Bearish & Bearish/Neutral Strategies | Trading a Smaller Account
do [Music] well good morning everyone the bell has rung it is 9 30 eastern and it is friday so it is time for trading a smaller account and there has been a lot of excitement in the markets my friends over the last well so far this year let's be honest but the good thing is in this account we trade a lot of options and so we have strategies in our trading kit bag that we can use if the market is going up if the market is going a whole lot of nowhere or if the market's going down so today we're going to have a look at the markets and we're going to try and place trades that will take advantage of whatever the market is doing we'll also be looking at some of our previous trades i'm delighted that you are all here so i am getting a no data sign just one second can you hear me one sec so i'm delighted that you are all here um good morning to vijay and frank and mansoor and lamar and doug and juanita and sandeep and vijay and bill and andre and denise and brian and lou and brent and gretchen and robert and andre and neil and tony and krishna and marcy and larry and ganesh and sarah and doug and and louis and mary and david and wow and the list goes on so and to sunny money i really like your handle um i really like your name and ap 514 and lou and dev and josefina glad that you are all here and i've missed everyone just know that you are welcome if you are wondering what is going on and why the child is so busy we are a community that meets on a weekly basis and is so if you are brand new here please type a greeting into the chat so that ken and i can welcome you um and just know that we meet same time same place every friday and i hope that you will continue to join us um it we have ken rose in the chat with us today i have the privilege of working with ken uh during this class almost every friday he brings a wealth of experience with him one of the things i love about ken is that even before the class starts he's providing us with information on what's going on in the markets it looks like we could be starting again in the red particularly in the tech sector so thank you to ken for joining us um so if you've got questions please feel free to type into the chat and can or i will answer your questions if you are one of the majority who actually catches this in the archives know that you can type in your comments if you love something um or if you there's something you'd like to see more of you can type that into the comments if you got a question you can type that into the comments as well the last way to reach us is via twitter at the armstrong underscore tda or for can um at k rose underscore tda we're posting useful content on a daily basis every once in a while particularly in weeks like this i like to post a little humor um because i think you know we all need to pause and just laugh on occasion right um but yeah so and that you can respond to anything that we post on twitter and ask question questions that way as well so and welcome it looks like we have a lot of new people with us so welcome to each and every one of you let's get to our important information so we can get to our menu today and right down to business we have 45 minutes together every week and we want to pack in as much information as we can um that that you can move forward and use on a daily basis so know that this is an intermediate level class so if you are brand new to uh the world of trading and options in particular this is going to feel like drinking out of a fire hose so let me know if there is a strategy you're totally unfamiliar with and i will put a link in the top corner um to the getting started with options class that pertains to that trading strategy okay um know that options aren't suitable for all investors there are special risks inherent to options trading that may expose investors to potentially rapid and substantial losses make sure you understand what your potential gains and losses are if you're new to td ameritrade you have to apply for option trading privileges also in order to demonstrate the functionality of the platform we use actual symbols we place a lot of paper money trades but know that there are some differences between the live account and the paper money account and it behooves us to understand what those differences are okay one of them is that in the paper money account a short option will never be assigned early can that happen in real life yes have i seen it happen absolutely know that all investing involves risk including the risk of loss okay okay so what's on the menu for today this is going to look a lot like it did last week because it hasn't changed our our agenda or our menu we're going to go out and look at what's currently happening in the market we're going to look at the previous trades that we've placed um our example positions and then we're going to look at what to do given what's happening in the market so trade management new trades what's going on in the market okay so let's come over here okay what i'm going to do are we getting any buffering so let me know if you are and if you are i'll cut my picture um you know so you don't have to see me for this to be effective um but just let me know in the chat if there's an issue there so let's start with the s p 500 and you know we can see that out of the last five trading days one two three four five six trading days five of them are red and we had you know this up you know kind of up trending channel and it has now broken below that it's also below the hundred day okay so just a sec i'm gonna cut this picture i'm gonna just cut that for a few minutes and we'll see how we're doing so and if we back the truck up and look