Active Trading Strategies | Pat Mullaly | 10-22-19
Earnings. Earnings, earnings. Surprise. Surprise, surprise we're. Deep into earnings season we're. Gonna get into that and more so stick around. Good. Morning good afternoon good evening wherever, you are on the globe, this, is Pavan Lally this is active, trading strategies, it's Tuesday. And that means, that we're getting closer to Wednesdays even with pretty much what that means but, it also means we're also getting deeper, into the earning season we're going to talk about some of the surprises, we've seen look at some possible trade. Actions, that some people might take before, we do that though let's get into the, important. Information, and that is that options, are not suitable for all investors as, a special. Risk aren't hiren to options trading and may expose investors, potentially, rapid, and, substantial. Losses. Trading. Futures and Forex involve speculations, not suitable for everyone. Spread. Straddles other multi-day option strategies, can entail the, substantial, transaction. Cost that can significantly, impact. Trades with minimal. Potential benefits, so please remember that normally, in order to demonstrate the. Functionality, of the platform, we are gonna look at actual, symbols, symbols today, that does not mean that TD Ameritrade, is making any kind of recommendation, about the security. Or suitability, of that strategy or. The underlying, stock any investment, decision that you make in your decision. Your self-directed, account, is solely your responsibility past. Performance, is not an indicative of future performance all, investing. Involves risk including the risk of loss and remember. The transaction. Fees and. Commissions and other fees or important factors you need to consider those, even, though we have zero Commission's those. Apply, to online. U.s.. Exchange listed. Stocks ETFs and, options, trades. There, is a, $0.65. Per, options. Contract, fee that, applies to options, so watch those multi leg option strategies, alright. Let's. Get out there and get, to it today we. Are going to look at some options possible today so remember, Delta Gamma Vega theta and option sensitivity, to changes in price time, and volatility and the way that we might look, at strategy. As well as risks, in there. So let's get out there. First. Of all welcome everyone, good morning - Michelle Texas. John Terrance, Ali Mike and, all. The others that are about, to pop, in the room let's start, off today. With a, look, at the markets, this. S&P, the, SPX. Is up a quarter of a point today. Flirting. Flirting. Ever, so. Slightly. With, the. This. Kind of this downtrend. Resistance. You, know very so, where's the the high is, sitting, over here the high right now is.
Sitting At. 3:27, 98, that's, the all-time high there that's intraday, high that's not a closing, high closing high is, 325, 86. Right now if we, were to close right now we'd be at 314. 54. So. 10. Points 11 points away from all-time. Highs. We'll, see if that can happen today tomorrow the next day or, at all, we'll. See but this is an area of demarcation. We're. Looking at this inflection point here. The. Conviction. Indicator that we have down below showing. The strength. That. Up, side strength, that there might be is. With. A quarter. Of a point today sitting, up around 70. Percent remember. This has doesn't. Reflect, react, like a normal, light, like, an oscillator that you're used to seeing this. It can go up even though or down even though the markets going up so. On and so forth so. 70. Percent on. 24. To. 2 or a quarter, 4% upside day with. The. Market opened 3 hours now pretty. Strong as far as the, buying indications. Go and. So. Therefore, a, little. Bit of bullishness. Underneath. The, market, so with. That let's move on I want to start, today we're, gonna get into. The. Learning objective, here, today is to look, at ideas how, to develop, ideas around. Earnings, also. How. To develop. You. Know ideas, around what, you should do with existing, existing. Trade so let's start out with some, earnings. Trades I'm going to start out with a. Choji. Today, so let's, let's quickly look at a couple of them or don't come back here, so, harley-davidson. Gapping, up the day and the reason that's important, if we, look at this on a, I'm, going to move this over so. We, don't have. The. The. Conviction. Indicator at the bottom so what we're gonna look at here we're not going to really look at indicators today, we're going to look at price action remember, price. If. For the most part is considered, number one there. Is some jaggedness. About, price, so. Just, using smoothing. Mechanisms. Different types of smoothing mechanisms. And as you watch over, the as. You watch me we use different, types of indications, that help, give, us a little better information about what's going on but. I don't think you need to know or, use anything else when, you look at this this kind of action, that, we're seeing here. In. Harley-davidson. Today because. Strong. GAAP to the upside with, harley-davidson. And. That's a that's important, because with, that kind of with, that kind of move we, can, look in the past and we can look to where price has been we, can look to where price is now and start making some decisions possibly. On you. Know bullish or bearish. Investments. In trades so, let's take. This out I'm gonna pop the the, d down here for those. People. That want, to follow along or, might, be listening in. On. Their, mobile. Devices not able to see the. Screen I'm going to click on the letter D because I'm looking at a one-year daily chart I'm going to click on that letter D which is just to the top on the top of the chart just to the right of the chart I'm gonna pop that down and I'm putting in a 5-year, weekly, chart and if we put this five-year weekly chart suddenly the perspective, changes somewhat. In. That, there's. A couple of things that have been that are occurring. Another. From the upper, right hand side of the chart to the lower left. Hand side. The, trade the. The. Trend has, basically, been. Been, down the long-term trend has, been down on. Harley-davidson. In, the over, the course of the five years over the course of the last two years as. Well so today's. Action, a. Fairly. Strong, push, to the upside, an. Indication, perhaps, that. Maybe, there's, a you, know at least in the near term maybe, a change, in trend remember. Like, I like to say that, the trend only turns once, we, may get a couple of shots at it we may see price, try to change. But, when it changes when it finally changes, mr., the mr. obvious in me says it, only changes, once so, let's. Take a look at what's occurring, here so we're gonna you still stick to this five-year, chart to, give us a. Take. Out some of the daily noise of price.
