Bearish & Bullish Trades Using Sector Performance | Technically Speaking: Trading Stocks & Options

Bearish & Bullish Trades Using Sector Performance | Technically Speaking: Trading Stocks & Options

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Don, everyone Welcome to our Web cast on technically speaking, trading stocks and options. I'm Connie Hill. I'm happy to see you here today. How many of you are using actively sector rotation as part of your model? To identify those stocks that are trending week or trending strong, depending on what the sector's doing. If

you're not, including that in your analysis, and in your watch list criteria, it could be something you want to incorporate to a little bit better degree and that's one of the things we're going to focus on here today. So welcome to all of you. We also have Barb Armstrong out in the chat. She is going to help me. Answer your questions. She's such a very

great trader of the markets, and I know a lot of you really enjoy her classes because she brings in the perspective of somebody. That's maybe a little bit fresher in the market, then maybe some of us and she remembers very well how it was to be in your shoes. Now I try to do that as well. Uh but I'm glad that we have Barb here to help us with that I am on Twitter. I'm at chill. Underscore T d A barb is at BArmstrong Underscore T D a will post educational content throughout the day things that we think you might be interested in Or that it might be helpful or inspirational to you. We try to bring those to you. So if

you're following us, great If you're not take this is your opportunity to do so. Well, when we talked about today is intended for educational and informational purposes only not investment advice or recommendation of any security strategy or account types. Options are not suitable for all investors as a special risk inherent option trading. May expose investors potentially rapid and substantial losses. Mothers Webcast discusses technical analysis, other approaches, including fundamental analysis may have very different views. Past

performance of any security or strategy does not guarantee future results for success. Please No soliciting no photography. And so forth. Very good. It looks like we've got a great group of you out here today. Now, as far as our agenda goes We're going to look at a couple of tools to help us identify sector strengthened sector weakness that is not on the tdameritrade platform, although they've got a really nice tool over there that I do like to use. And of course,

we're going to do some sample trades here today at corresponding to our research that we do for weaker and stronger sectors and then we have a couple of trades that we need to follow up on which I think is an important aspect of our trading is to Really take a look at what happened and not forget about it, but follow up on it and see how we might need to manage it or what's going on with it. So let's start out here on, think or swim Now I've got a couple of things going on here. I have a black matrix over here that has as the tipper symbol.

Some of the well, actually, all of the sectors are represented here. I'm going to share this with you because I know that's going to be one of the first questions out the gate as well. I want to have that little graph, too. And so let me come over here and I am going to copy something and put it into the chat. Those of you that our lives will be able to copy and paste that those of you that are not wise, but just know what's right here. This is what I based it out in the chat. And it gives

you that 12 grid look. Me get it back here. So what I have is also in bedded in that Links that I just sent out to you a script that cameras created that goes along with this and you'll notice the name of the industry group here. Dollar sign SPX-- her SP £500 sign Tim. Well, that's not that meaningful to you and me. You generally

speaking But can wrote this nice little script that goes in here that tells us what sector it is , which is energy. And what is it up or down right now, these sectors in this list of the sectors can be found. On your thinkers. One platform if I click on the name of the watch list, you'll come out here to public. And it is called the

last grouping on public Yesterday. W and it is called S and P 500 sector indices. That's where that list came from. Now Another thing you might want to know here is here is the list that came up and I added the description here so we can see what the name of it is as we're working with, and I'm going to close that back up, because that's not that Helpful, but we will keep this up and I do also have a one month return and a three month return columns if you don't have those yet here are the links for those the three months the one month And maybe I'll just copy and chat those out as well. I know a lot of you that come to our classes do already have this, But we've got New Floyd folks joining us all the time, and I want them to be as up to date as the rest of you are Let me do a little separating here. As I chat that

out. Very good. Now it's yours again. Those of you listening to this on the recording, you may have to maybe posit, And maybe if I move this up a little bit that might help as well. If you're on this particular screen. Gonna go ahead and bring

