Will Market Volatility Continue to Rise? | Cameron May | 10-1-19 | Trader Q&A

Will Market Volatility Continue to Rise? | Cameron May | 10-1-19 | Trader Q&A

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Good. Afternoon, welcome everyone, my name is Cameron May it's three o'clock Eastern Standard Time on a Tuesday, afternoon that. Means it's time to get back to our trade or QA where we set aside 40, to 45 minutes every Tuesday afternoon just, to address the gaps in your understanding, of the markets and market related. Strategies. Wherever. They might be and, I'm. Looking very much forward to as I always do pardon. Me hello. To all your returning veterans thanks for joining us again if you happen to be here for the very first time I want to welcome you as well and if you're listening in on a youtube archive, after the fact enjoy. The presentation. I'm, sure, you'll learn from, the questions that others are asking but also if you have your own questions you'd like to have address. Specifically, please, feel free to join us that, again is on Tuesdays. Three o'clock Eastern Standard Time but I already see a lot of people chiming in hello. There let's see who we have we have Bethany they're California, Edward allo Diane, and Chicago. Kristoff. And, Fort, Lauderdale Robert. In Indiana we, have sereth and Dean and rich and Joe so. Welcome to all of you I already, see also a little bit of back and forth somebody saying hey I'm just here to check, things out and that's perfect, this is a great place to get your questions answered directly or, just to be a fly on the wall but, you do have an invitation firing. Those questions right now if you've come prepared with one but, you also have my invitation, to join me follow. Me on Twitter there's my handle, at CMA. Underscore, TVA I try, to tweet something every day of the week sometimes. It's personal sometimes it's market observations, but, I like that connection there on that platform. But. Let's dive into it first we need to consider the risks associated with, investing and then we're gonna we're, going to set a framework, for anybody that might be new in this presentation, so they'll know exactly, what. Sorts of questions are, that, can be addressed here and others that might be reserved for a different format, a different date but. Before investing in an ETF carefully consider, the investment objectives risks, charges and expenses involved. ETS can entail. Risk similar to direct stock ownership leveraged, inverse commodity ETFs have their own unique risks and advantages, that we need to be aware of that, applies to closed-end, funds international, investments, investments the commodities fixed income in wreaths. Options, are not suitable for all investors spread. Straddles and other multi like option strategies can entail substantial, transaction, costs, any, investment, decision you make in your self-directed account is solely your responsibility here's. An overview of the Greeks for our options traders all, investing, involves risks including risk of loss and we are going to be using real examples, in today's discussion please, do not take that as recommendation or endorsement of those securities, of those strategies alright. So here's an overview if, you're wondering what, kinds of questions am, I allowed to ask Cameron. Well you can ask any question you like I just might not be able to answer them all so, here are some guidelines, please. Submit questions at our definition platform. Or strategy, oriented, so a definition, example, might be what is a call option a platform example, how do you add Bollinger, Bands to a chart or, a strategy example, what are potential characteristics, of growth stocks so you can see with each one of those the, asker, is seeking, an education.