at a little you know um further perspective i mean last year was extraordinary so last year you know the s p 500 was up about 26 um and it you know it actually nudged out the the nasdaq so you know but right now what we are seeing is a break below the 10 the 30 and the and the 100 day moving average and it's also broken below this uptrending channel and then if you look at it and we say well what you know is considered correction it would be anything that's more than a 10 pullback so if we change our drawing tool you know we're down about seven and a half percent so you know we're down seven territory but we're heading in that direction and so you know definitely this you know short-term trend not bullish my friends how about the nasdaq well the nasdaq is kind of more of the same isn't it it was kind of more of a sideways channel it's broken below that again you know it last year was extraordinary between 20 and 30 percent which is you know on average you know one might expect you know the s p over the last 50 years has done about 10 a year um you know and so last year was extraordinary but we're off to an extraordinarily poor start you know this year when we look at the nasdaq no exception we you know some might have said oh is this a double bottom and others might have said uh looking more like a double top and and if we look at this and say it went from 156 67 to 16 644 so i'm just going to get my calculator out 16 6 call it 45 and 15 678 and 967 point drop if we looked at this as kind of a double top or a triple top and so if i took 967 and i subtracted that from 15 678 that would be 14 7 11 and where is it it's close to that now so you know if we look at that break below that neckline if we looked at the neckline is here now if we looked at the neckline as a little bit lower if i activate this and move it to here that would make the drop expected drop bigger and say we maybe have more to go here and where are we down from the top well if we look at our top is over here we go to the tippy top down to today's bottom you know that's 12 that is correction territory so there we go guys if you can still hear me know that if something happens with this webcast and i'm not able to complete it i will re-record it and we'll post it as quickly as we can okay but hopefully this is coming through and we'll be fine all right so that's our nasdaq how about the dao well kind of more of the same like this is the the one that has pulled back the least um or you know we're still seeing a higher a higher low here although it's broken down below this low and this you know of the three had been kind of the most range bound but it did hit a new intraday high back here um on january 5th and now you know it's down you know kind of similar to the s p but it's down the least six and a half okay thanks for that feedback guys i appreciate that okay okay so we're seeing a short-term pullback okay it looks like every everybody is saying things sound fine so i'm just going to continue moseying along that's great thank you for that okay so here's our dow and we haven't looked at the russell yet let's look at the vix and then we'll go to the russell because we do have a trade on the russell so our vix is up again now when it comes to choosing a strategy and we see that the vix is up do we lean more towards buying or selling go ahead and type that into the chat so should we looking be looking more at buying or selling um if we you know if push comes to shove and we have a choice because you know we're up really high like we've spent most of our time since last april in this 15 to 20 range and we're up at almost 27 today yeah and now we're going to come to the rut because we have a trade on the run and so this is our last one and so for most of the last year this has been trading in a range between like 21 30ish and 23.60 ish and then last november it broke above that and it was kind of oh is this a legit breakout looked like it but then no it was a fake out came back and you know all the way back down to this previous support level you guys you know what we've got a bright bunch here absolutely you know so selling you know when we've got a high vix it means premiums are pumped up we're also coming into earnings season so earnings as far as the eye can see so we might want to you know focus on selling strategies so we look at this and and now it's broken below our support level and it hasn't bounced um it didn't maintain this diagonal potential support line and it's breaking down again okay so we actually do not have a trade on this that's expiring today but if we come to our monitor tab and we look at activities and positions and we come down to our iron condor we have one that expires in a week and even though this is the 2130 2125 and it's through both strikes so you would think like why would i even bother closing it out i'm going to take the max loss but actually it's saying the mark on this is 405. we're still 95 away from a max loss and this one the 2120 2115 we're through both strikes on that but because we have time in our favor and because volatility has gone up we actually have a we're a small profit not a large profit but a small profit on that and it's through both our strikes 2120 and 21-15 i'm going to draw that on the chart just so you can see it um okay so let's get rid of this because this was something that i wasn't expecting when i started trading verticals i just thought if it's gone through both my strikes i'm at max loss so here we are 21 sorry i need a different drawing tool 2120 edit properties so it was 2120 and 21.15 i'm going to
