Shifting to Call Verticals | Michael Fairbourn | 2-5-20 | Short Verticals
All. Right well good afternoon good to have you back everybody, for our short verticals, my name's Mike fair point folks you can follow me on Twitter right there at my Twitter handle, folks today we're gonna take a look at the market bias, a good bounce in the market, talking about the S&P 500 index we're, to take a look at that and just see what the bias stands, for what it looks like what, direction the market might be pointing they're, gonna take a look at our existing positions, would. Be reviewing, stocks that we put on the latter verticals. That we put on last week and wouldn't be taking a look at some new additions, I remember last week we, talked about adding, some of the short vertical call, the short call spread verticals, so we're taking, a look at a hint some of those today as well, as a single. Short vertical put spread but, great to have you here quite, a few stocks we'll be looking at in this shortened period of time so over the next twenty twenty-five minutes so I look forward to it folks, hello to all of you Andy, Rodney, Sonique. Shariff Bunny Eddie Rodney, Clark and Ricardo, and all. The rest of you that are here today good to have you on board let's not opposed to disclosure items first so, we can jump right on in, to, these review, of stocks. Within our paper portfolio, here okay please remember the following presentation. Is for educational purposes, only it's, not a recommendation or endorsement of any particular investment, or investment strategy. Please keep that in mind also options, are not suitable for all investors there, are special risks inherent options, trading that makes most investor's potentially rapid a substantial, losses who's, also been mindful of transaction. Costs and how they might. Determine. A particular return, also. Remember, past performance of any security strategy, does not guarantee future results our success and all investing, does involve risk including the. Risk of loss okay, on that note just, some final disclosure, points, here Before we jump on into this today. And. I wanted to point this out to you had, an issue with my agenda, slide I have no idea what happened, to, it it was there a second ago and suddenly.
It's Not there so once again just as agenda, folks as you can see on the left hand side just putting this out here so an overview a, quick. It's gonna be a brief overview of the S&P 500 index that's, the SPX, okay. Then we'll review. Existing. Positions. And then. We'll look at. At. New. Additions. To the, portfolio okay so let's go ahead and jump into this right now big. Move in the markets the market is not done yet, we'll see what does happen you can see over here right. Up top we're resting, on the SP 500 index right at that. Previous range, just sitting above our, 3300. Level, so. Pretty clearly coming, into that range right now a few things that. We still want to look at in terms of the market bias you, know one of the things that investors will frequently use is. Where is the. Stock at or in this case the index that relative. To, the 30 day moving average, the. Nines popping, up I don't know what happened there I apologize let, me just I just barely saw up at 9 okay. Let's change that real quick anytime you want to change that moving average click on your drop down I, had. That set I don't know that I not hit okay I'm pretty sure I did, there's, your 30 day so. The 30 day moving average frequently. Used by investors. Just. To give you a guide generally, speaking where, is the, trend of the underlying index adder in this case yes the index it's, often used on stocks too we, did kind of pause right, around the 30 period. Moving average here. Giving. Us an indication yes the security is still making higher highs and higher lows as, we are bouncing. Above it now you can see pretty clearly to, that. Looking, big picture yeah, there are some major some. Major lows some major highs that that ride through here so, the uptrend, is still intact, it just so happens that we are testing. Prior. Highs, we've. Decided to stop at that level we've been here for a little bit today kind of bouncing around that range but, it is proving to show resistance. Of sorts, okay. Looking, at this we will, frequently look at a guide down here like a lot of investors will do here's our market, forecast, down here, now, looking at the market forecast, indicator, if we. Are holding above 80 and anywhere above 80 it's giving us a positive indication. In. Other words it can give us a bullish. Indication. At least how that's out traders, investors might use this in terms, of putting new positions, on in, market, in. Other words the markets strong so we could look at the. Short put vertical spreads okay. That's what we'd be looking at. When. You're below the 80 as long as that line is ticking, higher this is the intermediate, term line for those of you that do use the market forecast it, gives us also an indication of strength, in the market so. That could also be seen as a bullish indication, by traders who use an indicator like this okay. That we're going higher and that's just a recovery, we're getting right. Now now. With this pullback in the market though we have seen a number of stocks that have kind of broken down a little bit more we're gonna jump into those as we discuss, an overview, our potential. New paper, portfolio. Additions, but next what we want to do is jump. Right into our existing. Reviewing. Existing positions, that's what we've got listed over here on the left-hand side. Ok. So, what I'm doing it, and flip. Charts. Here. Hopefully. You can see that better and there.