Now. Let's contrast that with this here are some questions that we would ask that you not, ask. In this discussion, please avoid, questions that are specific to a stock or a personal position where. The asker, is seeking, a personal. Opinion from me or, advice. So. Stock example, it Cameron what do you think of XYZ company or. A. Position example, I have a vertical spread on NLP, should I exit. You can see it with both of those there. The seeking advice or it's a seeking my personal, opinion on something I'm. Not here to offer a personal opinion or advice here, - officer. Offer education. And Marc observations. When. In doubt think, am i trying to learn something or am i seeking advice this. Is a learning environment no advice is offered or intended all right so with that setting the stage I've. Taken a peek over here and thank you Bethany, you're, exactly right so Bethany is just reassuring somebody else if you, have questions, ask them, this is a place for it from newbies to experts. This, is a place thank you excellent. Now I will, say every. Once in a while even, with my background. It's. Possible to hit me in a blind spot so be, prepared for that if you hit me something I don't know I will just let you know but, I'll try to provide a resource, for you to investigate that a little bit more in-depth on your own but. While we're waiting and. That's okay if you don't have a question you don't have to feel pressure to ask it but, it does give me an opportunity, to take a peek, at what's, happening with the markets, we've had a bit of a sell-off so maybe we spent just thirty seconds, or so I don't want to steal your time from you but. Yeah the S&P is having a bit of a bad day, down. About 1% and comparatively speaking it's one of the one, of the worst days that we've had over the course of the last few, months with some obvious, exceptions. Here all. Right but what's driving this well. It appears to be tied at least in some to. Some extent to, the announcement, regarding manufacturing. If you haven't been following the, is M manufacturing. Report just came out today and it seems that there's continued, weakness in manufacturing. Domestically. Here so. The market seemed to be tangling with that a little bit but, the SP peeling, back about 1% leaving it maybe to two and a half percent below, this recent. All-time. High. All. Right so there's a little bit of market context, though, let's see I did notice, that, cocoa, ask the question Roberts asking a question so cocoa says. Oh. Cocoa. You know what that's interesting, cocoa. Is asking about, a. Specific. Indicator. And. Cocoa. Here's here's what I've been doing, if you want to check, this out because this, is actually one that I haven't revisited recently.

So I would want to research, that one on my own a little, bit but in my. In. My Monday morning class. 11. O'clock Eastern, Standard Time what we've been doing over the course the last two months or so as. We've been taking one of the indicators, from right up here so here's what Coco asked about if you go up here to the, little. Edit studies icon, on thinkorswim. Charts, if. You'll notice there. Are hundreds. Of technical. Studies here now. At, one point or another in my career, I've. Studied probably. Pretty much all of them now. That also means have you ever heard of the phrase I've forgotten and this is gonna sound condescending it's, not me saying this no, I'm just quoting, the phrase I don't intend it alright, but. If you ever heard somebody say I've forgotten. More than you know well. Yeah when you learn a lot stuff unfortunately some. Of it can slip back into the cobwebs and disappear, if. It's not revisited. Frequently, in the end and, that's one of them their, cocoa, that. That. I haven't revisited recently, however since. It's right up near the top of the list I was. Considering. Covering, that in my in. An in a. Upcoming. Monday, morning. Presentation. So if you'd like to follow that here's what we'll do I'm gonna make that my plan. So. Cocoa specifically, asking about the ADX indicator. Let's. Cover that it's not going to be this coming Monday but, the Monday following will, dedicate a whole half-hour to it that sounds fair, alright, so thanks for asking a question as I mentioned sometimes. You can hit me in the blind spot I'll try to provide a resource, for you to. Do. Something get investigation. Though make sure that question, gets addressed in one way or another either on. The fly or through, some other method, alright. So Robert says will the VIX continue. To rise let's go have a look at what's going on with the VIX. So. What is the VIX. You. Veterans help us out here and who, would be interested in the VIX well. The VIX if you look right up here to, me this is slightly, cryptic. SIBO, market. Volatility, index well volatility, index is actually fairly straightforward, market. There's, fairly straightforward, what it's actually doing is giving us a reflection of how volatile, the. S&P is being basically. And. Cocoa my pleasure, barmy. But volatility, can. Play a central role not. The only, role but an important, role in the administration of, a. Self-directed. Options. Portfolio. So. As market, volatility x' rise and, fall as the market goes through periods of relative stability and relative.

