Market Drive Followup | Ben Watson | 9-17-19 | Active Trading Strategies

Market Drive Followup | Ben Watson | 9-17-19 | Active Trading Strategies

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Good. Morning, and welcome to active trading strategies, Ben, Watson sitting in for Pat Mawali hey we're gonna talk a little bit about using, some building blocks of active. Trading strategies, as a matter of fact this is going to be a follow-up of our great, New York City Market, Drive event this past weekend, and we're, gonna use some of the building blocks that Nicole, peddle eighties and. Steven. Quark and I talked, about in the keynote address from. That market, Drive event, so a couple of quick reminders as, we, get started remember that. Options, aren't suitable for all investors there's, some special risks inherent with. Options trading that may expose investors, or potentially wrap it in substantial, losses so. Be aware of that fact remember that spreads. Straddles. Other multiple, leg options, strategies, can. Entail substantial, transaction, costs including. Multiple commissions remember the trades involving minimal, potential. Benefit can, also be significantly, impacted by transaction, cost so just, keep those transaction, costs in mind as we. Place trades, and. Look at trade examples, what. I mentioned placing, trades in order to demonstrate the functionality, of the thinkorswim platform we. Need to use actual symbols, and using, those actual symbols however does, not constitute a recommendation or, a solicitation. To buy or sell those. Symbols, or determine the suitability of, any, particular strategy and, remember that any investment, decision you, make in your self-directed account solely your responsibility remember. The past performance of, any security or strategy, does not guarantee future results or success remember. That all investing, includes, risk, including, the risk of loss and this. Is a copyrighted, broadcast no part of this presentation may be copied a quarter degree broadcast name form without, the prior written consent of TD, Ameritrade now we're gonna talk a little bit about option. Greeks along the way here, those option Greek to remember the mathematical, variables that help us to understand. The movement of options premium there's, a real quick definition, of Delta Gamma theta Vega some of the most important Greeks but, button by all means not the only, Greeks but, those are the ones that we're gonna be focused on so what we're gonna do is we're gonna jump over here into the. Thinkorswim platform really, quick we're gonna pop that up here and I'm. Gonna bring over here from the left hand side a really. Quick agenda. So again. I mentioned that this is the market Drive follow up I'll show you what the market right is if you're not familiar with that but. Here's how we're gonna lay this out the reason, we're doing this not, only to follow up on those ideas that we talked about at the market Drive but, to help to illustrate using. The. Different components, of options strategies, as building, blocks for kind, of a comprehensive, strategy. Approach, so that you have a lot of different, choices in, your. Strategy. Toolbox. If you will in. In, being able to make, the trade that makes the most sense at, the time that you are placing that trade, so, in order to do that we're going to talk about some of the symbols that we're gonna use in some of the reasons why we're. Gonna use those symbols well, work, through the technicals. We'll. Talk about some specific, trade examples then my charge to you is, simply, going to be go and do not necessarily these, trades although you, could follow along with these trades but, place. A paper trade in. Your paper money account that's, gonna be the focus and and that's gonna be my charge to you is to, do that because if. You've not traded, if you're sitting there and you've, been, waiting, to make a decision about should, I trade should I not trade. Obviously. We're not gonna tell you what to trade but to, get you to that point of saying I feel. Comfortable enough with these active, trading strategies, that, I'm willing to move out of my comfort zone and move from never, having traded. An option to actually having traded, one either, in my paper money, account or in a live account whatever, that's. The process right so that you have that are so that tool in, your tool. Kit that you can use at the appropriate. Time so there's, the reason why there's, the task let's, jump on into the discussion, and I mentioned, that. This is obviously the, market drive or a market.

