Covered Calls as a Trend Investor | Technically Speaking: Trading the Trend

Covered Calls as a Trend Investor | Technically Speaking: Trading the Trend

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foreign [Music] [Music] hello and welcome to technically speaking on treating the trend weeks to months my name is James Boyd alongside with me my good friend in the cockpit with me is Michael fairborne fellow instructor and I'd like to welcome Chris Grace Dom Charlie Jarvis Tracy SV R Miller Dennis Doug George Texas Kathy Maddie and many others we welcome everyone here today I also remember if you have questions as we go go ahead and type those in we'll see if we can get to as many questions as possible uh just real quick this class is really trying to focus on trading the trend weeks to months last week we talked about some counter Trend trading we'll talk about that follow through on that but uh really we're trying to actually have positions that last longer they're not intended to be swing trades get in and out we're trying to find good quality stocks that could actually have a potential uptrend and or downtrend if it was not favorable in terms of the trend now just remember that we do Post educational content on Twitter and uh as we get started remember the content is intended for educational informational purposes only not investment advice recommendation of any security strategy or account type options are not suitable for all investors trading Futures and Forex involves speculation not suitable for all investors and also remember when we talk about using uh if we bring up Futures here today which will just kind of quickly review remember that Futures and Futures option trading involves substantial risk not suitable for all investors there is a separate disclosure for futures that's different than the options we will demonstrate the function of the platform we will use actual symbols and as we actually do that we'll be using the paper money platform for educational purposes and be talking about if we do options which actually have also with them option Greeks so with that actually said let's actually go ahead here and uh take a look at what we want to actually cover here today so number one is I want to talk about the market briefly and I want to kind of talk about really the vix and the rates uh last night and this morning you know as I was watching uh the dollar Yen last night the US dollar against the Japanese Yen that is still screaming to the upside that's a little concerning okay uh we'll take a look at the vix we'll talk about the rates and we've actually I think we've been on it in terms of talking about rates and kind of want to talk about where those might try to go to and what that might mean for Trends in terms of the stock market uh now that also might coincide with the volatility now second thing we're going to talk about is we're going to talk about current positions I want to talk about maybe some cover calls on some positions that we have already and I also want to kind of talk about maybe some positions and you maybe have never had this before but I have have you ever had positions where you just said it's not doing what I thought and I'm just sick and tired of waiting for it to move I want to kind of talk about a stock or two that we might just say look we're done okay we're going to put up the white flag and we're gonna look for something else that has a stronger trend third we're going to talk about that hedge we actually have on the S P 500 on both accounts just do a quick update and we're going to look at three to four new examples so let's go ahead here now the biggest actually thing is in our classes that we teach we don't just talk about the market we actually talk about the market and then talk about using strategies to build portfolios and track those over time that's a big difference a lot of people talk about the market but I don't see any portfolios so the biggest actually thing is we want to make sure that with what we talk about there's a portfolio and positions that we can follow and see how it's done relative to The Benchmark there's where we actually get something that isn't just cotton candy looks good and maybe tastes good for about 30 seconds but we actually can actually sink our teeth into a steak and kind of say wow there's some material here that we could actually really cover that's actually you know we can follow along that's what we're going to do here today so with that said I want to start with just briefly the NASDAQ okay and I want you this I I didn't touch this from last week okay would you say this is bullish bearish what would you say type it in bullish bearish what do we got here now remember when we talk about Trend we talk about Trend in three different ways right shorter term which will be days to weeks intermediate which will be weeks to months okay and when we actually talk about long term we're talking about months plural okay so we actually said shorter term we would actually say it has to be lower lows lower highs because there's still that downward Channel about two days ago we did see the price try to get above the top of the channel it Faded by the end of the day and you're going to kind of see that it's still hanging out the top of the channel now what do we have coming up here on many of these companies now we already had the bank earnings from last week getting into this