Bearish Defined Risk Swing Trading | Swing Trading (Days to Weeks)
Day everyone John McNichol here and welcome to swing trading days. Two weeks. Those Yeah, joined us. Last week We talked about some defined risk trades.
Looking at the bullish move. As well as taken advantage of volatility. We're going to attempt to do the same thing here today with bearish trades, whether take advantage of volatility as well as potentially take advantage of price direction. So stick around. All right. Hey, it's great to
see those that are live with us. Today We got wildly VJ Sandy, bluesy Lamar Juanita Tony. Randi Sandeep. Think we said VJ Chuck F. Yes Michael Wayne, David and everyone else. Mr. James Boyd is
helping out on the chat. And I know many of you probably saw you on the last webcast with my good friend Pamela Lee. We'll keep that momentum going there today. You can follow both me and James on Twitter. It's our first initial last name. His is at J B O Y D Underscore TD A and you can see mine on the screen at the lower right throughout the presentation. Ah Also
another reference. If you're following along with us, you'll see that there is actually a subscribe button right above my Twitter handle there. So on top of following me On Twitter. You
can follow me on YouTube as well by clicking on subscribe and turn on notifications. That way you could be alerted to all of our upcoming Webcasts. Whether I teach him James or some of our other fantastic instructors such as Pamela Lee Cameron may and everyone else, So do appreciate that. Let's take care of
disclosures, folks, and we'll get right into it. Contents intended for educational information purposes, not a recommendation of any security strategy or account type options not suitable for all investors. Please read the characteristics and risk of standardized options spread straddles of the multileg option strategies often involved greater more complex risk, along with multiple commissions, which can impact any potential return. Make note with a long call or put position the entire cost.
The option is at risk. As well as short options. They can be assigned at any time up until expiration, Regardless of the end of money him out. We'll be talking about today with some of our spread examples. And while
this Webcast may discuss technical analysis, other approaches, including fundamental analysis may assert very different views. And stop loss order will not guarantee an execution at or near the activation price. Once activated , they compete with other income and market orders. There's my bio for those that are interested. If you are new to this webcast welcome would love to hear you. If this is your first Webcast. The pace of this
Webcast is a little more intermediate. Maybe advanced for some people. But certainly encourage you to follow along. And likewise, look at our trader Talks Channel and on the education tab with think or swim and Tdameritrade website. We do have a whole series of getting started from technical analysis to options and everything in between. All right now, let's go ahead and bring up our agenda as I mentioned. Well, then review
current market conditions. We do have the Fed coming out with their announcement tomorrow that can certainly add to volatility on top of everything else. The knowns and unknowns as far as with the Ukrainian and Russian war. Ah as well as other events such as inflation and interest rates. Now Because of that, we're going to focus our continued theme on defined risk traits, and we'll identify what a short call vertical and a long put vertical art. Ah hint. These are examples of defined risk bearish trades. And we'll also
go ahead and demonstrate how to place each of these spread. Trades will continue tracking them and those that joined us last week. I know that we had Ah done two examples of short put verticals to take advantage of selling premium when volatility is relatively high with the expectation as well. Take a look at the markets of the support.