Auto Craziness, volatility. That. Can directly, impact, the pricing, of options, and not every, single option on every single security, across the board however, it can give us a feel for whether options, are comparatively, expensive or. Compared Lee comparatively, inexpensive, because. As volatility. Goes, so typically, goes options. Pricing, when. Volatility goes up demand. For options typically goes up from. Speculators. And from, hedgers and. As. Demand goes up with, options just as it does with just about any other. Tradable. Commodity or security. So. Goes prices. So. Volatility, has been rising meaning. To an options trader that. That, prices. Have been on the upswing four calls and four puts generally. Speaking, so. The question now is is, this likely to continue, to rise. Meaning. By. Extrapolation. Our. Options. Price is likely to continue to rise. So. What do you think what. Can influence, volatility. There's actually one. Thing that that, probably influences, volatility, more than anything else that. Is. The direction of the. S&P 500 and, again this is it this, is a volatility index of the S&P 500 that's why I mentioned. That there are other volatility, indices but. What. Do you think, where. Do we think the S&P is likely to go from here because. As the S&P Falls, typically. It, falls, it takes bigger leaps downward. Than. When. It's rising so there's a strong correlation, between the direction, of the SP and the. And, the direction of the VIX, or the volatility, index you'll. Notice as the S&P Falls you get these big red, candles. Big. Red candles here big red candles here big red candles here and more recently there's some big red candles the white candles, tend to be a little bit smaller obviously, there are common. Exceptions, but. As a general, rule that's, that tends to be the trend, so. Volatility, tends to spike as. Prices. Fall. All. Right so let's do a quick technical, analysis, but also fundamentals. Can play a role in somebody's. Conviction, regarding which. Direction, prices. Are likely to go and therefore which direction volatility. Is likely to go. So. Let's kind let's let's see if we can make a case for either one of those well let's let's look at bullishness for just a moment all, right well technic. We what's. Been the overall trend of the SP since Christmas. Do. You think we could make a case for bullishness. Yeah. That trend has been going up and, generally speaking, volatilities. Have been lower, than, they were prior. To Christmas back, here, all.

Right Well so if that pattern, were to hold. Then. Volatility. If, prices let's, say were to start rising again. Volatility. Might drop. What. About fundamentally, I know. That, today's, news, taking. On the whole probably. Doesn't look. Terribly. Convincing. For continued. Economic bullishness, but boy, things can turn on a dime right economically, what. Would have been the primary. Economic, trends. Was. Reaching, all the way back to about 2009. Generally. Economic. Expansion, right, we've. Gone through a period of pretty stable inflation, for. A long time, we've. Had a lot of job creation consistently. Over the last decade, or so. Unemployment. Is at historic or, at or near historic, low levels, so. There. Is an argument to be made there for, bull. Market conditions, a strong economy may. Be leading prices, higher so a. Trader, of, options, can take a look at a. Technical. Vantage point or, a fundamental, managed point and maybe, make a case for bullishness, right, now. They might also say oh yeah, that's true Cameron but, let's. Look a little more closely more recently let me clear this drawing set how. Many of you were saying to yourself so that's that's fine camera, that's been coming up since Christmas, but more recently, we've. Seen. A lower high maybe price. Ceiling, setting in on some of these major indices, and, while. Prices. May, reverse, their current momentum and go start going back up they, also might, not. What. If we should what if we in the in the near term break, a support. Line we're getting close and with. The current momentum, maybe that carries right on through. We'll. See so. Technically. There, could be a case made, or bearishness, bearishness. Fundamentally. Could we make that case well I think that's what a lot of market, observers. Might. Be tangling with right, as we speak, with. That continued. Softening. That we're seeing in the manufacturing. That. Might be an indication of bigger things to come again, only time will tell so. What, do we think getting back to the bottom line it seemed like such a simple question Cameron, is VIX set to continue, to rise. Well. If prices, fall then, I think it will. That's. Not me making some any any any, incredible, observation. If. Prices rise and I think it won't but going back to the VIX let's get one last little bit of context, here. You. Can see VIX, is certainly spent, some significant, time higher, than it is right now looks. Like it does have some potential to go up in the, same to the same respect that the markets, still have some potential to go down before. They start achieving recent. Areas of what, appear to be significant, levels of support so, yeah. Wouldn't surprise me but only again, only time will tell. Okay. Thank you Ricardo, yeah so, Ricardo, is pointing out if. You want to see a deeper, examination of, the VIX we, have Michael, Follette. Mike Follette I don't know a column Michael we have a lot of Michael's around here. But. Mike definitely, goes by Mike Mike Follette. His. Webcast, immediately, follows mine and his. Weekly topic is market. Volatility, so. If you're interested in these sorts of, concepts. You, could attend that webcast, and then. See that a little bit better detail all right there. We go that'll. Be interesting yeah. If prices, continue to fall though volatility, quite likely to rise and that. Seems to be it could make a technical case for that right now and maybe in a fundamental, case where Cardle let, me read the rest of your comments, here oh. Yeah. Hey so. Ricardo. What I can do the. Fourier series indicator, I let me can't let me pop up here. There. It is okay. So. Yeah. I think we can add that in there my intention, is I don't want to just go through a straight, alphabetical, order so I don't mind jumping from a DX, down to the, FS to Fourier why.

