Long Verticals & Diagonals | Ken Rose | 11-5-20 | Trading Bullish Sectors with Long Verticals
Hello everybody and welcome to our session here today on long verticals, and diagonals, my name is ken rose as always. It's great to be here to discuss, investing in stock market particularly we have these, strategies, that we can look at in relationship, to trend and price points in the life. Interesting day of the market a nice strong gap to the upside, it tends to be, maybe maybe coming off a little bit off of the highs here today we'll take a look at the market and see how that, blends it blends in with our strategies, here today so let's go ahead and get. Underway. All right investors. So i think our sound's going to be a little bit better right there okay, great. Well super again uh welcome here to our session, and just a reminder you can follow me on twitter my twitter handle is at krosc. Underscore, tda. Where i post things related to this area as well as other areas investing i want to thank michael, for like mike for. Mike, fallette, for being over there in the chat window to help out today very knowledgeable in this area as well as mother, many other areas of investing so do feel free, to send your questions over there to mike also i'd encourage you to follow, mike on twitter as well here twitter his twitter handle is at, am fallet, underscored, tda that's a little bit of a tongue twister i'm sure mike would be more willing, to send his twitter handle to you over there in the chat window. And wave disclosure, just a reminder that we do use the paper money software application, here this is for educational, purposes, only, successful, virtual trading during one time period does not guarantee, successful investing of action funds during a later time period, as market conditions, do change continuously. Also in order to demonstrate the functioning of the platform we need to use actual simple so do keep in mind that td ameritrade does not make recommendations, or determine the suitability, of any security or strategy. For individual traders any investment decision you make in your self-directed, account, is solely your responsibility. Here's a picture of myself. I've been here for about 16, years i specialize, in blending both fundamental, analysis. With technical, analysis. I love learning this stuff i'm always in constant learning mode new technology, new strategies, all that kind of stuff i love learning it i love trading and i also love teaching it i'm also a contributor on the td ameritrade network i'm a charter market technician. And i work with think scripting building indicators, triggers and strategies, and the like. So with regards, to our session here today we'll take an overview of the market kind of see what's going on. We'll review, an existing, position. We put on a position, last week we'll see how that one's doing. Then we'll also look for setups for new, for new positions. And we'll look to do a, potential, paper trade. So with that in mind let's go ahead and bring up the thinkorswim, platform. Here we are right here just, in way review of the market i actually got a a, request, from from a fellow over on twitter he asked me to put together, this little matrix, here that um. Provides, you with, um, the the name of the sectors, you want to come up here here's the. This is energy and this is telling you that energy is up 0.79. Today this is materials. And, here's industrials. And the like so it just kind of breaks things down i did a little. Scripting, to to bring this up this little matrix right here but we can see here. You know in looking at the strategy, we have here which is going to be long verticals. And or diagonals. We're basically, looking at something that has moved up maybe pulled back a little bit as just bouncing and moving to the upside. If we look at the overall market. Which is represented. Down here let's just go ahead and make this a little bit bigger so that we can see it, here we have the spx, on the spx, notice that, yeah we did get a move to the downside here and we started to bounce right here but we have been moving up strongly in fact we've had a nice recovery here just lately, we're closing, we're trading close to the highs of the day. Now.
This Could be a legitimate, possibility, with regards to a long diagonal. It also, could be a possibility, with regards to a long vertical. However. I'd say with regards to long verticals. What a lot of investors, looking for, from a bullish standpoint, since overall the market's been looking bullish. They'd be looking for something more along these lines where there's been a pullback. And a bounce, here pull back and bounce here. And pull back and bounce here or possibly. If the mark is kind of gone like this and then we get a breakthrough, resistance, level, possibly, on a breakout of a resistance, level, right now if we're looking at the overall market you can see with this big move to the upside, that's probably going to pull the market. And, a lot of underlying stocks in relationship to it up into up into some overbought, areas. Where maybe there's not a maybe there's not enough energy, or, enough. Continued, forward, momentum. To break above, some of these previous resistance, levels that we're currently coming upon. So in looking at some of the individual, sectors, we may want to look at sectors, that. That maybe are not quite. Overbought, like this. Okay, but maybe something that's pulled back recently and it's just starting to bounce up something more along those lines we could look at some, individual, sectors in relationship, to that. So coming back in here then i'm going to come back in there so we can look at all these and, this one here, materials, is kind of a, had a little bit of a pause here and it looks to be moving up this one down here financials. A little bit of the same. And what do we got here let's take a look at materials, right here i'm going to open up materials. Make this a little bit bigger and you can see right here, we had a nice movie. We only had a pause of a day, okay but it was significant. And now we're kicking back in gear and moving up, a nice thing about this as well is that we're breaking, through this resistance, level right here. So maybe we looks for some material, stocks with regards, to a potential. Long vertical. In relationship, to what we'll be looking at here today that may be that may be an area of focus up also. You know another thing that we've done in here and that is to. Look at, uh some stocks out of a watch list that are this is this just primarily, liquid stocks i do i did find a couple in here that may be worthy of consideration, as well, i i, would like to share this matrix with you in case you like it let me just come over here and. Sure they call it a grid. And, let me share this with you in the event you'd like to have it. Sometimes i'll, do something like this and i'll get some, comments on twitter hey can you give me that that matrix, that grid you were using. I like to be able to use that as well. And let me just give you the link.