From the previous week, holding and potentially benefit from a neutral to rise in prices as well as with a subsequent drop in volatility. Um, we're going to look at it a different way as we look at the market and some of the individual examples So starting off with the S and P 500. Not a significant change as far as the pattern that we've discussed not only here, but in our breakout and reversals class, which is tomorrow. Mr
Cameron may will be covering down on that class tomorrow as I'll have some military duty and you may see me in and out over the next couple of weeks. Ah So with the S and P. They're trying to still down, but we can see how a potential CAHOLD-- not sure quite there. I think we're
just about there. We look at the high from yesterday. 42 47 57 40 to 52. So we are above the high
of the low day So we are seeing a CAHOLD-- and some traders based off of that and maybe focusing on more bullish trades. With the expectation of prices continuing to rise. And there may be some stocks that are doing that. Ah we can see that
we're still kind of holding that range. Now some concerns from a bullish perspective and, uh From why some may be more inclined on being bearish is, you know, looking on some of these sell offs being relatively strong and still has a ways to kind of penetrate into that we're actually We kind of zoom in on This day. Just going to kind of use a Fibonacci tool just to measure 50% kind of the half way of that candle. The mid range of
these candles can potentially act as support and resistance. Kind of the mid range there and looks like that's about the 50 Mark. Right there. Now we have about an hour left into the market. So from a bullish perspective. That's looking pretty good. As far as a
countermove coming off of that support. If there was a fade in this last hour, and we're below that zone That would be a bit more indecision and failing the kind of penetrate that distribution day going out a little bit more. Doing the same thing. Ah with if I can do the
same thing with this other day. It looks like that would be about the 50% 1 2nd here. Just kind of showing some short term levels. That bulls may be
looking for kind of sign of the reversal, not to mention you know, we're still in the middle of a triangle. You know Which way is this thing going to break is going to break into a bullish reversal. Is gonna be a bearish continuation and Ah! Both sides of the coin can agree to disagree as we can kind of see that mid range as far as where prices may go. We're seeing similar things. Let's see if we look at the Russell Russell still holding support more of an inside day or a Romney so still in that range. Not as strong of
a bounce as the S and P looking at the NASDAQ. Now the NASDAQ did have a break and support actually went a little bit lower than what we saw on the 21st. I think that was a 21st. Now it's 24th. Okay. We did get a snap back here. But notice unlike the
S and P, we're seeing more of a descending triangle. Which has a tendency of implying more towards a continuation. Although that's not a you know, certainly not with a certainty. Just like
any triangle. They can be a reversal or a continuation. It's a little more relative weakness.
Air we'll look at the Dow DJ X. Similar to the S and P A stronger bounce, possibly with a lot of the multinational companies, uh, possibly benefiting from some of the drops in Some of the commodities out there. And likewise still unknown as far as with the international risk. But possibly
benefiting a little bit after being hit a bit hard over the last couple of weeks. Okay so still kind of neutral ranges here as we go into the Fed tomorrow. And not only will investors be keeping an eye on The decision but looking at the dots, as is commonly referred to some of their longer term projections for interest rates, whether they're still having similar projections, or if they're changing that view. So we look at volatility volatility has dropped. Still in an elevated range. And from an options perspective. Uh some
traders may you know, look at trading based off of volatility, or at least see the impact of that. With volatility being relatively high and if the expectation is volatility dropped, uh, that would benefit. Long positions. Whether and not necessarily bullish or bearish, but basically long options. If
the vowel Ah correction. Nope. I'm little dyslexic volatility falls will benefit short options . Short options Sell high. Buy low, Okay, I need to repeat that myself sometimes, okay? Ah so options premium still relatively elevated, compared to what we saw a little over a month ago. Now volatility can continue to rise. If the markets break some of those support areas. So there
can be risks on both sides of those options, Okay? So with that. Let's go ahead. And, Oh, one other thing. And uh, you know, as far as, uh, bias. You know those of you that followed me in this class and ah You know, we have been looking since the beginning the year you know some of that shift in that posture, you know to be in a little more on the bearer side. Question is, you know it? Will that change. And Ah, we'll see if there's going to be some catalysts with the Fed tomorrow there, however, from a technical standpoint, And there's something I shared Ah, in some previous classes. I'm gonna go
ahead and bring up An example. They? Oops. Give me a second here. Did not want to do that. Going to bring up an example of the S and P On a monthly Average. Ah with looking at a 13 month, exponential moving average. Okay And, uh, as we look at this Notice. This is the
first month. And we're we'll be rounding it out. Now. Things can change over the next several weeks, but currently we're below that average. Now there is potentially a higher low here, so this could be a possibly short, relatively sure live correction. But if we go back in time, the last time that's happened was back prior to the Covid crash. In February. Ah ah ! And with the Fed, uh, Temper or the taper tantrum back in was at 18 going into 19. I believe
And then prior to that, you can look at some of Some of the larger corrections as well as bear markets. Both the. Going back to the great recession. And then if it one goes back forward , you can see some of the crossover from the tech bust. Okay Ah, what I used as an example. Of a bit of a Ah, I guess barometer It is bullish versus Barasch and had been focused around 40 to 95 area was if there is a weekly close below that A shift in bias and that occurred last week. Okay Now we are potentially seeing bullish reversal and if we're able to see a nice rally that gets back above some of those areas Kind of closer around that 4300 that could potentially build on some of that bullish momentum, but again, keeping an eye as far as what that trend is. So we'll see
if the Fed or any other positive news coming in the world will help with that, But that's just kind of gives a bit of a background as far as kind of the thinking as far as an overall bias that even though we may have a bullish bounce, there still is, um, potential resistance. It had for the markets, and then we'll basically do some practice trades that are kind of tied to that. So let's go ahead and Bring back on her agenda here.