Drive Follow up so what I'm going to do is I'm going to go over here to the education, tab across. The top of, the. Thinkorswim platform, and. On. The top of the fingers swim platform on that, education, tab I'm actually going to come right down here to where it says in-person, events, and I'm, gonna click on in-person, events, now, one, of the things that you'll notice and and the market Drive. Is actually. Just passed here, so it was this last weekend. But, the market drive is simply a one day event, sampler. Of a, lot of different things that we do here at TD Ameritrade education. Whether, it is. You. Know our live. Webcasts. Whether it is, the. Market, commentary, that's. Brought, two. More. To, the the, public by. Way of. TD. Ameritrade Media, Productions, which is an affiliate of TD Ameritrade and. TD. Ameritrade Media Productions, brings, the. TD Ameritrade Network. To. The market. That's, market. Commentary. Whether, it is our futures, education. Whether it is, our. Branch, network, the. Market, Drive provides a sampler. Of all of that information that's available all of those resources, that are available and you can attend live now, that this was our last market, drive event for the year so coming up in the new year, keep, your eyes right here, on these in-person, events, for, mark more, market drive information, in the, meantime, lots. Of great, resources. For you to be able to learn more, in. Person. So. Coming up in, Irving, Texas just. ISAT it outside of Dallas on the 20th and 21st that's this coming. Weekend. Is the. Technical, analysis, an option. Strategies, workshop, and that would be great, if this, is the webcast that you typically come to that, would be a great, workshop. For, you to attend if you have the ability to do so and join. That that workshop, and learn. A little bit more about those subjects technical analysis, and options, strategies, if you're a little more advanced than you are getting into some of the multiple leg option strategies, and managing, an options portfolio, then, coming up in San Diego, on the, 4th and 5th of October, is the advanced, concepts. Workshop, which really does deal and primarily focus on things, like volatility. Based and. Probability. Based. Options, strategies, so that's a great way to accomplish accomplish, that and if, you're if you are a fundamentally. Driven. Investor. And you like the idea of building a comprehensive. Portfolio that. Is diversified. The, investing, fundamentals, workshop, which is coming up in Seattle on the 27th, and 28th of September. Might be a great place for you, to attend, as well and then all of that leads, to. Our. Investor. Conference. Which. Is, coming. Up in November. So some great resources, for you to be able to join us live. And, as, I said the market Drive event is a one day sampler, of all of these so we'll pop this down here and just out of the way really quickly here but we'll come back in and we'll talk a little bit about some. Of the things we talked about so. Steve. Quark Nicole, panel ladies and. I, presented. The, keynote, address on Saturday. At the Market Drive in New York City and some, of the things that we do is we we go through and talk a little bit about. The. Fundamental.

Aspects Or some of the things that analysts, are saying about particular, symbols and then, we present some technicals, and then we put a trade idea. An. Example. To that to. That particular, symbol so. In choosing symbols, one of the methodologies, was to simply use some. Of the most, actively. Traded symbols. For, retail, investors so. When I started, to put that process, together I simply. Went to the. Market, watch tab and I, went over here to the quotes, tab and then, I went down here to the watchlist and I just chose in the public watch list I went, down here to top, 10 and. I went to top 10 active. In this case Nasdaq. And I just started to look through some, of those top 10 at most active, NASDAQ, stocks and that is by. Volume. And activity, and. So that's where I found this, list but let me pull over from the left-hand side I just kind of walk you through this particular watch listed and this is in no, particular order other, than alphabetical. Some. Of the stocks that we talked about on the market drive were Apple, Amazon, Facebook Disney, Microsoft, Restoration. Where Shake, Shack beyond. Meet and target, we didn't get to all of those in presenting. Examples. On those but, the, only reason, for choosing those was those were very. Actively, traded. Stocks these, aren't the best these, aren't the worst they aren't because, they're bullish or bearish or any other considerations. Other than these are very actively, traded, stocks and, that. Being the case we use those for illustrative. Examples. So none, of these examples, are recommendations. They're. Just simply following, through a thought process to help you to understand. What strategies. Are available. So we started by looking at Apple and as. I started to put some technical. Analysis, to this you know a couple of things that kind. Of came to mind and one of the things you can do is you, can also bring in here the live, news, about, the stock as one, of the gadgets but I started, to put together really. Three things trend, levels. Of support and resistance and, momentum. And so as I started to look at the trend here one, of the things that you can see is that Apple was generally, moving in an uptrend I can, see lower excuse me higher highs and higher lows, and, at least at the moment a little bit higher high here as well now maybe, a little bit of horizontal resistance kind of squeezing, into this. Narrow. Triangle. Here, but. Here's, a couple of the other things that are going on this is a stock, that is past, its earnings announcement, it, is also past, the.