Not Yeah, give, me a reminder if you would maybe. I need to I usually, bring a notepad in but I neglected. To this time, yeah. Give, me a reminder in one of my classes Ricardo. Maybe. This. Coming week on Monday. You. Can just, chat. In, remember. To do with Fourier so, that won't be so, this coming Monday I already, committed to something what did I say I was going to do can't remember but, then the one after that will, do a DX and then. The Fourier series I think that's good. All. Right what else do we have did, I miss any questions, here all, rich also described, this very interesting rich, describe. The VIX as a, fear. Index, that some traders, will, view it that way because. It's a reflection of market volatility and again when does market get more volatile, typically, when prices. Are dropping so, if this is rising, would. It be an illogical. Extension. To. Say that. Fear is rising, no. It actually makes, sense if. Prices, are falling it's probably because there's some fear in the marketplace so. A rising. VIX index is, sometimes seen as rising, fear, falling. VIX, index is sometimes seen as. A. Calming. Yeah. Less fear. Cook. That's right Carla. Says if you said if I forgot more than you know to an idiot that's not saying much. Yeah. I hope nobody took that the wrong way that was a quote, I almost. Abandoned. At. The time because I didn't want to give that impression. So. Coco says scam it's so implied volatility, under today's option statistics, refer to implied volatility, number of the present time correct. Yeah, Coco so what Coco's talking about here that's on the trade tab you, can bring up a specific, stock it could be Apple it might be Microsoft, or Ford or anything that's optional. You. Can go down below the option, chain and look for something called today's, option, statistics, and then. Right down at the bottom we're looking at a general, overview of the, implied volatility, of the. Options, for this security. Okay. So. Right. Now. The. The percentile. Word. About the 30th percentile. Compared. To where. The implied volatility, has been for, Microsoft. Over, the last 52 weeks yeah so this is not like, looking. At VIX and seeing how it fits it's. Looking at implied volatility, here so what a trader might use this for is they're. Trying, to get a sense. When. Buying or selling options, are we. Doing this transaction, buying, this option or selling this option, at. A comparatively, high price compared, to where options. Have been priced over the last 52, weeks or, a comparatively, low price and this is independent. Now not entirely independent, of stock. Price but I. Know. That sometimes when you think high and low we're thinking about stock, price now we're, in this case the. The trader. Might be trying to get a gauge of how much they are spending on. The, time value of the option compared. To how much a day's, worth, of time has cost in the past. And. I. Know, that when I was a new options trader I just thought oh that must be just a sort of a standard formula, you. Know what maybe. And this, is just a pull a number entirely, out of a hat but maybe, when I'm buying option I pay twenty twenty cents per day or. Five. Cents, per day on a stock, so Microsoft, options. May be there their. Time. Value is always five cents per day because I had a poor understanding of, the topic. At the time obviously over the course of the last, decade. And a half or two decades, that. I've been dealing with options, my, understanding, has been clarified. Since, then right. But. The. The. Amount that that a trader, pays. When. Buying or receives, when selling, on. The. Time value of an option, definitely. Fluctuates. Sometimes. Thirty, days of time. Value might be worth two bucks at the money other. Times it. Might be three or four dollars at the money on the. Same stock, so. Getting that gauge a trader, might look right here so if I look at this if I look over the last fifty two weeks implied. Volatility, on Microsoft, has been as high, as forty. Nine it's, been as low as seventeen.

