Short Term Trading Strategies | Long Options

all right good morning everyone my name is barbara armstrong i'm a coach with td ameritrade and delighted to be here today to talk to you about long options so there was a question on a survey that was in a class friday called trading a smaller account where i opened by saying what do we do when there's we're in unprecedented times that somebody said in the chat before we opened and we're not really sure of what the market is going to do from day to day whether it's going to continue up trending whether it's going to continue downtrending and it seems like this year we have had a lot of whiplash going on like the market might be tanking in the morning and by the end of the day it's actually up so what do we you do when you kind of live in a shoe and the market keeps stepping on you that's what we're going to talk about in our approach to long options today so stick around there's a lot of good stuff about to come your way [Music] alrighty so i want to thank everyone who is here with us live we have dozens and dozens of people here and to all of you who tune in later and watch this in the archives appreciate you being here as well hello to wayne and lamar and you know wayne was actually in like an hour and a half before the the webcast even started but hello to um lillian and jules and marcy and juanita and shooby and chuck and um lewis and and larry and paul and the rest of the gang thank you all for being here also huge kudos to connie hill for joining us in the chat she understands long options inside and out and is a great resource if you have questions and you're with us live please don't hesitate to type them into the chat in between connie and i hopefully we've got answers for you if you're one of the majority who is watching this in the archives you too can ask questions just type them into the comment section and i do look at those at the beginning of every trading day um also you know know that you're welcome if there was something you really liked you can just type something in there also every comment just helps more people find our webcast so thank you in advance for that now the third way that you can get in touch with us is through twitter so you know right above my head abby armstrong underscore tda is my twitter handle i post um helpful information on the markets on a daily basis every once in a while i post a ski picture you know something personal also and a little bit of humor now and then i think this year of all years like we need a little humor in our lives connie too is posting a lot of great content at sea hill underscore tda it is free my friends um if you're not taking advantage of it i think you're missing out so this is my personal invitation on behalf of connie and i um and to encourage you to take advantage of that resource yeah so i posted something in the chat before the start uh connie and i live in the salt lake city area we have three days of snow coming into the mountains um but you know the trees are all blooming in the valley so you know you can have trees blooming in the valley and the day before you know one of the ski resorts got nine inches of snow so you know such is life in uh salt lake city so um yeah there's no gardening going on in the mountains yet but the valley people are getting things ready and the local costco's have lots of plant material and and stuff like that available also okay so know that today's class it's considered to be an intermediate level class and that i'm assuming that you understand what a long option is if you don't please let me know and what i will do is i will post a link in the top right corner to the getting started with options class on long calls and there's one on long puts also okay and and cindy is asking you know it and i'll get into that in a couple of minutes once we get through our important information and kind of out to the platform um because i've had people asking about different types of trading strategies and so we'll get to that but know that everything we do in this class is for education and informational purposes only none of it is to be construed as advice to buy or trade any particular strategy in any particular uh way on any particular stock know that options involve risk they're not suitable for all investors also if you're new to td ameritrade trading privileges are subject to td ameritrade review and approval and not all clients will qualify however in your paper money account we can all trade everything okay know that when we buy a long call or a long put how much are we risking the entire amount of the premium that we paid to get in and we do discuss our risk and potential rewards in every single class that we we talk about here while this webcast focuses on technical analysis um other approaches including fundamental analysis can provide a different perspective also know that the paper money application it looks like smells like feels like um your real money account but there are a few differences one is that with short options they will not be assigned early um in a paper money account and that can and does happen on occasion in a live account of course today we're talking long options okay so what's on our menu for today well we're going to and you know this looks surprisingly similar each and every week but we're going to you know have a look at what's going on in the market today we're going to look at the trades that we put on last week and then i treat the trading a smaller account to some extent like a companion class we placed two um a long option trades one bullish one bearish so one of each and we're going to look at those today as well and then we're going to place a number of long put trades on the