Moving Up and down we'll, also take a look at what. Has. Recently. Occurred. And that's these two areas, right in here so I'm drawing a circle it's it's a double. Bottom of sorts. And. When, I say that it's a. Bottom. That occurred in October of 2018. Let's. See October of 2018 or, did it occur I'm, sorry it was the December, low of 2018. Rally, back up and hit the down trend line the, pushed. Through. And a bit, through the downtrend, line and, then fell back if. We were to look at that at that time and, I, activate, this drawing and then actually. Draw. This as it, as it, might have appeared, back then, it. Would have looked. Like, this so we would have looked at that action, as a. Possible. Turn but. On the weekly chart you can see it rolled right back over we put this on a daily, chart. And as, far as active, trading goes. The. The idea is to, look for those low-risk, ideas, as, far as entry, goes if you believe in the fundamentals, and, you use fundamentals, and technicals a, techno, fundamental, method then, you're probably we're, looking for certain things to occur, what. Didn't occur technically, is it was, unable to hold the breakout so we saw a break above the downtrend, line and fall, right back down on a daily. Basis, if we look at this and stick, with this chart right here and we, look at this double bottom now the. Importance, of the double bottom here, is, the. First. Reaction. The. The, reaction down so we get we, get this selling, that comes in. And. Then we typically get some, kind of a reaction back, to. The upside. And. We get a couple of reactions, to the upside and it starts building this base as it. Builds this base. What. We look for is the, inability for price to really, break down further, and that's what we saw back, here in August we see a break below the. Lows of last. December so it breaks below the lows of last December and that's, one of the first things we look for, the. Next thing we're gonna look for is, the. Price. To, regain. The. The, support. Level and start, to push back higher. So as this started, to drift lower it. Seems that all of the selling, had. Dissipated. By, the time it broke down below, this. Below. This support. Area there's, two things we want to know about volume, when we're looking at these things that. Might tell us that you, know there may be some. Some. Bullishness, that may lead to this. Bounce this gap to the upside and that, is the, two things we're going to look for as price, reaches, down into this.
Area Down in here is what, happens, with volume. Oftentimes. You're going to see price come into a support, area and you'll, see big volume, when we see that big volume in price and able, to continue, the lower that's. Oftentimes, that two-sided, trade. Smart. The so-called smart money coming, in buying, up the shares of the week the, the week long. Positions, that are finally, giving throwing, in the towel and selling and then all and then we see that volume the second thing that the, second kind of volume is the opposite we see low volume. And. We look for volume, to start to. Pick up now, we didn't seem really much of a pick up and volume here we get this kind of this double, distribution. And volume, but, what we did see is. As. We come, out of as. We back out of this. But. On this five-year weekly chart again that. And this is the way that trend lines go this, is how things. Just to, see the change you, can leave your original, trend line on there and then, draw another one whoops, and how did that get there. Draw. Another one and, that's. Going to be across, those. Failed. That. Failed breakout and you, can see when we do that and, price runs into, that line so, let me draw a circle around that price. Runs into that new downtrend, line and fails, and fails and fails but. It it also gives. Us a sign of strength what's the sign of strength. Sign. Of strength is when price runs. Up into an area and. Then. Falters. But can't really come back down right so, we saw that here, but it, came, back down and it was followed by this, last. Week strong, upside, move strong, upside move still. Hanging. Still. Unable. To breach. That downtrend. Line and then, we get this gap. To the upside the day now that's no guarantee that anything, is going to continue to the upside but. When. We look at gaps when you think about earnings. Gaps there's. A couple of areas that. Could. Could, come into. Play. In. Our decision-making, and that, is. Do. You want to. Where. Do you want to buy do you want to buy right now. Meaning, that go ahead and buy and expect, price to continue higher it has, just broken out it had a strong run, we're making.
