Bearish Bounce with Short Call Spreads | John McNichol | 11-20-19 | Trading Vertical Spread
Good. Afternoon everyone, John McNichol, here some, markets made recent, new highs after. Advancing for the last six or seven weeks maybe. Seeing a pullback maybe. Time to explore. Our subject. Today short. Call verticals, so, stick around. Okay. Well thanks for being here today whether you're listening live, such. As Paul from Long, Island New York and those. Of you that are listening to the archived session, do appreciate you being here today, for. Training vertical, spreads or topic is short call verticals, and you. Can see my Twitter handle on, the title screen there as well, as the bottom of your page also. A shout out to. New York as well my good friend. Mike. Follette as I'm, looking at the chat as well mr., Mike Follette will be out in, New York downtown, Manhattan. This weekend, Friday, and Saturday, for an advanced concepts. Options. Class so, if you like what you're learning here today on, verticals, and want to take it another step further on some more advanced topics it's, still time and you can probably register. For. That. Workshop. And if, you can't make it this time keep an eye on the education, tab for, our live, events, where, you can schedule for, a workshop, near you let's. Go ahead and take care of disclosures. And we'll get right into it. Ricardo. Thanks for being here. Options. Are not suitable for all investors as, these special risks inherent to, options trade in makes those investors, potential rapid. And substantial, losses carefully. Read the provided. Copy of characteristics, and risks of standardized options, spread, straddles, of the multi leg option strategies, can, entail substantial, transaction, costs include multiple Commission's which may impact any potential return advance options strategies, often involve greater and more complex risk than, single leg option trades and investors. Should, also consider a contact, and a tax advisor regarding. A tax treatment applicable, to spreads and though the multi leg option transactions. Now. Past performance, vania security our strategy does not guarantee future results nor, success and in. Order to demonstrate the functionality of the platform, we will be used in actual symbols keep it in mind 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, now. While this webcast may discuss technical analysis, other approaches. Include. Fundamental analysis, may serve very different views. And. Transaction. Cost commissions and other fees are important, factors should be considered when, evaluating any trade that zero Commission, applies to online us. Exchange listed, stocks ETFs and, options trades there's, a. $0.65. Per options. Contract, fee applies. To, option. Trades. Now. We have a demo account we're utilizing for, a practice account looks. Like a real account but, it is not you have the ability to practice what you learn here today utilizing. Paper money at, paper money trading the software, application is for educational, purposes and successful. Virtual trading during, one time period does not guarantee a successful investment of actual funds during, a later time period as those market conditions, change, continuously. And. A. Little weather report from the South 73. Degrees in sunshine, wish I can say the same thing here in, Utah little cold and rainy. Or. Down in the southwest is, also, have has. Some warm weather too so, wherever you're at hopefully. Things. Are comfortable, where. You're worried where you're at at this time so what we're going to learn today we're. Gonna identify some. Potential entry, signals, strike, prices and expiration. Dates for short call verticals, with.