And If I were to look at generally, at, current. Options, on Microsoft, where. Do they fall well they're there till the, about. The lower third, of that. Range that's that thirty percent. Let's. See. Yeah. You've got it Kristof so. Yeah. Each stock has its own implied volatility, that makes applies the S&P right. So. I, think, it's a fair analogy to say the. S&P you, know we're all used to looking at the S&P if you were to if, someone will approach you and say hey, Cameron how our. Stocks doing. Well. You might go oh well let's see let's see how stocks are doing and. We look at SPX and we say Oh stocks, are selling off today but they're only about 2% below recent, highs, or, all-time highs see, Mike include, other. Than today stocks, are doing well, well. Do we mean every, single stock, when, we're talking about the SP 5 under no we're talking about a representative. Sampling. Of stocks. To. The same extent, if someone were to come and ask me hey Cameron how our, options. Doing. Now. I could look at the stock market say well calls today had a pretty rough day and puts probably had a pretty good day but generally speaking how. Are options, being priced, what. What it's what's happening with the time value of options well if, I look at the VIX I can. See a general, trend of time. Value on options if I, want to see specifically. That's. When I bring up something like the. Today's. Option statistics, and look at the incured of it current applied volatility, percentile, now, I'm talking about a specific stocks. Options, and not an index. So. A. Birch. Just asked me a question I might need some clarification here, you say when, do you use tik intervals, instead. Of time. I'm. Not sure what that question is, there a bird's, my apologies. I'm. Trying, to read into that what you what you might mean tick, interval, in place of time. Yeah. I'm. Afraid I'm a little bit lost there I'll, be happy to help you if I can get a little bit of a clarification of, the question. Because. It. If. You're if, we're talking about tick intervals meaning a. Tick. Typically, just refers to the. Price. The, incremental, price change of. A. Stock or an option and even, a future right. But. But like, most. Stocks are traded. In. Pennies, now they can go out to fractions, of a penny but. Let's say you have a stock is priced at $50, and that goes up to $50, in one cent it might, have a minimum, increment. Going up or down of a penny and if, it happens to go up we'd hey we'd say that it ticked up. Each. Increment is a tick or, it. Ticked down so, that has direct reference. To the pricing, and that, can be applied to options, as which, is what we're talking about, okay. Christoph, yeah. Owen. Addy thank you for that question. You. Know I don't know if that's what if that's what a, Burch is asking, either but tick pricing, on a certain futures, contract. Now. One thing that I'll have readily admit is that I do not have a lot of experience, with futures so what, I'll typically suggest with, those sorts of questions, you. May want to pop over, let. Me show you this I'm gonna go and and this you know this might not be any big. Surprise to a birch but to Everett for everybody's benefit here. If. You're interested, in an education, and just about anything, you. Can pop up here to education. And go, to our look at our webcasts. And on. A regular basis on on Monday, mornings, in particular, we have a discussion, of futures, so, that. One starts right at nine. O'clock Eastern, Standard Time I believe. But. Let's come here we, get sort by active trader that the instructor.