Higher. Highs and higher lows right, now as you. Can see here, so, we've got the higher, hot the higher high. The. Higher low and now. Another. Higher. High so, the arrows are higher highs the circles are higher lows. So. We've got higher highs and higher lows that's, the definition of, an uptrend, early. Possible. Uptrend, I say possible, because you, never know what's gonna happen the, the whole market could take, Harley. Davidson, could there could be some changes but they apparently. People liked what they saw like what they heard about, the past and like what, they heard about the future and the present right now the present, right now is price, has jumped to the upside so if you wanted to jump in right, now we look at the 5-minute. Chart and. Here's. Their announcement, last, night it, pulled. Back on, the on, the open and, notice it pulled back about. 50%. Of the move the, overnight, the. Overnight upside, move on the announcement, so if we, use the gap not, not ignoring. Gaps and. Eclipses. Not, ignoring those gaps we actually dropped about 61%. Rallied. Back out so what, some people will do is. They'll. Wait for price. To penetrate, the. The. 30 minute high so if we put this on a 30 minute chart which. I don't have in here so we're gonna click five. Days. Try. That again click, on the five minute click on the time frame click. On where it says five minute or you can use this. Line. There. It. Escapes, me we might want to call that and pop, that in so we know the first 30 minutes is this red bar so, that we know that at, that point we know the, 30 minute high now this is just something that somebody uses some, people might use a 15, minute a 15. Minute, bar. Looking for price to pull back and then buy on the dip, you. Might use that you can use a. Number. Of other things, these, recent highs in here or. You can just look at the daily. Chart and if we pop out here into. I. Want to activate, this line, a little bit here so we can. See. This a little bit better when we go to a longer-term. Chart, come. Back out to the daily chart and what do we get we. Get rid of those Fibonacci's. Of what we get. And. If, I can grab that there we go that's. What I was afraid of so, there's the 30-minute high. And. The, first 30 minutes here's the day's low so. A, couple. Of things to think about here do, you want to buy as it moves out above that do you want to buy right now do. You want to buy on any kind of a pullback what a lot of people wait for is. A. Pullback. Meaning, they, look for price to settle, down and then. Maybe give some kind of a pullback ultimately. The. Bottom, of this the. Bottom, of this. The. Top of the gap the bottom of this candlestick, is, considered. A lower. Risk entry, for some folks in a, market that's uncertain, don't, be surprised, to, see price. Fill. This gap. Down in here so we've got different. Areas to buy different areas, to, by. Partial, amounts or you could look at a pullback. Of 50%, of that of. That today's. Candlestick, so where does that land I know, I'm giving you lots of choices here you need to know what, you're going to do and be very consistent, with that and the. 50% mark today, lands. Right at the, open, okay. The, 50% mark of that Candlestick the range of that Candlestick, is today's. Open. So if we zoom in on this that. You've, got three areas that you can buy that. Some people will buy you don't have to you can just buy right now whatever, you feel if.
You Feel like okay 38 and a half, is. Good enough there's, a couple ways you can do that you can put in a limit, order so let's come over here to the trade tab and. Put. In h OG. And. You. Could put a limit order in, so. I'm going to left click on the ask and, we. Can go. Back to the chart find out where that low is today's low is 38 11 so you can put a limit, order in today. To, buy below. The market at 38, point, now. There's, nothing that that's a an. Often. Used, method. To. Buy right there at. That low, and, start building a position, they partial, some people may partial, in may scale, in at that, area, so. You need to decide how many shares you'd buy so, if you were you know you need to know what your risk is going to be those types of things if, you only wanted to if you had, a ten thousand dollar. Ten. Percent of your total account in your account was a hundred, thousand dollars so you take ten thousand dollars divide it by thirty eight thirty. Eight eleven, and that would tell you how many shares you could buy and then you would set that price there so let's, do that so if we had a thousand, dollar or a hundred thousand, dollars and we were willing, to put ten percent. By. Ten percent the, worth of shares, of stock of that so it's ten thousand dollars now, we're going to divide that by thirty. Eight eleven or by, price and. That. Says two hundred and sixty two shares, now you probably would, be Barry you want to be cautious not dive in with. That total amount and it's up to you totally, up to you, risk. Of it, going, against you at, that point is. Probably lower but at the same time there is risk there so probably. By a little bit and then once you get, a little more confirmation, buy a little bit more of those types of things so, we might start off with a hundred shares that's, one thing to do the other thing to do is to, buy when it gets to the 50% mark as if, it pulls back down to that area so somebody might buy a hundred there at the, 50 percent mark and. Then. Maybe another hundred down, in. If, it drops lower or another, hundred as it passes the. Upside, lots. Of different ways to do that that's one way the limit or there's no guarantee, that this, limit order is going to get filled remember, that so another thing somebody, might do is they, might come out here. 24. Days out let's say give it a little bit of room and they, might sell. A. Put. So, the stocks trading at about 40, you could sell a put for, a lot less than what you could sold it for a few, hours ago, a few, hours ago it was about 85 cents now it's about 62, cents which is still better than the. Then. A 1%. Gain. Or, excuse, me a 1%, P&L change in your. In. Your possible. P&L change in your account but, that says that you're willing. To take. That stock away from somebody at. 38. 54, credit of 63, cents you're obliged to buy those shares now, if if, your limit order doesn't get filled. Then. And it, goes up you're what you're without, anything, is the argument. The. Argument for, selling a put versus a limit order but. At the same time if, if. The stock, drops. Sell. A put for, 62 cents and put. A limit order in to, buy a hundred shares you could do it a couple of a couple, of ways but. What we're gonna do here is put this limit order in or. This sold, put in and we're. Going to combine that with that, limit order at. 3811. So, sell. A put we. Buy the shares at 3850, if it, gets put to us if. It. Drops lower we're, willing to buy the shares, at 38. Another, hundred shares at. 3811. So, that would be setting up two thirds of that position. So. We'll send that off as well so, that's going to sit there that limit order is going to sit there so lots of different combinations, you can do it's, totally up to you you, could have we could have bought a put.