this back up because there's some information on my scratch pad will have to reference here as well. Now coming back to this , these graphs. And let me get myself back over there and bring it up. I actually have detached this. I have the grid detached it and I'm laying it on top of this so we can see over here on the left hand side, the performance as well. Now as we take a look at this. This is

just a one month chart in these grids. If you wanted to change it, put it in a different style. Whatever is fine, It's kind of helpful to know what's going on right now. So if I looked at this, and I said well, which one of these sectors in the last month seems to be heading up Ah , well, let's just look, we've got energy here. What's happening with energy? Flattening out definitely not on a downtrend and we can see his performance in the last three months has been the best performing sector here. I haven't sorted that way as well.

But notice here a couple of things Consumer staples. They're starting to steady march up in the month. Healthcare is starting a steady run up and then also here. We can't forget

utilities. Ah And what is that point too? It points to people, perhaps being a little bit more conservative, maybe wanting to move their funds from maybe things that are more growth oriented to value oriented or All these Safety stocks. Okay in the really safe from everything , but it's just kind of an idea of saying, Let's go to more conservative type strap. Um sectors that, for example, we always need our utilities are Staples Man. We need our grocery

stores and our pharmaceuticals. We got to go to the doctor, but some of these sectors will the economy isn't doing quite as well. That's where people have a tendency to put their money. I'll also mention in here real estate seems to be up here nicely in the last little bit. And now it's t m. Says energy is

hugging a 21 Day moving average Idiot is I just wanted to kind of show you this from the get go so it can be helpful. And I've done this at times where I have this list. Sitting up separate I some of you have seen this. I've got a big TV and I have my thinker swim launched over there and then I detach all sorts of things and scattered around the screen so I can just have a quick reference to it. Um And so that's one of the things that I like to have up there so I could just kind of keep it quick. Look

at what's going on. Trend wise and then I think this also helps as well. Now I want to go back to TMS comment here that the energy sector is hugging 21 Day moving average. I want you to still keep notes. Energy is the best performing sector over the last three months, and utilities Healthcare consumer staples.

Notice how well they are performing over the last one month and so we're kind of seeing him graphical representation representation of the last month. So let's do this. I'm going to drop this down and I do want to look at the S and P energy sector kind of going to TMZ point here. Um

let me zoom in here a little bit. We probably don't need that much of a tray. Um Backlog of information, But what do you see? With the trend going on here? And energy? Has it changed is it's starting to become bearish. Not necessarily. I've got a 10 exponential moving average. That's what the blue line is. I've got a 30.

SimpleMovingAvg-- and it probably looks similar. Maybe the TMS moving averages 21, I think you said So overall we are still seen energy make higher highs and higher lows. So even though our little one you month view kind of was showing this information, and it was looking a little flat. Still, the trend continues. One thing some of you might find helpful is to look at the futures contract. We're not going to talk about trading futures at all today, but the futures contract that a lot of these oil companies are tied to if you come up here, type in slash CL. And so it's me at

times show a little bit different, um, picture and what I want you to notice here is that Yeah, Crude oil has ran up pretty high peaks here on March 7th. And since that time I know I have a few lines on here is starting to make lower lows and lower highs. Right? Exact We've got a descending triangle here. There's the Diagonal Resistance line. Here is it's horizontal support line, but if it were to break down below the support line, there's a possibility that we could have a big Push back on oil, but think about what's going on Geopolitically. Is that

really likely? Well maybe it's just coming back to support area . We'll have to wait and see if it bounces or doesn't bounce. So kind of keep this in mind as you're also looking at the energy sector because the energy sector includes more than just a while. Okay, but a big part of it is oil. Knowing what sectors are stronger, what sectors are weaker? Pull up some potential opportunities. One thing I want to point out to you here because it is technical analysis that we get to discuss is I've got a Mac Diegel on here. Which sometimes

is really helpful to have up sometimes it's you might not use it. But today we're going to reference it once in a while, and so I actually have two things going on in here. I have a Mac D hist a gram. Those are

the bars. Okay The red bars the green, you know, Uh, what's this called Kermit Green or whatever , and just kind of a dark green hair. Those are the history, Graham, and then you're going to see these little lines, which is actually the two line Mac D. See typically easier for us to visualize what's going on with momentum. Yeah, if we can see