week and if we have Bank earnings that must be setting up okay the earnings of many other companies so you're seeing some tech stocks maybe trying to reverse a little bit don't see a breakout here yet now I'm not going to touch the NASDAQ okay I'm just saying the NASDAQ really hasn't shown at least the ability to bottom yet double bottom and I don't see that we're above the middle uh the that last lower high area right here's a lower high here's a lower high right if you follow along we just go all the way down here's the lower high I don't see the reverse yet it's trying to reverse but it's not really doing a breakout the way I Define breakout is that we get the open and close the body of the candle above the resistance all of it we want the closing price to be above the open so that means the the color of the the whole body of the candle would be above the resistance line it hasn't done that the second part of that is is it a green candle if it's a green candle it means it closed above the open okay it didn't pop and then fade we wanted to actually pop and hold it and run hamster green can I don't see that yet now I'm not trying to be difficult but we're just saying sometimes the answer is no if we actually look at the s p we we kind of Mark where that lower high is about 3750 3800 we don't see a break out there either so these two indexes which are very important they haven't reversed yet when we actually take a look at say the Dow Jones what you're going to notice is that's the one that actually got above the middle the w302 70 so some people might like larger cap type of stocks maybe that are less sensitive to or not in technology and we're trying to get a green candle above the 302 70. problem is those dad gum sellers keep coming in and kind of selling as the price goes up now the vix volatility is still stay staying abnormally high now I want you to imagine something okay I don't care if you've never been in a boat before just imagine with me if I told you that the wind was 20 to 30 miles an hour and I said hey Brenda Doug Joe affif Let's Go Out on the Ocean as the wind is 20 to 30 miles an hour would you be surprised if there was waves well same thing in the market right if we see that the vix is let's say 30 that actually tells us we're not talking about waves now we're talking about price fluctuation now waves are the fluctuation of the water in our stock market we're talking about the waves or the the up and down movement the volatility of stock price so if we look at this we would actually have to say we we probably need to be mindful of allocation okay higher volatility might kind of open up the door for maybe are there different asset types talk about that yesterday second thing is position sizing if we're in a market that actually has a higher vix we might want to say you know what I'm not going to do a full position or I want to Pyramid in or scale into the position I'm saying the same thing the third part of this is maybe picking strategies that let's say are less sensitive to direction or have lower Delta okay lower break evens maybe positive time Decay things like that now the last thing I want to bring up now by the way when I look at the vix I I kind of think of this as this is probably not a good sign to see the Vic State elevated for this long even though we're at an area of resistance it almost kind of reminds me of being in Naples what do they call that Mount Vesuvius where you kind of you know rumbling rumbling and I pop right this to me kind of where we look at the NASDAQ SB Trends we still see downtrends and to see the vix up so high maybe there's something Brewing behind right where you finally get that volatility to pop it's hard to get the markets to really bottom if you don't get the volatility to spike and for there to be real fear we've seen sell-off but I don't think there's really been like really fear okay so keep an eye on that now the one thing is last thing before we look at our current positions I want to kind of look at this okay and if we actually look at this this shows 35 3.5 37.5 which is 3.75 40 which is 4.0 guys and gals I think we've been on this okay I even did a little example of what happens if you actually have a rising borrowing cost for the company and what does it do to the intrinsic value of the company you don't need a PhD or a masters you could probably do it with associate's degree okay if you actually did this if we actually saw these rates going up and it's not just the rates going up it's the degree in which the rates are going up okay and what you're going to notice is when you look at this that angle is 50 what no it's 25 okay pretty steep and we broke four we said the next level is 4.5 the next level above that is five okay now as I mentioned yesterday I think a lot of people probably should be pretty surprised to see some of the fixed income products and some of the interest rates they give for the three six nine month one year maturities kind of interesting actually now if we actually take a look at this so we know that the steeper that this goes the higher it goes the less profitability these companies could actually have okay and that probably means that there's less problem profitability and earnings I should say Revenue also is that probably means lower potential stock prices you've got to understand that okay now let's go take now with what we just said is a backdrop now