You Go we're. Not looking at a.m. 80 but we've got a few different indicators, here once. Again here's our 30 day moving average to give us a sense is the stock trading still above the 30 day moving average or not so, many of these additions we made last week in fact our additions from last week are in fact the following, so, we'll start off with Arna. First, okay. RNA. A RNA. Came. Down we've been looking at this particular level and you can see the lines that we'd sold those short put, vertical spreads at right, through there we'd. Sold these levels here, right, around the 44, and then the 40 to 50 folks. We did bounce off that level now remember, just as a reminder this. Particular. Support. Level, extended. Back really. Quite far in terms of that 45, we, could go back you, know really far on the 45, and find support and, we were saying on this particular stock, a long-term. Upward. Trend. We've just been kind of consolidating. Here we're, actually testing the 30 week moving average right now at these levels but we, got a follow-through and that was positive, for, our stock. Let me just jump back let, me jump back real quick to our daily go, back and forth between that a little but, we did see prices, rise now once, again that's, a positive for, these. Underlying, positions. Right. If. They go up or sideways over a period of time we're. Collecting that option premium this. Stock did have that bounce that we'd anticipated the, stock had bounced a number of times off that range there's one two, really. Three right through here and this was four we. Were just kind of playing that trajectory as long as we held above. That 44, which is our short foot level it, would have been profitable trade for us and it was so, let's go over here and take a look at that right now, a rnai, what was our original credit. And where are we standing right now so the profit on that right now is. 83. Now, the original amount, that we brought in the original, trade as you can see we've got a difference, over here in, fact. On that short put, spread. We saw two at the 44, where, is the 44, put at right now we sell that for 113. As. You can see right now it. Is. Lower. Let's. Go right over here and take a quick peek at it. It's. That's so low we've actually got to increase the number of our strikes we've we've moved up higher. Here, we are right now so, we're at that one, look. At this I mean we've really that gain has just really, laid waste to, those premiums, which is good for us because we've collected, those right, so, we had 113, we've. Made actually a hundred and eighty dollars on the short of course on this end you lost ninety seven and that's how the spread trades worked we, played this ahead. Of and earnings, not, quite ahead of an earnings announcement, but one was upcoming we've. Already made some. Potential profitability on this stock remember there were four ways that we can close out of position, let's. Scoot on down of those right, one of them was, that you make eighty percent.