So last week we had talked about short put verticals, which were taken advantage of that support We identified from previous week now we're going to do is look at from the other side. From a short call vertical that if an instrument, maybe more in a downtrend, trading up to a resistance area, looking to possibly take advantage of that swing down with a potential price target in mind. Ah and we can do that with whether a short call vertical or a long put vertical. These are both examples of bearish defined risk strategies. Ah they differ little slightly as the short call vertical is more of a higher, probable trade that receives a credit. And the idea
is we just expect that the prices stay below that resistance area over the duration of the time. Whereas the long put vertical and some Jari join me for that class on Thursdays with long verticals and diagonals, that's slightly directional. Trade were not only we expect in the resistance to hold or support to break but looking for price to drift down or trade down, possibly to a previous low or the next support area, Okay? So let's go ahead and let me just double check. Some of you may have some questions there. Yeah, and let's
see where we're at here. I know James answered a couple of them. Roger Ji says defined CAHOLD-- do you consider the wick? That's a good question. I know James may have an opinion on that, if the consideration as far as the wick when it comes to a high or a low Active traders have a tendency of incorporating that shadow or wick into that analysis. Now you may have been looking. Let's see if we go back to the charts here. For
instance, here with SPX-- notice here is the wick or the shadow priced trading above the high of the low day. Well, what's the high? All the high is. Essentially that Wick and I know I have horrible penmanship here. You know, I cannot make this crayon any center. But there's the high There's the low And the idea is on this day to have the clothes to be greater than that level. Okay, now that being saie
of an inside day like hammers or inverted hammers or even Haram ease? Well the Haram ease. Typically, you're going to have a small wick anyway. And therefore looking for prices of trade over some traders may focus on the body's here but from ah, consistent basis. We have been focusing on the highs and the lows. Okay? There you
go. Sam says, because swing trading can refer to both now, not necessarily one if one is looking at it from a standpoint of entry day, the highs and lows are part of that intraday range. It's the same thing with support and resistance folks. Some traders may look at that as areas of support. Whereas others may pinpointed off of those highs and lows and you can see and my analysis when it comes to Fibonacci, as well as different price levels seem fairly consistent on, usually looking at Some of those highs and lows. And it may fall within some of those opening and closing ranges as well. As you can see some of
the bodies touching along there . Okay Alright. Great question. Let me see if there's anything else there and we will move along. Ah! Now Sam. Ah if you're looking to do stock trading Ah, we do do some stock trades, but one of things the challenges here is ah, one. As far as the stock trade One is putting up a lot of equity for that trade, too. We can also see on how
dramatically markets can move both to the upside and the downside. And one of the tenants here on Tdameritrade Education is trying to define risk and seems these are relatively shorter term trades. We're looking to try and capitalize on them with options. And some of these may be in the context of a spread trade. Okay, so hopefully you'll file along with that.
