Iron Condors Legging In, Butterflies | Ken Rose CMT | 10-03-19 | Advanced Options Strategies

Iron Condors Legging In, Butterflies | Ken Rose CMT | 10-03-19 | Advanced Options Strategies

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Sylvester's, again welcome, aboard to our advanced options, strategies. Webcast here today it is a beautiful, October 3rd here along the Wasatch Front, hopefully. Things nice things are very nice wherever you're at as well my. Name's Ken rails and it's always great to be here to discuss investing. In the stock market particularly with, the use of these strategies that, we have available to us just, a reminder that you, can follow me on twitter it's at Kay rose underscore. TDA and, if you think about the coaches here and you think about the twitter handles this basically the, first letter or their first name followed by their last name then underscore TDA, you. Can follow me fall some of the other coaches as well you kind of monitor, some of the conversations, that go on between the coaches here as well I think you find those to, be beneficial. If not definitely. On occasion, humorous, as well well. So today, let's. Look at talk a look a little bit about what our what, our objective, here is today so basically what I like to accomplish, here today is is, to is to just make it so that our door help, everyone, have, a good understanding of, the historical. Relationship. Between. Option. Greeks and market movement, and how, to trade that relationship. To. Accomplish that goal here, today our agenda, will include, a market. Overview. Using. The S&P 500, index. SPX. A review. Of market, volatility. Using. A chart of the VIX. Identifying. Anticipated. Direction. Of one. Of the option. Greeks, referred, to as Vega, and then. Identify, strategies, that, complement. The, current, potential. Direction. Of Vega we'll, also they'll. Also begin, with a little bit of a follow up on the SPX, diagonal. That we did and also the HTS unbalance. Fly from last week we'll take a peek at that and would also like to do a paper trade today here as well but. Before, we get too far along let's go ahead and swing back here and let's go through our disclosures. And the way of disclosures, investors, just a reminder that options. Are not suitable for all investors a, special, risk inherent options, trading may expose investor potentially, rapid and substantial. Losses in, order to demonstrate the functionality the platform, we need to use actual symbols however TD. Ameritrade does not make recommendations. Already term the suitability of any security, or strategy, for individual traders and investment, decision you make in yourself trick, the account is solely.

Your, Responsibility, also. Keep in mind transaction. Cost transaction, cost can be significant, and can have an impact on your overall profitability. We don't address those specifically, in here but they can be significant, so it is something you definitely want to take into consideration, spread. Straddles, and other multi leg option strategies can entail substantial. Transaction, costs that we want to keep that in mind as well. In. Order to in order to do our presentation. Here we use the, paper money application. Which, is for educational, purposes only successful. Virtual trading during one time period does, not guarantee successful. Investing of actual funds during a later time period as marking, conditions do change continuously, sometimes, I'm asked about that paper money platform. It basically is, a mirror, image of, a of. An actual trading platform, it just has funny money in there okay but you do want to keep in mind that that it is you that it is for educational. Purposes only in anyway a little success that we do have in there it isn't necessarily going to translate into future, success also we. Will be discussing vid, Greeks here Delta Gamma vague and theta with a special, focus here on Vega, as, well, as theta also. Investors just one other reminder here and that is that. This. Session is considered, to be an advanced session. Okay, it, is considered to be an advanced session if you don't feel comfortable with options, in general things like what's a call what to put those types of things you're, more than welcome to continue to join us here today, however. You. May feel a little bit overwhelmed at times I try to craft the words and the presentation. So it will be beneficial to everyone but if you if you do start feeling a little bit overwhelmed but also encourage. You to attend, our getting. Started with options, webcast. That's Friday, at 11:00 a.m. with our very own Barbara Armstrong if you're feeling a little bit comfortable with some of the things we're discussing but still may be a little, bit uncertain with regards to some of the concepts, and also another excellent webcast is Cameron, Mays that's, that's, selecting, an option strategy, that's on Thursdays. At 9:30, a.m. Eastern, Time to, find those on your thinkorswim platform here. Your TD Ameritrade platform you'll have an education, tab right here if, you roll over that come down here and click on education it'll. Open up this box right here and right, over here you'll have a link that says webcast, and you, can just click on that webcast. Link right there and that'll bring up a little box here's. A little box that'll bring up and, in this box I just like to call your attention to this tab right here it's the webcast calendar, I would. Just click on that webcast. Calendar I would suggest you do this. Early. In the morning someday okay. Do, it and then when you bring it up and the reason I suggest early, in the morning is because the current day here, which is Thursday notice. How we don't have anything showing here to Thursday up until our current session here these, these. Basically. Disappear. Occurring the day so you can see what's currently left so. If you come in early, in the day you'll have all the webcast for all of the day and you can download this, as a PDF file. You. Come down here and you can save it as a PDF file then you can go ahead and go through these webcasts, and check out the titles, now I'd, mentioned, on Friday, where. We got Friday that's going to be tomorrow if, we come up here, here's. Friday. And. Notice right here on Friday it, may be a little bit hard to see I'll just I'll, just read this for you active. Trader getting. Started, with options, with barb Armstrong, okay, so, again if you're if you're relatively new to options this would be a great session to attend and then also if you have some familiarity. With options, but maybe you feel like a little bit shaky. On that on Thursdays. Notice we don't have Thursday over here but on Thursdays, at 9:30, a.m. we have selecting an option strategy, with, Cameron, May that would also be a good one but again I do try to craft words in here so they are beneficial to everyone now once, you have, the.