James you might be thinking well James that's like depressing what you just said I don't really think of it like that okay the wind doesn't blow forever unless you're in Texas or Oklahoma and then it seems like it blows forever but if we actually look at this I want to go back to a couple positions that are in the portfolio okay now I want you to take a good look Bristol Myers Johnson Johnson Lockheed Martin Monster Energy Merck Northrop Grumman Pepsi Pfizer United Healthcare guys gas look if you're not even in the stock market you'd have to be asleep to not know some of these companies now some of these companies we actually did because they had a trend they had good Revenue Gunner earnings they maybe even paid a dividend okay now let's kind of talk about this okay I want to actually evaluate these and what I'm asking myself is is it a good idea to still be long the stock or is there maybe even an opportunity to do a covered call because the trade is not trending now what I want to do is let's bring up Bristol Myers now I'm going to Fast Fire a couple of these okay so if we look at this the trend long term kind of looks like a bull flag the pull and an extended long flag and it just kind of looks like the trend has really been very well sideways now there's also earnings upcoming so what you're going to notice is on many of these positions when we have a stock that's in and upward Trend and holding a support that's the key if we're not holding the support why on the Earth would we be considering a covered call because a cover call is a bullish position so the first thing I'm going to do is I'm going to go back to the trade tab I've got 100 shares of stock the stock is down the stock was purchased at 75.50 and what you're going to notice is I'm going to go out a little bit farther out in time to the December expiration we don't mind we typically go 20 to 50 days expiration but if maybe we could go a little bit longer if we wanted to get a little bit bigger premium now I need you to understand what we're doing if we bought the stock at 75.5

and we sell a 72.50 okay that's agreeing to sell the stock for Less when you bought it for so we want to be mindful of where the resistance level is and if that stock starts to break out of resistance we want to look for the opportunity to buy this call back so we don't maybe sell it lower than what we bought it for now wait these are American options what does that mean American options are at any time from now to expiration they could take those shares that still could be the case what we're going to do is we're going to sell this 7250 try to get a little bit bigger premium and also with that is we're going to try to move that to the minute price of about 190. we're going to go confirm and send now notice it's only one contract okay this is what we call lagging into a cover call what has kind of made you think about doing a cover call well a prolonged resistance and number two upcoming earnings those are big ones okay credit 190 potential credit for selling the call and that's 65 cents because it's one contract now if we do this what we're now going to do is we're going to send the order now that's a hundred ninety dollars and that's actually for the December expiration okay now a comment that I think might happen James why did you not go to November's well the novemberists actually have the 29 implied volatility and The Decemberists only have a 28 implied volatility on many stocks you'll probably see a greater volatility differential but you don't see that here we're going to go a little bit outside that 50 days expiration go 57 try to get a little bit more time to gain now second thing is I'm going to do this now I'm going to go to a stock for example like Johnson and Johnson and my question is to you now by the way it's down a little bit now this 170 does not take into account that we could have previous cover calls and we might have been able to reduce the average price of the stock this is just saying what did it buy the stock for on this position of 200 shares well let's go look at the chart okay now if we look at this chart tell me would this be a good example of a covered call or not a covered call good example of a cover call or not a cover call now what you're going to notice is it kind of has it's falling down right it actually has had a horizontal support on it trying to actually break out this is one where we're gonna say you know what not going to not not or I should say if you're listening cap uh k n o t wait it's still a not or not yeah just make sure you listen now not gonna do a cover call on this okay and with why well because this actually recently broke out and I don't want to do a cover call on something that just started to do a breakout okay the only thing we're going to do on Johnson Johnson is just make sure that the stop is fair and that stop we're gonna actually look at where's the horizontal support 161.66 less two to three percent that's