Here. And again this this came about as, someone contacted, me and said hey. Sir like to have be able to do something like this so. If you have some requests, or something you might want to see do feel free to. To contact me via twitter but i'll be honest with you i won't be able to answer, all those requests, but i do try to answer as many as i can. On that i think that's big enough to see okay so so here's the link what you can do is you could. You could just go ahead and take a screenshot, of this i'll also send this to you over in the chat, window. So you've got it. And by the way i'm not i'm not recommending. This. Okay. I'll put it out there for you to take a look at it but i'm not recommending, it and also keep in mind, that it's not guaranteed, with regards to accuracy. Or time. See over there in the chat one of those are catching this on an archive, you could just you could take a screenshot, of this. Basically, you only need these last seven digits here in those last seven digits are lower case m lower lowercase, e uppercase, r lowercase, n lowercase, d, the numeral, five. And uppercase. S and do feel free to use it share it do it anything you'll do it enter do whatever. You would like to do, with it. Okay. So with that then let's go ahead, and i'm going to pull up the s p 500. We'll come over here, and we're going to pull up the public watch list for the s p 500. And, here's our s p 500, what i'm going to do here. Is i'm going to sort this by sector. We were talking about materials, there may be some. Possible. Bounces, both flag types of things in materials. So. Over here i'm going to, right click on symbol. Up here this is this is the public watchlist, s p 500, again it's labeled everybody. And then once you pull that up you come up here to symbol, do right click on symbol. And choose customize. And then here under available items. We can type in sector. And then right there's our sector, and we'll go ahead and move that over. And we'll go ahead and move it. Up. I'm going to go ahead well yeah let's go ahead and leave implied volatility, on there that may come in handy. So here is our sector, i'm going to sort by sector. Like so. And then, let's come down here and there's our materials, right there. Yeah we don't have too many materials, i think we go through these relatively, quickly so, i'm just going to click right here on materials. I want to tie this into our chart over here. There we go right there so you can see yeah we have a pullback about so i'm going to go back a little bit longer term because. We'd also like to be able to assess, the. The trend. That has led up to that so let's go back three months on this. There we go so it's kind of it so we do have a pullback and a bounce here but you know the trend looks somewhat sideways. A little bit on that one. Come down here same kind of thing we see the pullback, and we can see the bounce. Trend, a little bit suspect, this one looks a little bit healthier, in that, we have a little two-day pullback and a bounce here but if you look at the chart here.
