will continue to follow this five period moving average uh is probably going to wane somewhat and we may see it follow something along the lines of say a 10 a 10 period or a 20 period moving average and if we just kind of extrapolate that out time wise if it just kept this kind of this trajectory but slowed somewhat then that may give us enough time over the next 32 calendar days basically 21 trading days or so that might give enough time for price to react to the upside pull back find some support or vice versa react to the downside find some support find some demand and push this back up and as it gets closer up in here short term traders perhaps taking uh some profit so that's the idea behind that trade now there's a lot of other stocks out there that are uh very similar in structure you know just running through a list over here you've got chipotle mexican grill same type of thing breaking strongly to the upside uh the list goes on and on um arista networks now it's not as strong as as first solar but you can see as far as the momentum goes uh very overdone not seeing a lot of strong volume coming in here though however and we got mcdonald's we've got to trade on mcdonald's presently on with short-term uh a short-term trade with stock not so much there but there's there's lots of others msci similar in structure let's look at adp adp right now so if we look at this it's breaking out of a long term along sideways consolidation there is uh the what some people may look to call maybe patterns inside of patterns and that would be this pattern in here in the in the longer term larger scheme of things in here if we go back over here to the long-term weekly chart well we can see this is kind of an all-time this is an all-time high area at least 20 years worth anyway so this could be accumulation accumulation back down in here in the uh pandemic time frame rallies up long-term longer-term possible accumulation in here where it starts making higher highs and higher lows and then we break out now on the weekly rsi not as strong but we have pretty strong demand coming in via the via the volume not quite as strong as what we saw with fslr but on the weekly chart if we look at this from a technical basis what are we seeing here now this is this beginning of this week so this is this candlestick right there has a lot of a lot of days left in front of it but we're starting to see that initial shot strong push to the upside and perhaps we're starting to see the uh the the steepness of the trend start to wane now it's kind of it's having a strong day-to-day as it breaks out so a strong breakout oversold though if we look at this 79 percent on the rsi now let me collapse this here 79 on the rsi as we can see over here just starting to approach 80. the point here is that the uh the ability for this to continue to run maybe maybe pretty strong but there could be a bit of a pullback prior to that now you've got a choice you can say well i can i can go in here and just go ahead and buy the stock i can go and buy a long long dated option and expect a few things to occur now this is a 10 period uh exponential moving average we have here that it's it's basically obeying and today's uh today's price action certainly making uh looking like some strength the sell-off after the breakout the initial little breakout over in here came on higher volume and last uh yesterday's or friday's volume really kind of lacks a day's goal so it appears that there might be some late buying coming in but there could be some a bit of a pullback so you got again you got a choice you can buy stock you can buy a lot an option you can sell an option remember short options of course if you're going to sell an option you might sell a naked uh put or of something like that saying you're willing to buy the stock at a lower price so if we pop back over here into the charts and look at where the old resistance was now new support that's around 249. uh that's just really not too far away from it where it is right now it's only ten dollars away it's a 259 dollar stock so you know it's not a huge percentage drop to see it get down into that area but it may continue to run to the upside before it before it pulls back certainly saw with fslr uh you know 80 percent was just not an area that fslr obeyed on the rsi went to 86 percent we look at the relative strength and we have the the strength compared to the s p 500 very strong so the choices are sell a sell a put a naked put and remember you're still if you sell these options you're on the hook you're obliged to perform on that option contract should somebody want to put that stock to you at any time up until expiration so you can sell a put maybe the 240 maybe at the it's a trading at 259 you could sell the two the 250s which would be in alignment with the 10 period moving average as well as the resistance area if somebody thought well in the longer term we think that this they think that the stock is going to really run you could come out here and buy a a call option for i'm going to left click on this one 19 dollars per share on a multiplier of a hundred so 19 per share and a multiplier of 100 so that's going to be 100 times 19 or 1900 to buy that to buy that stock versus uh versus you know paying the the 259 times 100 or 2500 or 25 900 to to enter in on a on uh on the stock so maybe a little more efficient use of your money now remember this is a call option it is gives you in theory the right to buy that stock but you can still lose all 1900 because it is an option it can go worthless if the stock decides if something happens materially and the stock crashes really hard for whatever reason so those are those are a couple choices if you want to own the stock sell a sell a put a naked put recognizing that the risks behind that are if the stock should decide to really fall you've got that you've got that put with that obligation that's going to expand in value there's there's good sides and there's bad sides of course to every everything out there each side of the coin there's not just