The two lines with it, okay to winds up here where it's higher and maybe even above the history Graham, but at least above zero means that the bullish direction is strong, the momentum that direction as strong when they start heading down and get actually below the zero line, that means the momentum is related to the weaker site, and that's why I pull it up here with this particular, um Crude oil so we can get a get a feel for that and see that now. Last week, we looked at a trade that we put in and order to get into a I. R was the ticker symbol. Ah this is a company that does, um aviation, commercial, aviation and defense, So technically, it's in the industrial sector were industrials It kind of middle of the pack here over three months. They haven't done that. Great. But this little stock has and that can be the case you might identify sectors that are doing well. Uh and

there might be lots of stocks that are doing well in that sector, or there may be some industry groups. Maybe a couple of the industry groups are doing well and they're actually creating the performance. And then maybe other of the industry groups aren't doing so well. But as we look at this particular role stock here we had The pattern we had identified. In fact, last week, we talked about triggers and setups with a setup being what the stock looks like before we get the entry signal your desiring And not confusing the two and actually having to have some patients while the stock sets up and not just jumping in any old time. Well we have identified this stock. We

saw nice flagpole here in it started to pull back and we were looking at this on the 30. First of March. This was the candle we were looking at, and we put in an order to say Hey, fill me if you get up here near where this This is our flagpole measurement , the expectation of what we think Maybe the stock could do. It's never guaranteed to do that , but we uses it as a helpful estimate. But our stock never broke out. And so I went in, and I just canceled our conditional order because it didn't occur.

But look what's happening today if we were to extend this line. To the right would say Okay? Yeah, maybe it's still was consolidating in said that flag range 2 to 5 days is ideal for a pullback. Was this one ideal? It wasn't as I counted here. I think we had about eight. Days of it, pulling back a little bit of bullishness yesterday and then today, what's it doing? Whether you're looking for is a breakout from a flan or if you're looking at as a as a close above the high of the low day some traders might use either one of those entries again. We know that there are

things we like to see. But it's never a guarantee that they're going to do exactly what we want them to. I'm gonna just activate this drawing. I'm gonna grab the flagpole representation here that I copied off the heights of this and let's see if we move it to where it is now, uh We could be going to move it down a little bit lower. And so it looks like maybe our target now could be if we wanted to use targets at about 54. Do you have

to do it? A target on this? No You don't have to do a target. When we see price patterns. Sometimes we might want to integrate that and do it trade specifically for that, But you don't have to. If you wanted to trend trade this great If you're looking at this as I pull back Uh, just a small pullback because look, it's still above our 30 moving average. Yes Some people might like that as a co holding entry. So what should we

do with it? Well, let's go to the trade tab and take a look stopped. It's not super expensive. It's less than $50. Let's go to our trade tab. Yeah. And. There are not a lot of the

this one doesn't have weeklies. It's only traded 304,000 today. That's not extreme. Those of you that are options. Traders typically like to see the volume in a day be a little bit higher than that. And we're just halfway through the trading day , so maybe you know it'll give in that range of 600,000 or so, but it's not a ton. And so what

we can see here is Supposing we wanted to do an option strategy and we were looking at open interest, but come down safer looking at a short put vertical and would come down here. Would go. Oh, there aren't really a lot of choices and not only that we're looking for a 30 to 40 Delta. Which it really doesn't

have. So some of you might say, you know, let's just skip over it. As a possibility. The spread is a little bit white. I mean, here on the ports. That's enormously wide 55 cents by a dollar. That's a huge spread to have to make up in a trade as some people might be interested in maybe doing something here.