We've Got. These lows right here. Are getting higher. And these, highs up here are getting higher as well, so we're looking to continue, to move up here so this may. Very well be a candidate, right here i'm just going to jot this down. E, m, n. And let's take a look at the options real quick to see what we have as far as liquidity, and the like. We don't have weeklies, okay we either go out 15, or 43, days let's look at a two-week. Set here. There's a fair amount of slippage, for a, stock that trades at 87, dollars we do have a fair amount of slippage but i would i would say that that some that some investors, may actually be okay with that maybe look to get filled, closer closer to the mid price on this. All right, so we've got that one as a candidate. Let's look at a few more here. Got that one noted, trend doesn't look too good on that we could we can see the pullback of the bounce, if if we wanted to call the bottom we could attempt to do that you just want to be careful in doing that because. We could just be moving. To the top side. Of a downward, channel. See that downward channel right there. And we could come up there and hit that and it's possible to continue to move down we could break out but it. You know some some investors are going to be a little bit nervous entering in a bullish trade, when something's been moving down like that. Sideways, movement pull back on a bounce, get a lot of sideways, this is looking interesting, isn't, so overall, it looks to be a little bit more bullish with regards to trend if we look at the lows here's a. Low here here's a low here. Here's a low here, here's a high here here's a high here we're going up this could be a resistance level that could be a little bit of a blow, a roadblock, right there, but if we're looking at the target relay to this it would be the flagpole. Right here. Here's our flag then we take this flagpole, right here, and we extend it out from the breakout, point here, to get a target, i'm wondering about the price of stock how that's going to be related, to the underlying, options. Sometimes when the price of these the stock gets a little bit lower than that. The underlying, options the pricing becomes a little bit squirrely, particularly, talking about the bid ask spread here. It doesn't look, looks like we're looking for a neighborhood about 10 to 15, cents so that may. Or may not. It's not uh you know you know for some investors, are looking for the, they're looking for the bid ask spread to be like less than five percent of the distance between the strike price would like to see maybe five cents rather than ten cents. Okay. But let's come back up here we just we just about allocated, enough time is here as far as searching, we want to go ahead and, look to put together an example, here where that one's moving up isn't it. That one there is breaking through resistance, level. Well what do we got here with aber, abramali. Huge break out of that resistance so it looks like we had an earnings announcement, on that one, a little bit more of an uptrend, and moving up ce, let's just shut this one down. On ce, let's check the. Underlying, options, to see what we have you know for a 120, dollar stock what do we got about 25, cents. Between the bid and the ask price. With regards to slippage. We negoted, that one. Another, one this, uh. What is, ppg. The whole gate column one i'm trying to think of what this company is or it's kind of a tongue twister but the the trend looks okay and i pull back and about so let's. So we got here on, the slippage, on the underlying options nice here we have a lot of we have a lot of choices, here. We got weeklies, if we want to go out say. 22, days, and. Coming down here, oh boy that's a lot of slippage. All right well let's let's do this, folks then we've, allocated, our time for that. We can we can look at some more and what i would encourage you what i would encourage all of you to do is do exactly what we're doing here. You know pulp list of the s p 500. Maybe look at some of these material stocks and you basically know the type of things to look for. Let's go ahead. And put together a long vertical, trade. Then. And out of those ones that we were looking at. With regards, to the. Chart and the like. This one looked. Like a possibility. We don't have weeklies, on it um. You don't necessarily, have to have weeklies. But there's a fair number of traders that would like to have weeklies. If it's available. And. It doesn't look like any of our candidates, have weeklies, but.
Here's That chart. That one was not breaking had not broken through resistance, i believe one of these. Had gone up and, was bouncing, as well as a breakthrough. Resistance. That one right there looks like. No that was not quite, there yet. Of course. Do they have to be breaking above this resistance, level no but it is breaking above this resistance, level right here. Which is a positive. We'll use this as our example for this week. And first of all we want to assess, our target, moving to the upside. And to do that we want to measure. The height of the pole this is the pole right here. I'm going to measure the height of that pole i'm just going to use a, rectangle, right there. There's the height of the pole, and i want to, extend, that past, the breakout, point. Okay. This is our breakout, point right here we basically gapped right up to it, and i'm going to duplicate. The pull, the pull height right here. We'll duplicate, that well i'm going to try to duplicate, it there we go. And i'm going to move it up there. To our breakout, point, that gives us a target up here at about 36, dollars so about two dollars away. It doesn't look like we would need a whole lot of time to get up to get up there for two dollars that that'll affect the, the time frame that we use with regards to our options. So we're going to come up here to the trade tab and let's get a little bit more room over here on the right hand side. To do that we'll come up here to style, and we'll choose settings. And we'll come up here to the time axis and i'm going to give ourselves, 20 bars over there to the side. And. I'm going to take this angle of ascent right here. I'm just going to extrapolate. That angle. Going about like that right. Activate, that drawing, and, bring it over here. And then we're going to play the part of the investor that's just going to take a little bit of the slope off on this why. Because we're going to treat this like a sprinter. That takes a big run, takes a breath and then it's going out to complete the sprint we're just going to assume that they lose a little bit of their energy so they're not able to go up quite as fast. And let's extend that to the right so this now gives us now we have a target we also have a target date, so our target then, is, 36, dollars.