Further Out and up, the excuse. Me you bought a call soul. To put trying. To figure out a way to buy the stock lots of different things. To do if you don't understand, options, get with the, getting. Started with options, archives, learn about those watch barb on Fridays, when she does him live watch. Mike Foale ed on Wednesdays, and. For. Weekly. Options lots. Of lots. Of support, and education, for options, as. Well so. Aires, harley-davidson. Another one let's take a look at. McDonald's. And this is what I want to talk about this is a I'm. Gonna do I'm gonna go deep on. The. I'm. Going to go deep into the fundamentals, here or the technicals, here I'm gonna put this on a five-year, weekly, chart, and. Actually. Let's go back to the daily chart first, a one-year, daily chart and what we're gonna see here is I'm gonna start drawing some things, in here. And. I'm gonna put. Basically. A line, this way you could do that, you. Could draw. This. Kind of a thing either. Way what, we're looking at here is a. Possible. Head & Shoulders top okay. When I say possible, the, Head & Shoulders itself. Is. Completed. Doesn't, mean it's completed, any kind of a target so, this is the shoulder this. Is a head this, is the shoulder the neckline, is up to you on what you want to call it so there's a neckline that goes across here some people use a diagonal, neckline. That's, a fairly weak neckline. If we look at if. We look at the, right. Side of. The. Head and the right side of the shoulder volume, has picked up so, classic, head and shoulders. Top. There so the. Distance. That. We're. Looking at on, the, initial, drop, if. It, occurs is going, to be from, this top, up here down, to this neckline. So we'll put. That down in there so that's about $11. And. $11. $12, or so $11. Would kind of split the difference and. That's. From the, breakout area now wherever you draw the Bakke breakout, area it's down eight. It's, down eight dollars so a, big majority, of that. Head. And shoulders, has has occurred, already so, what somebody might do. Is. This, they may wait, for a. Pause. In, the. Direction. Meaning. A drift. Lower perhaps, or, maybe not maybe just to rally back up and then, a failure up in here and then. Continued. A continuation, down, and what that gets you what, they get somebody is lower lows and lower highs lower, lows and lower highs, the. Definition, of a downtrend. Okay, so we there. Is the, basic, lower lows and lower highs as, we, can see them in here right now. Lower. Low lower. High lower. Low lower. High and now a lower low so, what that the, way we can look at that is it possible any, reaction. Back to the up side oftentimes. A normal reaction and then, he's selling that, in that comes into play, is. Maybe. Advantageous. For selling, call spreads buying puts buying, put spreads and. If you are of the ilk of selling short shares, you, can do that remember if you sell short shares there's unlimited upside, risk. So. That's, why we try to do things that are defined risk now, that being said a, couple. Things going on out there if you watched me my class yesterday, we. Talked about possible. Changes that, are occurring, out. There if money, if things, manufacturing. Gets better across the globe and Europe. Gets better as we looked at their currencies, yesterday, and we looked at the the, emerging. Markets getting stronger that are over, the last month stronger. Than the SP, the European. Markets stronger than the SP if that continues then. We may see rotation. Into our. More cyclical, 's and out of our more defenses what, does that have to do with McDonald's, McDonald's is, considered, a staple and so, maybe we see money flow out of McDonald's not, that it's a horrible stock, it's, not an indictment. Of McDonald's, the. Earnings, a little bit more, and of what, the, markets, think about it right now but. It's just that money will go to flow. To where they feel there's more opportunity. So, that brings that up so I'm going to go back to this five minute, if I week. Our, five-year weekly chart and this, is one of the things I want to demonstrate. To. You. And. This was almost too perfect this, does not mean, that the.