For Our futures. Discussion. Is typically, John. McNichol. There. We go so, if you go to the webcast and, you. Can look at the upcoming webcasts. And I can see that coming up this next Monday, John, McNichol is gonna have his trading futures discussion. Or you. Could, go to the archives. But. If you have a question, specifically, and it's been it pertains, directly to, futures you. Might just pop in there and at an opportune moment ask John that question then the rest time hang out learn something. Okay. All. Right so Adi asked, this question, and I think this is going to be a good one a big one what. Is HV. Percent. Notice. We have Ivy, and we have HV, what are the difference, there. Well. We have historical. Volatility. And implied. Volatility. What's. The difference think about those two terms historical. That, is rearward-facing. Implied. That, is forward-facing. Now, dunno, I don't want to I don't want to suggest that one is better than you know they're they're just factually, constructed, differently but. Historical, volatility, is just looking at how. Volatile, is. Is. The stock right now compared, to how it's been in the past and then, the implied volatility, uses, the demand, for options, to forecast, expected. Levels of volatility into the future, now. I will say four options, traders, now, I can't I don't have. Statistics. To, back this up all I have is, 15. Years of. Observation. All right, but. For, an options trader when. When. And when looking to enter, into a new position whether, blong or short to, understand. The. The. Forecasted. Risk of the. Trade the. The volunteered volatility. Environment, they're stepping into the general pricing of the trade that implied. Volatility. Number maybe, the one that's that's. Favored. At, least in from, what I've seen over historical. Volatility. But. That's it that's, the difference between historical, volatility, and applied, volatility, and then this is just a ranking of where, we are right now compared, to where those. Things have been in the past. Ricardo. Is at 9:30 let, me double check oh yeah. Yep that's, right, I'm kind of I have, a little cheat sheet here because I can't remember the start times where the instructors, or. Even sometimes the titles of every, single one of our forty-four webcasts. Yeah. And that one was starting, at, 9:15. I think, they've moved that to 9:30, yep, but, we they had it blocked as though. In, my quick visual reference here, so sorry at 7:00 but I think you're right 9:30, 9:30.

Eastern Alright, Texas John. Texas. John says I'm interested in the option strategies that take advantage of the increase, in volatility, as we go into earnings but not through, earnings, in other words John you're thinking of getting in before earnings. And, and there can be. A. Behavior. Expressed, in the pricing of options that is generally. Speaking options prices, can be can, become inflated, right. Up right up until an earnings announcement, right so. The concept, here I think, what John is driving at is is, there, a strategy. To. Try to. Benefit. From, that ramping, up of pricing. Or volatility, where. You can get out before the. Earnings and not have to deal with that, so. Conceptually. There might be no. So I'll talk about one, but there, could be a number of others. But. Generally speaking if volatility, is going up and prices are going up is it better to be an owner, of options, or a seller of options. If. The expectation is an imp in price as well if we, already, own, conceptually. That could be a better position. If. We've sold, something, generally, when. An, options trader sells, an option the hope is that it will go down in value well if you sell an option with the expectation, that's going to be inflated in value that that's, contradictory. So. Buying. Is going. To be probably the foundation, for, that sort of a strategy all. Right so, what kind of option what. Sorts of options might. Expect an inflation. Of prices before. An earnings announcement, well calls, and puts. So. Conceivably. A trader might buy, calls, in advance. Of an earnings announcement, with the hope that. That. The. Time, value of that option is inflated. Before. The earnings announcement now. You. Could also do that with puts theoretically. Same. Concept, by before the earnings hope that it gets inflated could. Also just by both. That. Would be a straddle, or a strangle, so. Really. Any, sort of a buying strategy, may be an attempt to leverage that I do want to say though just because it's an attempt does that mean it's a guarantee of profitability, no. Because. The. Inflated, value may not materialize, sometimes. We expect. An inflation, of value or inflation of demand before an earnings announcement and it just doesn't happen. Or. There. May be an inflation, in demand, which. Might press, prices, upward but if the stock moves the other direction, then. It becomes a battle of vault, of volatility or Vega versus. Price or Delta, and Delta. Generally. Is a bigger number price. Movement, can. Have a pretty solid. Capacity. To offset, you. Know a gain. In a vault in volatility. But. But. Let. Me just quickly address. Maybe one strategy that. Might be employed I just wanted to talk about the pros and the cons because it's not a guaranteed, strategy. To. Do this. But. Let's see what do we have coming up on our calendar, let's. Find a stock that. Has an earnings announcement, coming up let's, switch this yeah. We already we're already just showing earnings, how. About we find something in the future so. Let's push it out a couple of weeks maybe. Look, for something. Optional. We're. Starting to get into earnings. Season I, don't. Know if I want to dwell on it too much let's just quickly over look at that there's Apple right there. That's. A that's, appropriate, we're already looking at Apple, okay. So Apple. Has. Earnings coming up no. No we were looking at Microsoft, so that's okay we, can mix things up. If. Apple. Has earnings, in, just a couple of weeks. And. Let's, let's, let's, explore this a little bit. What. May happen with the price of Apple well. Apple could go sharply, one direction or the other if, it goes stripe layup that could be good for call.

