Embracing the Bears? | Trading a Smaller Account
[Music] all right good morning everyone welcome to trading a smaller account as you can see i already have my sleeves rolled up i hope you have your sleeves rolled up too because it is a busy trading day ahead for us here in trading a smaller account so what do you do when the bears seem to be hanging about and not going anywhere fast well one might say you could embrace them and because this is an intermediate level class and we trade options in this class we have an opportunity to benefit whether the market is going up whether it's going down or whether it's going sideways so um i'm so glad that you have chosen to join us this morning and i always like to start by just welcoming those who have already typed into the chat one of the things i love about this class is just how interactive it is so good morning to vijay and marcy and lamar and sandeep and radio wayne and saul and juanita and monsoor and michael and peter and krista and vijay and tony and linda and sarah and jeff and michael and tm and clifford and um mary and peter and krishna and many others thank you all for joining and for being so participatory in this class it really makes it fun we also have the privilege of having james boyd in the chat with us today so um james you're in luck we're going to talk about crocs and james and i convinced a lot last year saying don't walk the crocs and um yeah so let's get through our important information so we can get right down to business of course you know with james in the house if you've got questions you'll not only end up drawing underscore tda i'm posting content on a daily basis um as is james boyd and if you aren't following james you're doing yourself a disservice at j boyd underscore tda every once in a while we get a picture of jax thrown in there too which we all appreciate so um let's get through this important information like i said um this is an intermediate level class we do place lots of example trades in this class but know that everything we do in this class is for educational purposes only none of it to be construed as a recommendation of any particular security or strategy or to trade any particular stock or underlying in any particular way know that options which we do a lot of are not suitable for all investors there are special risks inherent to options trading that may expose investors to potentially rapid and substantial losses we do talk about what the potential gains and losses are on every trade we place know that we need to take transaction costs into account especially if we're looking at a spread trade you know those costs can be important with futures trading and with options trading at td ameritrade you do have to a you do have to apply for the privilege of trading options and futures in your live accounts however today we're looking at paper money and you can do whatever you like in paper money but you know after you've practiced something in paper money and you go to place your first live trade it's a bummer if it won't go in because you haven't you know applied for that um privilege so i just want you to make aware of that um and know that there are it looks like smells like feels like real money and paper money but there are a couple of differences and we'll discuss those as we go along know that all investing involves risk including the risk of loss okay so what's on the menu for today well my friends this this you know agenda looks remarkably similar doesn't it we're going to take a look at what's happening in the market we're going to review some of the trades we've placed in previous weeks look at our example portfolio and we're going to you know look at placing some new trades and we've got a pretty jam-packed 45 minutes so i hope that everybody's fingers are flexed we'll be asking for some participation as we go along um i like to run a democratic class so let's get started so what's going on with the market well from the sea of red i'm seeing here on the side let's start with the s p 500 so the s p 500 if we come and we look at a year-to-date number and i change this to show price as a percentage we can see that we're down you know we're down about nine percent year-to-date um and you know it looked like we were trying to rally but we're still below the 10 and the 30 and if i add the 200 to this just a simple moving average and the default is 9 but if we come out and we make this a 200 and we'll make it black and a little bit wider so we can see it you know we're below the 200. so we're below the 10 the 30 and the 200 so you know the bulls are not rejoicing um you know this trend is not looking bullish is it now when we look at this in in the context of the last year last year the s p was up you know 26 which was a remarkable year um but this year not starting out that way now when we come and we look at the nasdaq tech having no financials i mean here we have what a big head some might say we might be setting up kind of a lopsided craigie head and shoulders here but you know when we look at where we are year to date on this one we're down even more down almost 15 and again below the 10 below the 30 below the 200. so not trending bullishly the russell kind of more of the same although last year i mean the russell kind of had a year of going a whole lot of nowhere last year it was very sideways but you know we're down like 11 year-to-date on on the russell and if we back things up even you know just to have a look we're down over 20 over 20 from this high that it hit in november so that's you know considered recession territory as opposed to corruption territory on the