Let's go ahead and bring up thinker swim platform. And with a couple of the examples as some of you were mentioned about things such as CAHOLD-- Ah, we do have some productivity tools . Although not the topic of today. Uh you can go ahead and see those scripts here as well as on my titter Twitter feed. And looking to see if prices may be relatively bouncing. Which would show up in green. Ah, Red
would be more of a bearish reversal. And anywhere in between. Potentially maybe in between a bullish or a bearish bounce. Okay, would encourage you to look over on. A Twitter feed. I'll go ahead and actually forward that for those that are here live And you can look on the pin Tweet, which has the explanation on bringing that up.
All right, let's go ahead, back on the think or swim. A couple of examples was that we were looking at here. Ah a few of them. Let's start off with. Let's start off with American Express XP. Bring up a XP. And
I'm going to go ahead and switch switch or style back here. So here's American Express now from a longer term You know, the trend has been up. Over the near term. We can see that prices
have sold off. And I'm going to go ahead and bring back up to a daily chart. You will see a dramatic sell off here over the previous month, and prices are retracing up. Ah potentially an idea of broken support. Acting
as new resistance, Okay, looking at those lows. Here There's a 55 day moving average. We've utilized this as an example of a bullish bias versus a bearish bias so coming up and testing that now American Express can continue rallying up. And
trading higher. Some traders in this example may wait for a bearish candle looking for the price to trade below the low the high day. However we're going to do an example of a bear call vertical where one may have the expectation that price while at least stable, low. This resistance area. Look to sell a call. At one area. And then by a call. Or be long call. At a
higher area, and with this old do is this will define our risk. Within this spread. The risk will be defined based off of that long call cover in that short option position. Okay? So to go ahead and do that. We're going to go ahead and go to the trade tab. And as far as a matter of time. Ah this
consideration may be looking at somewhere in the 20 to 50 Day area here. This kind of falls within our time frame in days to weeks, usually kind of the sweet spot as far as depreciation is in that last month. However as with any option trade, uh there is an expectation to time. You know how much time does one need? For the price to go where your expectation is now, In our example, we're just looking forward to stay below resistance and I think I was looking at Ah, the eight April Eight. April is
24 days out. It's also part of the weeklies now. One consideration as far as with weekly options. Sometimes they may not be as liquid as a standard options. We can look at the difference between the bid and the ask. And to highlight
Ah! The difference between that spread. No more than 10% of the ass price. So as we look at that, 12 10 ask as an example. Ah the difference between that and that bid is about 45 55 cents. Do that, right, So that's
certainly less than 10% of that as price. Ah one of the benefits of the weeklies is we may have a greater selection of strike prices. Although ah, in this case looks like they are about the same But in other options, you may be able to do that. And
what we're going to do here is we're going to look to sell and out of the money option. Someone that has a delta somewhere in that 30 to 40 range Now, right here we have a 1 85 strike. That has a 35 delta Now what That does is not only means how much the stock is expected to move with a $1 move in that and the option. Is going to increase with a $1 move in the underlying to the upside. It's also the probability and selling options if one was to sell an option that is in that 30 to 40 range.
That's a probability of somewhere around 60 to 70% of that option expiring worthless, which is desired outcome. Now if I went ahead And simply right click. On this particular option . Actually, I'm gonna do the 35. Right click. And do sell. Vertical. We're basically creating a short call spread.
Now This was the opposite. The short put vertical we did last week. Where one. We're looking to create a spread at support that may support a CAHOLD-. In
the case of the Short call vertical. We're looking at example of an expectation of resistance. Holding And possibly a couple load or price closing lower and trading lower. Now
it's going. Look at this example. This results in a credit Ah, we may have to collect a little bit less. But right now, the mid price showing a buck 53. That's times 100, which is our multiplier. If I do a confirm and send, we can learn a little bit about, uh one are potential gain is the credit received. That's $153 to our
risk. Is that credit? Subtracted from that spread in this case, that's a $5 wide. So five minus a buck 53. Should come out to be in $3.47 times, 100. So this is where that defined risk is. It doesn't matter how high The stock goes, our risk will be defined within that 3 47. So
let's say if I wanted to risk $1000 on this trade How many contracts can we do? About how many contracts can we do? We can do three. It'll push a slightly over. 100. Let's see what that looks like. And one can practice and position size accordingly based off of there. Tolerance for risk. That would be putting
at about 1062. Now the other instant thing with this trade is the break. Even ah, the 1 86 46. That's what gives us multiple ways to profit here. If we go and look at the chart 1 86 46.