Buyers If, it goes sharply down it could be good for a call for put buyers and so, there may be an increase in demand before the, event. Where. Speculators, are buying up calls and puts in. Anticipation. Of the big event now, if they start doing that lets say they start to accumulate, calls, and puts before. The. 30th which is when this announcement happens, what might that do to. The price of calls inputs just. Assuming Apple. Isn't. Going anywhere, just. Take take, price movement, on the, stock out of the equation well. If there's more, people buying, options that can drive prices higher, conceptually. That, may provide a, theoretical. Advantage, here so if. We buy, let's. Say calls, in advance and. There's. A ramping, up a demand in calls even without price going up maybe. The. Overall, even. Without the price of Apple, going up maybe, the price of Apple calls goes up and then theoretically. We might be able to sell at a higher price now. One other thing that I wanted to cover is it, as a potential con in this strategy or, potential. Disadvantage, something we need to be aware of is that. If, we, buy now and then, we wait two weeks even. If volatility, Rises Vega, has gone up, what's. Another. Variable. Time. Time, itself theta. Even. An increase in Vega can be offset by decay. From. Theta, so. Again. Not, a perfect strategy no, strategy is if as soon as I find the perfect strategy. I, was, gonna say I'll tell you what it is but I might, not. Know. I I'm, not gonna paint myself in a corner there because I'm never gonna find a perfect strategy in. Any case. What. Might we do we could buy a call, maybe. One that goes out beyond, the earnings, date but, even conceptually one that expires. Before but really, to get that inflation, it, might be something that expires, after, the, earnings date even. Though, we're. Not planning, to hold past. The earnings date. Okay. So. That's. A no who asked this question was it John, yeah. Texas John. All. Right, why. Why do we have to buy an option in this example. After. That. Expires after the earnings well, everybody, knows that. Those calls are, those puts or whatever we're buying if. They expire before their earnings. The. Earnings only play a role in the pricing really of, these contracts, so. These these weeklies here they, expire before that announcement. Actually. Did I say that it that that announcement was on the 30th or. Did Apple already announcement. Now I'm starting to doubt myself. Know. October 30th yeah okay, so. We just need to make sure that whatever we choose here, we, go out beyond October, 30th 15th of November it gets us there. So. These are the sorts of options that someone who's, intending, to make a play on the. Earnings announcement, that's. That's the sort of option that it might they might buy and they could buy anything after. The announcement. So. Buying a call might, work. But. At least it would that, it adheres. To this theory buying, a put might work or buying, both at the same time. Alright. John so or, Texas John. What. Do we call that if we come here stocks trading at 225, we go to the 15th of November and I, spend about nine bucks on a call and I spent about nine bucks, on a put. But. Both of the same strike. Both. Of those are, straddling. That.