going to give us a stop at 156.81 so we're just gonna right click on that go down to where it says create a closing order and we'll stop we're just going to make sure that the stop is present and a stop does not guarantee that it's going to get out exactly at that price because it's a market order and we're just saying look if it breaks below horizontal support want to get out if it goes at or below 156.81 sell sell sell the position now James why don't you say sell sell well because the 15681 is the trip wire if you will to sell at the market price read what's happening below with stop orders there's no guarantee that the excuse price will be equal to or near the activation price it will try to sell as soon as possible okay which but if it's really going down it can be at a lower price it could it's going to go ahead and send that order now by the way this is not a cell now this is sell if it drops at or below that price okay now let's actually go to one question that uh the the question was can you give the script for CA hold and uh close below the law of the high date so just briefly on any of these scripts that we actually have uh we can actually just pull them up right on the Twitter page I just house those right at the top the thing is sometimes people might not know really maybe how to read that so let me just kind of so I'm going to look top of the top of the Twitter page scroll down to where I can see CA hold it's like a menu right cable now this is actually saying CA hold for what well this is CA hold notice in red I wrote that's on the market watch tab I don't I don't want the market watch tab okay now notice what you're going to see right there is if I said potential entry setups okay call hold that's that Green Dot okay and what you're going to notice is in red it'll say on the chart ah that that sounds a little bit more interesting so now what you're going to see is in blue is the script for that so this is the cold script for the chart now same thing as below what you're going to see is there is a close below the low of the high day and that's this the opposite of gahold that's right there now some of you did ask James is there a close below the low of the high date like a red dot yes and I sent that on on Twitter as well now I'm going to also go back so the question also came in is from Fast why not call her jnj we do well I'm just going to say this we're trying not to put on defensive positions if the stock is trying to be bullish if the stock has broken above resistance why is the investor putting on defensive positions I thought they were waiting for the breakdown they finally get the breakout and now they put on the caller I'm not sure if that makes a lot of sense could they do it absolutely but if this the stock is breaking out we're going to try to let the stock break out that's why we're not doing a collar here now let's actually go to the next one okay and let's look at let me actually pull up this one now the other two things we've tried to do is we try to actually put like we know with Ukraine and Russia there's obviously been a maybe a refocus into the Aerospace and defense Industry Group we did we have Lockheed Martin we have also Northrop Grumman and I want to kind of take a look at this one and kind of let me kind of flip this question or I'll just kind of throw up I'll kind of put this right here okay so here's Lockheed Martin Lockheed Martin goes into earnings and has a nice little pop about 10 percent now the question now really maybe becomes what an investor maybe considered a cover called given that the stock has actually broken out and it's now up near these old areas of resistance okay now it's not in a new high okay so if we said where's resistance 442. if we said where's the next level

resistance 470. now if you take a look at this you're going to see that it popped and it had a really good pop but sometimes it can pop right back into the resistance level now if we saw this we might say geez it's had a nice pop to 440. geez it would be interesting maybe we could try to sell the 450. sell the 460. maybe I could try to sell a cover call into the area of resistance where we actually might not think that stock might not get above well let's go look if it's possible let's go the trade tab let's actually go look at the November expirations first the first ones are out of the money let's go take a look at this and we actually take a look the first one I have the money is the 445. 1270 by 1330 what do you know it's immediately wider bid ask spread it's also bigger dollar stock too has open interest but just a wider bid ask spread 50 cents now and did you see how it must have known we were looking at it and then tighten the oh now it's 40 cents I'm telling you I'm closing my blinds okay it just feels like when you look at these spreads sometimes you're like it gets narrow it seems like sometimes as you look at it so not close the blinds so we can take that away the other one if you take a look at this is the 450. now this is kind of interesting because Stock's only 442. sell the 450

and you got 10 30 by 1070 with an open interest of 1240. now could we try to maybe sell the 450 for 10 uh 50. a thousand fifty dollars now we're going to take that opportunity and say could we get now by the way this is not December this is November okay now we could look at December but if we actually look at this let's try to sell this and try to squeeze about 1060 out of this so we still get up to the 450 and 10. 60 so we're trying to kind of use this pop to time the entry of a covered call at the area of what at the area of resistance that this popped to a brand new high we thought there was more upside probably wouldn't do cover call but if this pop and now it's going back into kind of this old area of resistance again you might use that pot to try to enter that cover call we'll do that cover call sell the call now the Stock's already there okay selling the call 450 give me the 1060. where's 1060 go it goes into your cash okay you haven't made it yet you still have that obligation and what you're going to see is the credit less the commission and if that's what the investor wants to do we're going to put it right there in that stock section okay I'm gonna send that order now I want to look at one other one okay one other one and I want you to kind of tell me yay or nay cover call yay or name now on this stock it just hit a brand new high now Chris actually says that's only 7.5 uh can you give me a little clarification what you mean by 7.5 are