small caps and it's the growth um component that has been hit particularly hard here now how about the dow well it's kind of fared the best of the bunch um you know comparatively speaking year-to-date but you know if we look at a year-to-date number it's come back to this it's it's traveled a lot sideways since about july of last year and it's sitting right back near this support level and the question is will it hold and you know we don't really know yet right all we can do is um there was a former coach who used to say you you can't trade what you think you trade what you see and you know you apply some thought to that obviously let me just go there we go sorry guys let me make sure i've got my yes okay sorry guys i didn't have my um chat current okay so we've got on on the dow we're down six percent so the healthiest or the one that's corrected come back the least but still they're all bearish and so today last week we talked about this although things appeared to be you know bouncing at the beginning of the day and then you know it's amazing how much things can change over the course of a day but today i thought we'd look at a couple of our former trades and then focus on how we might take advantage of what's happening bearishly yeah yeah sorry guys um on that and i'm not gonna go back over it because i know that so many of you you know look at these on a daily basis but the spx you know there we are down down eight percent you know the dow down six okay yeah like i'm trying to be fancy with this screen switching thing and sometimes i think i should just stick to my like bottom corner yeah okay so let's go and look at a couple of the uh trades that we exited out of and what i usually do the day before we meet is i come into the monitor tab and in this class is there anyone that is brand new here for the very first time because if you're here for the first time one of the things you may not know we started the first class in january with twenty thousand dollars and our trading parameters are kind of modest one we can't place a trade worth more than five thousand dollars in total and you might say like back the truck up like that's too much on a twenty thousand dollar account but we wanted to be able to hold a hundred shares of something that was fifty dollars or less so that was one parameter the second parameter is we aren't willing to risk more than four hundred dollars on any one trade so if we're looking at buying a put and that put cost ten dollars a share or a thousand dollars then we don't take that trade we'll turn it into a different type of trade yeah so in this class we're assuming we have twenty thousand dollars so i see that we do have several people who are here for the first time so welcome and i hope you enjoy this and if it's a bit like drinking out of a fire hose all i can say is that's okay just keep coming back okay if there is a strategy that you don't understand let me know and what i'll do is i'll put a link in to that getting started with options um introduction to that strategy okay okay so what we're gonna start with is two positions that we exited and one was wells fargo wfc and with wells fargo we did a it was a bullish trade and it was called a long call vertical and we bought seven contracts of the 59 call and then we sold um seven contracts of the and our net investment was 50 and so this was one of the first instances in this class where we said you know we're going to put an exit in and our our order was if it hit 75 cents and we've got a 50 gain it's gone from 50 to 75 cents let's exit the trade and so on february 11th we put that trade in on the 15th where's my calendar which was tuesday let's come and look at the chart so on the 15th it moved up nicely so a happy post valentine's day it hit that value it exited and it actually paid us more thank you very much but now it's pulled back so if we hadn't put that exit in we would still be in this position and actually we'd be in a losing position because if i came to the trade tab and said this march 4 59 and 60 so march 4th if we looked at buying a vertical the 59 and the 60 it would be worth 18 cents so we would have gone from a winning position to a losing position yeah so on this one you know that was a a happy result we ended up up 33 cents you know times so when we look at this sorry this tends to happen just randomly okay here we go so when we look at you know we were up 33 cents a contract times seven contracts um we were up 231 dollars and while that may not have a sipping something fun um out of a coconut in tahiti that actually is like one percent of our account value that we just gained there and and you know how much were we risking well we were risking 350 or fifty dollars a contract and you know so that turned out to be a 66 percent gain and for a trade that we were in for four calendar days so you know that was a happy result now we're up you know about twelve hundred dollars in this account so on twenty thousand you know that's you know just over five percent maybe around six percent year-to-date which given that all the major indices are down you know would have a smiling now here's one that just kind of makes me gnash my teeth and it's crocs because what we did with crocs let's close this out what we did with crocs was on the 28th we did a bearish trade so we bought the 90 put and because that was 640 kind of out of our snack bracket we then sold the 85 put so this is a long put vertical we paid two dollars and 30 cents for it i went in and closed it out on valentine's day on monday and i was paid a dollar ten now why did i do that well it expired friday it expires