Of. Your. Original. Credit. How. Are we doing on that well. You. Know from 113, where. Are we at so we could take we could take a look at this the. 113. Down, to 17, let's just go ahead and look at our short spread, right now because we've this one up top is virtually. Well. We could potentially close that at this point in time our, original. Though. What. We received, on this let's go into that right now. So. Original, price 113, that, we sold the put for 60. Cents that's. That, credit grab, my calculator so. What I'm going to do is, take our 113, minus, R 60. So. It's 53, cents, was our original credit. So. If we take a number of point x, times. It by point two we're. Looking at about 10 cents, if we can close that for 10 cents or less that spread then, we've got our 80%. Of our original credit so. One thing we could potentially do on that let's go back to our tab here if we take a look at the closing order real quick to buy this back it's, at 12 cents so we're not quite there we're. Gonna hold off on it for now it, looks like time decay is working clearly in our favor up at these levels however I do have to say we're, right at the 50 level so we want to watch this because 50. Can be a resistance level, within. A number of securities, historically, it's, shown to be that way doesn't mean it's going to be this time but you have seen a precedence, for, stocks to bounce bounce. Off that level and even previously, - so. Maybe another day we get very close it's about 11 cents so we're very very close to our 80 percent we might just decide to do it but potentially. Even tomorrow with the time decay we, could take that off the table, okay. So that would be one way to do it okay so let's go back into our existing. Trades so, some others that we had on we had Facebook on let's, take a look at Facebook see. How we're doing on that in terms of profitability. We'll. Take a look at it real quick we, did come down here, you can see our spread. Levels, we had the the. The. 210 we sold in the 200. Facebook. Is still down, we're still down on it a little bit but we're still just waiting we. Have we're. Getting back close to the 30 day moving average, potentially. Moving above that but clearly higher highs and higher lows. Across. The board yes Jade that would be I just got the corner of my on there's another question coming in from CW, we could easily set this up as a good tail cancel, order at a dime. To, close that out on that Arna, so. Right towards the end let's go ahead and do it cuz we're kind of rolling through here but you know just kind of checking our existing portfolio we, put on a trade on flex. Once, again higher, highs and higher, lows it, was a penny increment, stock penny. Increment options, so it enabled us to adjust, those options, at penny, increments. Giving. Us. A. More, maneuverability. To control that spread, right. Higher highs higher lows we. Had a good earnings announcement, but we did come back down on. Flex. Let's go ahead and take a look at it we would have to march on this and we sold the.
Twelve And bought the eleven, now. How are we doing on that let's go back here we're doing okay, from last week it's up twenty. Two. Dollars at this point in time not a huge gain but we, kind of mixed it up last week we did trade we. Put on a paper, trade. A paper example, in this paper portfolio. Of. Lower priced stocks as well just so that you could see it but, there you have it so, we're still kind of holding in that range making. Some gains but just, kind of a hold wait and see that's actually out till March. Now Goldman Sachs as you can see over here we're. Up on Goldman. Let's take a quick peek at Goldman Sachs. Okay. Higher, highs higher lows were. Above, the 30, week the, 30 day moving average we were actually bouncing, off it when. We put this on we're following through, off that 30 a. 30. Day moving average, and going, higher as well. Okay. So. That's in check, this, was a little bit of a flag pattern, as well you'll notice that there was a stronger, upward move a more, mild correction. Here got, a little volatile, here along that 30. Day. Moving average but we still bounced off those levels and continued, on up so. That. Was positive, now in terms of Goldman, okay. We had the, we, sold the 230, and we. Bought the, 227. All of these are, put vertical spreads because the market had been so strong, we'd stuck with that bias we, wanted to wind it our back and so, every, one of these was. A a. Bullish. To neutral trade in terms of the short put vertical spread okay looking down here here's your 230, when. Prices were coming, down we actually sold it to 30 and we bought thee. To. Twenty seven fifty, okay. Right. Over, here. As is you, sort of a downside protection that, is the spread trade, we're. Selling, one put, we're. Buying one, put and as. Long as the price the stock can hold above, that. Strike the strike that we're selling at that's the upper strike price we'll talk about it short put vertical doesn't, matter you. Know if it goes up high as it wants sideways, over that period of time folks. Will still make the, maximum premium. All that's being equal, with. Our short leg doesn't get called away and that's very unlikely, although it can happen very, unlikely to happen when, you are in fact above that strike level. Okay. So sitting on that still not. Too much movement but a little bit of growth there now you can see the big mover here is IBM. Now I have to say we, had a position of IBM of now, the deltas are kind of high. 100.1. And we had 100 shares of IBM that. Was added in on a prior position l in this class but is just short put verticals but I have to lump all IBM, in I can't separate, it out so, the IBM, here, is doing. Well this, was a trade that I put on in my Friday, class. We talked about it as. The company was shifting into, more, of the cloud computing and they've kind of doubled up on that bet, big. Follow-through on IBM, we'll take a look at that stock too but, our short put verticals of course. Should. Be performing, you can see where, we're at in that, regard, right. There so. Let's. See if we originally got oh. It's. At 63. Right now 63 sin it's, at Oh the, mark is two sins okay. I think this. One meets, our eighty let's go ahead and just take a look and see what we, were what we had in here so we had the. Premium we brought in on the short put. Vertical, spread there was just one short put it was only one so. A dollar 89, what did we sell this for, 94. Cents so a credit of 95. If we, were in fact to close. Out that short put vertical. Let's. Do this it. Should give us the option to do that just, in terms of. There. It is there's the vertical it finds the vertical there you have it. Penny. So. It was a big enough move let's just double check one, thing on this I'm, just gonna go in here and find. That out there's only 16 days left, but this seems like an ideal yeah I mean look at this well. Beneath that 80% okay.