Name Of the the name of the session or that you want to attend there's lots of session is in here on technical, analysis. Getting. Started in many different areas including futures so, come, in here it's it's it is sort of a smorgasbord. Of. Educational. Learning opportunities. Here just. Note the class and I pay particular attention to, the name of the coach on the class then. Decide do, you want to sign up for for, an upcoming webcast. That's coming up in the future or do you want to go in and look at some archived, ones the ones that have been presented, previously that. Are archived, and recorded for you. In. Deciding, that that would determine which one of these tabs you click on I'm just going to click on archived webcast, here, I'll. Click on that right here we'll scroll down here so here we have a we, have some menus here there's an instructor, menu here and I would just I would just go straight to the instructor I wouldn't worry too much about level, and topic here you, already got that from your webcast calendar, just come over here to the instructor, and for, example if we wanted to catch. Catch, maybe maybe, Cameron Mays most recent one we come over here and click on Cameron, May and right, here we have, selecting. An option strategy, right here we could click on this and that would take us right into the most recent archived, webcast, and looks, like that's already on there for today, so that'd be a quick a quick way to catch Cameron's, from earlier, this morning and as, I mentioned a bit earlier you can also come up here and select. Barb, Armstrong, right here and, with Barr Armstrong you come in and catch the one that she, most recently taught. Right. Here's getting started with option I would just do it by the by the by the coach not but don't worry too much about level, and topic here after you get it from here because each each one of us we teach about two to three of these a week some. Coaches that maybe teach one or two more than that but general, if you just put the coach's name you'll be able to scroll in and find that fairly easily so just wanted to give you a heads up on that well, let's take a look at the mark and see what's going on so right here we have a chart of the S&P 500. And. We're. Going to collapse this right here for just a second, and just highlight a couple things. Been going on with the market so we can see. Right. Here. Is. Tuesday, what, happened on Tuesday when we had the is M. I'm. Just going to put is M right here, we had the is M manufacturing. Report that came out that showed we had two quarters, falling. Below 50, and that. Indicates, potential. Problems, for the economy, and that indicates potential. Problems, with regards, to the overall market, and, that you, know we can see that the market definitely, had a, had an impact by that now that's not the only thing that impacted, the market okay but, that's one of the one of the major impacts, coursers, there's, either there's a lot of different things that things that impact, the market earnings. The companies are coming out in, our international political, affairs there's a lot of things that can have an impact with that but. But this was seen as possibly. A catalyst, to create that move to the downside then, we had a continued. Move, to. The downside yesterday, and then, right here today it it it's. Rather interesting here today because right. Here today there was some nervousness because another, is, M Report was coming out in that is M report, rather. Than being a manufacturing. Report it was a non manufacturing, report okay me norther it is more on a retail, level, there. Were so there was maybe some concern there maybe there was some hope there that maybe this one would not be as weak as expected, and, that, made that may that may provide. A little support level here for the market, however. It actually came out and it was weaker, than expected so was actually it was actually more of a confirmation. This earlier report, and you. Can see that the market did slide down here significantly, today on that news but, it's had a nice recovery here in the afternoon. So. Right, now you can see you know here's our two red cows we are moving up here if we're looking at this from a candlestick, pattern standpoint, it'll. Be interesting to see where we close today but we're pretty close, to. What's called a. Piercing. Light candles, think that's where you that's, where you gap down below the previous day and then you close at the halfway point or higher, into. The previous day that's called piercing line that's actually bullish moving to the upside we're not quite there yet but it looks like we may get that it doesn't guarantee an upward movement but that's you know that's that's, that's, this, but, but but it does indicate that potential, also notice that in pulling down here if, we come straight across here we can see that we're we're.

In A zone of previous, support levels for the market here as well so. That's that's a little bit of an overview of the market but when the markets moving down like this what typically happens with, implied, volatility. Implied. Volatility. Will typically move to the upside and, we. Can see that right here notice right here the market right, here it's coming. Down and it's moving down like this and if we come. Down here and we look at implied volatility. Over that same period of time employed. Volatility. Was. Moving to the upside you can see market. Moved down and played well totally moved up but look at today specifically. Market. Moved up and implied, volatility. Moving down. So. When. You see this happening then a question becomes where is where does this level of implied volatility, from a historical, standpoint now. In an effort to be able to see things clearly we're, using a chart here that's the three-month chart where each candlestick, represents, a day, but. When you're looking the implied volatility many investors want to see it over a longer time, period to see where it's at in a relationship, with potential support, and resistance, levels and we, can do that by changing our chart here and pulling up a chart of the VIX. Here's. A chart of the VIX and we'll move this chart out so rather than a three months all right let's um. Let's. Go out to five years, so. Here, we have the VIX five years and and, I've got this red line here I tell you that earlier in the day I actually moved this up to. See where we're at intraday, but earlier in the day, when. I was look well this this. Let. Me say before, the, market started to move to the downside in a big way this line, was sitting right here then this is basically where the current, level of VIX was at let's just zoom in here a little bit okay. So this is where the VIX was that when the market was banging, up against. Once. Again banging, up against some of those all-time, high scores when the market moves up the, VIX tends to move down in other words implied volatility, tends to move down why. Does that occur. Well. When. The markets moving up investors. Including, institutional, investors they tend to have more confidence in the market and they're, not they're not going, in and using options. As heavily as hedges. And other protections. With regards, to their to their to their current investments, when, the market starts to go down that increases, the demand for options, and you, can see that increased demand for options by an increase of implied volatility, that's why there's that that's why there is a counter, relationship. Their market, goes up, demand for hedging of options, tends to go down so we have implied volatility, going down market, goes down demand. For using options as a hedge goes up so we see implied volatility, move to the upside and you, can see right here that implied volatility. Moved. Up in this area it is starting to move to the downside now now, we don't know, if. The market is going to continue to, move up from here we don't know that ok. But. We. Can look at strategies. That would benefit, from implied. Volatility. Moving down. Rather. Than strategies. That would benefit from implied, volatility, moving up because if we're looking for strategies, if, we're looking at strategies the. Benefit, from implied volatility, moving up what does that mean it, means that they get hurt when implied volatility. Moves down. The. Other hand if we're looking at strategies that benefit with implied volatility. Moving. Down what does that mean it means that they get hurt if implied volatility, is moving up however.