you saying 7.5 percent let me know what you mean by that okay just I'm gonna follow you on that now if we actually look at Northrop Grumman went to a brand new high the portfolio is 82 shares of stock so first off if we're going to do a call I'm going to need 18 more shares now it's not going to break our back to buy 18 more shares of stock okay but if we actually look at this it went to a brand new high just yesterday now if someone said James now by the way could Northrop Grumman could have do you think investors of NOC looked and saw what Lockheed Martin did and maybe thought of Lockheed Martin had those earnings do you think Lockheed Martin's earnings might have been maybe viewed as maybe NOC might have decent earnings as well they don't know for sure but they're thinking that might be the case that's probably true okay they don't know what the earnings are going to be but at least they have someone else in the same Industry Group that announce their earnings and they might be doing something very similar now if we said don't do a cover call someone might say well the stock might be breaking out and I understand that that makes sense they're saying look don't do a cover call if it just broke out and that Trend might continue that investor wants the upside makes sense but if the investor said James I I am thinking about doing a covered call because there is earnings upcoming in a week from now and I want to actually maybe have some protection going into that earnings and that makes sense the way we're gonna actually play this is if we go down to the three year weekly chart zoom in if you look at this chart it's not quite a bullish engulfing candle but it's a large candle okay and this week did make a brand new high and it might be trying to bounce off that longer term support level about 470 or so so if the stock is breaking out maybe going to brand new highs that's where the investor might say I don't want to do a cover call here I don't want to do actually caller here the investor says because it's trending how do you know it's trending the dadgum thing made a brand new eye okay if it's making a brand new high it's trending somewhere right could that Trend continue so in this case not going to touch NOC we just want to go back and say where's the Stop and I don't see a quite a reason quite yet to maybe move up that stop it's really underneath that triple bottom area first and I don't see that we've actually gone up and retested or bounced off 507. I don't see that yet so maybe next week if we actually get it to run up to a brand new high check back to let's say 506 507 we might look to actually take that off but uh excuse me not take it off but move off the stop okay now let's go back to one that we actually talked about just the other day Okay Netflix now let's take a quick look at Netflix did anybody watch this if we actually look at Netflix we had been we kind of had done about two to three positions on this overtime remember in a market that's more volatile you're probably going to get a couple opportunities to try to get in if you're just still kind of putting in the whole position on one day you need to understand that the market has been more volatile and might still be in the future by scaling in you probably actually dollar cost average and potentially at Better Price levels that's the big idea now what I want to do is I want to go to just real quick so yesterday this was a forty five hundred dollar swing in uh the position and what I want to do first if so first off we got the stock position 50 shares of stock but the ones we got to kind of at least talk about is we did initially was this was just a short wide put spread okay that was just a short wide put spread it only has a day remaining now what you're going to notice is the short and the long put they're only worth of painting the half each and on that trade that's about uh sixteen hundred dollars or so if my math is any good okay so if we want to just get out of this now I the most dangerous thing we could say is there's only a day left and it's so far above the strike would we ever say something like that we would never say anything like that ever okay even though if there's a day left there is still time for it to go down the other part of this is there's no more money to really make okay so in this case we're going to try to go now remember what we also said if we can buy the short option back for a nickel or less what does that mean do we have to pay a commission or no Commission so sometimes people say well I don't want to get out because I got to pay the commission well if we could actually for example buy this back there's not a commission because it's five cents or less okay so a we're at like 