Most. Recent. Hardware. Announcement. So, if we zoom in, on this timeframe right here in the, very near term one of the things that we're seeing is that. If we just kind of look at this area right here. The. Price of the stock kind of rallies, up to. That high and then pulls back and then, one of the things that's going on now is that, right in this time frame the, price of the stock is maybe running into a little bit of horizontal, resistance, within, that context. Of that run-up and then, that little bit of a pullback so, the thought process, here is maybe, this is getting kind of squeezed, a, little bit, again. It was getting squeezed, here where we've got resistance. Overhead, and a, level of support kind of squeezing, back in we, saw a little bit of the resultant, pop to the upside here right a little bit like a watermelon. Seed popping, out of your. Thumb and forefingers, you squeeze it one. Of the things you notice here is that not. Only is it holding this support right around the 2:16, level but, it also hit that resistance, up there around 226, and is, now kind of getting squeezed, into this area, here so, if that's, the case then. Our expectation. Might be in the short, intermediate, term that, maybe, the stock does. Something. Like this it just simply, goes. Sideways. From, here let, me see what let me zoom back back, out of that I just kind of, zoomed. Out let's, do this really quick and just, kind. Of point out the price of the stock could just simply go sideways. For a little bit so if it goes sideways for, a bit that, is I, mean I I have, no when we have as traders have, no say over whether, or not the price of the stock goes sideways. We. Can't make an or, influence. The price of the stock doing that guys thanks for being here and welcome to, all of you had just noticed all of the hellos thanks for joining. Us today guys, we. Can't influence, as much as we might like to we. Can't influence. The, price of the stock moving one direction, or the other the market as a whole can influence the price of the stock moving, one direction or another so in choosing a particular strategy we. Might want to take it in an advantage, of a strategy, that allows, for, what the likelihood. Of the, price movement might. Be and so, if the likelihood suggest. Based on technical analysis, or whatever type of analysis that we do, that. The price of the stock is likely to move sideways, and, maybe even pulled back down just a little bit here, into. This support level that, maybe that blip, to the upside was a blip because there's not much on the, horizon, here your, ways away from an earnings announcement were past the hardware announcement, so. Maybe. The stock goes sideways for a little while or maybe pulls, back a little bit so starting to think about what, might be a neutral. Stray. Or neutral even to bearish, type of strategy, here as this, gets into that resistance, level and starts to go, sideways so.

Then We start to think through what those possibilities. Are in terms, of strategy, selection so. One. Of the things we could think about doing, here in this particular case and we're just going to pop over to the trade tab would be. If. We have an expectation that the price of the stock is gonna stay the same we, might sell, a call, you, know some of you might be familiar with selling a call from the perspective, of selling, a call, option against. Shares, of stock that you already own and, and. That would be creating a covered call trade, in, this particular case we're going to do something a little bit different, we're still gonna sell a call but we're, gonna manage. The risk or at least define the risk by. Creating. Another trade to go along with that since, in this particular, account in this particular, example we're, assuming that we don't own shares, of the underlying stock, so, we're simply gonna go over here to the trade tab for Apple, and one. Of the things we might think about is how long how, far out into the future well I know, that we've got the holiday season coming up and then after the first of the year we're, gonna see another earnings announcement, coming from Apple so, we might go out now into, the October. Time. Frame and other 30 days or so to go, with. That expectation that the price the stock continues, to move sideways a little bit so I might go out to the 18. October, expiration, about 31, days to go you, can choose to to, to. Trade a shorter, period of time or a longer period of time I'm, simply gonna go kind of right in the middle of that timeframe there right, about 30 days one month or so to go in. Terms of time, out, into. The future, it's. What I'm gonna do is I'm gonna actually change my. Layout here. I'm gonna change this to. From. Volume, to. Probability. Out of the money okay. And I'm. Also going to change this now to. Will. Change that one to, Delta. So, we've got a delta column we've got a probability, of out-of-the-money column, as we, kind of put this trade together so. I'm gonna go back to the chart again really, quickly, it's. I've got a resistance, level up here where the price and stock ran up - that's, right about that - 26, mark or so and above. That I'm. Gonna squish this down, there's. Not a lot I mean one of the things we can see is that for this time frame this happens to be a nine-month chart this, is the hot we'd. Have to go back a little bit further to get higher than this in terms of an absolute. Price so we. Might look at selling, somewhere, above that - 26. Level, in. Order to be at. Or above that, level of resistance to. Kind of help defend, against the price of the stock moving up into, our, short, strike, so, what I'm gonna do is I'm going to go right here to the trade tab again and I'm gonna say okay where, are my strike prices that are at or above that -. 26. Level, and so, I've got five dollar increments here between the strike prices so.