just put the lower one in here so it's through both that strikes and some would say by a country mile and yet we have a profit still a tiny profit on that trade might it behoove us to take that tiny profit and might it behoove us on the other one where we sold the 2130 which is basically where this black line out to say hey we don't have our max loss yet but it's not looking good so we're going to take our lumps on the one and our tiny profit on the other is everyone in agreement you know we're so you know there are lots of different ways we could handle it we're just going to go with this particular way now if today and and this is a brand new candle so by the end of today this could be a bullish candle or we could have a heart you know not a harami but we could have you know um a candle that indicates that it's finding a bottom but you know it's been in this range for so long we'd have to go back a long way like here was a potential support level well it's through that this is a one year chart we'd have to go back to two two years ago where's the next one well maybe around here well that's you know that's still not going to help us in the short term right okay so we're gonna get out um the trading fee is 65 cents per um [Music] leg of the contract so this has a and actually this one would think we put it in our iron condor bucket but our idea was that we were going to leg into it so it's a 65 cents for each leg so it's going to cost us a dollar 30 well and now we're we i talked too long we had a little profit now we have a little loss but we're going to go in and close this out regardless oh now we have a 35 gain we're going to create a closing order to buy this back at 375 we got paid um more than that for that one let me just come over here 21. so that's saying 375. okay let me just come back out 410 yeah we sold it for 410 we get out we're that's a 25 gain we're gonna take it um confirm and send our transaction cost a dollar thirty and then because this is an index there's an additional fee and so although we put this in our iron condor bucket this actually is a short put vertical so that's the first one the second one it you know it would cost us 415 to get out what would max loss be five dollars so that's a 245 dollar loss and you know what we're going to take it it's you know our budget is that we don't want to lose more than 400 dollars on any single trade so we're going to put that in at 415 and look to exit okay so i'm just going to let those work um but our plan is you know oh sorry just a sec working orders 415 385. okay there we go i want to make sure i don't have two exits in for those okay so that's the russell and we had some damage and we wanted to manage it and so that's how we're going to choose to manage that one now we also have a buy right covered call that expires today on devon and you know at the beginning of this week we would have been in a position where you know we were um going to be called out and so let's come and look at devon now it looks like it's down today um because we were looking at we had a profit on this now so yesterday it kind of found this bottom um and then looked like it was going to bounce it's coming down again today and if the whole market is pulling back and if we come over here and we look at this i mean hmm it may take a minute to load because we're still early in the day but usually throughout the day this will update but i mean it's showing us that everything is looking to be in the green another way for us to look at this if we come to we can come to the market watch tab and if we come to i usually post these at the end of each day sorry so we can see here if we look at a specific index like the nasdaq we can see you know netflix's way down but we can see actually there's a lot that's up today so you know it's not all totally doom and gloom here we have a couple of big players that are kind of tugging at things so you know and why might we care about that well when we look at devin it's like okay do we want to exit this so we could let this expire today but if we come and and so then we would get to keep both the stock and this dollar 22 that we were paid we're now down a little bit on the value of the stock but we do have a stop in place that's below here and if we just if we say well we've got a resistance level here that could become support what we could choose to do is buy this um sell another call if this bounces and if it doesn't then we'll exit the trade okay so what we're going to do is just let this by right covered call expire today and we're going to look at at this technically as with an expectation that this old resistance level will hold this new support this is and why might we you know be willing to look at that well if we look at the energy sector it has been one of the top sectors over the last month over the last week over the last three months you know and michael is is typing in role and you know what i looked at rolling this so and i absolutely did look at rolling this so why did i choose not to roll well when i teach getting started with options and we talk about covered calls one of the things that we talk about is would you sell a covered call when something's at support or would you prefer to sell a covered call when it's closer to resistance so if we look at selling this 50 call again say out in for february 18th when i looked at this yesterday it was paying four dollars for the 50 call right now we'd get a dollar fifty so if we had rolled this yesterday we'd already have a really nice profit on this but given that it's pulled back 250 today we're better to let this expire if we're still bullish on this so it looks like we're out here um [Music] it so it look we're better to let this expire and wait for the bounce and so that's what we're going to do but i like the way you're thinking on the