One. Thing to keep in mind here investors in this particular area of options, and that is that. When. You have typically. If you're looking at an option strategy, the benefits, from rising implied, volatility. That, option. Strategy, will will be will. Be a multi, leg strategy. That. Uses options, in, two, different expiration. Dates. That's. That's the way that that that that positive Vega is generally, created, and. Those. Strategies and, I'm thinking, I'm, thinking of strategies, like calendars, and diagonals. Those. Strategies they. Tend, to get, burned. Or the, risk or the implied, volatility, risk on those tends. To be greater than. The. Implied volatility, risk, on a strategy. That is negative. Vega and the. Reason for that is a typical. Isn't. Always the case but a typical strategy that, has a negative, Vega the, options, are all sold at the same expiration, timeframe. The. Risk is still there however, if price. Cooperates. If price falls within the range of your forecast, if price cooperates. What will happen if the implied volatility, moves against, you, it. Will delay, the time, when. You can perhaps exit. That trade at a significant. Percentage, of, your of your overall max gain it will delay that however. It won't prevent it if price cooperates, throughout the trade, so. We're looking at something like this then, we're. Actually, doing two things we're avoiding, the. More risky strategies, related, to implied. Volatility, again this is a graph of implied volatility, right here just just ignore this one down here so, we're actually doing is we're evading strategies, that, have a higher level of risk with regards, to movements, of implied volatility, and we're looking more at strategies, that have less. Risk in relationship, to implied, volatility, that's just another way to look at it now. Let's come back over here then. To. SPX. Here's, our five-year chart you see we've been banging up here I'm just going to decrease our time frame here now for just a second, we'll, go back over here to three months and kind. Of discuss where we're at here on SPX, I want, to pull up a. Style. Up here. So, these so these are some tools that we've used with regards, to strategies. That, are typically, the, benefit, from negative, Vega, some.

Of You recognize this this is a probability, count, and some of you recognize this these are Bollinger, Bands, in. Usually. If, you're using one of the one of the primary strategies, is iron condors now sometimes. I've heard folks maybe over the chat window or something else say hey let's do something other than iron condors, well the, last the last three weeks we have done something other than iron condors, okay but. Really in here we basically let the market, decide what, we're going to do in here you, know there are occasionally. Exceptions, but primarily whether we let the market decide whether, or not we're going to be looking at iron condors, butterflies. Calendars, unbalanced, butterflies, diagonals. Or whatever. And. With, with. The with, implied volatility. Moving to the upside in building last week that's that's why we did a diagonal. On the SPX, I just reminded me we want to go out and take a look at that diagonal on the SPX along with, an. Unbalanced, butterfly that we did on on h es perhaps after this discussion before we look at some actual examples we'll go and take a look at that but I just wanted to note that the, technical situation, with the market right now notice. That the market is it has actually, blown outside, of the bottom side of the Bollinger Bands now. There's a tendency, when it. When a security, or a security or an index that's represented, the market blows outside, the Bollinger Bands there's a tendency for it to work its way back into those Bollinger, Bands in other words a tendency. To possibly. Move up from here rather than continue to move down can't continue to move down absolutely it, can but. Notice over here the. Last time we blew out of the out, of the downside, of the Bollinger Bands we did work our way back up into the Bollinger Bands notice. Right here however, we, blew. Out of the Bollinger Bands we did work our way back up into the Bollinger Bands but then we started to slide back down again, it was difficult but we did make it back outside here. For, day and then we, worked our way back back up into the Bollinger Bands typically. What you'll see if you're looking at all if you're looking at longer time frames you can look at when you go out did. You go back in or did you continue to run the button run run, the bottom side of it. It's. Not always going to be the case okay if you're if you're in long-term bearish. Markets you're gonna you probably, see a lot more of this but, the market, hasn't been in a long-term various market for some times we've seen a little bit more of this going on, so. With this going on we think of our strategies, well. To. Come to mind one, would be an iron condor, and. Because, why an iron condor, is. Negative. Egg in other words of benefits from falling implied volatility. And the, second, one that comes to mind is just a simple butterfly, just a simple straight butterfly, why, does that come to mind because that one as well is, negative, they get benefits from fooling implied volatility, those those. Would be two potential, considerations. On a on. A straight butterfly, you're, you're attempting to forecast, a range of where the price is going to be where. We are at an extreme, here okay, so, it's a little bit uncertain are we actually going to get bed get a bathroom or are we going to continue to move down that would that would make the butterfly that, would that would be the challenge of the butterfly the, challenge of the iron Condor if you look at an iron Condor you're usually looking at something along these lines, let's.