Where there is a little bit more open interest. That would be the 40 and the 45 strike if they wanted to go along and substitute the option. Treat it like a stock that you're trend trading. Somebody could do that. But we notes as well. When says yeah, those spreads are a little wide. And so I want to kind of open your eyes to that. That, um

Even though we might see Going to say enough open interest to do one or two or three contracts if the spread is too wide. Just skip over it. Okay. This case we're just going to buy the stock. And we are going to do a swing trade with it. We are going to use that target, so let's grab are calculated here because we're going to put in both our target and our stop. I'm going to collapse are set to watch list for a moment so that I can write in here in this account were willing to risk $750 in any trade. That's how

we're going to manage our risk. That's a half a percent of our $150,000 account. Actually I could adjust that a little bit. But we're good for now. And so let's determine our target. I

think I set up there It was 54 some change. Change was 16 cents, so maybe we'll pull back off of that a little bit. Maybe let's just go to say 54. So we

have target equals 54 where coulda stopped Lasko. When the ball there, so it looks a little nicer, so it's easier to see anyway. When we're trading a flag if the price pumps or drops back down into this area, many technical traders will say, Gee, that flag is broken. Maybe it

was because it went on too long . Maybe it didn't have a good breakout strength. However one thing that I'm looking at here on our Mac D. It looks like it's a rounding up and that's nice to see the momentum moving back in a bullish direction and swinging that way. We have a zero line. It hasn't crossed the zero line yet. But sometimes it's nice to just see this swinging up. And when it starts moving that way time your entry so that you say momentum's moving that way. I

can see my CAHOLDs moving that way. Break out of the flag. So if we were going to put a stop in here If somebody was ignoring the flag pattern didn't know about it didn't see it. They might use maybe the moving average and go a little bit below the moving average is a stop loss, especially if they're trend. Trading it. They might want to give it a lot of room when we're training it based on the flag pattern, we might put our stop a little bit tighter.

Ha ha! Question here from Ranger says, Do you have a script for the sector matrix against a white background? I don't I only have it against the black background. Ken Rose created that. And uh, that's the way that he created. I think he does a lot of his charts with a black background, so no, you'd have to take the time to change them over. But it shouldn't be that big of a deal to do so. Alright

are stopped. In this case, Let's put it may be down. Uh a little bit below our flag consolidation . Yesterday's low was 46 34 if it went much lower than that would probably be a little concerned. Let's put our stop. Um How about it? 46 24 Right. 46 24 equals r stop. So now let's

do our position Sizing. We want to take the difference in those two prices. So 50 for minus 46 24. Begin to give us an initial risk of 7 76. Now I do want you to know here as the stock continues to edge its way up.

It's it. Does that what you might consider doing is up to, you know, increasing your stock loss to a little bit below whatever the closing candles low is so, for example, say they were looking at closing right here. We might say Okay. At the end of the day, we're gonna put our stop loss. Uh today's low is 48 04 so far, so maybe would put it at you know, 47 90 or something like that. It just a

little bit lower than it. You get to determine how much wiggle room you want to give it, but you could consider just moving that stop loss up. Every day every couple of days after it's made a big move so that you can get to your break even point quickly and then start locking in your games. And so that's how we're going to treat this particular one. So 7 76 is our risk. So our position sizing we

can risk 7 50 divide that by 7 76 As says Okay. 9 96 shares is probably the limit that we should do on this. Um. Yeah That's a good point. Barb that the Mac D is a lagging indicator. It's responding to

those previous price movements, and that's when some people just like to see it moving without quote, totally crossing over that zero line. Absolutely If you're just a candlestick person . Maybe you don't use a lot of oscillators. Then you might not consider this that much. The thing that I think is helpful on the what I got up here is this little section here where we can see that two lines that create the Mac D the cross over there up higher. Above the history.