thinkorswim paper money platform okay so that's what we're up to today okay so let's start with you know number one which is uh what's going on in the market so here's our s p 500 i mean it is down year-to-date um so if i bring up the year-to-date you know not a big difference from when we talked about this on friday but it's down around five percent and and here's the easy peasy way to see that is to just take this pattern underneath where it says patterns you click on that and then change it to percentage and so we can see here if i come down we're down about seven percent it's almost seven and a half percent year-to-date so we're down another 1.1 today on the s p 500 we're below the 10 and we're below the 200-day moving average and oh sorry thanks guys uh let me come to okay uh yeah so thank you to marcy and connie for letting me know i wasn't full screen so when we look at the s p 500 and let's back it up to a year you know we can see that we have this really bullish run beginning of the year the bullish run was over and um like i said we're down seven percent year-to-date and then you know the bulls started rejoicing when we came in and not only cross this diagonal resistance line with a lot of oomph but then kept radon trucking and we came up to this previous high here okay drawing tool you know we came back up to this neighborhood and just couldn't sustain it and then we came down and the bulls were hopeful that this 200-day moving average would haul hold we flirted with it for several days and today it's it's back below okay so that's our s p 500. now when we come and look at the nasdaq it is similar in that last year we had an incredible year came up and in you know november hit an intraday high as opposed to the s p which was actually the beginning of this year but it has pulled back even more dramatically and so if we you know we look at this over the course of the last year so from april of last year to april of this year you know we're still up but now we're only up two percent so how do you set up year to date in the time frame we come here and if you don't have year to date you come to customize list add time frame and then when you click on year if you keep scrolling down or scrolling up the very first one is year to date and then you can just add it i already have it so i'll post that in twitter later today um because i know that if if someone has that question um you are not likely to be the only one okay so if you missed it or you need a refresher that's that's how we do it so in any event when i come and i choose my year-to-date we can see year-to-date where the s p was down seven we're down almost 15 percent at the 20 mark it's officially considered you know we're in a correction now um but that would be considered more recessionary okay so yeah we're we're not in a bullish space here okay so that's the nasdaq how about our friend the russell well when i looked at it first thing this morning actually our russell uh was the only index that was up um and but now alas it has joined the crowd you know my dad used to say you know if all your friends jumped off a bridge would you do that it's like well it looks like you know the rut has dropped off this bridge but it has still it's still trading between this 1932 and 20 132 about this 200 point range and you know but year to date it's down you know closer to what the nasdaq is about 13 not quite as bad um you know but still not robust and we saw that the rut was trading in a range from 2130 to 2360 most of last year it now seems to have established a new range where old floor has become the new the new ceiling and so some who like to trade uh you know iron condors are saying well you know might we consider this strategy you know on this index and and we could but you know what we're not um talking about iron condors in this class okay but that question was brought up um in another class that was was taught last week so i thought i'd mention that and you know it's it's kind of in the middle to lower half of that range so with the dow you know when we look at the dow over the last year kind of up trending a little less aggressive in the uptrend maybe than than some of the other indexes and again this downward slope diagonal resistance breakout and it too is trading below the 200. they all are you know again if we come and we look at this year-to-date number you know where are we down about five and a half percent so closer to kind of where the spy is so it's kind of like the spy and the the dower in one camp and the the rut and the um the russell 2000 which is our small cap and uh and and the nasdaq are in the lower camp okay so and then you know are we surprised to see that the vix is up today we are not and it's up 11 and you know when we look at that number it's at you know 23 23 56 which would have been high you know for a lot of last year but when we kind of look at you know where we have been over the last six months um you know this is kind of in the lower end of where we have been this year here was january 25th you know if we're looking at this year to date we're kind of in the lower end of the range even though it is up 11 uh and so you know there there is a lot of uncertainty and you know someone mentioned unprecedented times well we still have you know we have inflation the likes of which we haven't seen in decades we have um you know when we're talking about yield curves like they're getting flatter by the day some have been inverted and and you know with that you know i've listened to a lot of the pundits talking about that they're saying typically when that happens a recession doesn't follow immediately sometimes it's 12 to 18 months down the road and just because the you know the a yield