Our. Theme, in each and every week we need to determine the maximum, profit as well as the maximum, loss which. Translates, into being able to calculate potential. Return, on risk and position. Sizing so, we manage that risk we're. Going to determine potential, exit criteria for. This strategy and how. To create, and place, a short call vertical on the thinkorswim paper-money, platform that. Is our learning objective, for the day by the time you're, through at this session you, should be able to create and place, a short call vertical on, the, thinkorswim paper-money. Platform now. If you have any questions, Mike, J Ricardo Paul and everyone else that's here with us live feel, free to utilize the chat but certainly love to hear from you as we, go through this session together. So. Let's talk about. Some potential, entry, signals now since, this strategy, is what's referred, to as a. Short. Call, vertical. One. By looking, at short, call, we're, selling, a call so. From that basis. Typically. Your, bias. Would. Be neutral, to, bearish. Now. If we were just to sell a call by itself. That would be a naked. Call. Which. Maximum. Gain on selling, an option is the, premium received, however, if, we had just sold, a call, our. Upside. Risk which. If the price goes higher a would, result, in a loss now, the. Thing is how high can a stock go theoretically. As high as it once, and therefore. A short, call, is, considered. To be theoretically. Unlimited. Risk, now. What we're gonna do is, we're, gonna take that short, call that we're selling, and we're gonna buy a cheaper. One against. It thus creating the spread so, not only do we have a defined, gain, which, is going to be that net credit, but we're also going, to be able to define, the loss by, utilizing. That long. Option, against. It now. As a matter of timing since it is more of a a bearish. To, neutral. Trade we're, gonna be referencing. Stocks, or. Instruments. That may be trading. Up to, some highs possibly a. Resistance. Point with, the expectation. That the prices, would stay, below, that resistance. Or possibly. Pullback. So when, we go ahead and we look at the slide here. The. Idea, is. Anticipating. A bearish, bounce by. Looking, at prices. At or near a, resistance. Level, you. Know resistance, can be defined as price. Looking. At previous, highs, multiple. Touches may, lend, weight, to that resistance, and. Looking. For that setup as that price goes ahead and trades up to. To that, level. Let's. You can get that screen back there. So. Kind of highlight, in a bearish. Candle, potentially. Forming at that, area so you know in this case with the slide you, know a shooting, star. You know hangman, bearish. Harami any, type, of bearish, candle, appear and at that resistance. Now. Another. Looking. At it is looking, as the bounce, happens. This could commonly, refer to as a closed below or a trade.
Below The, low of the, high day. Looking. For some downward, momentum there. Now, some traders may determine, to. Activate, that order, at a particular, time. Of day just, because, the market may be trading, down in the morning for. Instance as it did this, morning or a stock may be trading, down in the morning that, doesn't necessarily mean that may continue throughout the day things, may change in the afternoon, so some, investors, or traders you know may look more, towards the end of the day as. That confirmation. So. Illustration. Here. Is. This. Would be an example of a. Closed, below the. Low of a high day so we see a high, day that's. Formed. The. Next date opens up lower and trades. Below. Trades. Below. The. Low of that, high day so. Kind of a three-bar, candle, reversal, here thus, illustrate. In a bearish, bounce. And. The, mouse will run away from us a little bit. So. Confirm. Into bounce, this. Is where reference in price. Action going, into that last half. Hour of the day to, see if that pattern actually, held not. Only traded, below but actually, close, below the. Low of the day and. There. We go so if we're looking at this at the end of the day that. Would be a bearish, bounce. And. There's, continuation. Of that now. Let's talk about strike. Prices and expiration. A lot, of these concepts, are also covered, in the. Trading. Options, course so if you're new to this webcast. Welcome. Do appreciate you being here keep, in mind if, anything, we discusses, a little above your head we, do have a getting, started series getting. Started with options every Friday morning at 11:00 a.m. Eastern, Time on the, same, webcast. Channel, if, you don't already notice, on YouTube you're on the trader Talks channel so, if you, wish to subscribe, you can click on the subscribe button maybe. Turn on notifications if, you want to be informed on any upcoming webcasts. In the, case of, getting. Started with options, that's every Friday with, Barbara Armstrong at 11:00 a.m. Eastern, Time, also. In the, trading. Options, course which is accessible, by your education. Tab under. Options. That. Trigger options, course will take you through some of the similar steps we're, doing here today more, importantly we're going to apply these concepts. By the end of the session and we would encourage you to do the same thing as well. So. As we're looking through our strike price selection. Technicians. Often. Select. A strike, price. Above. As many levels of potential, resistance as possible, while, maintaining. Acceptable. Premiums, we. Go and look at some of these examples if, one is. Looking. To sell a call that, is at or above resistance, in. A lot of cases that. Strike. Selection, maybe just, at or slightly above that resistance, area that also gives, that reasonable, premium, now. Some traders select. Strike prices and, expirations. That generate, a minimum, RoR, or return, on risk. In. Our examples, we've. Been looking for some examples around 25. To 30 percent when. Volatility, is relatively, low those percentages, may be lower whereas, when volatility, is relative, hye-won may be able to find more, reasonable, premiums, now. Indicate in the context, of a short, call vertical since. The bias. Leading. Up to, a, lot, of these setups. In more. Of a bullish market volatility. Will have a tendency of being lower so one may struggle a little bit to find some, reasonable, premiums, we may look for some stocks that generally maybe a little more down trending, that may, have some, premiums. Now. Traders, tend to select out, of money, strikes, with. That in mind the. Idea. Being is, the. Ad of the money options, lend. Towards probability. As. The money options, are gonna have Delta's that are lower than 50%, which, means that if you have a delta. And add them on the option that is 30. To 40 deltas theoretically. The probability. Of expiring. Out of the money would, be 60, to 70%, and, that would be a desired, outcome for. This short call, strategy, short. Call vertical. Now. As far as. Looking. At it as far as with time. The. Time aspect, on this a little, bit ahead there. If. You go ahead and look at an option chain you, have various, expirations. Once. Again one is looking for a balance of probability.