I've Got a strike that's at 225, that's at or below that. - 26, so I'm gonna go actually out to the next one which is the 230, strike. The. 230, strike, in this particular, case has, a probability, of being out of the money you know this is probability, of being out of the money at expiration. Of about. 75%, so. We can say the, likelihood, that the price of the stock is gonna stay at or below 230. Through. That expiration, 31, days to go is about, 75%, that's. Not a guarantee that's, just simply a statistically, based probability. It. Also happens to be right about the 26. Cent, so somewhere between 20 and 30 cent Delta. In. Terms of choosing that strike price now, it's gonna pay right about two dollars and 21 cents if I were to sell it now. That creates an obligation the, obligation, in this case is, to, deliver. The shares of stock if in fact the price of the stock goes to, or above. That. 230, strike, now. Of course there is the possibility that we could be, assigned. Our obligation. Early, we. Need to keep that in mind and, if. We create, this trade though in, order to manage, our risk or at least define our risk if we were to just sell the call option, the, risk is the price could keep going up forever and we. Could have to buy that stock at a much higher price but. If we define our risk by doing this and watch, what I'm gonna do I'm just gonna use the ctrl key on. My. On, my, keyboard and I'm gonna. Simply. Left-click, on the bid price and that, creates that first portion, of the order that's selling. The 230, call I'm, gonna drop that down and I'm gonna actually come back down here to now. Instead. Of the 230, strike I'm, gonna buy the. 235. Strike, so. Now I've got a $5, wide, strike, or, excuse. Me $5. Wide. Spread. Increment, the, most, that. That spread, could be worth would. Be $5, I'm, getting, paid in this case a dollar five, for. That spread, so, my risk, now in this trade is that dollar five. -. The. Well my risk is the $5 -, that dollar five or whatever I ultimately, get filled at so. In this case I'm not gonna just take a buck five I'm, actually gonna work this a little bit I'm gonna try to get at least a dollar ten out of this and. Let. The, trade come. To me I'm not gonna worry too much about. Trying. To move this around in order to get filled if I don't get filled, I'll readjust. And in, this case try to do that again but as we, work through this idea one of the things that some traders, think about as a consideration. Is trying. To work that price a little bit because if we can pick up an extra five cents or an, extra 10 cents or so here, and there that, begins to add up over time. And. Helps. To kind of offset, some. Of those other. Costs. And expenses in trading so what I'm gonna do is I'm gonna come over here to come to confirm and send button so I've got kind, of let's, kind of walk through this I'm, selling. The 230 call option, I'm buying the 235. Call. Option, selling. The 230 gives me the obligation, to deliver the stock at 230, buying. The 235, gives me the right to buy the stock at 235, so, I've managed, my risk or to find it so, my risk in this particular, trade now is. That. 390. Dollars the, max profit, in the trade a 110. Dollars that, is a dollar 10 per, share times, 100, shares, remember the transaction, costs that are associated with, this again and I'm, gonna click on sin. And I'm gonna fire that order off and we're gonna wait for that order to fill now here's, what happens if we take, this trade and I'm gonna right click over, here and we're. Gonna actually go over to the monitor, tab and, we'll. Take a look at this in our working orders, and there's our order, to sell a KA.

Call. Vertical. I'm, gonna right click and. I'm. Gonna click over here to analyze trade. And I'm. Gonna put this on the analyse tab and, we're gonna go to the risk profile, and I'm. Gonna take everything else here off of Apple, except, for this. Particular. Trade and I'm, just gonna zoom in on this timeframe right here so that we can see there's, that green line and that green line represents, expiration. The. Paint or the purple line represents. The, time. Where. We are right now so. If we look at this from that perspective and we say okay where. Is my, kind. Of risk, where, is my, possible. Return. On this trade I'm, gonna just simply draw this in here I'm gonna say, that okay look we sold the 230 strike so. As long as the price of the stock stays at or below 230. We. Could. Potentially, pick up. That. Maximum, gain in the trade if. The price of the stock goes above. Let's. Go here, if. The price of the stock goes above. 235. Then. We. Realized. We've seen maximum. Loss in the trade that, maximum, loss is the $5 width of the spread minus the dollar 10 that, we brought in so. Here's. Kind of where those key points, are on this. Trade, right. Here at. 235. Right. Here at 230. And one of the other things to make. Note of is that right here. Is that. Break-even, point, which, is right now at about, 231. That's. The, 230. Strike price minus. The. Credit. That we brought in and so, now here's, the scenario as. Long as the price of the stock stays at or below 231. We've. Made a little bit of money in the trade or at least broken even so, we've got this kind of little, range here. In. This. Area where, the. Trade actually. Makes. Some, money for us and. Above that it loses a little bit and above, 235 that's. Our maximum loss, in the trade so, that's kind of how that trade lays itself out here in this particular case and this is simply an example of a short call, vertical. Alright. Short, call vertical so, we'll leave that order in place and and. See how that kind, of plays itself, out so, now let's go back over here really quickly let's. See if we can. Cancel. Our. There. It goes now that's, out of the way so, let's come back over here to our charts let's go over here to the left-hand side that's the first one in the, mix so, again, symbols, technicals, examples, go and do. Let's. Go to the next one on the list which was Amazon. And. So Amazon, from this perspective as we start to look at the technicals, here kind, of moving in, a fairly. Similar fashion, what we were seeing with Apple but, in this particular point kind of staying and holding along this horizontal line, and, and. Here's one of the things to think about right so, if this is kind of holding this horizontal, line and, continuing. Maybe kind of squeezed here, into this range there, might be some, bullishness, especially.