rolling idea okay so that's how we're going to end up managing this i mean the markets are fluid so you know i kind of sometimes start the class thinking one thing and then you know we come back and we end up doing something a little different now we had a put on pen do you like my alliteration so we had to put on pen so we we bought a put on january 10th now i think that was a monday so we've kind of done this is a companion class you know with long options on monday so i teach long options on monday at high noon and i always try and place at least one or two trades in that class that go into this account and then we either manage them in this account or we manage them in the monday class and and it's a way of us getting to meet more than once a week okay so we i took a survey you know and we agreed that we would try and do that so this was a class um a trade that we placed in there and just coming back to the trade um you know we bought the 45 put and then it was a one atr trade so we said if it just goes down the amount that it typically um you know it it can uh we'll we'll get out and so we had a target we got out at 5 35. so when we take a look at this so we looked at a couple of trades that have not worked out profitably let me just bring my drawing tool over here so with this one let me just so when we take a look at our 535 and we subtract the 370 that we paid to get in that's actually a dollar 65 and then if i take the dollar 65 and i divide it by our 370 which is how much could we have lost on this trade we could have lost the entire 370 even though we did have an exit in so if we want to call this our return on our investment because we invested 370 or we could call it our return on our risk because we were risking 370 dollars it turned out to be a 44 return on investment and so we're going to come and look at penn because could we kind of wash rinse repeat on that or could we place another you know a neutral to bearish trade on pen so let's come and look at the charts and see what's cooking with pen i can type so when we take a look at this you know since it hit this high back in march of last year pen has really been down trending and you see here that we had a target of 41.99 yesterday you know it it tried to rally for one day and then we ended up with a close below the low of the high day and so you know if we look at this we say like you know could we do the same thing again you know we have earnings coming up but if the market tends to be pulling back this is in the consumer discretionary sector so you know it's pulling back as well could we just do this one atr strategy so when we look at this how much is this moving in an average day about 255.
so we could say okay uh where's my pen okay 255 and i'm going to bring this up now for those of you that are new you know our account size here is 20 000 is what we started with we're actually up so far this year by 249 dollars um you know which is a tiny miracle given what's been going on with the market um [Music] yeah yeah our max position size is 5 000 and our max loss per trade that we're allowing is 400 or 2 now if you had a larger account you might say i would never risk 2 but the the challenge when you have a smaller account is that if you're not willing to risk you know a certain amount the majority of trades you can't do and in fact i was going to look at and time may preclude us from doing that a trade on a line but the spreads are ten dollars wide and there's just no way even though the trade might look delicious and look like it's about to be profitable we can't take the trade even doing a spread because our risk is over four hundred dollars and even if the risk is only 500 and you're saying but it's close to 400 100 dollars is 20 100 difference 500 versus 400 is 25 percent more and so sometimes we just have to be disciplined when we have a smaller account and as much as as we wish it would were otherwise if we're saying our hard and fast like we might go 420 but to go up to 490 or 500 it's just bigger than we're willing to risk you know and that's why we have these risk management things in there you know which we're grateful for when we look at a trade like the russell where you know it's not going according to plan now you know if the russell bounces and gets back in that range might we place another trade sure it's not like that index is dead to us because we had a losing trade overall you know worse we've still been quite profitable um on trading the run okay so coming back to penn if we looked at penn and said here's an example of a one atr trade so our one atr oops atr is two dollars and 55 cents so our target is going to be the current price which is also kind of or the low for today which is 41 16 minus 255 okay so i've got my calculator here 4115 plus 255 minus 38.60 is going to be our target and our x set if this does not go according to plan we're going to look at today's high of 4220 4220 and we're going to add 255 to that so 44 oops so that's 44.75 and so we're going to come in and have a look trade tab pen we're going to come out to february 18th is only 28 days so we might even come out here a little bit further and say okay if we look at where it's currently trading it's our at the money strike is 340 how much could we lose we could lose 340 on this um so we've only got two contracts so we might say well i either want to come up here where i've got 10 um but you know we've got a 25 cent spread which isn't bad so if we just stick with this 41 and say okay we want to buy a single and then we're going to come to single order first trigger sequence we're going to right click create an opposite order and we're going to make it a market order that's good till cancelled and we're going to come over here and say we want to exit when this goes at or below 38.60 that's the goal 38.60