As. Well as. Decent. Returns now since these are a little more time based, most. Of your. Depreciation. Of the. Time value has, a tendency, occurring, in that front month and so, as far as the date selection, traders, may have a tendency of looking in that you know 20 to, 50 day time, frame, the. Closer to expiration. Potentially. Lending to, some. Of the probabilities. Or. Quicker. Decay. Of the option. However. If. Price, goes against you may, not have enough time for the price to recover. Whereas if we go further out one. May receive more. Premiums, because there's more time being sold, however. Translation. Into that the decay may not happen as quickly, and one may have to wait more. For, that, depreciation, a. Little. More forgiveness, is if the price goes against you for a period of time there may be time for the price to come back in your favor, all. Right so we'll focus looking, at around that, 20, to, 40 day period they're. Now. Calculating the. Maximum gain maximum loss and return on risk with vertical. Spreads. It's. Relatively, simple the, reference, point is looking. At the strike, prices, your. Strike prices are in determine, what the maximum gain as well, as the maximum loss is, relative. To the, option, price so, for instance when we go ahead and look, at this screenshot. On. The screenshot, here is. An example of a a November. 1 29. 131. Call spread the difference, between those strikes is two points. So. The most that could be made or lost combined. On this spread would, be $2, so. Notice, in this example a, 59. Cent, credit. 59. Cent credit now, remember. With that. There. Is a multiplier, on equities. Since, this is an example of a call. Spread on Chevron. Notice. The multiplier, is a, hundred. So. The premium, of 59 cents multiplied by a hundred would. Be fifty. Nine, dollars. The. Most that could be made, on the short call spread is that credit received which, is, $59. So. Maximum, credit is going. To be, maximum. Profit, will be the credit. The. Credit that we have is. $59. Now. Looking at. The. Maximum. Loss the. Maximum, loss is going to be the difference, between the, strike prices. Minus. The credit. So. If we had two, dollars, minus. Fifty, nine cents, that. Should be a maximum loss of 141. When. You do a confirm and send on, the. Short. Call spread and. Also. As well as on single leg options a single spreads there we. Can go ahead and see the. Maximum, profit as well as the maximum loss so. Fifty nine dollars maximum. Lost 141. Those. Numbers, we can utilize to figure, out the return on risk, the.