today but as luck would have it let's come and look at the charts so on the 14th it was still holding this support level and so we exited this trade and said you know what better to take half of our money than end up losing it all because time decay starts to become an issue and it wasn't moving in the kind of time frame we needed and then wouldn't you know what like now it's trading at 81. so to get our max gain it just had to go through both our strikes so on this one you know we took a hundred dollar loss or a fifty percent loss on that when it turns out we could have had a hundred percent gain and so this is kind of where sometimes you just have to make your best decision and move on but if you have this still in your paper money account it expires today it has gone through both strikes and if you let it expire you would have your max gain what you may choose to do is close it out because you never know what can happen over the course of a day i mean look what happened in one day yesterday so that's crocs okay so that's two of our previous trades and so i'm just going to check those off got those covered okay i want to look at some new trades now and one of the ones i wanted to start with was attack stock koopa software so with coop and this is you know a pretty short time frame so let's go and look at six months so this is a stock that's been pretty beaten up i mean it was at 270 dollars and it recently hit a low of 115. and so kind of if we look at this and and the reason i've drawn these two lines is you know is it going to just kind of go sideways in which case if we wanted to do a bearish trade could we perhaps look at selling a short call vertical you know which is so if it continues to go sideways then we still have a profitable trade now ideally i would have liked to be up around you know this recent high was 140 but if we could we do the 135 because when i came out and i don't know if the 140 would still give us enough if we come out to march so that would be 28 days if you look at this 140 it has a delta of 24 we get 65 cents that's not enough juice you know we potentially make 65 but we're risking 335.
so that's within our acceptable parameter i mean it's a we're allowed to risk 400 but to make 65 doesn't seem like you know that's the best bet in the park um so if we look at our vertical here and our kind of rule of thumb in this class on whether it's acceptable or not is if we're in it for 28 days can we get you know about a 28 return so if we look at this even at the 135 that's about a 25 return if i round to a dollar while we're risking four dollars to make one that would be a 25 return so if we look at that and say well we're going to be in it for 28 days we might be okay with that but it it's a little slim it might be a little slim so what else might we consider well if we say this stock has been downtrending it's had periods where it's kind of consolidated a bit we saw it consolidate here consolidate here and then it continued down we had a high we hit we've had this kaholt happen it's up 16 cents but what if we said hey if this comes below today's low at 116.62 could we do a a long put vertical or just a long put how much are the long puts on this so if we come and we look at our long puts at the around the 120 mark where it's currently trading 950 dollars that's a little that's a little high for us and our bid asked spread when we look at this because look at the volatility on this thing even though there are 600 contracts we've got about 90 cents so that's 10 so that's considered kind of at the wide end of our range and some people might say that bit ass spread is too wide and others might say you know what um i'm okay with that so if we kind of ran our our numbers on this and said okay we're looking to maybe buy a vertical here 225 what's the most we could make on this the difference between the strikes but we might not want to get into this unless it goes below below what below today's low which i wrote down 116.62 so we could say you know what we know that it'll be our debit might be a little bit higher but we could risk up to 400 dollars so if we look at this we could say you know we would like to place this trade but only if coop goes at or below 1 16 62. okay and then if that trade fills or when that trade fails so 116 62 so we want to wait until the price of coop is less than or equal to 1 16 62 could also put in an order to exit the trade like we did with wells fargo and we'd come down to single order first trigger sequence right click and say create an opposite order and we would like to exit this when we're going to make it a limit order we would want to buy it back when it was worth about four dollars so what's the most we could make five dollars okay or you might say you know when it's worth 350 because if we paid 250 to get in and we got out at 350 you know that's a pretty nice return and we can always change this but you know we could be out skiing or if you're in florida you could be golfing and you could end up you know one in this trade at a timing that's appropriate for you or you can end up out of this trade um at a profit like we did with um our example with wells fargo so now will this trade ever fill if this one doesn't no it's a first trigger sequence so if we don't end up getting into this nothing will happen with this one so confirm and send um what's it's assuming our price is based on what it would currently cost and we know it's going to cost us a little bit more and that our max profit would be a little bit less but we're going to t that one up and we're going to put it in our long put vertical group and this is a