99 point something percent second there's not a commission so what's the reason not to get out probably not a good one so now if we actually say we're going to buy this fat we're going to try to buy it back for two cents okay shouldn't be a commission it's going to say a commission because I'm in the paper money account now but James what about that long put right there well we could leave that and if that stock were to go down and trash but that would actually be worth something it could I doubt it but it could if that stock went down very aggressively okay so now what we're going to do is so this this is showing because it's in a paper money account the 520. we're going to go ahead and actually say send that and it's going to shut it down okay now I want to look and kind of see is there anything else we kind of really need to administer to uh I think when we actually take a look at this I don't see a whole lot here left either these 10 this is 60 cents okay solder for 15. okay move out of the way sold it for 15. and it's at three that's like 75 percent sold it for 8 30 and it's at a dollar sixty nine guys and guys I think those are over 75 percent we're gonna say we're gonna shut those down create a closing order we're gonna buy it back now you might be thinking about what James would you consider enrolling it we're gonna buy it back first we're gonna actually go confirm and send buy it back to one plus the commission send the order and on these 10 we're going to actually take those off that's about I don't know 1200 bucks or so right click on that create closing order buy so that Netflix was about a forty five hundred dollar trade not bad it could be better but if you look at that uh cost of the trade plus the commission because it's 10 contracts and it's gonna send the order now I want to kind of look at this so the only thing we really have on this is stock and then plus that long put if that stock closes above the 230 tomorrow expires worthless okay and that drops off okay now I want to actually kind of go back to want to make sure this actually fills I don't see it filled yet we'll watch and see what happens in the next two minutes now trade number one we're actually going to do given that this stock is actually broken out of an area of resistance might the investor set up a new position now speak now forever hold your peace what would you consider if this stock broke out of resistance made a higher high okay historically you add positions but they were 75 okay you took them off might you consider a potential new position as I'm getting an answer there I'm going to go back to Chris's comment I was saying Lockheed Martin was only about seven and a half below our strike you know I think when you actually have a stock that went up like vertical like Lockheed Martin did you're thinking about seven and a half dollars I'm thinking about the seven and a half and the 10 on top because that's true right the investor makes seven and a half dollars up to the call strike and the premium so it's actually 17 now if someone wanted to take those shares from this portfolio at near the all-time highs we'll even put them in a little box with a bow on them and say to you from this portfolio it'd be awesome to sell some stocks at some recent areas of resistance and or high because there's not that many stocks that are doing that is there I don't think so so that wouldn't be a necessarily bad thing I mean if you look back historically and said geez we were able to sell stock near the highs okay that's not necessarily bad and if you got to think about this how many stocks are really making highs and extending if the indexes are going down it's hard for stocks to break out make a higher high and keep going when the indexes are not finding any footing isn't that been true so we'll take the seven and a half on the Lockheed Martin if it can if someone takes those shares and the 10. so look

at the full picture the seven half is only the premium now if you sell a cover call you have to have a full understanding this they could take the shares at any time we understand that if they took the shares in one week not 50 days from now we still get all of the premium up to this we still get all the premium even though it's not an expiration and we still get up to the strike so if it happens sooner it just means that you had a higher percentage you had a a return that was realized faster if someone took those shares I I could think of other things that were worse a lot worse so we'll see if it happens now let's go back to Netflix okay now on something like Netflix might an investor be let's say thinking geez I'd like to maybe buy the stock now remember I said if you buy stocks when the vix is let's say 30 you have to account that if the vix is at 30 and you saw nothing else you have to know that the markets are volatile when people say that like oh the markets are pretty volatile I'm like well if you just look at the vix you would know that like their surprise you shouldn't be surprised VIXX is at 30 expect price fluctuation my gosh okay so here it is vix is at 30 and you think to yourself geez what strategies could we pick well if we pick stocks that's a very directional strategy it has the highest Delta and the highest Capital amount does someone really want to do that remember in this market maybe someone says I'd rather do maybe something that might have a credit and