Return On risk, which. Is going to be that, maximum, profit. Divided. By the maximum, loss. So. When we go ahead and look at our example, of. 59, dollars /, 141, that. Comes out to be in 0.4. 1/8 or to return on risk of, 41.8%. Some. Traders may consider that to be a reasonable, return, on risk. This. Translates into position, sizing as we do with each and every one of our sessions is. Position. Size to an acceptable. Risk, this. Is very important, particularly. For those who they're very new in trade and new, to trading as, well as everyone, else we, cannot lose sight of, the. Most we're willing to lose on an individual, trait one, of the attractions as far as with spreads. Is since there is a defined, game there's, also a defined, loss if. We use that defined loss an example, of our maximum. Loss then. We can use that maximum, loss and figure out how, many contracts. That one can sell in this example and if. One defines the, risk one, already knows the. Potential worst case scenario, before. That trade is placed that could be at least reassuring. To know what. That maximum loss is so. That's what we're going to do here, with our example today. With the screenshot since. We had a risk of about 141. The. Trader in this illustration. Was. Willing to lose a thousand, dollars in the account so, think about yourself, in with, your practice account or if you're doing real trades on your, real account is. What. Percentage, of that account are you willing to lose so if this was a hundred thousand dollars, and. One was willing to risk $1,000. Well that would be 1%, and they, would be risking 1% on, each trade other, traders made to find that risk at about a half a percent think. About from a dollar amount what, you're comfortable with losing, in a trade and translate. That into a percentage that's, what's referred to as a fixed, fractional, method and define. The. Portfolio, risk the same on each and every trade now. Based off of the trade. Risk which. In our example, was the maximum, loss our maximum. Loss on, the. Particular trade would, have been close, to one hundred and forty one dollars so. If we go ahead and determine that. The. Trade risk is 141. We're. Going to go ahead and divide. We're. Gonna divide. 1000. Divided. By 141. And. Round, that typically. Down that will come out to be in seven contracts, so, as far as position, sizing one, would be risk in seven. Contracts, for this illustrative, example. So. Let's go ahead and actually. Put. In an example of a trade we'll, talk about some of the exit. Criteria so. We're gonna go to thinkorswim platform I. Do. Something to have some examples, of some scripts. Over. On the. Left-hand. Side those. You they may follow on some, of the other webcasts that I teach technically. Speaking on Mondays. Breakout, and reversal, patterns, every. 2:00, p.m. Eastern time or maybe Tuesday. Morning, on swing. Trading. Short-term, trades there we've. Utilized, these examples, of script some, of you may have attended some of our previous workshops, and Chicago. Shout-out. To those of you from showed, up at Northbrook this past weekend, as, well as those you in previous weeks, in. Orlando, Denver. Some. Of that script is right here and you. Can go ahead and add and customize those, columns if you'd like and. So. You know looking for a, stock, that may, Weatherby, off a resistance, or, maybe forming a bearish bounce now so. Here is a win. Which. You. Know had been trending. Up. Kind. Of broke their trend. You. Know possibly, a little support around that. 5055, period moving average but, we do have a bearish. Bounce this represents, an example, of a bearish bounce price, form in a high priced trading below the low of the high day some. Traders may make, an assumption that prices, may trade lower. Or. Make an assumption that price, may, at least stay below, a certain, level so, let's say we can find a strike. That, may be at or above that resistance. And see if we're able to get a reasonable. Return, on that. Wrist I'm gonna go to the trade tab. I'll. Click on that and. For some reason it had a little trouble on our. Platform. Here I'm not sure why I. Have. To go and get rid of our drawing tools here sorry, I think we kind of illustrate a lot of that I'm, gonna go to a trade tab. We're. Gonna go ahead and look, at some of our strikes. And. Let's. Say we'll go out well look out 30, days so here's 20 December, in brackets. Is 30 days. And. Then. We can look for a delta. And. If. You can't see Delta's, on the, layout, at the top of the strikes. You. Can click on that drop down and go, ahead and select Delta. Not. Sure why my mouse, is not pointing. Here let me see if I can try one other thing here. There. I think that may have done it. Let's. Look on the call side. So. We're looking at the calls and. We're. Gonna look for a strike that maybe somewhere in that 30, to 40 range and I know we're going down to 36, here you know if you can't see some lower strikes we can go ahead and change the, strikes here.