Graham that gives us the idea that there's still some strong bullish momentum versus if those two lines were down here below, like the history, Graham is right now. Okay, let's go. Put it on. Kind of a trade tab. We're going to do a right mouse click. Now There's a five cent

spread here, which is not too bad. Um but let's just say by a custom with a one cancels other bracket. We said we could do 96 shares. I'm going to adjust that to 96. Click on the link. So it

uh puts those other two orders with the same quantity. And then as you pull this up, one is intended to be your target. One is intended to be your stop loss . And so it sets it up this way . So the first one, it's a limit order. We're going to put our target in there of 54. Little

bit shy of where the potential for the flagpole. Runyan's We're going to make both of our sell orders. Good til canceled. You have to do that or it won't let you put it in And then let's put our stop in here at, uh 46 24. If the price of the stock gets their lower, it's going to trigger market order that says, Get us out of the trade. Kate, We don't want to be in it anymore. That's all we need to

do. What's hit confirming setup ? Just review. Make sure you didn't make any mistakes. This

particular one. We're going to spend less than $5000 on But we are position sizing our risk here. Let's put this in our class account, trading stocks and options and let's move on. Really, that came on my radar more so because. Of the fact that it didn't fill Now we want to focus on some other stocks that are in either weak or industry groups or stronger industry groups because we can use sector strength for either one. Can't we were not always have to be bullish. There are

several of you that maybe don't have a feel for bearishness quite yet, Uh, but it's helpful to have some options strategies that you can play. Weaker sectors if you want to. So let's take a look at our next one. Let's go to at sea. Betsy I don't know if any of you have bought anything off at sea before. It's um, kind of a digital store. Lot of small

business owners will sell their goods on Nancy and we can see on at sea. Yeah it went up. It peaked in December about 307. Here it is now down at about what? 1 20, so it is really pulled off past its highs. Uh so yeah. Is it one of the in one of the weaker sectors? Yeah Consumer discretionary would be at sea. Uh it is looking like the group overalls recovering a bit in the last month, but over the last three months, Yeah, we're seeing this now. I would

say the trend is a little bit bearish and a little bit neutral. Here are 10 and are 30 moving averages are showing definitely in a downtrend and That somebody might look at this as a potential entry. Looking at a close below the high of the low day. That's my other little afternoon here. Closed below the high of the loading. What does that mean? Means as the stock is running up? Which state is it called the highest? Well, the highest on this green candle here. Was the low price that day

. 1 26 14. So then we're looking for a close of the price lower than 1 26 14 now did it happen here? Visually we can see it didn't did it happen here? Closing price was 1 21 36. So here, it barely closed down below that low price. So our signal This would have been our setup up. Here are signal finally came right here. Now Some people might have noticed that Yesterday, when it occurred in the market. Maybe they waited to see if it really close. There

could be other people that say Oh, come home, check things at night. And look that gave me my signal today, and they put it in as a new trade the following day, which would be today So today you didn't sound a little bit, it is pulled up a little bit off its lows, which makes it for a little bit nicer Entry for us. So Here. Because the stock isn't really like dropping off a cliff. We might consider doing something with a vertical doing a spread here. So let's take a look. Come over here to the trade tab. We might consider

doing a short call Vertical and I did a little bit of tin cream. I'm not going to drag you through all my calculations, but I looked at possibilities of using some of these weeklies. There was one that was here that expires on the sixth of May. We

look at that man doesn't have much open interest. It's bear. It's Yeah. I mean, there's a little bit but mostly zeroes. Okay So for that reason, I just said, let's just skip down to the regular May options. This is traded 1.7 million shares today , so lots of trading activity going on here. And again a four

looking for something that maybe if the stock will stay neutral, or continue to drop a little bit that that short called vertical strategy might be useful. Now um , Barbara gonna ask you to help me out with something here because I forgot to look it up before we came on live. Those of you that maybe are not as familiar with spread's strategies may want to go to a class that's taught every single week. I think it's on Wednesdays called short verticals, and I forgot the time. Barb, I'm going to ask you if you wouldn't mind looking at up and chatting that Into our our chat here so folks can see when the time is because if you're unfamiliar with it, it might be nice to visit that. You also might if you're not involved in option strategies quite yet. You may want to start