Will mark the line here. 1 86. Right about here. Pretty much right off of this 1 52 just below this area here. So notice that we basically have a break even Ah, that's above what are anticipated. Resistance is, in fact gives us a little more wiggle room. So if the price stays where it's at It's profitable. Ah the price goes
down. However slight. It's profitable. Even if the price goes up slightly, it will be profitable. Off of that break, even minus any Ah, transaction fees, Okay? So. This would be an
example of a bearish trade where if the price goes ahead and swings down something of similar duration. Trades down to that low. We can potentially go ahead and close out that trade at a game Now, what are some ways of doing that? Let's go ahead and send this one through. And we'll
go and we'll look in example of our put verticals from last week. We can apply the same principles here now one thing to keep in mind. Is That short strike. That short strike is at 1 85 if the price does go above 1 85. That option would be in the money and one is at risk. As of being assigned, which means they wouldn't be assigned 100 shares of this stock short.
However if it's before expiration, there is a long option. To offset. Any loss on that short position defined by that 1 90 strike. Now. We're looking to close out this position prior. To that expiration. Whether a if we reach a profit target, we'll talk about that a moment or if we get into that last week of expiration. Somewhere kind of in
that 10. 24 day range kind of seven days, right in the middle. All right. So let me go ahead and send this one through. We'll see if we can get that one filled We do have that filled as an example. Go ahead to the monitor tab. And there is
American Express. That's added there. So there's our short call vertical you'll notice. We have some other verticals in here as well. Ah! We did a short put
vertical on AutoZone last week, and we also did one on Nordstrom's. These were bullish ones. And we're expecting the price to stay above 55. In this
case for AstraZeneca, Let's take a look at that. This was the support we're looking at. And by the way, folks, if you believe that the market may hold or some of these stocks may be bouncing off support. That could be
another consideration, but notice we've had a favorable move in the stock. It's held that support And so currently profitable. And if we go ahead and we take a look at Nordstroms Jwn. Not much follow through from last week, but still holding that support. We're just
expecting that that support will actually hold All right. Now. Let's talk about profit management. One way you keeping track of profits on your monitor tab under activity and positions. Is having a column
for P and l percent. Ah you can come over to the gear over on the right hand side. Click on that and go ahead and look for P and l percent. So there's P and L percent right there. You can double click. It'll move that in the column. And you can left
click and drag that wherever you want. Or you can also utilized to move up, move down arrows to do that. Now for the short verticals. So that would be this example. This example in this example Um, ideally. A profit target, maybe somewhere around 70 to 80% of that maximum game at any time, Okay? Ah Ah ah, And in this case. You can see auto
zones at around 64, a half percent. Now, with that example. We're still 30 days out, and here's kind of the idea. Ah if we're somewhere around 70, and we're pretty close to that right now. Is one willing to risk. The game. Willing to risk that game to collect what's left over the next 30 days as a lot can happen. Ah now one thing is if we go ahead and look at AZ and again. Is kind of what is the
bias? What is your expectation now over the next few weeks? Well. If one wants to speculate and wait for the Fed. Ah, see if those prices go higher. We still have a bullish candle, although it could potentially be an inside day. If prices started
backing off. You know, that could potentially be an exit strategy. Okay? Ah if we go ahead and we look at Nordstrom's now Nordstroms not is not out of profit target. This one's going to take more time if prices are going sideways with this type of spread, it's more of the time spread. It may just take more of the passage of time. For that option to be profitable. That's
what we refer to as time decay. So as we're managing that Bright clothes on Possibly close now, AutoZone. In the case of American Express, if we see that get around 70 to 80% we can go ahead and look to buy that back and simply, we can Right click. Create closing order. And by
back that spread. And that will go ahead and close out that position. It's also what we can do in that last seven days to expiration last week. If we haven't realized or gains and we're kind of in that last week , then we may look to go ahead and close out that position and only Nordstrom's. We're probably about a week out from getting into those 10 days. All right. There we go there. Now let's go
ahead and take a look. We're going to talk about one other example. So we did a short call Vertical take advantage of Some of the higher premiums since volatility is higher. One can collect a higher credit versus what you may have been able to do a little more over a month month and a half ago and have a reasonable return on risk as I was looking at some of those examples there. One of the calculations on the trade. I go back to our monitor tab. Go back
to those filled orders. We create a duplicate order. Just take a look at this. So in this
example we're risking about 1065 to make 4 35. If you take that maximum gain, divided by the maximum loss that would be our return on risk. That's a common Ah approach. On a defining your returns. On a spread trade, so
let's go and switch to gadget. And he believes calculator if we take 4 35 Divided by 10. 65 What's court Try that again. 4 35 divided by 1065. I believe.