So. I'm gonna click on the drop down will expand this out. Okay. There's a 30 Delta there at the. 124. Level. Now. If we went ahead and sold. This. Option, would be looking at the bid prices. And. With. That in mind that. 124. Call. Would. Be selling, for about $2, now, if we just sold that call that'd be a naked call we'd be under obligation. To. Sell. This stock at 124. Regardless, of the price we're. Gonna try to find that risk a little bit more and, what we'll do is we'll right-click on the option and we'll, select cell, and. Select. Vertical, right click on the call that we're selling we'll go to cell select, vertical what, that'll do it it'll automatically. Bring, up the. Call that we're selling, but. Also buy. The. Next cheaper, option, which. Since these are dollar wides that. Would be a 125. Notice. Right now that's a credit, mid. Price at around 29, cents, a, credit. Of 25, cents for every dollar wide, would equate out to being about 33%, return. On risk so. Some traders may use that as a guide you, know for, every 20, some sense quarter. For. Every dollar why now. We. Can look at the chart to. Confirm. That. Where is that price so if we're sellin to 124. You. Know it is clearly. Above at least that more recent high and. The. Expectation, is if we are to sell this, call spread we're. Expecting, that the price will stay below that level, for the next 30 days. Now this was about a $1 wide, some. Traders may expand. That. Spread. To. See. If they may be able to get a larger credit however. Keep in mind a larger. Spread may also translate, into larger. Risk because remember the most thing could be made or lost is the. Width, of that spread, but. For instance if I go ahead and hit confirm and sent on a $1 why we're. Risking. 71. Cents which is the maximum loss to, make, $29. Per contract. Notice. There's a break-even point breakeven, point is going. To be. Essentially. That short. Strike, plus. The credit, would. Be the break-even so, if the stock stays below 120, for 29. Theoretically. The, trade would, make money, however, need, to consider the. Transaction. Fees even. Though they may be relatively, smaller than in the past, are. Still part of the tray. So. If I wonder of the calculator, let's say we did edit. We. Can go over here on the left-hand margin to. Our widgets, or gadgets, and we. Can switch, the, gadget, to a calculator. And. We'll go ahead and take that. 20. B. Point to nine, divided. By point seven one. Max, gain divided by Max loss that's a return on risk of about 40% now, there is a little bit of a spread. 23. To 28 cents, so you, know maybe closer to 37%, now if I expand, out this, strike. Let's, say we go to 126. That's a $2 wide notice. We have a 55. Cent credit so. A greater credit, but if we go to confirm, and send also. Notice the maximum, losses increased, now, some traders may look for a balance of a. Similar. Or greater return. On risk whatever spread, gives. The. Greater, return, but, also considering. That. A wider, spread we may not have to sell as many spreads so that could impact. The, transaction. Fees a little bit so. If I go ahead and calculate. 55/45. Or. Say it's 55, divided by, 145. As. A return on risk of about 37, percent. So. Let's say if we did this too. Wide let's. Position size, to a maximum, loss so we have that 145. And. Let's. Say based off the size of the account here's the net, liquidating, value of. My. Practice, account 350. Mm, let's, say I'm willing to risk half. A percent, in, the next trade that would be about 1750. Looks. Like about 1770. There so. What I'll do is, we. Will take. 1770. Divided. By. Make. Sure we got the math right that would be 145. 145. That. Would be 12 point, to contract, so we'll go and we'll round that down to. 12. So. We have 12 contracts. If. We hit to confirm and send we, can see what our maximum. Gain is, $660. Maximum. Loss of, 1740. Now. Let's mention about. Open interest let's take a look at that. So. I'm going to go ahead and let's edit this let's. Go back to the option. Table, so, some traders may be, concerned about liquidity, if we go ahead and go to layout and look. At. Implied. Volatility. We're actually looking here volume and open interest. Here. Is the volume. About 41, contracts, you, know here is the open, interest, now. Typically. Out of the money options, are going to have possibly. A less, volume, and open interest versus. When you get a bit closer, to, be in you know at the money there, know. The considerations. Looking at the spread we have a spread here of only about five cents. If, this was less liquid, that spread would be expected, to be much, higher, so. Even though it may not be as widely traded at the moment the, spread is reasonably. Smaller. So. We're going to go ahead and still, practice with this trade and. One. May see that volume and open interest increase. As the price gets closer to it or. At least at, least over a period of time when, it gets closer to expiration where, it may also drop off, so.