visiting Barber Armstrong's class that she teaches getting started with option where she reviews all the options strategies, including this one. Short vertical short haul vertical specifically, and she teaches that class on noon on Tuesdays. Alright I In fact, I'm in the class there with her. That's why I remember it so well. She does a fantastic job teaching you the basics of how to trade options and how the different strategies worked compared to each other. So if you're not familiar again, I'm gonna recommend those couple of sources for you. Alright on at

sea. Generally we want to sell between 20 to 50 days worth of time. And so there were a couple of weeklies in here that could have worked, but they just didn't have open interest. So

let's use our regular monthly doesn't have purple fund. It doesn't say weekly. That's how we know it's the monthly and generally, people might want to sell between a 0.3 to appoint

four Delta. Could you go higher ? Sure And it would be maybe a little bit more aggressive of a setup. If you went lower, It would be a little bit more conservative of a sat out but you're trying to balance getting paid enough and creating a high probability trade. So we have a couple choices here. We do have a 39 Delta and a 33 Delta. Both of those do have decent open interest if you're just doing a couple of contracts and three contracts in our account probably would be the most we could do there and is the spread nicer? Yeah it's not. It's not

ginormous like someone that we saw. It is 20 cents, but if you can get filled at, say the midpoint level You know, it's really quite a reasonable spread . Even if you have to take the 20 cents spread on it. So let's do this one. Let's go, uh, for

the 33. That's the one I wanted to do. Let me do a quick check up here. Let's do the 1 40. 1 45 spread. So I'm gonna get on the cell row. Right mouse Click Sal

Vertical. It's going to bring it up for us also going to set this up, so that will go buy it back if we lock in a majority of the game, so I'm going to put this is the first trigger sequential. I'm going to say create opposite order, and then we're going to set both of these up to begin with. A dollar 22 credit. I'm going to lock that in. He could probably fluctuate around a little bit. But let's just lock it in to do some calculations.

See if it's if it's good enough for us. Okay Or good enough for you. For whatever your rules happen to be. So as we come down

here Ah ah, it's a $5 white spread. And so here we're not going to do a target on this per se, but what we are going to do is we're going to say our max gain on this at is only going to be a dollar 22, which is 122 per contract. Let's get this bold it again here. What's your match Potential loss, Karen Max potential losses. The difference in the strike price is $5 minus 1 22. So let's grab our calculator again here. So five

minus 1 22 is going to give us a Even backs potential loss of 3 78. Those of you that are newer to this strategy might think. Why am I going to risk more than I have to make? Uh And it's just part of the strategy because the idea is that the option is likely to expire out of the money. Well, how likely If we're selling the 33 like we are. Probability column here that six probability of expiring out of the money is about 75. Okay so a

three out of 4% chance that it's likely to do that. So we're trying to balance that higher probability with getting decent , uh, enough profit out of it. Okay, So let's do our math. Here Let's take our max gain divided by the match loss. 1.22 divided by 3.78 gives us about a 32% return. Now they're going to be

some people will say, you know that's acceptable to me. I could do that There might be other people to say that's a little lower than what I typically target or there could be some people that say, Oh, I would like something with a little more safety. I sleep better at night with more safety, and so they might consider coming down here, maybe selling the 28 strike and making sure that it has an acceptable return. Came.

There's a lot of different ways you can construct this. Well, if our max potential loss here 3 78 , we can do to contracts and stay below are 7 50 of risk on the trade. Somebody set this up that are are two. Now We've got our two When would we want to buy this back? Some people you don't have to do it this way.