Of Course another way is just to let them expire worthless, we're. Not going to do that you. Can't let them expire worthless. Or. Just options expiration. That's. What one else they would expire we're gonna keep filling these in as we go through but let's go ahead and close that out right now as a profitable. Trade just a quick look at IBM there, it is okay. We, liked it it broke above we actually got initially in a head of earnings. Did. The fact that there was a Red, Hat acquisition, a few things fundamentally going on the company was trying to build up revenue, we, didn't know if they were gonna be able to execute on it but, prices have been flattening, out at a support level there's your 130 125, nice. Bounce nice follow-through so, we're, gonna ahead and close that out with. Very little left on this particular trade, and just cash in on that right now. In terms of our sample. Trade we'll go ahead and buy that back, basically. We can just buy back the short. Side. Of that. Trade to be honest way that we don't need both the, other one is in fact. Mm-hmm. If. We buy this back, just. The. Number of contracts, in terms of us should still work in our favorite never mind we can close out the whole spread. Sometimes. If you're you're getting a Penny's. Worth on, the long side, you could just just, the short side the long side does not really present any risk to you we're gonna go ahead and just close this out now at. The debit and there. You go it's. Done okay so we'll. Go ahead and count that ibm' so we've taken that off our inventory now let's jump into our newer. Trades. Here and I'll leave a little bit of time at the end for questions as, well our potential. Paper portfolio. Additions, right. Sample. Trades and investors might be looking at first up we've got GM, now, I mentioned, with, the market coming down many companies out here had been trending. Lower lower, lows and lower highs you, can see it actually finding, maybe some resistance, over here at, the 30 week moving average in it by the way it has been weak now, there has been a longer term support, level that we bounced off of but. We've been making lower, highs, coming. Through here so let's take a look at the 36, to the 38, level, there, is a fair, amount of take, a look at it resistance. Coming, through here, we. Got past. Earnings. Okay. Look at the resistance that might reside, around that 36, you wanna find a level that the stock cannot get through its kind of hitting its head so, 36. And 38 let's take a look at that right now for our March contract, remember. We're looking at between 20 and 50, days generally. So. Here, we are on the call side now. Okay. So here is your 36. And here's, your 38, if I were to click on the, bid right to put that trade in here the. Bid on the 36, here's, your 30 M control, button down just to line this up it's a 38 cent credit. To. Do a couple of contracts, here, always. Be mindful of. Transaction. Costs, always be mindful of, your. Return, on the. Transaction. Your rate of return by. The way after this. Can be the. Charge here which is 260 you're getting $73. At 40 cents if you take that 70 340 and we divide that by the 234, excuse, me the 324. The, buying power effect that amount of money that's set aside for us to use this let's, just see what kind of a return we're getting on that 22. Points, six percent, over. Roughly well, forty days if we carried all the way to expiration which a lot of these we just don't I'm gonna go ahead and click on confirm and send there and. We've got that on GM, right now which has really been dragging. Its feet next. One let's go to our next one here I've actually got these listed, under, our a. Current, potential. Some. Current potential additions, J and P are another. One lower, lows lower highs you got past earnings look at this an earnings announcement, you. Gapped lower a lot, of times that's good confirmation, to get the earnings out of the way and weakness, in the direction of whatever the trend is or a strength in this case weakness, look. Over here with me. It. Is down trending, there has been some resistance right, around that twenty four level if we were to look at the, let's, say. Selling. The. Twenty. Four and buying. The, twenty six that's kind of a big range in there but. A lot of resistance including, the thirty day, moving average, coming down, a lot of people are saying yet not enough juice and I get that I get that as a matter of fact what you could do to is you develop that CW, you could be waiting for.