If We start to look at where this diagonal. Trend line is right and, the price of stocks staying at or above that particular, level. So. One of the things we could do is kind of take the opposite perspective again, with, the expectation, being the price of the stock maybe staying above, this level and staying. More bullish. Whereas. Apple was maybe looking a little bit more bearish to neutral this is looking a little bit more. Bullish. To neutral, even, the short-term so, what we might do now in this particular case is. Again. Come. Back down here to our. Trade. Tab so. Let's come over here to the trade tab for Amazon we'll go out again to that 18 October expiration, about 31 days to go until expiration. And instead. Of selling a call spread in this case we're gonna expect, that the price of the stock is gonna stay where it is or go up and so we're gonna sell in this, case a put spread, kind, of the flip flop of what we just did with. Apple so we're gonna look for an area and again as we go back to that chart we're gonna look for an area where there is a little bit of a support level I'm. Actually going to come right along this line I'm gonna go to that 1750. As a. Support. So, this particular case I want to be looking at selling at or below. That, support, level so, we're gonna go to the trade tab. And. We're gonna come actually we're gonna make this a few more strikes just so that we can see it I'm gonna go 35 strikes so, that maybe we can see where we are so here we are right, about the 1750. Strike now by the way that 1750, strike has about a 70%, probability, being. Out of the money at expiration, that doesn't guarantee that it will be but, that's two-thirds. To one-third, probability that. It's likely, to be out of the money it's also happens to be right about the 30 cent Delta 28 29 30 cent Delta, right. At the 1750. Strike so. If we were to sell the 1750. Put, option, and. Buy. In, this case. The. Let's. Go 1745. We. Can even go a little bit more than that so let's do this I'm gonna click on the 1750. To create that order, to sell I'm, gonna drop my order down so that I can come back over here and we're, actually gonna go to I'm, gonna go to. This. One right here the 1745. I'm gonna hold my control key down we're gonna sell that 1745. And now, in this case same width in the strike in the spread, right now I still have a five, dollar spread, width between. 1750. And 1745. Now, one of the things about here is we're taking advantage of the movement of Amazon, which, is trading it right around eighteen hundred, dollars a share but, we're able to do this by managing, our risk by using this multiple, leg option strategy. And. We're doing that without, having to buy the stock, at eighteen fifteen, now. We're managing and defining the risk here in the trade, so. Again here's that width of that bid ask spread here's. The. The. The. Price of the option, the, amount that we're gonna get for this spread I'm actually gonna work this a little bit so, I'm gonna see if I can get a buck thirty out of that, which. Then if I place, this order and I look at confirm and send so, dollar thirty getting a dollar thirty that means my maximum loss is three seventy really. Close to what we were looking at with Apple right again, Commission cost transaction, fees associated, with that are there, so we have to be aware of that now there is the possibility, that, we. Could be put the stock we can be put Amazon. Excuse. Me but we have the right to buy the stock, at. 17. For T five so. The risk in the trade is were put the stock at 1750, do. We have the right to buy the stock at 1745. That's the kind, of management on the other end of the trade so, we're gonna go ahead and we're gonna fire that order off and. We'll see if that works we, started to work that trade a little bit the, natural, was a buck twenty two times. One hundred shares we, worked that up to a buck thirty to see if we could get a buck thirty and fill. That order we might not be able to fill it might not fill in. That case, we. May not chase it some traders may choose, to not chase that order, and simply let that order, expire.

Without Getting filled and then, look at doing the trade again, another. Day so. If we go back here to the monitor, tab again here's, our vertical on Amazon, I'm gonna right-click I'm, gonna, analyze, the trade here and M in Amazon, I'm gonna take some of the other things out of there so, all we're looking at is this vertical spread, I'm gonna kind of spread. This out a little bit so that we can see it a little bit better. So. Here's that trade again. And just. Kind of going through the. The breakdown here. 1750. And. 1745. Those, are our key points, there's, our break-even point. As that. Risk. Profile, graph crosses the zero line and that. Simply, says that when. That break-even where, that breakeven, is that's. The point at which below. That. We. Are, potentially. Losing money above that we've got the possibility of making a little bit and so, that's where that breakeven, points it's so we can kind of see where this trade, lays itself out maximum. Gain is if the price of the stock stays above. That. 1750. Range maximum. Loss is if the price of the stock goes below. 1745. And then. We've got kind of this range here, in the middle where, we might get a little bit we might get a lot or we might get our max we might get nothing we might lose a little bit so, that's, kind of how the trade looks. And how, this trade works so. That being. The case here. If we go back to our monitor, tab there's, that order, to sell. That put. Vertical. Spread, so now what we've done guys. Is we, have. We. Have put in a. A. Put. Vertical trade. We've. Put in a call. Vertical trade, after but all of a sudden something's happening, here with. That diagonal trendline, that, that diagonal trendline is running into a level of resistance that's. Coming down from above and so. Trend, support and resistance there's our support and resistance level, the price of the stock might just kind of go sideways. A little bit now one of the things to think about is that, resistance. Overhead, maybe exists, up, here, right around 140. To the. Top of that. Symmetrical. Triangle, and support. Might exist down here right around 130. Kind. Of the bottom of that symmetrical, triangle and that might be the range in which the price of the stock stays somewhere. Between 142. And 130, kind of in that area. Between. That range so. Drawing. Upon what we just did drawing upon what we know about placing. Those other two trades the amazon trade and the, apple trade if. We were to sell a call. Spread up here, and sell. A put spread down, here, we've, now bracketed, that range that we expect the price of the stock to stay in and this is an example, of a stock that might go sideways, doesn't, have to the technicals, don't guarantee that, but, as we talked about this in the market drive the idea, was that. There. Are analysts, opinions, and ideas on both, sides of the equation, there's not a lot of consensus, from.