But some people like to lock in a majority of their gain. Instead of waiting to just pick up those few last little pennies, Okay, because when you get to a profitable point in the trade, and so you have 10 days out or 14 days out, it might be worth your while to not hang onto it for a couple of more weeks while you're waiting for it to drop drop drop, if indeed it does that Right. It's like, hey, if I get a good run, I get a lot of it out of there. Let's

buy it back. And so 1 22. If we said right now, let's get 85% Let's multiply 850.15 by that. Oops Oops! Oops! Did that wrong? Just 0.15. We would buy it back at about 18 cents. Okay so we're just going to come down here? We're going to fill it in. If the spread gets to eat 18 cents , it's going to trigger market order or limit order, so let it 18 cents or better. We're going

to make it good til canceled. We could be out walking the dog. You can be out at lunch. You could be skiing with Barb. You can be doing whatever and the system is going to go. Take care of that for you. So you're not

feeling like you have to sit in front of your computer to try to catch it. So we're going to put that in our class account we're going to put in our stock and options. We're going to send it on its way. And uh, price was wiggling around a little bit. I don't know. Hopefully, we'll get

filtered in just a minute or so. Okay so we've done a bullish trade and embarrassed trade based on sector rotation based on what is strong and what is weak in the market right now. Gonna pick on another stock. Not going to call it a loser. I'm going to call it a struggler. All right. We have some home

builders that are struggling after a nice little bit of a run. What are they running into? We're running into increasing interest rates. They're running into supply sorted jizz appliance shortages, even though they may be built. Some of these homes are having a hard time getting everything to finish it off. And so Ah, they're struggling. Now. This is one we can see. Yeah, definitely in a

downward trend, and this is one here. That is far as the setup goes, we could be. I think a little bit late, but it's still could go. Okay? Still can't work out because of the fact that the downward trend is so strong and it falls in the consumer discretionary sector as well. He's home builders do so I had tried this report level here, and it looked like it was trying to break through it on the fifth , which was Tuesday, and it definitely broke below. It closed below it yesterday. Now

it's moved a little bit more, not a ton. But if we think the price of the stock is likely to stay below a certain point We might consider doing again. Another vertical This one needs dropping a little bit more rapidly than etc. Was or rather , Yeah, Yes, He was the one we just did. But let's look at are possibilities here. We're not going to short the stock shortened stock you could do if especially if you're a more mature trader. And you

understand how that works. Uh I have not talked or really taught about shorting stock in my class that much, and some people are like, what exactly is it? Basically you borrow the stock from your broker a stock you want to sell, and people think. Well, how can you sell it? If you don't have it? Well you borrow it from your broker. Then you sell it And your expectation is that the price of the stock Is going to drop. Okay So you buy it here or sell it here and then you buy it back when it drops and you buy it back and then be in between amount of your profit, but there can be, uh, Some risks that substantial because what if the stock just takes off? What if somebody comes and decides to buy him out ? Or they have whatever big news that's going to change everything for him? Well you could be in a real pickle because then you have to go buy it back at the market price, which is going to be significantly higher than what you may be initially sold it for, and that's why people really like to maybe use some spread strategies and options for that. Rather than doing the shorting of the stock itself. So

let's look at what we have here again. I picked through some of these, um Some people might want to go for a shorter time. However I was still seeing a lot more open interest. Um, in this

column here. Then I was in the weeklies. So don't worry. It still falls in our 20 to 50 Day timeframe, And sometimes we even go a little higher than that. Just kind of depends. What do we have available? Hmm Yes, Barb, You are skiing this weekend because the resorts haven't closed yet, Barb says. How do they know how many knives planning to ski Yeah, she's going to the resorts are open.

So therefore, Barb is going to be there with her skis. Now we have a couple of choices here. We have a 38 Delta. And then we have a 29 Delta. Some people might be a little skittish about maybe going a little bit lower than a 30 Delta. But really 29.