there's not just reward there's always risk and only potential reward please remember that anytime you make any kind of a any kind of a trade all right so with adp what we are going to do is pop back over here let's go back up in here and on the near term it's just it's moved so far so fast it's kind of left uh it's really left a lot to be desired in uh in strikes out here that that even with the 259 dollar stock strikes further out of the money just aren't paying anything they're just just not there so it's going to limit you to you know perhaps what you can do so what we're going to do is we're going to sell a uh put we're going to sell the 240 put here looking for price uh to pull back but then bounce and head higher but help us keep an eye on that uh trade so we're just going to left click on this remember this is is a sold put a naked put you're obliged to buy that should somebody put that want to exercise their right on or before expiration and there is a credit that goes along with that so the idea behind this is still bullish uh still a bullish bias on this trade but it's overdone i'm going to send that off or i shouldn't say it's overdone in some people's minds and technical analysis looking at technical analysis it's it's way overbought getting a little bit stretched so still wanting to somebody still wanting to buy this stock may opt to sell a put like we did down here we just you could sell it wherever you want provided that there is enough enough premium that you're satisfied with for the amount of risk that you're going to be that you're going to be taking so that is where the short put resides right here so comes right in a long old support underneath the breakout area old support in here very similar to the structure that we saw with first solar fslr strong break to the upside a little bit of follow-through and then resting after that break and then expanding to the upside volume not not huge bullish clues we'll see what uh we'll see what occurs with uh with that all right let's take a look at a net now this one's a little bit different situation there's a couple of things you can see here this ran up into the 79 area on the rsi you know we're looking for extreme over bought extreme over bought if we're looking for pauses right if we're looking for pauses in something in something that might be considered somewhat bullish now when we zoom in on this there was a clear breakdown from this sideways uh consolidation pattern and then it made this kind of this really this cup formation and perhaps there'll be some kind of a handle up in here okay now remember these are just geometric patterns they don't necessarily aren't necessarily 100 percent you know so the g so the probabilities afforded these technical patterns you know the there is some bias to it but how do we get bullish or bearish buys to them how do we get that well we look at the past trend and the past trend has been up now it did pull back pulled back into an old consolidation area in here if we draw a line across these highs in here i got to check the chats here we can see we popped down into there and we found some support and then rallied higher from there now the the what we've seen when we look at this weekly chart what we've seen recently is for as price came down volume came down as price rallied up volume went up so we have that volume smile volumes in agreement with price action on a weekly basis those the last three weeks have outperformed the volumes weekly volumes over the last one two three four five six uh six many periods going back a few months so there's some uh underlying seemingly underlying demand now we've seen here as far as bullish bias goes over the last three days thursday friday friday and today at least so far today we've seen volume start to slip to the downside so with this we've got this not quite the not quite the fslr we've seen some relaxation so this might be an opportunity here to perhaps buy a call spread a long call spread expecting perhaps a uh a little bit of a little bit of relaxation i might change my mind on that let's look at this let's look at it a little bit differently let's look at this as i'm going to get rid of these lines in here these uh uh that channel let's look at this in a little bit different way let's look at this as an another iron condor where we'll say well there's a good chance it'll pull back you know drop down to a certain area and there's a good chance it'll be rejected at a certain area above where price is so yeah we'll look at this as an iron condor vj says sell it put slightly below the 50 fibonacci retracement on a daily chart that's that's a possibility for sure uh yes and kathy you call me thank you for calling that out 140 that's why i had to ask myself that question am i in the right spot that was that last trade that was the first trade on adp all right so let's look at an iron condor on uh a net so we've got resistance up here which is the old top of the channel 142 ish area we've got some support uh you know of course all the way down here uh down at 90. that's going to be so far
away that there's probably not going to be any premium in those in those uh options but we do have this gap in here we do have the uh the some old support if i draw a line over here right around the 1 15 116 area so let's pop over here to the trade tab and take a look go out 32 days just you know just uh that's a guideline that some people use 20 to 50 days something like that let's take a look at 32 days and we run into a possible issue right away now if we're gonna the one thing i want to make sure everybody understands that if you are as far as theoretical probability goes if you are selling two things if you just sold one thing up here if we sold this sold a call up here at whatever is is as viable then we're going to have a certain probability associated with that so let's pop over here and take a look at the call side and uh if we sold the the 140 call up here that has the theoretical uh probability of being in the money by a penny of 17 according to the