And Our target date then if i roll over that our target date is going to be 11 16., so 36, dollars and 11 16. let's see how let's see what this trade looks like, it it may look good or may or may not look that good. You don't really know for sure until you look at the numbers we'll come up here to trade. We need to get out to 11 16., so actually this november. 20, is far enough it gives us actually a. Gives us about four or five extra. Days. And we'll come down here. And let's take come back over here we got 36, bucks. So we're going to look to buy the the at the money call option right here, stocks currently trading at 34, so we're going to be looking at buying the 34. Then we're going to sell, the 36, right here because that's basically, our target. Would like to capture this time value right here. Okay. Like to capture that time value. And we're okay. With the profit, point between, here and up there to our target. So with that in mind. We want to do a long vertical, and we want to go, one. Two strike prices, wide. On this so i'm going to click on the ask price. And i'm going to choose buy. And. I want to go deep and wide because we were going to go three strike prices. I'm going to go one month, three strike price is vertical. Whoops that took us up to 37, let's move that down to. 36. There we go, 36, okay. So notice that this is two dollars, wide. Our debit, is we're going to try to get filled at 75, cents what is our max gain. Well our max our max gain on a, long vertical. Is going to be. It's going to be the width, right here. Okay. The width, of two dollars. Minus. The debit here. Of 75. Cents. So what does that mean our max gain is going to be a buck. It's going to be a dollar 25.. So what what would our what would our return, then be our return on investment, then if we're successful, on the trade well. We've got a dollar 25. Divided, by that thing's bouncing around a little bit we'll keep it at 75, for now if we get a little bit less that's right, so we're looking at about a, 166. Percent return. On risk right now. Okay, well um, and then our max loss of 70. let's play the part of the investor that's okay with the loss, up to one thousand, dollars. So we'll go a thousand, here. I'm going to come in here and assume, we may have to come in here 75, to get filled. Divided by, 75, bucks boy that's going to be a lot of contracts, isn't it well 13 isn't too bad. So let's move this up then. To. 13. 13, contracts. It looks like we're in good shape so far. Um. Boy we're a little tight on time aren't we. Let's go ahead and, and take a um. An exit on this let's set this up so we automatically. Take an x well tell you what, let's go ahead and send this one in when we, let's take a look at our trade from last week and then we'll discuss setting up exits. To get out at a certain percentage, of our max gain, we could do it here. Okay, or we could wait till the trades in there a little while and decide to do it a little bit later, because we want to look at our trade from last week i'll go ahead and we'll look to set something up, on our trade from last week, with regards to. To determine, with regards to getting out an exit. And say, 90 percent of our max gain. Okay. So we'll send this one in we'll do a confirm. And. Do i have a category here for long verticals, yep it's right there.
And We'll send her in. And it looks like we got filled. At 70 cents which which, which we're okay with. Okay so from last week, i believe we had a trade in here. Let's come down here, and find our long verticals, and diagonals. And activity, and positions. And, so this is the one that we just put in cva this is the trade that we put in last week it looks like it's doing okay. If we look at it we currently have profitability, of 292.. A lot a lot of that occurred actually today with some nice positive movement here today. So, um, let's say that we i don't believe we have much time on this one we have we have eight days so what if we wanted to set up an order to take us out at 90 percent. Of our max gain. Okay. Um. Uh, 90 percent of our max gained. Or. Or get out just before expiration. Something to get us out nine percent or max gain or something to get us out. Just before expiration. Well. In looking at this would have do a little bit of research, on it to see. Our account statement let's take our cash and sweep off of here, and, let's take our profit losses off of here. And let's put in our symbol what was that symbol again was that fcx. Fcx. It sure was let's go to account statement let's pull up fcx. And, here is our trade history. So this was a, this was a one dollar wide vertical. That costed, us a 43. Debit. So if we wanted to set up an order to take us out where we capture 90, of our max gain we want to start off by calculating, our mass gain. And our max gain is what it's the width of the spread which is one dollar, minus our debit of 43.. So i'm thinking that is going to be 67. Right. Nope it's not going to be 67. It would be. 57. Right 57. 