Come In here and we'll draw a. Couple. Lines or you know if we're doing iron Condor in the SPX for example would probably. You. Know our short put, verticals, or plug be down here and our short. Call verticals, would probably be somewhere in this area right here. Well. If. You look at this this. Stocks at the bottom of the range and if it moves up here back up here to the top of the range right here the. Top of this sideways range right here that's, gonna blow it outside of our iron Condor. So. That that. Would be the challenge with regards to an iron Condor, now, another possibility this is what we'll look at here today and that, would be. To. Leg in. To. An iron Condor. So, what does that mean if we're gonna leg into an iron Condor, what. That means is - we. Can look down here, to do our short put vertical. Which. Is half of that iron Condor, and. Come. Out here and give this enough time on our short put vertical go out. So. For the neighborhood, of I would. Say, 30. To. 40. Days. 32. For days why are we going 30 to 40 days because when we come up here when. If, if, okay let's let's say if okay if the market does recover. And. Move, up here, and it. Starts to wane up here at resistance. That's. Going to be when we want to leg into the short call vertical. And. That's. Going to take some time and usually. On these on these verticals, in, order to get a decent premium. Usually. You're looking at a time frame of about 20, days maybe, 20. To. 25, days. Well. Let me let me say this that's, this, this, is the time frame that you'd, like to set up your short call vertical at and since. We wanted to be in the same expiration, would start out here at 30 to 40 days. Give. It say, 10. To. 20 days to get up here then when we're up here our, short cut vertical, will, have will be in this 20 to 25, time frame and that's when we can go ahead and add the short call vertical on top of that. So. Is this the best strategy, we don't know what the best strategy is okay, but, we but we can see from a technical analysis, standpoint there would be some justification to, consider this, particularly. Because iron. Condors, and short cut verticals now when we get up here and we're looking at our short call vertical okay. Our. Anticipation, would be what implied, volatilities probably going to be moving down somewhat so. We may not get as attractive. Of the credit, up here, as we may get down here and we can just we can just accept that for now okay, and we'll see how this thing plans out and, this this is where it's so important to keep a trading, journal so. If you're looking at legging and iron condors, versus just putting them on you. Know over time you can see okay I took. One side when it was technically efficient, I took the other side when it was technically efficient, one, side was more favorable with regards to implied volatility, the other side was less favorable with, regards to implied volatility, why am I saying that down. Here. Is. More favorable it's, because implied volatility. Has. Wrenched, up here and when. We get up here implied. Volatility. Is. Going to be ratcheting, down here, so. The premium or, the credit that we receive could, be lower we you, know just if it, would depend on other market, conditions, as well.

So. With, that thought in mind in investors, let's. Do it let's do a quick run back here though what we're going to do is we're going to look at some individual, stocks here in relationship, to this but. For, right now let's take our drawings, off here, and there, they're gone and let's, just take a quick run over here we. Want to look in our AO section. Right here. Yeah. And we want to look at s. S. Was an unbalanced, butterfly, and I believe we did this last week and I believe over here on SPX, we did a diagonal, the. Week before. And. It looks like let's take a let's take a look at Hesse here to begin with okay so, this this was an unbalanced butterfly again if you'd like details, on this trade you'd want to take a look at last, week's, archived. Recording. Just let me confirm that though we got dates here. 926. Yeah that sounds about right, yeah so that was last week and then on our SPX right here that, was the week before 919, so if you like details, on these trades you could go ahead and go in and check out the archives, how. Are we doing on s, though. This. Is so, we have one day left on this one okay and what, are we looking at well we have profitability, of a hundred of about of about a hundred and five dollars so we could go ahead and cash. Out of the trade right now with. A profit, level of about, of about one hundred and five dollars right here, we. Got one day left where, we yeah in, a relationship, to the break-even points and the like well one, of the nice things about, the, the. Thinkorswim. Platform right, here is we can assess where. We're at as far as do we want to wait another day are we going to be our week is it going to benefit us from the price going higher or maybe moving, back and going lower do we want to stay pretty much where we're at. Well. Let's. Do this let's come over here to the analyze tab. And. On, the analyze tab we can put an ax symbol up here we'll put in TAS. And. We want to make sure that, we don't have any. Simulated. Trades in let's, also reset, this in page right here a little bit we'll go up, here we'll reset that. Yeah. And let's get a little bit more room down here on the down side so we can see things a little rather, than show all I'm gonna say hide positions. Yeah. And again I just want to make sure we don't have any simulated. Trades in here. Okay. And actually now like ever to simulate trades I'm going to come up here I'm gonna say hi simulations. So. This is Hess right here and. Wow. It has moved here quite a bit hasn't so this is where we're at today, now, it's. Interesting because we actually started all the way down here today then. We came through right up here we were actually at the prime point, earlier, today, it's. Interesting on this particular trade the reason I say that is because when we were the prime point right here this, Purple Line was almost, down here to zero, it. Was it was a min, it was a minimal. Profit. Level and this. Kind of gets back to two, there are there some of these strategies that. You actually make the lion's share of the profit, in the last two to three days of the trade and this appears to be one of those so. Notice our Purple Line right here, our. Price is all the way over here could. Have swing back here it could but. Notice the Purple Line is actually a little bit above. Tomorrow's. Expiration. Date or the last day in the trade so. If we anticipate, things just continuing, to move forward here, it would be best for us to close out the trade and take and take that profit, okay, if we, feel like there's a possibility could move back like here well then we're looking at a profit of maybe three hundred and fifty dollars maybe two hundred dollars, and the like we're. Not talking about a huge boom because even today we said we swung all we swung all the way through here oh.