curve ends up inverted which means that more is being paid for short-term um debt than longer-term debt which doesn't seem to make a lot of sense right but when that yield curve inverts it doesn't always mean that a recession is imminent because we did see that um happen a couple of years ago um and then we've got stuff going on with russia and the ukraine i was talking to my mom yesterday um you know my family extended family is in canada and you know they're seeing the numbers starting to skyrocket again as you know we're seeing you know that happen in some areas in the states with you know whatever the latest variation of covid is um and you know everybody it's been over two years now we all just want to go back to life as normal but what you know impact might that have on on travel and and on other things right the airbnbs of the world and and all of that and and the answer is we you know we don't know for certain we just but it's something we have to keep in mind okay so that's kind of a brief overview if we come out to uh and i'm just going to hit refresh on this so if we come out to the td ameritrade.com platform we can see that

other than consumer staples every single sector is down today and currently those that are being hit the hardest are technology and communication services um but the only one that's in the green is consumer staples and you know if we but if we look at the last month and this is where you know some people say well now i don't know what to do because everything is down you know most things are down today if we but if we come to the last 30 days pretty much not every stock but every single sector was up from energy all the way to consumer staples up ten percent you know so you know what do you do when you live in a shoe and and one day the market's up and everything looks rosy and the next day it's down well what we can do and this was a question um in one of the surveys so just to be clear the approach that we took in the class on friday and the approach we're going to take today is to say well what if we look at something that's moving and we do a very short term trade if we say i have no idea what's going to be happening a month from now but it looks like in the next few days this is what might be happening within this index or this stock and so i'm going to do a take a very short term example approach and how might that work for us and that's really what we've been doing um and somebody said one atr and so it's not that i think one atr is the bomb.com and that it's the only strategy that can be helpful um but in uncertain times like this when you're saying i'm not sure if we've reached our bottom and we're about to start moving up or if this is just a step in this continuing downward trajectory but what we have seen is that there have been some sectors that have continued to be bullish there have been some sectors that have continued to be bearish and can we take advantage of that using a very short-term strategy and that's why we continue to talk about this one atr strategy so what is the one atr strategy well let's go out to the platform and have a look and i know that many of you that come here every week you're pretty familiar with it but we did two trades last week um on friday and let's look at those two first so we're in the trading a smaller account class we started at the beginning of this year with 20 000. we're at 25 570. um and so you know and we've really run with this strategy for pretty much this whole year in that class and we've done all kinds of different types of trades so we've done short put verticals and long put verticals in short call short call verticals and long call verticals so we've done bullish trades and bearish take trades we've done a lot of long calls and puts that were one atr on stocks that were at a price point that would allow us to do that like if we're looking at like a netflix it's too expensive we'd have to take too much risk now if you have a larger account and you might be in a position where you could risk fifteen hundred or two thousand dollars you might be able to do those trades in this account we couldn't so here's our long call on exxon mobil so why did we place that trade because we're we're currently under water on it so on friday what we noticed and we noticed this with a lot of stocks in the energy sector is that the energy sector has been up tremendously as has exxon mobil but it it's been kind of consolidating and exxon mobile had broken out this was kind of the third day in a row it had broken above this diagonal resistance line and we said okay what if we just say one atr um and it moves up you know and hits this 89 51 which was below this previous high and so today it's pulling back as our you know is it the only stock in the energy sector pulling back it is not but has it broken below that diagonal resistance line it has not and now we do have an exit in for this that was one atr below that it hasn't hit that exit yet but if it does it's either small win or you know a a small hopefully a small loss now how much could we lose we could lose the entire amount now the other one that we did was starbucks in starbucks so we did one bullish one bearish so with starbucks and we had we had talked about we were a little late to the party because this had kind of rallied and then you know on the fourth which would have been monday it had kind of dropped down and had we entered a trade on last monday we would have been out but we entered this trade friday we did a one atr with starbucks the previous ceo howard schultz has come back there are nine stores that have voted to unionize there's concern about wage and employee costs going up and they halted a multi-billion dollar stock buyback