I'm Gonna go ahead and. Attempt. To sell this here. Now. If we go ahead at fifty four cents, that's around the mid price some, traders may adjust it down a little bit in an. Attempt to improve. Their. Chance of being filled. You. Can start off at the mid-price now this is a practice. Account so. They go ahead and send this out it, may get filled in this example it did your. Results may vary. So. We went ahead and we filled that tree. Now. Let's go ahead and talk about exits. So. Here are some sample, exit, criteria is. One. Lit. The options expire well. Let's. Get our own tools here. Here. We go example. Exit criteria is. One. And. I'm not sure why I'm having a little issue here. Technical. Difficulties. Is. One. Lit the options expire now here. If. The options expire in the money that's going to result in an assignment, this is not a desired. Outcome, but. It can happen. If. It goes ahead if both options, are in the money at. Expiration, that assignment would cancel each other out one could be exercised, to offset, that, if. Prices fall in between. The. Spread. One. May. Result, in assignment, of the stock in this case a short position on a margin. Account if one didn't have the funds that would be a margin, call. However. If you do have the long position, that long position, can offset that, one. May exercise. That. Option. Or. If, they do take possession of stock they can turn around and buy. Back that short, position, now. Desired outcome is if the options expire, worthless. And. I need to go ahead and, bear. With me for a sec looks a little bit of a technical issue not. Sure why. Options. Expire worthless that would be a desired, outcome if both options expire worthless that, would result in the maximum, gain on the, short call spread, option. Traders, that sell options are looking at the depreciation sound, something that's more expensive and expecting. It to lose value thus. Locking, in the game, now. Closed. Position, within a few days of expiration, so keep it in mind that assignment, risk. Exists. Throughout the trade, so, whether, you have an option that is slightly in the money maybe, close to being in the money. One. May, be looking to close out that position, a few days before expiration kind, of see where you stand in that 5 to 7 day period possibly. This. Next step closing. Out, when. The position has reached a particular. Percentage. Game. Since. We went ahead and sold I. Believe. Around 29. Cents. We. May determine a percentage, of that game and if. We've realized, the percentage, of that closed it out so. Going back to our example. We. Go to our positions. There's. Win right there. Notice. Our Delta, is we're short this is a bearish trade. And. If, we also go ahead and take a look, at. The. Position. Itself we're also positive, theta that we're making money. With the passage of time. We. Can customize, the column here where, there's a little bit of a gear if. We click on that gear over on the far right on. Your position. We. Can customize the column and look. For P. Should. Be P / L, sometimes. It doesn't come up correctly. I'm. Not sure why. Just. A little bit of a glitch we're. Looking for like PL. Percentage. Let's say we do %. Only. Sometimes it seems to be a bit elusive here, but. We're looking for, pl. Percentage. There's, up there it is PL % so. We're going to add P and L percent you, can left-click and drag it, on the list wherever you want and click. OK and what one can do is keep an eye on that. Percentage, for, that position and, you. Know maybe it's 50%. Of that, maximum, gain 7080. Percent, some traders may look, for that 7080 percent. If. You want to do the math on it.
You. Know we did this trade. We essentially, actually. The $2 wide so we got about 55, cents I believe we, sold 202. And. Bought. A buck 48. So. 202. -. 148. That. Was about 54. Cents. Per share so. We took 54, cents, and multiplied, it by, 20%. Try. That again. We'll, do, point. Five. Four. Times. Point. Two. For, 20%. If. The spread, dropped down to around, eleven cents then, one may buy it back locking. In those gains, kind. Of the principle of that is you. Know if, one realized, the. Majority, of their gains for. Instance this is a thirty day spread. Let's. Say when. Tanks. Over, the, next week week and a half that. Spread, could, be. Fairly. Worthless, or close to being that way let's, say we realized, the, value went, from fifty four down. To eleven, cents plus, about an eighty percent return, on risk and you, still have another, let's say fifteen days left are you, willing to wait 50, days to capture. What's. What's, left of that spread the, risk, in the, remaining, gain, that you have unrealized. Some, traders may say no and thus lock-in, the game close out the position, free. Up the, equity and then, go ahead and open up a new trait okay, so. One, thing to, consider or something to consider as. You manage these exits, all, right. So. Let's, see where are we at here. You. Know one can still buy back the short strike if it's, five cents or less and avoid. The sixty five cent fee. On. The short strikes it doesn't apply to long, strikes, if you close them out. One. May use a technical. Exit, if the line broke resistance. So, in this case on, the. Position here. You. Know if we construct our spread and it's above resistance, one's. Expecting price to go lower, what if price breaks out. The. Reason why they got into trade if they're doing it technically may no longer apply they, may go ahead and buy back to spread that could result in a loss I then. Find another opportunity. All. Right so this is what we learned here today folks, we. Went ahead and we identified, a potential, entry, signal strike. Price and expiration, J expiration. Date for a short call vertical, we. Determine, the maximum profit and loss. And. We also calculated. A return on risk, and position.