McDonald's, Is doomed, but, there's a thing called Elliott, Wave stocks. Moving waves they move in they, move out they move in they, move out and so with McDonald's, we see the. Wave, number one here, and. Then we get the, second, wave now the second, wave of an Elliott Wave cannot. Go. Below wave, number one so if this is wave, number, two here. And. Elliot. Wave theory wave number three is oftentimes, the longest, so this, is what's interesting. That. This. Wave number one is about, 40. Is. About. 46%. I. Think. About a 40 to 46 percent run, and. Then. Wave, number, three here. Longer. Than wave number one and that was about a sixty, two percent run. And. Then. We have wave, number four which is oftentimes. Triangular. Or rectangular. In shape, and. Then. We get wave number. Five which, was this last, wave here. And. Oftentimes. Wave five is very similar in length to, wave four and this last wave on. This. Last wave here, was, about. 46, 40 to 46 percent somewhere they're very close so, they. Again. It it's almost too perfect of. A of, a wave pattern there so and then. The, what, that means is that the. Elliot wave runs, in five waves, so, we get wave. 1 wave to. Wave 3. For wave. Five and then, it starts to move down and then, the, way it moves down it moves down in three waves so wave 1 and we, get a balanced wave to wave 3. Which, may take us right into this. Zone right in here. Maybe. A little bit lower and then maybe we see. McDonald's. Start to base out, you. Know there is no such thing as. You. Know prediction. But, that could possibly, be what happened so you would watch for that out there in the future but we can see, the. Wave 5 if. This is truly away 5 culminating. In this, in or, in this bearish. Head & Shoulders pattern which. It's breaking down from, over, the last depends. On how you look at it and definitely, breaking down from it today let. Me check out some of the. Chats. Over here. Let's. See, saying. Hello to. Edie. And Diane, Ally Eric. As. Well as Chuck Richard and. So Ally says hdg, the long wicks. Shows. Some indecisiveness. Candlesticks. Looks like on. On Harley Davidson, looks. Close. To a doji, - otherwise one could use the middle of the gap for. Support, level absolutely, so again when. We look at gaps. It's. A shock event and. What. Ali's, talking about. And. By the way Ally I do appreciate the. The, the, messages. That you know that the. Tweets. And things that you put out there some, very interesting stuff. As well so. What he's talking about is there's again you can buy on a break above you can buy in the middle you can buy in the middle of this gap down in here it's. A shock event, strong. Volume. Shaking. Out some people where, do we know we're wrong we, know we're wrong once, it's filled this filled. This gap. And it's, breaking, down so, again. Knowing. Where you're wrong and being willing to admit you're wrong not, not. Trading. Defensively. Meaning, that you, want to trade defensively, with risk management, what.
You Don't want to do is trade. Not to lose you want to trade to win, meaning. That you're, not being, the tail is not wagging, the dog you're, not running. Away from a trade that's going against you just because it's going against you that's, going to happen it. May not be the right time to exit, and and. Then you will, get into a negative. Feedback loop so Barry you know buying, when. You shouldn't buy selling, when you shouldn't sell all different types of things so, that's. Important, to know your levels. Where you're going to get in know, that level where the. Idea, is no longer valid however you put that however that works out there. Volume. Activities, being minimal. On the right shoulder could, once, a McDonalds, pattern had switched to a wedge triangle, so let's. Get back to McDonald's, and. So. There's always a, so. This is the way this. Is the way these patterns, work somebody might have said hey, McDonald's. Has. This. Wedge. Pattern building, up or they, might say it's a. They. Could say it's a. Descending. Triangle. And that's what you're going to see with. Head, & Shoulders bearish, Head & Shoulders pattern is going to be descending, triangles, wedges are going to be on the right side well. However you look at it, the. The. Typically. Thought of is bearish if they've, gone too far time. For a relaxation, then. You. Know no matter how you slice, it, probably. Wasn't a wasn't. A good. Bet. To, think that, McDonald's. Was going to really break. Out and move higher because, of the length of the run it's had over the last five years and. The the. Indecisiveness. Recently. Of buyers. That were selling into this, into. This we look at the five-year chart on. McDonald's. And. Over. The course of the last, since. The since, the top here really. The. The down volume, weeks matched, the up volume weeks. Going, into, the Head and Shoulders pattern we. Had, this. Big. Week to the upside on, just. Basically, average, volume, so that wasn't a good sign either, but, right. Now that's. In the past we, can only trade right now we can't, trade in the future we can't trade in the past we can only make decisions on the information, that we have right now so with McDonald's, making its move strong, move somebody might look to, wait. For this to run back to the upside and then make a decision to. Get directional. They. May look at this as an, over. Overdone. Literally, coming in here with, McDonald's, and, selling. A put the. Short-term put, take. Advantage, of any over, the next. Say. 24. Days. Selling. A put that has a good, probability, remember. Probabilities, are theoretical, in nature and, not guaranteed. So. Somebody, might come in here and sell a. 195. Put that's only six dollars away on, McDonald's. This 190, 195. Put, takes, us down below a. Couple. Of different things so, projection. Wise down. Below any, any. Fibonacci. Projections. Those types of things and, down and, to support, so somebody might do that take, advantage of a, shock, event big volume, when you have a lot, of volume. Oftentimes. Especially. Coming off the top that means further, downside but when volume gets so big a, lot, of people will come in and say this is an opportunity is cheap and so, somebody may sell a put not, because they're bullish just. Because. You know in the long term because they're taking, advantage of a, sharp sell-off in, the, near term now if you sell a put you're going to have to be willing to buy the hundred, shares of McDonald's. At 195. And. We're doing this for twenty four days so. This is a cash secured, put and. Remember. That can be put to you on or before expiration, and it, does have transaction, fees so, we're going to do that and we're going to send that one, off as well, alright, let's look at.