The Price of the stock I'm just letting you know I want to go through some of these exercises, and maybe what we could do is I, could wait on some of these because, I think if we if we jump up to resistance. Here and we, come up to that twenty-four, a couple, of things we'll know first. Of all the. Calls, should. Be raised more, in value, so you could wait for. Them to come up to your resistance level and then sell, right. When the stocks hit resistance if a technician is looking at this maybe they think there's a higher probability of it coming down at that point in fact I'm gonna do that so I'm gonna put a line in here and I'm, gonna say if we come up to our 24, alert. Me so. I can put this trade. On if it goes up a but you know right in that 24, range I'll just do 2398. Just, something close to it. Right. That will help improve the. Premium. As is, mentioned here okay let's, go through that this this is good so we can go through it take a look at a few more of these now, Pfizer's, been struggling to fire. Has been on a downtrend, look. At the 40. Or. Actually if we come to 39, here, maybe. Some resistance, around 40, 41. Additional. Levels of resistance, you want to try to find look. At this key level over here at 39, if we, can make our way up to 39. Potentially. Give ourselves a, little bit of margin of safety what, I mean by that is maybe sell the 42. A 42, as. Prices. Are trying to develop it this is a really, sharp breakdown we broke below the 30 day, moving average we, broke the lows this. Trend, of higher. Highs and higher lows got, smashed, here, and earnings. Confirmed. At least according to the market right it fell on earnings, as well that. Could be a very interesting level, to look at right. Around that 39, level as. Well. If prices get up there we could potentially consider, on this. Paper trade using, selling, of 42 42 you can even do the 39 I mean I'll, look at it monitor, it throughout the week and see if we can get an entry on this stock but that would be another one we could look at now final. One now this is going to be on the vertical excuse. Me the the call excuse, me the short put spread, this. Because the company is in the financial, industry we've, been holding, this level, over a long period, of time this 30 we're. Just breaking above this level right now now. As we're. Breaking out today now we haven't closed them up up above this level we're gonna take a little bit of a chance here, and sell. That 32, let's just take a look and see what the juice looks like on the 30 to 30 here. Right. On the short, put vertical spread, so. We're gonna go out to march. 30. To 30 yes a lower price stock look at that implied. Volatility, is actually still quite low on. This. Particular stock, so you're getting a $0.50, oh I did the 29 I'm sorry we'll do the 30 40. Cent credit. Let's. See what this looks like in terms. Of our return it's gonna be very very similar really. To our first one on General Motors right. In terms of that return you've got after your transaction, cost the credit, 77. To 40 and. You're. Going to divide that by the 320b, a little bit higher about 24. Point two percent, over. That period of time so there's, a consideration, there for you we're. Just utilizing, a number. We go ahead and click on cents we put that together, trade in right now as. We're. Kind of holding and just, breaking above our range right, now but, we've been taking putting these trades on from our penny increment, list now, some of these what we can do maybe in the future is scanned for a little bit higher volatility, implied volatility, so we get a higher return on our investment, as well but, I want to throw that out there to you now, I'm going to answer your questions, here in just a moment but. As you may have picked up we're trying to put a you know trying to go through and sort out a number of trades and, at the same time we're gonna want to talk about how. To use these technicals, whereas. The market bias at you, know in moving. On a particular stocks, where's the trend at where's the 30 day moving. Average, at where, we at relative to earnings. What. Are the pattern what does the pattern look like for, example short.