or if it doesn't go according to plan and we've seen that that can on occasion happen we're going to get out at 44.75 okay so there's our two exits confirm and send how many contracts do we want to do only one yes we do have a trade on fang in this class we have a short put vertical on fang um and we're going to put this in our our long put bucket so somebody asked if we had a trade on fang and we're going to put in here one atr strategy it's just a reminder from us to us on why we're placing this example trade um there is a 65 cent fee now are either of these exits a guarantee well if the stock gapped up or gapped down we may not get out at exactly this price and we did a long put one time where it actually did gap down and instead of having a 20 or 30 or 40 percent return we had like a 300 return which very much worked in our favor but it could have worked very much to our detriment if it had a gap to the upside yeah okay so there's pan so we've got that teed up and i'll make sure that one goes in um coming back to the monitor tab we're going to come back over here we have two short put verticals so we have a short call vertical on airbnb we've got 70 percent of our max gain on that and two weeks to go so some might say you know this has been such a wonky market if we come and we look at airbnb we might say you know here's our our short call vertical 175 and 180 it but you know we've got if we've got 70 percent of our max gain and we've only been in this for a week we may just choose to take it um doug what i was doing was when i placed a conditional order to get in i was adding 20 cents to it so i wasn't adjusting the atr i was adjusting the entry if we were waiting for something to close below the low of the high day or close above the high of the low day if we were bullish that's where that came from so with this airbnb we're going to come here to our airbnb we said we wanted to get out when it was worth 25 cents we're going to say you know what 39 is fine we're going to cancel and replace that and say we're going to get out and take that little win yeah short call vertical so there's our profit and you know some might say you know that's not a lot of profit it's not but it's not a big account and it's amazing how these little wins can add up now builder and fang fang was profitable two days ago but let's come and look at these so fang so fang has come down to this support level and so if we want to be patient it's still you know here's our 115 110 and actually my intention was to close this out today but now that it's come back to the support level we might just see if this holds and exercise some patients because we still have some time left on that now builder looks like it's continuing to fall today so with this one because it's now falling below this support level and it's still a live candle so it may rally but it's through both our strikes and so we might say well you know what um have we taken boat you know are we at a hundred percent loss on that and with builder we're down 265 so we're 435 and the most we could lose is is if this went to 500 so we we could lose another 65 on this and we do have 28 days to go and so with this one we might look and say well let's wait until the end of the day today and just see if this rallies and ends up back above here and if it does then you know there's still 28 days for it to rebound when we look back at this stock this is in the building space it has done extraordinarily well you know since you know july you know it's gone from what around 40 to 86 it's more than doubled in value okay uh deb is saying are we going to do some more short put verticals yeah better to take a small loss than a max later why close the position now um and that's in reference to the to the russell we decided that we would prefer to take a small loss now rather than potentially a bigger loss later and the primary reason the primary reason for that was because the russell has given us no indication yet that it it is ready to stop falling now if we were meeting at 1 30 this afternoon you know we might have a hammer pattern or something here but given that we only get to discuss this type of trade once a week um yeah that's why we chose to take a small loss because it's way through here's our strikes here's our bottom strike and that's how far it is below our bottom strike and and that's why we chose that and it's just an example of how one might choose to handle it you know others might choose to handle it differently you know but it blew my mind when i first looked at this stuff that i could get out of a position that looked to me like it should be a hundred percent loss and it and it wasn't okay okay so i want to do one additional trade before we wrap up and so let's look at adobe adobe so here we have adobe you know it's part of the tech sector it had been doing pretty well if we come to the trade tab though we look at this price earnings ratio of 50. like that is high so we've seen a lot of rotation into value i talked about that yesterday in portfolio management basics and we we placed a couple of value um trades conditional orders on value trades but when we look at this you know this is if we were looking at this as a bearish trade now one thing that might be cause for concern here is that we saw this low high you know definitely a lower high but kind of a similar low so it you know if we're looking at this we could do like a one atr we probably can't afford to do a one atr in this class because when we look at the options at the money this is a 500 stock so 1895. if we weren't willing to risk 500