and obviously the market has not responded favorably to that i did post something on this on twitter so we just said hey one atr it's drop today um and you know our target here is this 79 25 which is again above this previous low which is kind of encouraging it doesn't have to set a new low you know and we're just looking small move small win now last week we placed two trades and i went back and looked them up one was on nike well let me do fasten all first and the other was on fastenal so we just went back eight days and we got in here at 190 and we got out at 1 30. and so we had a target on fastenal it didn't hit it it came down and hit our stop and so how much were we down by on that well you know it it doesn't take a mathematical giant to figure let me get my pen here so we were down by sixty dollars and to see you know how much we were down by as a percentage if we multiply that by our cost to get in we were down on that by 32 now how much could we have lost we could have lost 190 dollars how much did we end up losing we ended up losing 60 times two contracts or 120 dollars now we had placed this in our trading a smaller account account and our max loss in this account at the beginning of the year was 400 and so was that like within that 400 we ended up being down 120 yes it was so some would say well that trade wasn't a success well i would argue that this trade was successful why was it successful it was successful because we followed our rules was it profitable no but it was a successful trade that wasn't profitable um and you may say that i'm splitting hairs but i've talked a few times about you know not about being consistent in the way we place our trades and the way we manage our trades and that you know we didn't blow up our account we followed our rules we followed our guidelines that we had put in place and and that made it a success because this could have ended up being a you know 380 loss plus transaction fees okay so that's that one the other one was nike and we saw nike kind of on let's just go look at the chart on fastenal first so you can see it so we got in here on monday and we ended up out on thursday because we were expecting it and you know what was the rationale in our doing a bullish trade well yep it came up came up came up looked like it was coming up again so you know did the technical observation make sense it's in an area that has been strong you know and so it wasn't our thought process where it was like oh looking at that like technically that didn't make sense so it was just one of those trades that didn't work out and and this happens my friends yeah we do have earnings coming up on this one so we you know you might say well hey you know is this a candle pattern that might say it's moving bullishly again um and should we place another trade and you might say well we could but earnings is thursday and so maybe we just kind of let that one go now with nike um again this was down trending and but it looked like the pattern was reversing so you know technically what was our thinking then technically we were thinking well it's come up it came up again came down to a similar pattern and our target was such that it didn't even have to break out above here we thought well even if it's range bound if it just goes up a little we will be happy and you know what it didn't it broke below this support level and today it's dropping again so we had placed a bullish trade and that did not work out and so i put the green circle around you know here when we got in the red means um it it hit a stop and it was um not a profitable trade so if we come to the monitor tab just how unprofitable was it well we got in at 505 and we got out at 266. and so again

you know if we look at this and we do our math oops if we do our math and we subtract 505 oh god i can't write today writing with a mouse can be a challenge minus 266. it comes to 239 and so we know 250 would have been a 50 loss right just kind of doing i spy but it was still a 47 loss but again i would put this in the category of was it profitable no was it a successful trade i would say yes in that once again we had the foresight to plan and exit before we got into the trade so that we weren't you know starting to trade on hope and fear like oh it's down so much now like and if we were still in this this is the may 20th 135 call so if we hadn't got out of that trade what would the may 20th 135 call be worth now 135 we've got out for 266 let's go have a look may 20th 135 call we now get a dollar 34 for that and we got out for 266. so the damage could have been twice as the cut could have been twice as deep does that make sense you know because if we're looking at this now you know we get here's the mark 131 so we got in at 5.05 we got out at 266. and if we hadn't been disciplined enough to have put that accident ahead of time and we were looking at it now it's like oh we'd be out at 131 another 130 dollars to the downside okay okay so i don't want to belabor that but i just i want to stress the importance of having a disciplined approach does that make sense the mother and me okay so that's those four trades so let's look at some new trades and i thought we might start with nike so you know had we done a bearish trade on nike it it would have been successful we probably would have been out the same day with a profit but so what did we see have happen here well we saw it come down rally for one day which kind of faked us out came down rallied for one day and if we were looking for an entry our entry would have been you know a close or a trade below the low of the high day so when would our entry be it would be today so could we perhaps do this idea this one atr trade and say well what's our atr on this about three dollars and 83 cents and say hey could this go down another 3.83 cents you know kind of a trend continuation because nike has been falling yeah so let's give that a shot as an example so if we come and we look at this and we say okay well where is it currently trading well it's currently trading at 124.92