Something. That's coming out, tonight. And, that's, going to be Chipotle, Mexican Grill. CMG. Another. Restaurant, tour, this, stock is trading at eight hundred and thirty seven dollars my. Goodness who would have, believed that after, looking at this, trouncing. That it took on all. Of the bad the. Bad news. That it had about. Infectious. Diseases, and. So. It dropped from around, 700, all, the way down to 250, just, to make you feel bad because, at that point everybody probably thought they were you, know going. To be toast when everybody says that. They're done somebody's, done when, everybody, is saying that's the easy trade to the downside or they're they're going bankrupt oftentimes. That might be when they turn around who knows if, that's the case because that didn't work for Sears, certainly. Didn't work for Sears but. Moving. To the upside they do have earnings coming out let's go over to the trade tab and let's talk about earnings, real. Quickly because we do have, something. That, gives us a little bit of heads up on. Earnings, and that is the market. Maker move and. Before. We do that we had to put in troponin a Mexican Grill. CMG. The market maker move is $57. That's moved up two dollars over, the last hour. So, what does that mean market, maker move the. Market maker move is the markets. Look. At, the. Amount of order flow changes and, implied volatility. And that's. As we, get closer to, the. Evening or, the afternoon, we're. Seeing more volatility, getting pumped into these options, as that, means it's going it has the possibility according. To the market. To. Move $57. To the upside or $57. To the downside could, it move a hundred dollars to the upside or a hundred dollars to the downside, sure, absolutely. Again these, are. Basically. The idea, of probabilities. Based off of what the market thinks. Lexy, me says I like, CMG for lunch, very tasty. Absolutely. And. Then so. The market will. Anticipate, a few things and so Ali says buy on the anticipation, sell. On the news and. So, what we're going to do is something. Neutral, so if somebody's buying on anticipation. Selling, on the fact when, the news comes out. Then. It. May run, up and come, back down run. Down come, back up we're. Going to look at something hopefully, we'll see how it pans out right now we're going to look at something that may have a. A. Higher. Higher. Possible. Gain. The. Probability, is not going to be great so if the probabilities, not great then you want a higher possible. Gain so, what we're gonna look at doing here with, Chipotle Mexican Grill is, doing what's called a calendar, spread if you don't understand, this again, we have plenty of education, what, we're gonna do is we're gonna sell, the. Front week which, has an enormous amount of implied. Volatility. That's, right here so that eighty six and a half eighty, six point eight five is the, implied volatility, on an, annualized. Basis, so they've got. 86%. Implied. Volatility. Into this typical. Implied volatility. On just a regular day not anywhere near earnings. Is about. 25. 26, percent I think let's. Go over here what we're gonna do is are going to come to the analyze, tab up, here in the top left. Top. Left right. Here and I'm going to click on that tab, analyze, and then I'm going to come to the sub tab think back and then, I'm going to. Try. To grab, these pull. These down. And. Type. In see mg. And. Let's. Move to. A, less. Volatile. Period, so we're gonna move back into September. We'll, pick September. 3rd. September. 3rd you can see the. With, three days to go until. Expiration, three. Days to go till expiration. 28%. Implied, volatility. Compare and contrast that to today three. Days to go until expiration. 87%. Implied, volatility, so options. Time price and volatility when we looked at those disclosures and. The Greeks time price and volatility how options. The sensitivity, to change, it to the to. The options premiums, those. Go. Into, higher. Implied. Volatility, means higher prices. On the, option, lower implied volatility, lower prices. On the option so we know the options are, pumped, up they. Are pumped, up, out. Of the ordinary, right and so we've got a lot of extra, volatility. Premium pumped into these options, so, what I'm gonna do here is I'm going to I'm gonna sell. This. 8:35. Option. That expires in, three days taking. Advantage of the, implied volatility, expecting. That implied volatility, to drop why do I expect it to drop because. Going. Back to the trade. Our think back we, know that it typically, tray implied, volatility, is typically, in the 20s mid to high 20s. Come. Back to the trade tab it's nowhere near that so, tomorrow on the announcement, it's going to start to drop that.