Those Analysts, about the stock going higher or the stock going lower so that may drive kind, of that sideways. Trend, for. A little bit and we, see the technicals. Kind of support that idea as well so, let's put this trade, together. In. Combining. Those two building, blocks that we that. We just looked at, in. Apple. And Amazon so. Let's go to the trade tab here for Microsoft, we'll go out that same, length of time out about 31, days. Into. The future here and. If. We remember where our chart levels. Said, we. Had that resistance, up there around 142. Let's. Use the call side, first, and so, let's go out to about the. 150. Call we could maybe even go a little bit further. Out. A little, bit here maybe we go to the 145. Right. Now in terms of how much we're getting paid let's go to that 145. Call, in. Terms of the premium now notice those premiums, those, bid-ask spreads are about a penny wide they're. Very tight bid-ask, spreads, this, is the 16 cent Delta it's, about, the 85%. Probability. Of being. Out of the money at expiration so again we'll kind of go through the steps here so again I'm gonna use the command the ctrl, key so, I'm gonna just do this really quickly here. We're. Gonna go back over here, let. Me just whips I'm on the wrong page there we go let's go back to the trade tab there. It is so, I'm gonna come back over here. And just, point now I'm using this finger right as. Well and again not recommendation. This is just simply how you might go about creating. A replica trade to this as an example so, what I'm gonna do is I'm gonna click on the. Bid price here for that one 45 strike. Right, my, resistance is at 140 to 145 is the next strike up so, I'm gonna click on the bid price for. 145. Now. I'm gonna take my finger, and hold it on the control key I'm, gonna drop that back down I'm gonna come back here to the ask price, for the 150, and. On. A one, dollar wide, I'm, sorry on a five dollar wide spread between, these strikes I'm getting about 48 cents I'm not getting a lot in this, particular case so we'll, talk about that here in just a second but, now instead of going over here and can hit and confirm and send with. A vertical spread right I can see that this is a vertical, spread right, here, right this is showing me over. On the left hand side. That. What I've created so, far is a vertical, spread, okay. So. Instead of clicking on confirm and send there I'm actually gonna hold my control key down again I'm gonna drop down that order, but bar. And I'm, gonna come over to the put side and I said that I've got a support level right around the 130, mark right, so. I'm actually gonna go to the 130, strike, I'm gonna sell the 130 strike still, holding the control key down so I'm clicking now now, I've sold. The 130, put, option, not the call option but the put option and, I'm gonna drop down that order, again and I'm, gonna go to the 125. Strike, and I'm, gonna click on the ask price, for the 125, now, you notice, what's happened here as.

We Come back to this page right. Here's. What's happened as we, go over here to the left hand side we. See that that what was a vertical, has now changed to what's called an iron Condor. We've, added two building, blocks together and built, an iron Condor. And in. This particular case so. Now. We're. Selling. A put selling. A call buying, a put buying. A call and so, we're putting those together here, into. Two. Orders. One, order but two, vertical, spreads basically, is what this is. Around. That. Around. That bracket so each. One of these vertical spreads is five dollars wide we're. Bringing, in a dollar 12 of credit. For this room that's similar, to what we were bringing in for the. Vertical spread on Apple and similar to what we were bringing in for that vertical spread on Amazon. In. This case however in order to do that we've, had to create two vertical spreads now here's the thing. Simultaneously. The price of the stock cannot, be, above. 145. And, at. The same time be below. 130. Right. So. At. One point or another it could be one of those it could be both of those at, unique. Points, of time between now and expiration. But. Simultaneously. At exactly, the same time we, can't lose in this particular, case meaning. We can't be. Above. The. Call. Vertical and. Simultaneously. Below, the put vertical at exactly. The same time. So. In other words the. The risk, is on whatever. Side, the. The. Trade. Is moving, through whichever, one of those verticals, the trade is moving through. So. If the price of the stock goes up we lose on the call spread, but. The, put. Spread goes to maximum game if, the price of the stock were to go down outside, of the spread the, call, spread would be a maximum gain the, put spread would be at maximum loss so we would lose that that, amount so in, this particular case we're bringing in that buck 12 you know of course you as we've talked about it we're gonna work that a little bit we're, gonna try to get a little bit more out of that we're gonna try to get, I'm. Gonna try to get a buck 18, out of that and we'll. Click on confirm and send again we can see the transaction, costs.