225. Strike we got calls over here we got puts over there 225, splitting in the middle that's, known as a straddle. And. It's, literally a trader, who. Has. No directional, bias. Maybe. Looking to leverage a couple of potential outcomes, number one is that volatility, increase if volatility goes up great we own, calls me own puts both could conceptually be inflated by the increase in volatility but. Also if the stock takes off in one direction the other either before, earnings or because, of earnings. Then. That could, set. Up the trade for a large, potential reward on the one side of the trade while. Yes there certainly be some risk on the other side but. When only calls and puts the. Reward potential, of either side is greater than the risk potential. Yeah. So that's called a straddle last. Thought on this what would we call it if we were to choose different strikes like let's say we didn't want to spend nine bucks we want to spend five dollars so. We buy a five dollar put and, we buy a, five dollar call or somewhere in, that range, now. Obviously, that's just for example purposes but, that's. Known as a strangle. It's. Kind of like you're getting your hands around it right. So. We have a straddle we have a strangle conceptually, very similar. Traits. All. Right I think. Did, we cover everything I. Think. We did. Texas, John thank you yes all right I hope. That was helpful for you there Texas John all right so I think it's. About time for us to wrap it up I don't see any other lingering, questions. Thank. You for, the participation. Obviously. You guys came prepared, I encourage. That if you can come to my trader, Q&A, session, if you have a question, don't. Hesitate just, slap it in there even if I'm still going through introductory. Comments. Or disclosures, or whatever it. Gets us off to a running start we can get to as many as we possibly can but. If the time is has come for me to set you loose I'm gonna. Give you an invitation though. Do, follow, me on Twitter, so if you're not following me on Twitter it's at CMA. Underscore. TDA I try. To post something or tweet, something every day of the week. Also. Look out for tomorrow what's the big event tomorrow. Tomorrow. Is our. Semiannual. Education. Dates the investor education, day so we we. Clean, the slate we. Cancel. All of our regularly scheduled, webcasts, and, we have special, event webcasts, throughout. That day so, do, join us in our education. Day I'd love to see you there I'm. Going to be joining James Boyd if you want to see our webcast, that's it I think, that one starts at 3:50. Eastern Standard Time it's a 45-minute discussion, on hedging strategies, using. Options, and, then. We're gonna have a ten-minute Q&A following that but we have we have a special, session scheduled, throughout the week, so. Go register for that if you can. Let's. See. Addy, you know what let me see if I can squeeze in one more question here, when. Applied volatility, is more we can sell and credit if implied volatilities, sell, can we buy a call, I don't you know Eddie I'm I'm afraid I'm I didn't, quite follow that. I think. What you're saying is if implied, volatility, is high do we get higher credits yes.

If. Implied volatility, is low are. The lower credits or options, less expensive, that would also be accurate. Generally speaking. But. Just. Be aware that implied, volatility, can continue, moving in whatever direction so even if it's high it could go higher and that could be detrimental to sellers even. If it's low it could go lower could be detrimental to buyers nonetheless. It, is something that an options, trader might. Turn to to get a general feel for the pricing of options at the moment, all right but I'm gonna have to leave it with that thank. You everyone for joining me, we'll, do this again next week, one. Heads up though, next. Week is gonna be the last week, that we have this trader Q&A on Tuesdays. At 3:00 Eastern we're. Gonna then move it to Wednesdays. At 5:00, Eastern so it's still here just, get we're doing a little shuffling of the deck here over. The next couple of weeks, all. Right and show, you, know what I don't have. Much. Time for that the. My apology so it would just cause us to run over time Joe, says if you have time explain selling, a put what, I would suggest though if you if you're interested in that go check, out we, actually have a class that's dedicated, to that a webcast, there it's it's every Monday but you can check the archives as well and, it's, called covered calls and. Short. Puts or. Cash secured puts yeah, a cash the court put is another phrase for selling a put so you may want to go check that out. Alright. Everybody thanks, for joining me a quick, reminder of the risks associated for, investing risks are real, we. Use real examples, in today's discussion that, was not a recommendation or endorsement, of those securities, or those strategies, thanks. For being prepared things for your participation I really appreciate it I liked, a little back and forth as someone, asks a question even, if I didn't get a chance to address it I noticed somebody else popping, in there and giving their their thoughts I think that's great everybody I, will. Look for you next week, I'll. Also look for you in the edging in our investor, education, day tomorrow, but. Hey whenever I see you again until that moment arrives I want to wish you the very best of luck happy investing bye bye. You.

2019-10-05 03:47

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