Implied, Volatility, if I sell, this option, then implied volatilities, going to come out of this option making it cheaper okay. Again. It could move fifty seven dollars or, more that. Could be that could make this a painful trade, so, what we're going to do is we're, going to neutralize that, somewhat. By. Buying, the. Same strike. Price 8:35. Except, we're going to go, 24. Days out and, so. Let me put. This into four. Go. 24. Days out and. Buy. The, buy. The same strike, out. Here in in. Time so let's see what this turns out to so, I'm going to right-click and I'm gonna buy a calendar spread, the calendar spread there's a is a time, element meaning two different months, same. Strikes, two different months and then, I'm going to as this, pops up on the trade tab I'm going to move this out to, the, 15th. Of November, I believe that is the one 15th, of November, that, gives, us a cost of five dollars and seventy cents there's. A lot of downside. Speculation. On this the skews to the downside, on these if you look at the volatility again, to learn more about that get with Mike Follette on Wednesdays. Wednesday. Mornings, and Wednesday. Afternoons in Cameron, may options, Week in Review. As, well there are our options portfolio. On Friday, mornings so, what. Does this look like let's, go take a look I'm going to right click and I'm, going to analyze. This, trade so I'm going to put it over in the. Trade. Tab and the risk profile. And. Take. A look at this trade so when, I put my cursor right up here in theory. In a perfect, world this, this. Green line here, hopefully. Everybody can see that this. Line right here there's. A peak here that's. What makes this low probability, so, in a perfect world if price, lands right at this peak on expiration. Day which is only three days away even. Though we have this one, that expires, 24. Days out we're. Focusing, on the short strike, here, even, though so. That expires in three days in theory. According. To this profile, if you look at this box over here in the, left hand corner.
Down. Here, you. Look at this gray box right there there's. Going to be some numbers in that when I mouse over this, peak it says. $2,400. So, you, could risk five dollars and sixty cents per, share times, 100, multiplier. 560. Dollars to, make, mm. Oops to make. 2,400, or so in a perfect world meaning you it landed. Right at the short strike right at 8:35. On, expiration. You're right there everything. Goes out and. You. You. Take your profits so you that's a pretty that's a pretty good risk reward however. There's, a large, amount of volatility pumped, into this trade so we have to take an account, for the. Volatility. Both in the front month in the back month so, if the volatility right now on the trade tab here is at 86, we know it's going to drop into the upper, upper. 20s, what we're going to do is manipulate this, by. And, to get a better, idea of what could possibly, happen no guarantees, nobody knows what volatility, is really going to do or what, time. It's going to take to do things where, price is actually going to be but. We're gonna what if it to say well do. I have a, am. I getting enough reward for the amount of risk I'm taking so we're gonna take this and look, at that 86%, we know it's going to be around. 30, so there's about 50. Let's. See. So. About 56, 57 58 percent. Decay. In. Volatility. Tomorrow. And the next day right it, may all happen, tomorrow and if we look at the one. We're buying hey guess what there's. Extra volatility, pumped into the one we're buying into. This case to tune to this about 13, points. Of implied. Volatility. So. To pop that open. Put. Minus-13. Implied. Volatilities. In there now let's. Look at the profit picture the. The nothing. Else has changed we're still gonna have to pay five dollars and sixty cents per, count and per share on this, hour five hundred and sixty dollars but, notice in that gray box there's, a thousand. Dollar difference it's, still, fairly. Healthy you, get your five hundred and, sixty dollars back or your five sixty per share times one, hundred dollar multiplier, plus, fourteen, hundred and fifty one dollars, and. Let's put this on breakeven, let's figure. Out where our breakevens, are to do that we're gonna come down to the view, menus, or show actions, menu tab go. To set slices, as that, window pops open go, to break-even, and come, down to the, day. Of, expiration. Which happens to be the 26th. And. Our. Breakevens. This, number up here is 78% chance of making something. There's. Because. Of the way things, are calculated. That. Number, is probably skewed is probably really more of a, 35. 40, % chance, but. There's way. Out of the money options, that when. We get close to expiration especially. Around earnings. That, are probably going to Speas queuing this number so you want to be careful of that you. Learn more about that again in the options so our breakevens, though our 881, to the upside 794. To the downside, if. I go. Back over to the show action menus and set. These slices to the charts, I'm. Going to click on that and. Pop. This actually, let me redo that remove, all whoops. Remove. All the drawings. Go. Back over, to the analyze tab pop. This down I might have a couple of different trades in here set. Slices the charts and. There. We go so there is. That. View, right, there is. Our. Breakeven. Points anything below this, lower yellow line. The. The is. Starts. To lose money or an expiration is a loser or above. Here so it, doesn't look like a lot, here but you think about 832. Down. To below. 95. You're still within that market maker move so you're counting on maybe, a flush out to the downside and then a bit of a rally or. Really. People not even caring to, the upside that's one way of doing things, until. You understand, this I would suggest you practices. In your paper accounts. Don't. Just run out there helter-skelter. Doing. This if you cannot afford to lose your. In, theory, you cannot afford to lose the five hundred and sixty dollars in, theory this is your risk, that. Can be different lots of things change people can change things be, careful with that and well, I'm going to do this one time because of the low probability, hit, confirm and send remember. There are transaction. Fees along. With these alright. With. That I want to check on some trades and see if we need to just. Close some trades with the time a little. Bit of time we have left Netflix. So. Netflix, we have ten days left in. The. In. This. Trade here we can see Netflix, selling down today, let. Me get a one-year, daily chart on here really. Holding. Holding. In this zone over in here we, look at the go. Back to the monitor tab and look at the trades here we have a vertical. 303. O 250, short call and 305. Long. Call two and a half dollars wide. Spread. And. The. Trade, price, on that was 60 cents it's worth three cents those.