according to the delta that's a proxy uh probability even the money probability wise or proprietary method here is 14.7 percent that will be in the money so that's you know it's that is a fairly low probability or a high probability that this will be out of the money on expiration so 17 delta gives us an 83 probability that it'll be out of the money and that's at the 140 strikes let's pop back over here to the chart or right click and that kind of comes into uh very close to that upper channel resistance over the next 32 days and remember those only basically probabilities are based this these are based off of one standard deviation and so that could be the upside now the downside now here's the other thing so if that has a an 83 percent chance of being out of the money we'll pop up here and click on probabilities come down to options theoretical and go probability out of the money so 85 chance it'll be out of the money on expiration and here's the thing we're going to go over here and we're going to sell something else that has a uh a similar similar kind of a delta we'll start with the 115 strike and that has a probability out of the money of 83 or a delta of 14. so a quick back of the napkin and this is something to consider because you have two things now that can that can uh that can create a losing trade that's a put spread and a call spread right and so if we take this 14 delta add it to the 17 delta that gives us 21 delta subtract that from a hundred is that right yeah oh no sorry 31 delta uh subtract that from 100 and we get a 70 or 69 percent chance of both of those going out worthless okay so it's very important you remember that because the statement we're making is price is going to stay in between these blue bars up until expiration okay and so let's put this together now so we've got the 140 strike we'll click on right click on the 115 and we're going to come down here cell iron condor and that will populate down down in the order entry tool so we have the 115 110 strike but we're going to sell those calls we're going to adjust that 120 call this is one way of doing it to the 140 145 strike and it brings in a dollar credit a dollar credit with approximately a 69 70 chance of expiring out of the money if i right click here pop over here to analyze trade and look at risk profile and then come over here and set our slices click on this hamburger stack here set slices to break even on expiration and you can see 74 percent chance is what this says now remember they're theoretical no guarantees here but 74 chance that price will be in between that vertical hashed line in that one on expiration so it's a high probability trade we're bringing in a dollar uh but we are also risking five now not ten unless you do something you know unless you close out one for a five dollar loser and then close out the other for a five dollar loser in theory you can only be wrong on one side of this trade so five dollars we'll do this uh we'll sell this one uh two times because we have four dollars worth of risk i'm going to right click here hit confirm and send which you can do from just about anywhere on the platform and then this is going to give us our our fees in here uh as well as our max profit and our max loss now we have a 74 chance of this working out this usually these usually can be managed along the way and let me explain that here uh in a second let me send that off wait to get uh we'll wait to see if we can get um filled and i'll put this in here and the point i want to make here is that should price drop pretty hard over time down near our short strike maybe even through our short strike my question to you is what happens to these short strikes or what happens this call spread up here does become worth more does it become worth less it will become worth less and so at that point you may come be able to come over here and say you know what i'm just going to close that out it's now worth hardly anything i'm going to close that out and maybe make an adjustment maybe sell another spread and so you've taken the risk off there and then if price dips through which often times happens and then comes back up then this spread down in here will have an ability to to perform as we as your assumption may originally have been based off of what are we basing this off of price could continue higher but price could continue higher into a resistance area we've had a marked uh overbought theme to the rsi so we're expecting some kind of a pullback but we're also looking at the fact that on this rally we had strong volume on this rally as this started to break to the upside and and uh and the relative strength increased markedly there was a lot of volume associated with that right here oops right here on that gap so a lot of things pointing to somewhat uh a bullish bias but maybe time to slow just a little bit going forward okay so we've got a couple of trades in here i believe uh we have done what we wanted to do uh the other thing i also wanted to uh to do that apparently disappeared on my on my uh powerpoints is um that there is uh right now we are doing a we have a one one-on-one one-to-one personalized td ameritrade clients only uh think or swim walk through think or swim walk through let me uh put this link in the chat box over here i'm going to send that out so there's a link there's also for anybody in the archives i'm going to put the same link or the same link this is below on the youtube channel here just click more and you'll see there'll be a link to that as well as well as several links to um to td ameritrade web excuse me think or swim web browser so you can learn how to use that if you wish so there you go please uh if you want that walkthrough that walkthrough is helping you customize get get some of your questions asked it's about 30 minutes or so maybe a little bit longer uh review or or walk through excuse me with uh think or swim all right with that i'm going to bid you adieu remember 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 take care everyone [Music] you
2022-08-18 14:40