and so we're going to come to nike a one atr example and so why are we not doing this as a trend trade well some might argue because we're not confident that this downtrend for nike might continue and and we don't want to just sit with all our money on the sidelines in this in this little account we have 25 500 if we were to liquidate everything but almost 17 000 of it is sitting in cash so could we afford to employ a little bit more of it that might hopefully help grow the account and so if we said okay our target on this is going to be today's low which is 124 32 and we're going to subtract that 383 and i'm just going to use my calculator 124 32 383. so that's 120 49. and please feel free to get your own calculator worrying and let me know if i have made a mistake because um that yeah that can happen pretty easy to see that happen okay and then our exit and it's not a stop loss order it's it's technically an exit but what we do want to stop is the bleeding right we want to stop if we are wrong if we say okay well today's high is 126.87 if it goes above that by 383 it is not going in the right direction so we would like to exit the position and cut our losses so because this is a trade that's successful if the stock continues to go down so if it hits 130 70 not heading in the right direction and so how do we put that in we're going to come to the trade tab we're going to look here and it's trading at 124 so if we do the 125 that's almost 500 we're risking if we come down here to the 120 which is our at the money strike and we're out 39 days now are we intending to take 39 days no we're intending that you know the goal is to be out of this before easter you know and we have a short week this week it's a four day week so what we're going to do is we're buying more time because we do we want less risk from time decay okay and so we are going to come in here we're going to buy a single we're going to do just one contract and we're going to come down to advanced order single order click on single order and make it first trigger sequence and then we're going to come up to the green line right click create an opposite order we're going to make it a market order that's good till canceled and we want to get out when it hits our target of at or below 120 49. or if it goes above 130 70 it's not going in the right direction and we want to cut our losses and when we do this like in the calmness of the moment when we're looking at the trend and we've made our decision it's so much easier to be matter of fact about it now in managing this what we might do and i'm gonna go back to the starbucks example to kind of illustrate this just let me put this in confirm and send we want to buy one put on nike the 120 strike at 295 and then we want to sell if the mark goes at or below 120 which is our target or above 130 70. and we're going to put that in our long put bucket or group and i always like to put you know what our strike was like sometimes if we're really confident we might have put in a swing target and what might that swing target have been well if we come to the chart we might change this back and come to a sixth month keep having this silly thing show up and my my target if i were doing a swing target might say i just i'm going to trade this back to the previous low of 116 um 75 or 117 instead of 120 and so if we wanted to do that to compare and contrast we could say well here's a swing target it appears to be down trending again so here was the previous low of 116.75 how about we make our swing target 117 and that's three dollars lower and you know how might that play out for us and so with a swing target we'd say here's our target um is you know 117 and here's our exit we might do a different exit and say we want to say hey if it loses 50 of of its value it's not going in the right direction or it's not going fast enough and so we want you know we would like to exit and so we could come here to the trade tab and we might choose the same strike and the same time frame and say okay well i want to buy another put at this 120 level or we could do the 125 but just to be able to compare the two let's do the same strike we want to buy a single only this time when we come to do our first trigger sequence actually you know what let me show you just a different way to put the order in we're going to right click and we are going to buy custom with an oco bracket and so the first one we're going to make both of these good till cancel and then we're going to make here our target a market order that when nike goes at or below 117 we would like to exit the trade 117 117 just make sure we got it right or 296 i'm gonna round it to three dollars so that'll be a dollar fifty um if we're going to get really picky a dollar forty-eight is fifty percent so if it loses half its value it's either not moving in the right direction or not moving in the right direction with the kind of speed that we need such that time decay is becoming a problem yeah okay so confirm and send we want to buy a put we want to sell when it reaches our swing target of 117 which was the previous low so we're going to write here you know swing target just above the previous low because sometimes it'll get so close like to within pennies and then it turns around and goes up again and you're going snap like so it's a swing target and again this is a long put it's a bearish trade and this is a little