something that might be a little bit more forgiving from a price perspective lower break even and maybe also something that might have some positive time Decay now you might not have a higher upside like a stock but in this market you're just trying to kind of move the chains if you will like in football keep making first downs right stay on the field now if you take a look at this what you're going to notice is I don't see this 10 getting filled so we'll adjust that we're going to go back to the trade and what we're going to do is now as I'm on that let me adjust that okay I guess as soon as I touched it it felt okay now what we're going to do is we're gonna go now can we go November sure I just want to see the difference between the November implied volatility which is at 59 and if we go out to December's it's 58. so I don't see a huge difference here okay now here's also the other thing is if we are in a volatile Market maybe the investor says doing shorter duration trades might be more risky because there might not be time for it to come back up so why play into the hands of the volatility why not actually give it the investor maybe have the investor give themselves a little bit more time for the stock to try to go back up and weather some of that volatility might be a thought now whether we go November December there's still going to be potential Max loss we're going to go to the December and what we're going to do is we're going to go down and look at that and by the way we can kind of also do this as well can we pick just a lower strike to really kind of have maybe more uh latitude on price movement yes offset lower net credit so if we go all the way down to the 245 the 30 Delta and we maybe widen this out to a 10 wide strike we're talking about 12 55 and the 965 we right click right there sell go right to where it says vertical this is a bullish position positive Delta positive Theta but it has not as much negative Vega if you sold a put by itself that's why the investor might do a short put vertical to be more as bill would say more numb to that implied volatility now kind of uh as we take a look at this ten dollars wide between the strikes credit 295. confirm and send now this 295 is the potential Max gain given the vertical ten dollars wide less the potential credit potential Max loss 705 give in a vertical okay now the reason I keep saying giving a vertical is include this short put be assigned it any time prior to expiration the answer is of course and if if that stock was assigned at 245 then these are not true anymore because it's not a vertical so the investor is managing the position is making sure that that stock has not been assigned at the 245 and if that stock is assigned it's 245 that Max profit Max loss changes now okay so whether we sell calls or sell puts you can have assignment and that assignment is not triggered by you it's triggered by someone who is long okay who has a right now what we're going to do in this IRA account we're going to change this to three contracts why the three well because it's going to get us to about 2500 potential Max loss okay Roy actually says why not five wide well if we know that we're going to do two to three contracts why would we commission the portfolio more than needed I mean what do we get out of doing a five dollar watch track if we were going to do one one contract maybe just do a five dollar one but if we're going to do two three four contracts why not just open it up and make it where we're not doing it we're not having as a higher commission I mean what do we get for that right now I'm going to go ahead and there's the net credit less now by the way you could look at the 245 240 and if you were position size that for the max loss you'd probably be looking about six contracts and the number of the commission would just be higher that's why we're going wider because we're going two to three contracts and or more okay now if we take a look at this we're going to go ahead and send that and we're going to see if that actually fills now you gotta you got 15 cents open interest on both those strikes you know a couple hundred there okay now the one thing I also kind of want to make mention of is I want to go back and look at a stock we saw that energy today actually made a brand new high didn't close there okay now I know that LJ watched this very much so right she's always been very good about watching that little intraday high and then it fades okay now if you kind of look at this can anyone see any potential price pattern that is actually forming on ixe now the comment from Agra or Agrabah and I apologize if I said that wrong how fast can you realize that that credit the answer is if that stock were to go up materially so a high portion of that credit could be materialized if you can exit it okay the answer to your question is going to be mainly due to not time it's not going to be volatility okay it's going to be the direction so if on that pass trade if Netflix goes up again aggressively you could get a large percentage of that okay if you could exit you'd have to see the liquidity conditions at that time so if someone says I want to get have bigger gains sooner and faster then you want to actually have the timing and the and the the stock to move aggressively sooner so that you can try to get those gains more quickly on this one we kind of see more of a inverse Head and Shoulder okay