Kind. Of a very short I would say bull. Bull. Flag we're, combining in, here to gain our higher, probabilities. Of success and. Using. Really, kind of a higher probability sort. Of a, trade. Right, a short vertical as opposed to just buying the stock to. Be to, be profitable, on this trade so I want, you to take those concepts, and definitely try, to utilize them potentially on stocks within your own portfolio your, own watchlist, consider. That I'm, going to hit the questions in just a second but I want to point out to, of course you want to get more information on, technical, analysis, you could always go under education, and webcasts, now, in the same section, whether, using upcoming, webcasts, over here or, archived. Webcasts, which I'll click on this, topic which, is active, trader would, hold both stocks and options, so. Really looking at technical analysis, for stocks also. Some option, concepts, that you could go ahead and take, a look at here and I encourage you to do so these, are great. Additions. Different, modalities, you have as clients, and we want you to really take advantage of these folks so definitely, consider doing that, ok, a lot of a, lot. Of excellent things to consider there ok so let's take a look. In just our final minutes here as we look at some, of the questions that may have come in a. Little. Question, is perfect. Makes. The profit, faster, as the price moves away from the spread when, compared, to the SPV. Where. Is it oh yeah, let's see I might have to, you. Know look into that one a little bit more got. About a minute, here before. We're all set. CW, I want to get to that, question it's a little bit more in-depth I don't have. Yeah. I'm not sure, let. Me know I've, seen a lot of these abbreviations. Give. Me a sense of those abbreviations and, I can help you even further but, I don't know right up top of my head where we're going with that for sure Ronnie, says Michael is your strikes based more on to.
The Know of previous support resistance levels it is we. Hit that a lot last week and I can put a link to last week's session a good, question Ronnie I mean it really is a lot of it is it's, giving us sort. Of a base. If. You will sort of a level, where we think that the stock might struggle, to get down through for example on our ally, financial, here what. About the 32 what was unique about it well 32, was a level that stock had been struggling to get above boom. We're above it worth we held it now we're breaking out, support. Level on the other side on the call spreads GM. Absolutely. We're looking at maybe some resistance, points, J. NPR we. Flipped it around, resistance. Remember those long levels, of resistance and finally PFE same thing those resistance, by the way. We're. Coming on lines of the, moving average which. Can be supportive, resistance, depending upon where, the price is at relative, to it and also. Where. The. Just a horizontal level of support was is is that not to mention the pattern, this is a big break down. In this trend and that's kind of a little bit of a minor. Bear, Flag and those have a tendency to come down now, we'd have to kind of watch this we, can see if we get more juice on it we also need to watch and see - if we start to make a new low here, it closes, below the low of the high day. That could be a trigger and then we could sell it actually lower levels, as, well. So. I'm gonna try to keep an eye on that too a good question could follow up. Why. Not less number of days now you certainly could you, certainly could I've got out a little bit further just to keep here. The. The 20 to 50 day time friend now I could have used a weekly possibly, that's right I could have I went in a little bit further you're right I went just below the 50 all. Right but absolutely. You can certainly do that and that would be based upon your bias on that particular stock you, know if you thought that maybe over a period of time that's going out too far you, want to shrink it down so you have more visibility as as. To what could happen over a period of time over a, shorter period of time definitely. Could. Be done so good points good questions folks have been great being here with you today too we do try to get through a number of stocks as we go through this and I want to let you know that in order demonstrate the function of the platform we did use actual symbols, however, TD Ameritrade is not making any recommendations, return the suit above any security strategy for individual traders any, investment decision you make your self trade account is solely, your responsibility folks. It was great having you here today and just. Just as a reminder what we did we, did an overview of the S&P 500 index, right we got the bias on the market, we, reviewed. Existing. Positions. Okay. So we went through that we closed out that IBM trade and then. We we. Added, new, positions. As well, and we also put some indications. In there to notify us if particular. Levels got hit so that we could add some physicians on as well so it's, great to be here with you today definitely. Take. These technicals, that we talked about the. Different approaches, with. The trend apply those to your watch lists and your own portfolios, to help you out that's, the goal, all. Right hey you're welcome Andy and. Sal. Great, to have you all and, all of you on board today everybody. Have a great rest of the day and.
By. The way coming up next, one that lets you know just. Stick around for James Boyd does a great job on collars, and synthetics. In terms. Of options, and so stick around for him he'll be up shortly, and. Everybody. Have a great rest today bye-bye. You.