Isn't that much difference? One thing that can make a difference in your decision is, is there enough open interest now? What's interesting is these $5 increments options have quite a bit more open interest. Okay? Like the 75. The $2.50 options were introduced a little bit later, so they haven't been training as long and so you're going to see these ones that end in 50 cents. Many of them are

not quite as high Okay. Uh 48 are really kind of a high Delta to set up a high probability trade. Some people more aggressively might use it. They don't have to. But if we're

thinking he may be, the stock could stay below 80. Come back to our chart. We go. Where's ADH ? Will area 80 is just barely above barely below. Rather, where are Area of resistances right now, So could the stock stay below there? That's likely that it could it could run up here bounced back down so 80 might be as a safer Number to go with than the 77 50 because they keep the stock that will 77 50. It's doesn't have as much leeway . I mean, if it's $80 in the stocks at 73 right now, it's got $6 range right that it can go up and still Could be possible. Um

Possible. Profitability on the trade, so it's line this up. Let's just check it out. So

we're gonna go with sell the 80. And by the 82 50. There happens to be Enough open interest in both of those that we're just going to do a couple of contracts like we can. So we've

got a 55 Cent credit here. So our max gain on this is going to be 55 cents. What's our mask Masks loss to 50 minus 55 puts us at a buck 95. Now some of you might like the numbers here.

Some of you might not Ah, just real quickly. Let's just calculate that so we have 55 by the by a buck taking that right? Let me think. About 95, okay? Get that in there gives us about a 28% return again. Some people

might like it and the higher probability some of them some of you might not. I'm going to leave it cued up here and I'll put it in after class is over so that we can track it, But I do want to get to looking at a couple of stocks out in our portfolio. First of all I want you to notice before we put in these two trades. We only had C N Q Left and really, it's in a profitable position. We've got a long call. That's up. We've got

100 shares of stock that are up . Ah they're similar. Let's see the calls up. 205 the stocks up 3 51. There's currently in good shape. Alright another trade

that we did have on here that we got triggered out of yesterday. Was STLD. Guests GLD. We were looking for it to basically break out of this flag, and we put on a conditional order, so we actually didn't trigger us until last Friday is when it went up high enough. It triggered our order. And then

what did it do? It came back inside this flag boundary, and we had to stop loss there. The stop loss triggered us out of the trade, and it wasn't a huge loss. Let's go ahead and put STLD here. You bought it for 86 . We had to sell it for just under 79 just underrating, so there's a little bit of a loss there, but that is how you play the flag. If it breaks down, goes back in that consolidation range. Boom We already had the

plan. We wanted to be out, so it got us out. Archie says in the comments that 28% for 43 days as long for you that very well could be the case. There could be some others that kind of like To have that high probability with it. That. Let's see. If we

go back to our Our ticker symbol here. And it was. Which one did I decide to go with? Let me look here real quick. Now I forgot. It was Lenard. Duh That's right there the probability for selling the eighties strike price the probability that it would expire in the money. It's about 75% Some people might feel good without at the start, some people might go a little bit more aggressive, um, and maybe sell something that isn't out of the money quite so far. And get

a better return. So yeah, that's where I'll have to kind of decide for yourselves. What works for you. Alright we went through. We showed you. How do

you use that? That matrix and the percentages to determine what stocks were favorable what sectors were favorable and which ones were weaker? Then we did a couple of paper trades here and then we squeezed in following up on a couple of our stock example traits now for you to just kind of integrate what you've learned here today. I want you to kind of do it for yourself. You get out what sectors are stronger with sectors are weaker. Keep in mind. I'm showing you on the matrix. Just a one year look or

one month look, but look, Take a look at the bigger picture. So you're not totally thrown off like energy still is in an uptrend just happens to be that we're at the pullback. Maybe it'll bounce soon. We'll have to see here. And of course we did

some examples and I would want you to do your own paper trade examples. All right now I do appreciate your participation here. I think we've been able to handle the different questions that you had, and we had some helpers out there helping Barb as well. But Barb, Thanks so

much for answering our questions here and thank you all of you for attending today again. I want you to implement the things we talked about so that you can start Seeing these principles manifest for yourself. Now I do need to remind you. What we talked about is for educational and informational purposes only , not a recommendation of any security strategy or account type. They were simply for examples. Yes Coming up. Next is

James Boyd with the trend. If you like this session, give it the like button and that will let others know that it might be worth their time as well. Have a great day, everyone. Bye bye.

2022-04-09 04:36

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