conditional order okay so that's coop another one that came up on the list was adobe so let's see what adobe's doing today so another one in the tech sector so an adobe is continuing to move to the downside now some might say well hey barb like adobe's already kind of moved and and are we seeing something similar here let me just get rid of some of these extraneous drawings so you know we saw here that it kind of went sideways um and and it started to fall and we're seeing you know these bear flags setting up came down rallied for a couple of days and if we're looking for this close below the low of the high day let's get rid of that this closed below the low of the high day that happened yesterday and so today we would be considered to have an entry now this is a very expensive stock 450 dollars so you know if we were in the long options class we might say well you know let's buy a put and have a 1 atr target on it if it goes down when it goes down 18 we'll take our profit whatever that is and call it a day um but my guess is that these options are a little pricey and so you know to buy a long put that's really not in our snack bracket and you might say but it looks like such you know like like this would be a successful trade um doesn't matter our rule is we can't risk more than 400 on any one trade so if we look at this first strike in the money because that's where it's it's closest to trading could we perhaps do a long put vertical so and and somebody's asking how do i select the the strikes the stocks i want to trade and i'm going to talk to you about that in just a minute so thank you very much for asking that question um so we are going to sell or sorry buy a vertical and so when we look at this the 455 and the 450 how much are we risking we're risking two dollars and 20 cents or 220 dollars and how much does this have to move it has to move four dollars in 28 days for us to have our max gain now on this one we might say well we already have an entry today how about we put something in and say hey if this spread becomes worth four dollars we would like to exit or we might say hey if we have a fifty percent gain so if this went up to three dollars and thirty cents we'd be happy small wins base hit and how much would we have made there well we've made a dollar ten but that's a fifty percent return on this trade and so we're going to come to single order first trigger sequence right click opposite order and say hey when this is worth 330 we'd like to buy it back or sorry sell it um and close it out now someone typed into the chat is that we could sell a call spread nrg you're absolutely right we could look at at doing that as well and it might be interesting in this class to do you know one of each and um yeah to do you know a short call vertical and then a long put vertical and just see how they play out now can we do two of these well that would be risking 440 dollars technically and that's a little bit high for our class so we're going to do one and we're going to put that in our long put vertical bucket or group and send that in and if it doesn't fill if we don't hear our little ping i'll make sure that it does fill now could we do a short call vertical which is less directional and where would we want our strikes to be well you know me like i'd ideally like it to be above 540 but it's trading at 450. so like where would we be comfortable putting our strikes so if we say well we had kind of a it seemed to have a support level here could we maybe do the 490 might not work and this then came up and you know when we look at this let me just draw this down a bit so when we look at this when it came back up it didn't come back above that 488 level it hit four what was the high that day 482 excuse me so could we come to the trade tab on this and say okie dokie for march could i add a few more strikes could we do the 490 that's a 24 delta we've got 75 cents spread which is about 10 you know volatility is high and we want to sell a vertical here a dollar five so we're risking um a 390 to make a dollar so if we think that that's okay again that's about in that 25 range we'd single order first trigger sequence oh no 72 that's not going to float our boat either we we want to get a dollar for that or we don't want to play so we're going to put that dollar back in and if it comes back and we can get that great and if it doesn't then we don't place the trade but given that we get in first trigger sequence right click opposite order let's say when it's we've got 80 percent of our max gain when it's worth 20. now if we meet next
friday and we've got 75 might we say you know what i'm okay with that we might do that we could close it out okay so we're risking 400 if this trade fails and that's our max short call vertical and we can compare this to the long put vertical that we've placed so there's our long put vertical for adobe we got filled on that so we'll send that one in and if it fills then we can um we can compare and contrast those okay so that is adobe okay so here's one that isn't bearish so i'm gonna walk on to the i'm gonna walk over to the the bullish side perhaps for just a minute well maybe let's look at fang so fang is in the energy sector and this one we don't do a lot of earnings plays in this class because we're kind of keeping things close to the chest we're trying to um trade do example trades that are conservative and there's always this element of risk around earnings but we've got earnings on tuesday okay so like if i hover over this little blue dot earnings is on tuesday well what do we have coming up we have a three day weekend coming up we have a stock