118. Dollars against 382, dollars. Of risk, in the, trade and what we've done is we've created a bracket, that might follow. The price of that stock going. Sideways. Over. Time so we're gonna click on send, we're, gonna fire that order off and we'll see if that order. Fills, so, none of these orders have filled yet but that's okay. And, and that's, fine, now. A. Couple, of other ways that we can approach this and a couple of other ways that we can approach this. Particular perspective. We. Put this trade in all at the same time that's, because the price of the stock is narrowing, down to the end of that triangle, as we saw and it, is already kind, of going sideways you can see where our vertical spread is it's kind of right puts, us kind of right in the middle of that. If. The price of stock we're up against, a resistance, level we could sell. That call vertical and then wait for the price of the stock to start moving down before. We sell the put vertical that's called legging, into. The, iron Condor. Now. What I'm gonna suggest at, this point, now that we've kind of had a taste of how we put, all of these together is you. Could go back to the education, tab and we. Can go to the webcasts. And in. The webcast, one, of the things you can do is if you look at the webcast calendar. One. Of the ways that you can approach this is not. Only by, going to the webcast on Wednesdays. At 3. O'clock Eastern. Time which is. Trading. Vertical spreads with John, McNichol. You, could go to on, Thursdays. The, advanced, options, strategies, webcast, with, Ken rose. And. And, talk. About putting together multiple leg option strategies, and then. One. Of the other things that you can do is, on. Excuse. Me on Fridays. Cameron. Mays webcast. Managing. An options portfolio, can, help to talk about how. Do you manage these trades how do you exit these trades so there are three resources that, you can use to. Help to understand, how these trades work oh and by the way coming, up after my webcast, here. Is Connie. Hill Connie. Is going to be talking in what we refer to as technically. Speaking, Connie. Is going to be talking about trading stocks and options so kind, of working through the technical, analysis, portion of this. Discussion. As well. So a lot of great resources for you to, continue, your. Education and. By the way if you're just learning about options you. Can always go to the options. Course material, on the left-hand side of that options page and go through the trading options or options. For volatility, or weekly. Options or a number of different courses and, videos. That, can help to extend your. Learning. So, now let's go back to the chart tab and let's go over to the left-hand side kind, of just touch base with where we are so, we've talked about some of the symbols we talked to the technicals, and examples.

Of Trades, now. Might a night charge to you is go out and do it. Place. A paper trading your paper money account doesn't. Have to be these trades as. An example trade it can be your choice by, all means you, choose you find you walk through the process these. Are simply illustrative, and educational, examples, so, we're gonna take this through one idea. And. And, I want to address the question so one of the questions coming up considering. As we go back here to Microsoft. Considering. The triangle bounce-back right the. Fact that we're getting towards the apex of, the triangle should. That be a concern for an iron condor strategy, and and. One of the answers might very well be that as we get up to these levels of resistance, or support. In the triangle and and one of the things that technique, that technical, analysis, may, suggest, is that, when this triangle, breaks. Oftentimes. The way that, the triangle, breaks is in. The direction of the prevailing trend. However. A, level. Of resistance is likely to be the top of the triangle and a, level, of support is likely to be the bottom of the triangle, so that's why we created the iron Condor, outside. Of those two ranges. Right so, we sold the 145, up here and we sold the 130, down here, so. Giving. Us maybe a little bit more room to the upside not, quite as much room to downside, to maybe account for the fact that the trend coming into the Triangle. Is prevalent, li prevailing. Li to, the upside, right. So. One. Question that gets asked, in. Addressing, the idea of iron cotton iron Condor, or a multiple. Leg option strategy, is would. It cost more, to leg in. Vs.. Versus. Putting. The trade in all at the same time and, the. Per leg costs, are gonna be the same, the. Only difference might, be that you have two separate, orders if you leg in and so, any ticket charges may be, may. Be increased. By legging, in because there are two separate orders so, think, about that as you put the trade on at the same time think about the amount of premium traders generating, when the price is sitting in between, your.