57, plus 43 let's just double check 57. Plus 43. Should equal our dollar and it does, okay, so our max gain our max gain is 57, so if we want to get keep 90 percent of our max gain. We can take 57, to, 57, dollars here times that by 0.9. Okay say okay that's that's what we want to capture so we need to capture that when we close this out, we also need to. Recapture, our debit here when we close it out. As we we've already paid this in order to get this gain, in order to get this gain. When we close it out we also need to capture, this, as well. Then we'll have the combined two together let's look at this. Plus, 43. So if we close this out at. 94.3. We'll just, just to be we're at 90, which is a little bit high we'll just round that down in 94.. If we close this out at. 94. And we paid 43, to get in it what would we be left with well we'll be left with, about 90, about 90 percent of that of the 57, percent of the 57. Of the 57. Cent or 57, dollar max gain. So with that in mind then let's do this let's. Bring this up, in our, activity, and positions. I'm going to right click here on fcx. What's our expiration, date our expiration, is 13. Of november. So we'll do a right click here, and. We want to. Do right click up here it looks like right click here create closing order their cell our vertical. And i'm going to come over here and choose one cancels, other. Here's one to sell our vertical i'm going to duplicate, that. Okay duplicate, order now we have two of them. This one's going to be a limit order we'll have them both good till canceled. Good till cancel. This is going to be a limit order, and that's going to be at. 94. 94, cents or in other words 94.. So this one gets us out at, 90, of our max gain, this one we want to set this to take us out so we're not in this thing over expiration, which is the 13th of november. So i'm going to come over here and click on our gear right here. And i'm going to say submit this order. On that expiration, date, 13th, of november. And i'm going to put it in the market closes at 1400, hours here so i'm okay leaving that at 13. 55, plus some change about five minutes before the market closes. And, when we put this order in. We want it to be a limit order.
And We want that limit order. Set to the bid price. Which when you think about when you think about getting out of a vertical. You're selling the vertical. So if you're going with the bid price you're basically going with the, market, price when you're exiting, a long vertical. But to help ensure that it gets filled i'm going to take. Another nickel off that. This is kind of in the event that this. You know, and another way to another name for this order would be in the event i forgot about it. Because you can come in here and look at okay i'm looking at it now, i'll go ahead and get out of it and and do it the way they want but just in case we forget about just in case we get injured, maybe we fall and hit our head we have amnesia. This is in order to set up to take us out of this trade rather than having both those options expiring the money. Now some of you may be saying why don't you just do a market order why are we doing all this stuff why do the limit to the bid. Well on the tos, platform, if i put a market order in here it's probably it's most likely going to give me an error over here saying that you can't have. Market order with good till cancel time and force it's just one of those weird things. Right, so we set it up here to go in right here, and right here now, now they have done up they have done updates with think or swim here periodically, so perhaps or beyond this one what i'd encourage all of you to check it out and see if they are if they are great. So we'll go ahead and put it in this way for now, we'll click on save there not seen any error messages. We got our market order, in here we got our limit order right here. Good till cancel. We're going to submit that when we said we're going to submit it let's go ahead and do a confirm. And send. And it looks like we're good because it wasn't executed. All right everybody well let's go ahead and wrap things up here then for today. Yeah it looks like we're in good shape here let's go ahead and we'll wrap stuff up so. What did we talk about here today well, we did an overview the overall market just kind of see what was going on. We, we reviewed, an existing position that we did last time and next time we'll if that one's still on we'll take a look at that if it's not then we'll take a look at the one that we put in today. Okay. We look we looked for setups for new positions, we talked about looking at different sectors and different things there's, there there are a lot of different ways to look for setups we chose to do kind of a sector approach this time and other times we just pulled up a nice nice liquid, list and, and and we'll kind of move back back and forth between those two because i think both of those, process have good have good validity. And then we went ahead and we did a paper trade. On those trades as well. All right so with that then. Um, just a reminder, that you can follow myself, on twitter at krosc.
Underscore Tda, you can follow. Mike fallette. On twitter as well, that's at amphalet. Underscore, tda mike posts a lot of great things over there, in relationship. To, trading, as well as hiking and mountaineering. He does a lot of climbing up in the mountains, at. At all times of the year so, hassle, has a lot of good stuff on there as well. All right folks so just remind you that in order to demonstrate, the function of the platform we do need to use actual symbols however, td ameritrade, does not make recommendations. Or determine the suitability of any security or strategy for individual traders, any investment decision you make in your self-driving, account is solely your responsibility. Everybody thanks again for joining us here today, for, long verticals. And diagonals. I hope you have a a, great rest of your week best of success, in your investing, and just a reminder, to to be careful out there, be careful and be watchful. Let's get on the whole other side of this covert thing as happy and healthy investors. Everybody we'll see and thanks. Again. You.