in the energy sector which has been the only kind of ray of bullish sunshine in the sector arena largely well finance has kind of been in there too but certainly um energy has been the shining star it was going sideways broke out came back so this old resistance level held could we perhaps sell a short put vertical you know around that 115 or 120 um and take advantage of three days of time decay over a long weekend and then volatility crush over earnings so that even if it came back you know a little bit if we sold the 120 it could come back ten dollars and we might still have a profitable trade so just a thought so there's a question in the chat and i'm going to address that in just a minute when do we decide to buy a spread versus selling a spread and so with this one the reason that we'd be looking at selling a spread is because one look at volatility 63 so volatility is high what does that mean premiums are going to be higher and so when premiums are higher people would often rather sell than buy and that goes for things like options too so if we look at this and we say okay there are a thousand contracts on the books saying we've got a delta here of 29 which means we've got about a 61 percent chance or sorry 71 chance of this expiring worthless now our bid ask spread is a little a little wide on this because of the volatility but we get a credit of a dollar 30 and once that volatility crush happens um and volatility comes down you know that that may stand us in good stead so we're risking 370 to make a dollar 30 and the idea here is to take advantage of time decay over the long weekend and volatility crush with earnings and so we're going to go ahead and we're going to put this in we're going to put in an exit but if we even have half our max gain on monday even if it pulled back a little bit or on tuesday you know we might choose to close this out so we're going to create an opposite order and say hey when this is worth 26 cents just to be consistent in using and this may have to be an inco nickel increments increment so we'll make it 25 cents and go ahead and put this in how many contracts are we doing one why because how much are we risking we're risking 370 dollars see our max loss 370 max profit 130 okay um is there a video that shows how to build a chart if you go to connie hill's class on wednesday it is called i have it right here exploring thinkorswim she does a class dedicated to charts and so i would um go and look that one up in the archives okay so that was just a question in the chat um so this was a short put vertical and we're going to put in the notes trying to take advantage of time decay over long weekend and volatility crush on earnings which is tuesday so because if we come back and we're going why did we do that and you know we're getting a nice premium and it could move ten dollars and we'd still have a profitable trade um somebody said i noticed that you put in often put in a target do you ever put in a stop and we can do that absolutely but especially with verticals which we do a lot of in this class sometimes what we like to do is just watch them we don't want to end up nicked out and and recognizing a loss if we think that technically speaking it may come back yeah and we have our max risk worked in so yes somebody said so this fang trade is a bullish trade correct yes but i would kind of temper that by saying it's bullish to neutral in that you know if i draw a line here around this 120 mark well actually here to just make it a little easier if i just edit this and we put our line in here and this is our short put vertical as long as it stays above this so it's kind of bullish to neutral so this could continue to go sideways it could go sideways and we'd have a bullish trade now it could also go so what can happen here it so if if it goes sideways we are happy campers if it goes up we are again happy campers if however it goes below here's our 115 if it goes below 115 we may be sad but you know no need to call the caterers to have a big pity party because how much are we down we're down was it 370 dollars and we know that we can afford to take that loss where it gets a little dicier is if it it feels in between and so one of the things that we want to make sure that we are doing is managing this so that the short strike isn't exercised and if it goes below both strikes it can be exercised at any time now if that happens prior to expiration what some traders might do is then just exercise their right on the buy side um and and then they've taken a max loss because we don't have enough money perhaps we might have enough money in this account to buy twelve thousand dollars worth of of fang but that isn't what we're intending to do here so trade management is important and especially if it's flirting with being in between our bot site strike and our sold strike we need to pay attention and manage it appropriately okay so that's fang how about facebook um today is sponsored and brought to you by the letter f or meta so it looks like it may have found support so maybe we hold that one for next week or we might say hey it did hit a new intraday low today we could do a long put vertical and make it a conditional entry if it goes below 206.66 then we would get in and do a long put vertical now i know that we don't have a lot of time left somebody asked if we've already covered the trot crocs trade and yes we have um so facebook is one that we may just want to keep on our radar now somebody asked about how do we find these stocks so what i want to do is point you to connie hill's class yesterday so connie hill taught a class yesterday it was