Where. We at right now as far as profits so right here we have a theoretical, profit. Of ninety four dollars and 73 cents, that's theoretical. If, we keep going up and drops down to 78, if a pulse back here if the price pulls back here. You. Know even here where are we at right here so right here we're at 78, over here we're a hundred over here, we get up here to closer to 300, and well actually. Right in here we're at a hundred and seventy, then. We're at 300 so it's kind of a little bit of a guessing. Game here where do you where do we think we're gonna go from here well let's take a look at the chart for HTS. Wow. Big, candle. Right, big. Candle. Well. Let's but so, investors, what I'm gonna do some, what any in the interest of time I'm looking to get out of this trade okay but I'm also looking to accomplish what we want to do here today in the time that we have, let's. Just come over here and see what we can do here. If. I come over here and choose create closing order does that sell everything does that get rid of the whole ball walk sale, three, do. Do two. By. Six. Because. It because it's Unbounce us little bit can Bob you lated but let's you see let's see what this looks like let's create, closing order let's see what the closing order looks like. Okay. Well, you know what we have a plus nine we have a negative three we got that you, have a little bit of a credit here. Yeah. And that's the mid price so that should equate, to this one, will. Do here investors will play the part of the investor, that's it's looking at this and saying you know I think it's probably going to be bullish I'm okay taking this level of profitability. It. Is some profit but we do want to kids we do want to keep in mind significant. Transaction. Cost over here you. Know we've got. You. Know we have we we, have nine here, we have six and we have three, here so we have a significant, amount of transaction, cost now, to actually run the profit on this would actually have to do it manually there's a little bit of a glitch, in looking. At some of these things okay, let's, just see if we can exit the trade they were here at a credit of eight cents and we'll go back in and we'll look at things and look, at our numbers here and see how they panned out in, relationship, to our analysis, if, we can get filled if we're not getting filled here at point O eight then, I'm gonna go ahead and hold off until tomorrow morning and revisit, this we'll, play the part of the investor that want a little bit more time to analyze it in the event in the event that we don't get a fill here so, I'm not seeing a fill here I'll go ahead and leave that in there if we get filled with that little property great if not I'll, leave it and I'll do a little bit more work. On it tomorrow morning to see where we're at because, we only do have one day left coming. Over here then that's Hess and, over, here we have SP x so this. SP. X right here what we got here this is a diagonal, I believe yeah, we have it we have two different dates right here, diagonal. Not doing too well overall, here. 3,555. That's because of how far the markets gone down the, market has moved a long ways away from our sweet spot here of three oh ten we, still have six days okay. So. With. The market moving back up. There's. So there's there's a couple considerations.

Here One, this. This, loss is not attractive right we don't like that okay. But, we do want to keep in mind we have a fair amount of flexibility, here one, of those levels of flexibility, is just being able to buy time again. Where we want the market to be is at 3:01, oh we. Can because, this goes out to November, 19th, we have an opportunity, to roll these things and take, credits, over the next it looks to me like over, about the next three. Three. Or four weeks we can take some credit and if. The underlying security, moves up and gets back up into this 301. Ou area we, could actually be in a reasonable situation we don't know about that will occur because there's risk involved in here but. Let's just do that I'm going to do a right click on here and choose, create rolling order. Will. Sell this now this this has just given us two extra days notice we're buying this we're going to hear if we want to get if we want to go out and go more for more like a week, we. Come out here that, gives us a 90 dollar credit you, know with, and that's that's, going to be three contracts, I that's, what the what is that somewhat, shy of $300. It eats into this a little bit and, we do have some additional rules what. We really, need to help us here is movement. Of the underlying security, to the upside we're heading in that direction okay, but we're not there yet let's. Go ahead and play the part of the investor that's wants to go ahead and take this at this and then we'll reassess. Things next week with regards, to role in this one forward if we can get filled, we'll, do a confirming sin here and do we get filled on that one it. Looks like we got filled on that one so we'll continue to follow up on that and see how things unfold all, right investors, let's come back over here and. We. Want to then look, at some potential, candidates, here for legging into an iron Condor this is the watchlist that we use in here and. Many of you are familiar with our watch this right here for those of you that are new here today does look like we do have some new folks and do want to welcome. Everybody. As. Well here, and. So. So Pat's got a great questioner Ken why not just put on an independent short, vertical instead of trying to leg into an iron Condor you know Pat you. Could do that you can do the same thing and in fact if, we if we put on an independent short put vertical that's totally, fine and we could leave it like that okay, we're. Just saying another way to look at it is possibly, to hit those two sweet spots but if you just want to do the short put vertical take, advantage of the high levels of implied volatility. The, movement to the downside you can definitely do that and rather than do it on one sock you could look at multiple slots you just put it put out a fair number of short put verticals for, purposes of our discussion here today though we'll continue on, with this concept, we'll kind of see how it will kind of see how it turns out then, maybe we can look at and say you know what if we just would have gone with a short vertical that again that's that's, where the value of a trading, journal. Comes comes into play as well it I, would, you know what, I would say Pat is is is, that we just be sort of a personal, preference, there okay, all, righty okay. Welcome. Everybody here as well Bethenny, and everybody. Else here want to catch any questions, that I can go along here alrighty, so, here's our watch list, now. Those of you that may be new here what do we do we just don't you know what we just we just got out of hesse and. I'll make a note here we'll go through the numbers on this if we don't have time to do that today just to check out our overall profitability on, that, one. Thing I do want to note with regards to has here that I think is important, it was an important part of our concept, here is remember. When we did Hess last week an important part of it was. For has to find a, support. Level, where. It had gone down -. Which. Is right there. Remember. That we that we set up. We. Set up our unbalanced. Butterfly, using. This as a hedge to the downside, and then using the credit on the unbalanced, butterfly, as far as a hedge to the upside from, a technical standpoint, that tended, to treat is pretty good because we did come down here we found support so, that support.