even more directional even in that we're you know assuming it's not just going to pop down but that this downward trend might continue yes um okay so i'm going to come out okay now if we okay no data okay okay i should be back okay i should be back okay can you guys hear me now okay here i am okay so i was just looking at the chat okay uh you know what um i don't know what goes on with facebook sometimes uh gremlins in the system so we're going to take an extra minute um because i wanted to talk about apple okay so we did two trades our target on um nike we did a swing target example you can see this over in the chat let me go to the screen so if you come over here if i don't know quite when we lost you lost me and i lost you but we did two trades on the same stock both of them were on nike and so we had our swing target um and we had our one atr target so the one atr target 120 49 swing target 117 and we put the stop at 50 of the option value so just to you know i i always like to at least place trades on two different stocks so the other one i thought we could look at today was apple so it was kind of down trending in this within this channel and then the bulls were delighted to see it break to the upside um and pretty aggressively like you know if we come and look at this let's zone in here you know it moved up you know almost 20 in in 11 trading days but now we've seen it come down rallied for a day came down again rallied for a day it's now breaking below this 30-day moving average so you know could we do this one atr strategy where on average it's moving about four dollars a day and say could we see it come down maybe one more day and you know here would be 160 ish well if it's trading at 166 even if this diagonal resistance line holds we'd have met our target we'd have met our target and so again so this was our swing target on nike and if we were to look at apple and just do an a one atr our target would be this low of today so that's you know 166 10 166 10 minus that atr of 408 166 10 so 160 202 and again let me know in the chat if i've blown the math and then the exit would be if we look at today's high 160 903 plus i can type 408 so that would be 173 11.

and again yes we will we will post this in the archives and and i'll try and edit out a little bit where connie and i we're you know trying to figure out how to bring everything back and we did it so it's all good um and again we're going to come out to may and you know next week i wanted to talk a little bit about time decay of the and this theo price tool we'll hit those topics next week so i'll make a note on that and so if we look at this you know when we say okay 166 if we come to and we're going to come down to the 160 so we don't very often do the first strike out of the money we're going to do that today and why because we don't want to spend six dollars on an option um and i i was going to go through theo price but like i said we're out of time today so we'll do that the next time but we want to buy a single repetition the mother of all learning right right click opposite order market good till canceled how many contracts are we going to do one why only one because if we can only risk 400 that's how many we can do 16202 162.02 is our target and if it goes back up the other way 173 11 173 11. okay so we want to mitigate the damage if it turns and goes the other way confirm and send we want to buy a put on apple at 4 30 the 160 put expiring in may we want to sell it when it hits our target of 160 202 or if it goes above 173 11 and we're putting that in our long put bucket and one atr target okay so guys um just to wrap things up i'm gonna come back i'm sorry let me hit send there and then coming back here we looked at the market conditions which is what we'd agreed to do we looked at the four trades that we placed in the last week and then we placed three new trades two on nike one on apple um who's saying this is the bomb diggity so i'm really glad that you found this helpful if you enjoyed this please smash the like button if you are new to this and i know that we have some brand new people here today if you want to link arms with us hit that subscribe button that's down in the corner if you're watching this in the archives it'll be obvious where the subscribe button is join the trader talks channel you can turn on notifications you'll get a reminder for this class for um you know for all the classes if you like so i appreciate you being here keep in mind that everything we do is for education and informational purposes only none of it is to be construed as a recommendation on the part of td merit all myself um to trade any particular stock or security in any particular way know that options involve risk and when we buy a long call how much could we lose we could lose the entire amount same thing when we buy a long put how much could we lose the entire amount when we put a target in is it a guarantee it'll get out at exactly that price it is not have we seen that work in our favor yes have we seen that hurt us on occasion probably yes so um guys thank you for joining me um this will be available in the archives so um hang tight it's usually up within a couple of hours you're welcome to go back and um watch it again particularly if you're new to swing trading we'll talk about swing trades more next week so never fear we get together link arms with us we meet every week at this time if you're new to options trading join us on uh tomorrow same time same place for getting started with options that's a wrap for today folks thanks for joining me and thanks for your patience as i took that brief hiatus in the middle bye for now

2022-04-12 22:55

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