called trading stocks and options and she showed you how to create a bearish a bearish uh search and so in the top right corner i am going to put a link to connie's class i was going to show you how to create that in this class i'm just making a note of the time but i really don't have the time and connie did a great job of that the other class i'd refer you to is james boyd's class yesterday where he spent a fair bit of time showing you how to set up some watch lists that can give us an indication of what's happening in different industry groups and that one is called trading the trend james taught it it was a fantastic class i didn't get to catch very much of it but i'll put a link to that as well so at about the late eight and so if you're looking for ways to come up with searches so for today's class where i got the search ideas was i ran um connie's search from her class yesterday uh michael is saying yeah that was a great class and learning how to set up that bearish scan and so we could look at lulu one of the things that james pointed out is that uh clothing's been getting hit and you know what we're seeing here is it looks like it's starting to rally today but we could put in a conditional order do a long put vertical you know we might say well what is still falling today so we could look at you know look at these stocks that here we have low lower low lower low hit a new low today this one's at 50 confluent it's not a company i'm as familiar with so when we look at our bid ask spreads here you know that's closer to 20 so we might say well that one looked good but maybe not so much how about beyond me i got paypal paypal was another one that was on my list so you know this was trading at 296 down to 104.55 so could we do a long put vertical on this and i know that we're um almost out of time here so i am going to go ahead we're going to look at this super quick 104 so five you know we've got a 20 20 bid ass spread here you know 6 000 contracts so are we the only ones to have had this idea to buy or sell a put on paypal today we are not 293 contracts so if we did the 105 long put vertical 100 cost us two dollars to get in how much could we make 300 and so if we said okay first trigger sequence right click opposite order if when this is worth three dollars a 50 gain get us out so base hit now you we could just watch this um but we only get to meet once a week on a friday for 45 minutes so our opportunity like with wells fargo might come and go so okay maybe make it 3 10. okay so confirm and send long put vertical fire in the hole okay oh i didn't realize there was a survey today so guys let's come back we reviewed our current market what's going on in the market the bears seem to be bullying the bulls and although there are a few bulls around they tend to be lurking in a few very specific places so we did one bullish to neutral trade today we reviewed a couple of our example trades and then we demonstrated how to place some new trades and we placed quite a few didn't we like when we come back and look at this our monitor tab so let's come back to activities and positions we placed five orders so we did one on adobe we did actually um a couple on adobe and then we did one on fang and one on paypal this is saying we already hit our target on adobe we got in for a dollar 40 and we're already out for 360 day that may have been uh that may have been a a paper money fill but we'll go back and we'll look at that next week so guys thank you so much for joining me um just before i wrap i want to say there is a survey in the chat so if you can do me a personal favor and click on that link there are three quick questions um you know one to ten did you hate it that's a one did you love it that's a tan um or anything in between um and then you have the ability to put in comments so let me know let me know what you loved let me know what you'd like to see more of or less of or what you'd like me to spend more time on because your comments influence what i teach in the upcoming weeks or the way in which i teach it because really i'm doing this for you james and i are here for you and so you have a chance to help direct upcoming classes and that's how you can do it if you enjoyed this and you're new and you haven't subscribed to this there's tons of stuff out there in youtube on investing but quality is sometimes harder to find subscribe to our channel hit the like button help other people find us um you're doing both them and you a favor um and if you subscribe to this channel turn on the notifications and then you know you'll you'll get a reminder of when this class is coming up so you know i encourage you to do those things along with it's a long weekend so i hope you have an absolute blast this weekend keep in mind everything we do in this class is for education and informational purposes only none of it to be construed as a recommendation keep in mind when we are looking at um selling strategies in our live account short puts can be exercised at any time prior to expiration in paper money that won't happen so that's one of the differences between the platforms we have to take transaction costs into account 65 cents per leg per contract okay and that's both on the way in and when we close out the trade know that all investing involves risk including the risk of loss so thank you my friends for joining me this morning huge thank you to james um boyd for uh volunteering to ride shotgun i'm sure that uh jax is at his side and um have an awesome weekend up next will be um it's friday it'll be getting started with stock investing with connie hill take care everyone bye for now