Hedge Worked, out for us we moved up here we blew past the sweet spot but also that that credit on the other side helped us out there so technically, that, trade appears. To have worked out well here at this particular point in time all. Right so here's our watchlist folks how do we get this watch this let me just show you briefly the. The. The way that you could develop a watch this like this you just come up here use the scan tab come in here to stock hacker and in. Stock hacker. Instead, of saying scan in all stocks just come in here and choose public, and go into public and go into weeklies. Here's. Most of these will have weeklies which gives you some additional flexibility. And, then. Another area that helps to improve liquidity, for options trading, is those, options that are quoted in penny increments, so where it says over here intersect, with we're. Here come to public and. Choose. Penny. Increment options we've got, weeklies. Penny increments, so we're going to find an intersection between these two groups so right now we're saying find, all the stocks that have weeklies find all the stocks that have penny increment options have, both of those okay, then, you can add some additional filters. Over here as well I don't, think we'd need net change out of the volume, maybe consideration. But you probably want to do average volume, you, may want to come up here and choose to add a, a. Study. Filter, here maybe maybe throw something in here with regards to average volume, and, add another study filter, here, actually, you could just out of add a filter for stock here and you something here as far as a minimum price for options, trading, you know those types of things then, when you run your search you'll get a list of results then. You can save your results and come over here and click on save as and watch this that'll be a beginning, point for your watch list then, you come down to your bottom right here and click on your bottom stock pull. Up a trade tab and then. Open up an option chain here, and. Maybe, go out set, your strikes to about twelve and it's, just just check for the liquidity here, you know check, what's going on liquidity and also you might want to check for the distance between a strike price liquidity. Meaning what's what's the spread between the bid and the ask price of the at the money options, in relationship, to the price to security, if, you don't like it and hit the Delete key and then just hit the hit your up arrow key and you can actually go through your, save list relatively, quickly then, you may want to go in and and, add a few major players, from from some of the major sectors, I I believe. That I I believe, on this watchlist that I that. I have the fang stocks and maybe a major player from from each one of the major sectors as well so that's, that's the development of that's the development of this this little watchlist right here so. Notice, right here then I've got I'm going to put in some custom columns. Right here. And. What, I'm gonna have here is we've. Talked about this before that's bollinger. Percent. Be okay. We'll. Move that over. And. Then another one that I want to have is going to be implied volatility. Because. We'd like implied volatility, to be relatively, high so it's in a good place to move to the downside, I'm. Going to take some, of these other ones off here we'll we'll. Leave those ones. Now. We're looking at possibly doing short, put, verticals. Right, as. Far, as that as far as playing the downside, of this and we may eventually, when it moves back up we may look to add-on short call verticals I would make it kind of a legging in iron Condor thing or we may not and that's flying, but. This bollinger percent b study right here i'm going to sort by this i'm, going to bring the smallest numbers, up here to the top these negative, numbers mean, that on the. Chart these these stocks are going to be outside of the lower Bollinger Bands, or come up here and click on Delta Airlines notice. We're outside of the lower Bollinger Bands we're, looking for two things here, similar. To what we were looking at for 4h es last time we're, looking for something that has moved down, okay. But, would like to would, like it to have moved down close, to a level of support. So. So we have a little bit of that protection, to the downside to help protect that short put vertical as well we. Also need some time to do a trade, before an earnings announcement, because typically you don't want to be in a, trade over an earnings announcement, this you know I this, this, is another thought that comes to my mind on some of these we, may be in some of these and not do this short call vertical because we may get out of the short put verticals, before an earnings announcement, that, that, is something that could actually complicate.