Level Of support in your level of resistance you may not get. As. Much. In terms of premium and selling the short legs as you, would by allowing the price of the stock to move at the same time allowing. The price of the stock to move and legging in may, bring in just enough premium to offset the additional transaction, cost so half. A dozen oh one six or the other right so think. About it from that perspective and. Keep those things in mind as. Considerations. And that's always a good question to ask, is. It gonna cost me more to do it this way or that way and what, is the most efficient. For me because if we're gonna work our order a little bit to try to pick up dimes. And nickels here, and there then. It's probably also a good idea to not lose, dimes and nickels on the other side either through, wide, bid-ask spreads, or slippage or whatever other reason mechanisms. To. Be able to preserve capital, in these. Trades so, one, last one we're going to throw on here and we're gonna put into this discussion really quickly. Is. A. More directional. Type. Strategy. And. What we could do in this particular case is again. Our next one on the list here was Disney and, we might look at this being bullish, staying, bullish we got a pretty solid level of support. Here right around the 1:30, mark continuing. To make that move to the upside a little bit of a decline resistance, level so we're gonna go over here to the trade tab really quickly and we'll plunk it will pop this in again, we'll go out to that 18, October, time. Frame and, this. Would be an example of a cash secured, put enough, cash in the portfolio to purchase. The, shares of stock, in. With, that cash in, the event that the price of the star that the stock was put to us now on Monday. Afternoons, I teach. A webcast, on covered, calls and cash secured puts so, if you're interested, in that particular strategy, you want to spend a little bit more time on that strategy feel. Free to join me for that particular, strategy now, in this particular case. As. We. As. We put this together, one, of the thoughts might be okay. Let's, sell, a put option somewhere. At or below that 130 strike again very similar to what we did with, the put option, for. The put, spread, on. Amazon. And, the. Put spread portion, of the iron Condor on Microsoft. So what we're gonna do is we're gonna go to that trade tab here and we might look at selling that 130. Put option. In. This case maybe you sell the 135, put option probability. That that option is out of the money 56%. It's about the 42 cent Delta we could go out to the 130 strike as well and click. On send, will. Work that up will try to get $1 out of that. In. This trade but again our risk is that the price of the stock could be put to us we've. Got the cash in this account in. This case this is a cash secured, put so, one of the considerations again, transaction, cost keep that in mind one. Of the considerations, that we got that dollar here, by, firing that order off one, of the considerations is, what. Happens, if the price of the second or the stock gets put to is the price of the Sun comes down or the. Option, buyer on the other side of the transaction chooses.

To, Make the decision to go through the the. Exercise. Process, and we get assigned that. Obligation, then, the stock that we sold. That put option on gets, put to us so. When, making a decision about the, stock make. Stocke that you would feel comfortable buying, if it, were put to you so in this particular case selling. That put option right at the 1:30 strike. Kind. Of bringing in that premium, and our. Obligation. Exists. Now that we are short that, put, option okay. All. Right so that being the case. Again. I'm, not going to have time to get to all of the questions in the chat but I appreciate the questions, in the chat by the way if. We come back over here really quickly to our webcast. Calendar. One, of the things to think about is that on. Wednesday. Evenings. Excuse. Me on. I've. Got to find it here there we go on, Thursday. Evenings, at. 5 p.m. Eastern Time the, Q&A, session. Is. An opportunity to aggregate all those questions and ask those questions and, get. Those questions answered. In. A consolidated, format so that gives the opportunity to join that webcast, ask, those questions and, get those questions, answered, along. The way but I certainly appreciate, you having, those. Questions, and engaging, in, this. Discussion again, really quickly just to review, now. You go, and do write we walk through some symbols looked at some examples place. A paper trading your paper money account move from, that position. Of, being well. Should, I or shouldn't I try. In. Your paper money account to to, at. Least initiate, some of these rates so you start to build that skill set you start to work through some of the challenges and some of the understandings, and that's what the webcasts in our trader active. Trader education, is all about is to, help you to be able to, do that, so let's, come back here again really quickly and. Again. Remember that options, aren't suitable for all investors be, aware of those transaction, costs, remember. That. These. Were simply. Illustrative, and educational, examples spread straddles, although multiple leg option strategies can, detail some stance or transaction, costs remember that any investment decision that you make in your self-directed account, is solely. Your, responsibility. Past performance, of any security or strategy not, a guarantee. Of future. Results or, success. River, Connie, Hills coming up with technically speaking here in just a few minutes, by. The way remember to subscribe and, like to this webcast if you liked what you see and you're. Gonna get alerts for, every, time we go live. Again so that you'll be able to see when those webcasts, are and you, can always watch this in the recorded, version, as well.

So Thanks again for joining me for active, trading and. We will see you again very soon thanks, everybody bye-bye.

2019-09-22 19:06

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