now I'm not an artist but if I were to draw okay and you look at this you're going to notice that it kind of has like you know that type of view now one thing this this is where sometimes has investors we kind of maybe try to get uh super sophisticated it's like maybe maybe we could just buy the space option number one is could we just buy the energy space itself which is a collection of stocks okay that's option number one now if we said okay I've already done that perhaps if the investor said that they could actually say is there a stock in here that the investor might say geez I'd like to maybe be bullish that stock okay so number one was that maybe they just buy the basket itself to get broad exposure second step is maybe they actually say look what I'm going to do now is I'm going to buy an individual stock because I think this stock hypothetically might be one that might outperform the sector huh interesting so let's say the investor picks a stock like EOG and says this is the one where I hope the investor says that goes out more than the sector why do they buy a stock well the stock might have a higher percent because this is not a collection of stocks as an individual stock okay now by the way the collection of ixe can feel like it was an individual stock sometimes up or down let's say the investor says you know what James these little verticals I want something that actually has a little bit more teeth to it a little bit more teeth a little bit more Delta okay well if someone wants to be more directional they could actually pick a strike that is higher close to the current price or they might actually say look I'd like to maybe kind of look for something that actually has uh really maybe a Delta closer to 40. now in The Decemberists I'm not seeing at least or the only ones I'm seeing that it has a closer bid ask spread and a couple hundred on the open interest what you're going to notice is here is it's the 125. now given again the

volatility I don't see a huge difference between the 51 and about the 50 on the December we're gonna just sell only the 125 pack the 125 put mid price we're going to push it to about 660. now remember what's the risk of this well the risk of this is it can be assigned at any time check the other risk of this is this is has a higher negative Vega meaning if volatility were to expand it makes the option price go up more and it's going to be in an unrealized loss okay the vertical you're actually short volatility Mega and long volatility Vega and it kind of numbs it but if you go short to put you are actually at risk of volatility expanding okay so remember that that credit there we're going to push that to 665 confirm and send now let's kind of think to ourselves well how many could we really do well if we actually said look let's do a half position okay we could probably push this to in this case about two contracts which is the obligation to buy 200 shares at 125 from down to expiration and if we went to confirm and said we're going to look and see the potential Max profit potential Max loss here or the max loss if the stock were to go to zero so they're saying you buy 200 stock at 125 less the credit and if the stock went all the way to zero this could be the loss if it went to zero cost of the trade included commissions the credit net credit excuse me not the net credit the credit less the commission for the two contracts now if we did this we're going to go ahead and send that and this is just selling the put here okay now I'm out of my time here today okay now just want to give you a heads up the trades that we actually did here today is we we shorted the put on the EOG the second trade that we actually did is we actually put on a new trade in okay uh Netflix as well okay so we did two of those trades and then we also for example looked at the number of positions in practice maybe looking for some opportunities to do some cover calls now next week I'm going to be in Monday Wednesday Thursday Friday Tuesday I'm gonna be having shoulder surgery my shoulder has been torn for a couple months and it is I've ran out of duct tape and so Tuesday I will actually be getting my shoulder fixed that's why we have two hands so I'm going to be using my mouse on Tuesday after after that quick surgery to actually see what's going on with the markets trust me I'll still be watching so with that actually said uh wanna thank you so much for your commenting your participation also remember that there is a survey for today if you could click on that when you click on that you could just see it's a quick five or six questions now it is kind of funny my my search in which I've known for a while it was my neighbor and he always asked me when I've had surgery with him before on my knee I he always says he's we talk stocks before he actually puts me under so it's kind of it's kind of funny uh the doctors they always ask like hey what's going on in the market so it's kind of a little fun too to see them rather see them not in the operating room so with that said I will be here Monday Wednesday Thursday Friday and uh might have one arm but you know what that's what the other arm is for to move the mouse so with that said thank you so much for your comments and your participation and with that said have a great day take care stay tuned for our next webcast coming

2022-10-24 16:25

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