The Possibility, of doing that short call vertical a little bit later on on top okay. If. We, look here I'm seeing this earnings announcement, right here that's, ten ten that's not going to be enough time okay. That's. Just not now, we're not going to actually use our Bollinger, Bands here so I'm going to take those off, just. To get some additional real estate here on our chart so we can see things a little bit better. Oops. I didn't, mean Bollinger Bands I meant probability, count whoops, so. Sorry. About that let's. Let. Me do it this way this will be a little bit quicker. Because. I have those set to a time frame. That, is good now let's get rid of our probability, column that's the one that we don't need here. Okay. And I want a little bit more time over there to the right so come in here to time frame. Actually. Want to go study and then, settings, and the. Time axis I, think. I'd like to get ten bars over there to the right well. Let's. Go 25, okay. 25. Bars to the right okay, so, I'm 25 bars so if, we're looking to sell something that, has about 20 to 25 days if we have an earnings announcement, in here we're probably not going to be able to do that okay. We. Can also see we have announcements, over here but this just kind of ties ties it into the chart right here. So. Coming, down here, then. Come. Down here we've got some of these I also want to keep in mind implied, volatility, I'd like to find something with sort. Of a high level of implied volatility. But, relatively. Low so. This this swk. Yes I'm looking swk, yes I don't have an earnings announcement, showing here relatively. High level implied volatility, it's close to the bottom of the. Bollinger Bands it's, not outside of them but it's close to the bottom, why. Am I looking for levels of high implied volatility, that tends to help with regards, to a potential, premium, on that short. Put vertical. Let's. Come down here desks swk, yes then and click on that so. Here we've pulled down or get a little bit of a bounce we were outside the Bollinger Bands yesterday but now we're moving back in notice. Just. Highlight a couple things on this one. Notice. That as we move, down here. The. Employed volatilities, moved up. We're. Doing a short, put vertical that's going to be a Vega negative, in other words of benefits from falling, implied volatility, so we could get a double whammy a benefit. From price moving up is going to benefit benefit. Benefit. Us as well. As a movement down of implied volatility. Will benefit, us with regards to our short vertical where. We add in relationship, to a support level will fight over. Here looks like we could be, in. An area where we found support in the past so from a technical analysis, standpoint that represents, a a potential. Possibility. So. With that then let's just draw a line I'm gonna grab a line here that I can draw straight. Just. Part of the platform I'm going to come right up there you. Can see yeah we came right down to this this, previous, Porto doesn't mean we can't break below it here right we, came right down there then we bounced we started to head up so. Let's, look at our short put vertical then. We've. Got this to maybe, give us a little bit of protection all. Right how, far down can we go here though we'll. Come up here and I'm going to come up here to the trade page. It. Looks like right here we do have an earnings announcements, right at the far edge on 11 7 so we want to trade, something that. Expires, before 11. 7 that's after the market on 11, 7 so we'll come up here to trade, 11. 7 here's, 11 1, here's. 11 8 we're not going to be able to do 11 8 because we have earnings on 11 7, so we'll have to come over here to, 29, days. And. With 29 days here then let's. Select something, that has a, a, reasonable. Probability. Of success, and we keep, in mind investors, that Delta. Is giving you a forecast. Of the potential. Probability. Of success it's sort of a rough estimate, if your probability success, on this and and. The inverse of the Delta is what you're looking at.

So. I'm gonna get let's. Get all these up here, here's. Our deltas here so if, we if we want a tray that has a probability, of success of, 70%, would. Be looking at a delta of 30, or less. Because. The inverse you know 100, minus 30 is 70 that's your probability of success let's. Go with a little bit higher here let's go with a delta of 28, that gives you a 72%, probability. Of success then, we'll look at it on the chart we'll take it in consideration where. That said in relationship, to support. Levels and some other some other technical considerations. On the chart so we'll, come in here and it looks like these come in, dollar increments 72, 50 70 150 where. We could go a buck-and-a-half. Let's. Look at this at at a dollar, and a half a, dollar and a half wide right here so I'm gonna right click here. I'm gonna choose sale because verticals, are a sell i'm gonna choose deep and wide one. Month two strikes vertical. Vertical. Vertical. Alright. Investors, this is interesting not exactly what I wanted to see let's, do it the old-fashioned, way let's try it one more time, sell. Deep. And wide one. Month two strikes. You. Know what maybe, it just doesn't like that how about one month one strike let's let's start out here yeah. We're. Starting to hear with a dollar wide that's interesting, it, wouldn't catch that I'm, wondering. If this one is actually traded, or not. Cuz. I should have come up and caught this one but we're we'll, be okay with this one dollar, wide no there there, are there are some advantages to being a dollar wide one advantage, is that if the trade goes against you there's some things you can do that may help that, may help that trade out yeah. But, better, but it doesn't necessarily guarantee it will help the trade out so, what's our return here for 29 days B for commissions. Now. We selected. A product. That. Has relatively, high implied. Volatility. So. Our anticipation, would be a, return. That that would be somewhat, attractive, for some investors maybe not necessarily all investors but for some investors so. What's our return again before commissions. Well. We're a dollar wide so what's our max loss on this again, not taking consideration commissions, our max loss is going to be the. Width of the the width of the spread - the credit of this is bounced around between 25. And 27, we, may have difficulty, getting filled if we don't get filled at 25, we'll just pass on the trade if we get filled with 27, that will even be better but. We'll say -. 25. Our max loss then is 75, so how do we calculate our, return, on risk again. Before commissions, you take 25 here we'll divide it by 75. It. Gives us a 33%, return. Over 29. Days again, theoretical, again before commissions, with, a 72%. Probability. Of success so, is this a good return is this a good probability. The answer to that actually, is not here, it's. It's not anywhere here okay, the answer to that is going to be in your trading journal the. The, the key here is to is, to develop, these strategies and do do them with consistency. In here, in here you've seen some things that we've done with consistency, we've. Taken into consideration technical. Analysis. That. Should be part of your trading journal we've, taken in consideration, benefits. With regards, to the Greeks that. Should be taken into connection that should be put in your journal she would outline these, key things that you look at each time that you put in a trade put that in your journal then you get ten or twenty of these trades.