Are Basically, worthless, you. Can go out and go ahead and close those out you can try to. Squeeze. Out another three, cents if you want the. That, is Netflix. Rallying, back. Up above 302, if you don't think that's going to happen in the next 10 days you, may just you, may just leave that alone. The. Other one the other thing we have is I put this on actually, last Friday and this. Is, and I put it on a different account but I brought it over here this is a put and. We. Soul we bought the put for. $11.95. With, a target, of. 255. In other words we, bought the 275, put slightly, at the money maybe slightly out of the money and we. Paid 11 95 for, it it's worth $13. The, target, is down, here at 255. This, lower. Let. Me change that color. That. Lower. Horizontal. Line, that's. Below. Diagonal. Support, we'll see what we'll. See what occurs but that's going to be the target so nothing to do nothing. To do there. As. We look at some of our other. Trades. I pH I not. Doing so well. We own a hundred, 80 shares, of that and we, have a short, put as well. At this 65, at. The 65, strike. Stocks trading, at 63, 76, we, put that put there to buy shares of I pH I this, is in the semiconductor. The. Idea behind that is, was. Is, that we're. Out, there in the future may be expecting, semiconductors. To do better now, you have earnings coming up and. Those earnings, are coming. Up on the. 29th. It's. Not going the right way for. Some folks their rule is, that. If they, don't have a profit. And they're. Going into earnings earnings. Today's. What the 20. What's. Today the. 22nd. So, really. The rest of this week and into the, into. The middle portion. Of the end of the middle of next week. Someone. You may want to close that out because they don't that don't have that profit, in, there and that, would be a decision if if, your if your rule was, that you, know I don't, I'm. Gonna let my stop. Hold. I'm gonna risk that thousand, dollars, that's. One thing another.
Thing Is if I've seen this before and it's not good I don't, have a anything. Can happen on earnings and you want to exit that's another thing one of the things when we look at this chart pattern is that. When, we get you've heard me talk about this before and this is just more, proof that, oftentimes. When price moves, above, the middle portion. Price. Will go to back, to the. The. Resistance. Line when it drops below the. Middle portion oftentimes. It will drop down to the support line, and. It looks like that's, occurring, again. As well volume, is drying up in here so, one, of the things that somebody might do is. Pull. That over anyway so one, of the things they may let it penetrate, that, before, it drops to the downside or if, you're saying hey you know if had got too big of a loss right now now, some of that loss is from the. Willingness to buy the. Stock at 65 go back to the chart where, 65, its. Way, the heck up here right so. That's up to that's, up to the person I'm going to right. Now leave, it alone and see how we end up going, into the end of end, of this week. What. Else we have in this account. Apple. Still find apples, cooking right along with 300 shares of Apple. Look. At Apple and it's still up, trending, nothing. Needs, to be done with that since we just own the shares applied. Materials, having. A bad day we are along a hundred, shares and we are along a. Two. Calls out. There that. At, the. 53. Strike and those are. Going. To expire in 38, days again. Here, two. Dollars and thirty cents we've lost, 60. Cents on those at some point you've. Got to make a decision especially on your long options, long directional. Options if, something. Has to move. If. If. The price of the stock has to move so far just. To get back to break-even in other words if you're down if. It if. The option has to move over a hundred percent to get back to break even on the option how often how often you get a hundred percent moves, on your, option, trader, ection option trades with, a lot, shorter time, you, probably want to think, about closing. Those out oh this is American tower that's interesting, sorry, I said any Matt didn't I it. Is a Matt I'm looking at American Tower we own that one too. There. We go a Matt, and so, it's still banging. Around up in here give. It a little bit more time but be. Careful. If. You're. Halfway through and you've lost half your. You've got a heck of a lot less time for, that to rally back alright.
That. Takes us to the end so lots. Of the in summary basically today lots of things to. Recognize, and that. Is that. As. Far as earnings, go gaps. Can provide, possible. Upside opportunities. If they're strong gaps strong. Volume. Moves to the upside you just have to pick your, point where, you want to be a buyer and you, know try, to make it as methodical. And, repeatable. As possible, have, your guidelines, otherwise, you're just out there, throwing. Hope out there and and you've got to treat it like a business and and. If you treat it like a business that means you're going to buy when you're supposed to buy you're. Going to buy those those, products, when you're supposed to buy them to help you out you're, gonna sell when you're supposed to sell and. You're. Going to not risk too much so use. Those keep those ideas in mind there's lots of choices we have on how we trade. Those, those. Earnings. Remember, that what. We've done here is for educational, purposes only and your. Investment. Decisions that you make in your self-directed account, solely your responsibility. All. Right thank you very much everyone and we'll talk to you soon just check in the chats bye-bye.
2019-10-26 11:55