Nope. I did that wrong. Four. 35 divided by 1065. That's about a 40% return on risk. Ah. Now with that. Ah! That's a little bit on the higher end. Ah compared to
what someone may have been able to do about a little over a month ago, and a lot of that is tied to Volatility being higher and so, therefore premiums being higher, Okay? And Ah, so that's how we have that set up there. I just want to make sure that I did. My math right is actually 4 35 my mistake. Should still be relatively higher. Yep. There
you go. 40% Okay, if one's able to collect a premium of somewhere along the line of 30% That's kind of one of the sands that we've kind of had looking at a 30% return over a 30 Day period would be kind of a balance between the higher probability of that trade as well as the risk that is associated with that, so hopefully you found that helpful. Let's go ahead and do an example of a long Ah, put vertical and I think one of the ones that was looking at was an F. Yeah, Let's bring that up. Enough Abercrombie and Fitch. I believe we go to the analyzed tab. Look at fundamentals. There
we go. Looking at the chart knows a similar setup that we're looking at with American Express. If we Ah, go back and look at this. This is actually
been a longer term area of support at least over last year. Broken support has a tendency of acting as new resistance and kind of an example of kind of bear flag trading up to that now whether this ends up being a shooting star Will see now we don't have a blood. Yet Some traders may look for more confirmation if the price trades below the low of that high debt. Haven't quite seen that, for instance, this would have been an example back here as price closed below the low. Of a high deck a couple out and that type of character or an inside day would show up or potentially show up on some of these scripts if they are red. Now it's not a recommendation of buyers selling security. One needs to do their
own due diligence and look in the context of price trend, support and resistance. And look at things such as reward to risk as we've been doing with some of our examples. So let's say we do an example of a long Put vertical and in this example I talk about these more in my long verticals and diagonals class on Thursday. Is where we're looking to do is we're looking to buy one option as an example of a potential stock replacement. In this case, a short stock and one of the risks with short stocks is one. The risk to the upside is unlimited. Two There's no
guarantee you can maintain a short stock position as the broker can call those shares back in, okay, and also, uh, more capital is tied up in the trade. So what if we want to do something similar expect the price to trade lower But do it in a defined risk amount, locking up less capital and have a reasonable return on risk. So in our example of the long put vertical should do that for us. So we're going to go to the trade tab. We're going to select You know, I think when I was looking at this earlier, Ah was looking out to Ah, I think April there. If we look at the April
this would be about 24 days. You know, some traders may want to go out a little bit further, but one thing here knows on the weekly charts. These have dollar Strikes. And at 30 Days has
dollars strikes, too, so we can possibly take a look at this one as well, giving ourselves a little more time. I'm going to look on to put side we're going to look at an option that's a little more in the money. To kind of simulate potentially the move on the stock. Except this would be about 60 to 70 cents on the dollar. We're going to buy
one of those there were select a strike. Where we believe the price may be trading at Over the next 27 to 30 days. We go back and look at the chart. Let's say our expectation is the price to trade lower. And possibly be somewhere closer to that previous low. That's around 26 a
half Or pick anywhere in between. Let's say, uh, we would go ahead and maybe take a look at the I think I was looking at the 28 levels somewhere in between. No actually did look at 26. That's like a 26. So I'm going to go ahead and click on Where it says by here Next is 32. We're going to right click.