Paper. Trades live trades you know whichever, whichever ones, whichever. Ones that you're doing you I would suggest you get all of the data that you can with, regards to practicing, this I would suggest you practice this as a paper trade not, a live trade you know find, a candidate go through this process but, have a trading journal then you can look at and say you know what, over. My last twenty or thirty trades if. I'm getting one percent, for each day before commissions, with a 70%, probability that's. Been. Okay. And it could be great, or it could be not, good okay, whatever, it is the, answer to that is going to be in your trading journal. So. With, that we'll go ahead and play the part of the investor, that these numbers work that work out okay in that trading journal, and. Let's. Say let's say we're okay risking, on this trade five hundred dollars. Five. Hundred dollars, divided, by seventy, five dollars. That's. Going to be six contracts. So let's go ahead and we'll do six contracts, here. We. Have six of those and we'll. Do a confirm. Yeah. And send. Now. There were there was a significant, difference there between the midpoint and the other point I'm in entrees like this if you get filled with the mid find if not don't, go chasing it just, look for another potential, candidate. Speaking. Of another potential, candidate. Right. Here we have volatility, that fifty-one, here we have an earnings though here let's just see what this one looks like real. Quick, so. We've got a ex-dividend. Date is going to be, today. So we don't have to worry about that in fact that's interesting, the, ex-dividend, date is today so if you bought the stock if you waited to buy the stock today you did not get the dividend that typically, is a little bit of a down day but this is actually an up day, over. Here we have an earnings announcement, that's going to be on 10:30, do we have something we can squeeze in there 10:30. That's October. Possibly. A 22, day when right here, did. We have we pulled down to a historical. Support, level to get some downside, protection right, they're. Not. You know not, not really our, support, level is down here, right. So. That's. Something just reminds me of something and, that's on our working. Order right here. We. Are at before. We before. We dance off to another stock I. Just. Want to analyze this trade here real quick. We. May get to WDC. We may not so. Just investors, I would just I would just say think think about what we've talked about so what have you talked about we've. Talked about the market conditions, we've talked about doing short put verticals in these conditions you know if you don't have an earnings conflict, or you're trading something that doesn't have an earnings announcement, index or something like that look, at it as a possibility, with regards to legging, into an iron Condor okay. Now. And what, I would I'd encourage all of you to do is use this same process you'll, learn how to ride the bike you. Look at a watch list take it in consideration where. It's at technically, Bollinger, Bands implied volatility, then do some paper trades and as part of that let's. Just say high, positions. And. We, got our paper trade here know if we want our paper trade from. Actually. That order, that we have in here let's do this little create a create. A. Duplicate. Order and then. Let's move this duplicate order, over to the analyze page. And. We'll look at our risk profile, right here okay so here it is it looks like we got two of them let's, just check one of them, okay so, notice on our trade here.

What. Are we looking for well. I'm. It's a short put vertical so we know we're going to have positive, Delta. Or. Positive Delta when, it goes out there for a while if we're a if we were able to add a short, call vertical we're not going to be able to do that on this because the earnings announcement, but if we were add if we were if we're in a position to look at doing that we know that in the future these these Delta's would would even out each other okay. In the future notice, that we're also positive, theta so we're collecting time, then, also notice that we're negative, Vega. Negative. Vega so, if. The, price goes up and, the. Implied volatility falls down that's going to get us to a point where we may be able to cash in. Or. Capture, a a significant. Percentage portion. Of this, maximum gain, earlier. Than what we made within what we may have earlier anticipated. Okay. Let's. Also look at our break-even point I'm going to set our slices here to, break even on, the expiration, and we just want to see what this looks like on the chart we'll. Come over here set slices, to chart what. Does it look like on the chart so here's, our support, level and our breakeven, point is all the way down here. And that's actually down here to this second. Support. Level right here so we actually have two barriers here does that mean the trade is gonna work out now it doesn't okay, but, but but have we have have we gone through a process that can be duplicated, yeah we found through process it can be duplicated would, it be it would it be worthwhile to, go. Through a process like this customize. It for yourself and do this and keep, a trading journal to see how things work out I would. Say that I would say that many investors would find that to be beneficial. Alrighty. Everybody well I, wanted, to look at WDC here for a second but we are running out of time so let's go ahead and wrap it up there just, a little reminder. That. Coming. Up following our session here we have James Boyd doing, growth and value strategy, so James always does a fantastic, job, so, I would, encourage, you all to definitely, hang around here and join James just. A reminder, here that in to demonstrate the function of the platform we need use actual symbols however TD Ameritrade does not make recommendations. Or, determine the suitability of any security or strategy for individual traders any, investment decision you make in your self-directed account is, solely, your responsibility everybody. Hope to see on Twitter again. It's it's at Queiroz underscore, TD a also. Other coaches, here just remember the first, initial their first name then just spell out their last name underscore t da yea, actually between the coaches we have a fair amount of discussion and banter so if you want to kind of get into some of those discussions I think you'd find that to, be beneficial. If not, sometimes, humorous. Okay everybody, best, of success you're investing, tell, your friends, about our sessions, here love to have your friends here as well hope you have a a great. Rest of your week yeah, and hope to see you next week everybody we'll see you later and thanks again.

2019-10-09 12:02

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