Sizing, We. Also determine, potential, exit. Criteria and. How. To create, and place, a short, call vertical on the. Thinkorswim. Paper-money. Platform now. Encourage you to do is apply, what, you learn here today. Pick. A stock that may be generally, weather. Down trending, and may be trading, up to resistance, or it could be a sideways, stock, that you expect to stay below resistance. You. May wait for a bearish. Camel, to appear or, possibly. Look for the price to trade below or close, below the, low of that high day. So. If we kind of wrap things up see. If you have any pending questions we certainly love to hear from you. Take, a quick look at a few, other. Stocks. Here first. A glance at the market, so. You in the market, second. Day of a pullback. You, know did test, I got a 13 period moving average seemed to test that and come up a little bit higher kind, of trade in the upper part of the range there. So. It, looks like the markets holding up in the last twenty minutes there we'll, see where we go from here. Let's. See if there's any other stocks that may be, bouncing. Off. Of, resistance. H. HSBC. This. Is kind of more of an ATR. Once, looking at options they may need to look at liquidity, but just. Showing it from a technical setup those, price making lower highs and lower lows, tre. - resistance, moving averages can act as a resistance, and we see the price a bearish, bounce today as prices. Train below below, as a high de. You. Know probably to see a lot of bearish. Candle, reversals. Today, however, keep in mind you know some stocks could be in an uptrend. You, know an example of, American. Express you. Know price, is actually making higher highs and higher lows, you. Know may not be a. Bear. Call spread if, one, may be more inclined looking for bullish may look for the bounce that could, be an opportunity for a a. Bull. Put spread or a short, put spread looking. To construct that below support will, just discuss, that another time. And. Some prices are stocks, are priced very, low. EBay. An. Example of the stock that is down trending, I know, these are recommendations of buyers sell anything, just trying to give you a visual, of, different. Trends. And different, patterns known as examples, of moving, averages falling, acting, as resistance, lower. Highs lower lows you. Know resistance, point if, some traders perceive, that eBay, will stay at that price or lower you, know they may construct, a short, call spread or some spread outside.
Of That range so. If. Anything else. You. Know some stocks, priced a little bit too low there. You. Know Bob I'd you know generally, more. Of an uptrend but notice, price making. Lower highs. That. Can translate into prices, make and lower lows a trend. Reversal and, they. Some, traders may make the assumption that prices, may stay below those, previous, highs. Alright, so hopefully you learned something new today yes Jay there, are some bull, flags out there, you. Can review some of those in our webcast. On swing trading every week. Let's. Bring up our slides again. And. Wrap-up. And. I'm, not sure why we're having such issues with, their little drawing tools. You. Generally look alright. So. Here are some considerations for short call verticals, folks remember, add the money short call verticals carry more risk than, potential. Gain taking. A maximum loss on one short call vertical could exceed that, gains are, multiple. Profitable, short call verticals, that's, why it's important to find a reasonable. Return on risk, look, for a certain percentage and you're comfortable with this, 25 30 40, percent that way that can help offset potential. Maximum losses. Assignment. Risks exist the. Moment the trade is open regardless, of price and. A. Max loss is possible regardless, of the probabilities, key words probability. Not, certainty. At. The beginning of the tre transaction. Fees may, also significantly. Reduce. Profits, and also, increase losses. So. Remember folks in, order to demonstrate the functionality to platform we, had to use actual symbols, keeping in mind TD Ameritrade does not make recommendations. Or. Determine, suitability of, any, security or strategy, through, the use of our tools any. Investment. Decision you make and your self-directed account, is solely. Your, responsibility so. Thanks so much for being with us once, again folks we'll let you go for the day coming, up next James Boyd I believe, is going to be discussing some option, strategies, so, stick around bye, now.