we can't risk 18.95 could we um but it also if we look at this could it be finding support here so if it's range bound maybe we'd rather sell a short call vertical and say you know hey as long as it stays below this 545-ish might that work and so it let's come and look at the trade tab again and say okay 5 45 if we come out you know 28 days so we need more strikes that could be a good sign 545 so what's our delta 20 so you know if we're looking for 20 to 40 this is saying it's got a 78 chance of expiring worthless and so then the next question is well is the juice worth the squeeze are we going to get enough premium so if we look at 90 on five uh a five dollar wide spread that's about it's just less than 25 percent and if our goal is we want it to be at least one percent per day we're in the trade as a rule of thumb um you know we're in for 28 days we might say okay would we be okay with going to 540 that's a 75 percent chance of it expiring worthless so if we look at cell vertical 540 545 now we're talking so if we come to our calculator and we say okay 117 divided by 3 5 plus 383 oh shoot 117 well now 102 is 25 divided by uh 398 is about 26 and so if we're saying okay that's close enough i would take that and if we come out here and we say 545 would we be okay with 540 well let's move the line 540. yeah that that looks like it's still a support level so we're going to do that short call vertical 540 545 we're going to put in an exit right when we get in and say hey when this gets to the point where it's worth about 20 cents let's take our risk off the tables we've got you know over 80 percent of our max gain how much are we risking we're risking 390 dollars can we do more than one contract we cannot so short call vertical guys i always wish we had like twice as much time because there's always like so much that i'd like to share with you um you know but if you want to practice just get out there and and click through what's happening on the nasdaq um there are a lot of stocks you know moving um and shaking today and and place some practice trades in your paper money account because we can no more learn how to trade by just attending a webcast and watching me place trades then you can learn you know how to ski by watching me go down a hill at some point you got to stick your feet in the boots as terrifying as it may seem you know click into your skis and actually get on a chair and actually one of the scariest things is when you first start is getting off the chair right like it's like learning how to swim it's getting into the pool um but you got to get wet or you've gotta you know and you've gotta not be afraid to fall although i've gotta say i fell at deer valley last week i don't even know how i felt like you know sometimes these things happen i haven't fallen in years and it was really quite annoying anyway guys um that's a wrap for today i've noticed that there is a survey in the chat um so if you would do me um a favor and fill that out here's my commitment if you commit to fill it out i will commit to read every single comment that you put in there so if there are things that you love let me know that if there are things you'd like to see more of let me know that if there are things that have helped you let me know that let me know what you know what would be helpful for you to see because ken and i we're here we do it for you so i appreciate in advance you taking a second to fill that out it'll take you about 10 seconds depending on you know how vociferous you want to be in your comment so i think we did what we set out to do we looked at the current market conditions we looked at examples um and we placed a couple of new trades and we were trying to take advantage of one the volatility in the market and the fact that there's a lot that's down trending keep in mind that oops wrong button um keep in mind that everything we do in this class is for example purposes only we use um actual symbols and lots of them um but you know what then none of it is to be construed as a recommendation any decision you make in your live account that's on you but i encourage you to follow along place these trades and if you're new to this it's going to be um a little challenging and so what i would do is i would write down where we were time-wise so i could go to the archive if i didn't quite catch how to place the trade and then i could back it up and and watch again um to just get the mechanics of how to the place those trades and then sometimes i had to watch a couple of times um just to place um the survey was just posted let me just here i'll repost it again uh there we go yeah ken's been great about posting it a couple of times so there we are i think i've got it in there there may have been a little extra but there you go anyway guys that's a wrap for today i hope you have an awesome weekend doing whatever it is that you're doing know that all investing involved involves risk including the risk of loss so thank you thank you hit that like button if you're new to this and you found this interesting don't be afraid to come back hit the subscribe button and you know link arms with us we meet every friday rain or shine we start in the dark we end in the light um you know so that is both a reflection on the time of year here in like salt lake city um but sometimes i know when i was a client trying to figure this out the light would go on mid-class and i'd go oh i've got it and it felt so good so i hope that some of you had an aha moment today have a great weekend i'll look forward to seeing you in long options on monday at high noon eastern take care everyone and a huge thank you to ken for bringing the value that he always does to this class bye for now
2022-01-22 21:13