We're going to do by. Vertical. Now knows this is a debit. So now where you have a long spread that we're going to pay for Now What's interesting with this is the most we can lose is what we pay for that option. Now I do need to change the short strike. Where we're targeting. Which I believe I said was about 26. So
right there. That's our potential target. If it trades down to 26. It's at 26 at this expiration. That would be the maximum game. We're paying $2.50 . So no, that's a lot cheaper than whether buying stock or even buying individual option.
If I do to confirm and send. We can see our maximum loss is what we pay for. It are maximum gain is 3 45. That's over. Uh, let's
see, uh We take the. 3 45 divided by 2.50.5. 3 45, divided by 2 55 try that again. 3 45 divided by 2 55. That's 135% return on risk. That would be
typical for long to add of the money spreads in this example. The other interesting thing is to break even 2 29 45. Which is only 50 cents away from where we are right now, so the stock does not necessarily have to move very far for this to be a profitable trade minus any transaction fees. Now the only difference as far as risk with this trade is we do have a long option. That is In the money. Now there's no obligation to be put the stock but if we hold this Going into expiration. We
can potentially be put that stock Now the only way of resolving that is to close out the position before Expiration, and we'll do the same thing looking at closing out in that seven days or Ah, you know, 10 to 4 days before expiration that last week. We can position sizes as well to a maximum loss. Let's say I'll do this four times 1234. Hit to confirm and said. Risk in $1020, and we're positioned sizing that to a maximum loss. It's also how much capital were tying up on them, plus any transaction fees. I'm
going to go ahead and we'll send this one through. I'll make sure that one gets filled. And what we'll do is we'll manage these the same way now on the long verticals. The long verticals. We're gonna set a different target. A commonly have used an
example about 50% of that maximum game. Or the amount that's put at risk. So if we see these percentages on a long spread Get closer to 50% We may consider closing that out. In fact, I have an example of a put spread that I did in our Ah Advanced options Strategies class. That is Up 30. Based off
of its risk with 30 days left. Now this happened over a relatively short period of time. Ah! Since it's more of a directional trade will bring up Skyworks. Notes In the case of Skyworks. We did trade down to a support area. And we are seeing and inside day so from a standpoint of profit management , it may make sense to whether close out the entire position which we will since it's Only one contract or it was multiple contracts. Consider scaling out
So I'm going to right click, Create clothes in order. And basically sell That spread Okay? And therefore have a gain on that. Let's go and double check on some of your questions here. See if we cover down on what our expectation was for today. Do appreciate Mr James Boyd for helping out. Yeah and let's see
. And yet looks like Sam figured out with James on those potential returns. And yes, El Diego similar patterns kind of a bear flag or Previous support, acting as new resistance in a downward trend are typical bearish setups and we did that today by utilizing to define risk. Trades as an example one generated a credit higher. Probable trade, but notice our reward is less, whereas if we were to be a little more directional in the case of the long put vertical Yes, we pay a debit, but we also have a greater potential return on that risk if we are right in that price direction, so pros and cons for that When it comes to volatility that short call vertical benefited from the higher volatility. In the case of the long vertical, the risk is actually relatively mitigated for that spread. Although if we
were to do that long spread when volatility was lower, we probably would have even a greater potential return on risk since the debit is cheaper, okay? And we got some accolades there. Have you enjoyed what you learned here today? Click like doesn't look like there's a survey today but do appreciate your sport as always, each and every week I would encourage you. To go ahead and practice These trades on your own as well and likewise. Remember in order to demonstrate to function at the platform, we did have to use actual symbols keeping in mind. Tdameritrade does not make recommendations where terms suitability of any security or strategy. For individual traders
. Any investment decision you make in your self directed account is solely your responsibility. Thanks for joining us folks have a wonderful day, and we'll talk to again real soon. Bye now.
2022-03-18 11:59
