Short Put Verticals | Barbara Armstrong | 9-30-19 | Trading A Smaller Account
Well. Good, afternoon everyone. And welcome to. Trading a smaller account, this is the last day of September, I am delighted that you are here with me today today. Our focus is going to be on short. Put verticals, which, is a trading strategy, that. Is congruent. With trading a smaller account, because we have two things going for us we know how much we can make when we get into the trade we also have, defined, risk so thank you so much for joining me I've, got lots of news to share with you today so hang on to your hats here, we go. A. Righty. I. Have. Put on the, front of this PowerPoint, in big bold yellow, letters, both. My Twitter handle and, if. You were watching this through YouTube particularly. If you're watching this through the archives, and and certainly for all of us that are here live, today, if you. Could do me a favor, and if you enjoy this webcast if you could hit the like button that would be fantastic. Subscribe. To our channel if you haven't done so already and. If you really found find, this next half-hour helpful, please, share it with another friend that you, may have or a trading. Partner that. You. Know might benefit, from this also so, doing, all of these things just helps us with the algorithms. And helps us help more people also. With respect to Twitter every coach now has a Twitter handle and because, we have such a limited amount of time in this class, sometimes. We, need to manage, trades. That were in not, on a Monday. Believe it or not so, I will be posting, trade management, tips, on Twitter. So feel, free to follow me on Twitter, for that a hello. To Mike and Anna and Brian and danced long 100. I love your. Name danced long I think that's fantastic. Please, feel free to type a greeting into the chat let us know where you're tuning in from and if you have any questions as we go along don't. Hesitate, to ask cuz not only may your, fellow. Viewers. Appreciate. It today but those who are yet to watch it in the archives don't, have the opportunity, that you do to ask questions, so that. Would be appreciated, I'm sure okay, let's get through our important, disclosures, and then we're going to go out to the thinkorswim, platform and, I'll quickly go over and agenda. Options. Are not suitable for all investors as. There are special risks inherent to, options trading, which, can expose investors, to potentially, wrap it in substantial, losses when. We look at multi leg options, strategies, such as spreads, and straddles. Transaction. Costs can be more substantial, and we have to be aware of that. Also if you have a trade involving a minimal potential, benefit, you've got to take your transaction, costs into account because, they can eat away at your potential. Gains. We, are not going to talk futures today so I'm going to skip over that but know that those. That. Information is there in order, to demonstrate the functionality of the platform, we need to use actual symbols, and we absolutely do. And we'll look at many today however, that's not to be construed on the part of either myself or TD, Ameritrade, as a recommendation. I have, no idea what's going on in your account or, what your goals are we cannot begin to determine, the suitability of, any security, or strategy, for an individual, trader know. That past performance, of any security, or strategy, doesn't guarantee future results or, success, any investment. Decision you make in your self-directed account, is solely. Your, responsibility. Delta. Gamma Vega, and theta these, are affectionately, known, as the Greeks and these help. Guide us and tell us how price time and volatility, can, impact, our options. Trading. So, and of course know that all investing, involves risk including. The. Risk of loss, so. An hello to Bethany, and Anna, and Stephanie. Stephanie's. Coming to us from Mississippi. And Bethany. From California, we've got people coming in from New Jersey so, literally, from, one end of the country to the other which is pretty, fantastic you've. Got to love technology. For these kinds of things right okay. So here.
Is Our agenda for, today and you. Know we only have half an hour together so it's a pretty short agenda we're going to quickly review, our current positions, and then, for the rest of the class we're going to focus on, short. Put verticals, and then place some, example. Trades as many as we, have time for so. How, do we review, our current, positions, well. We're going to click on the monitor, tab we. Have set, up a an. Account, just for this class called trading, a smaller account, and in. It we have, three. Stock positions, so. LSCC. Which you can see we're down a little bit on. AT&T. Which were up three hundred and seventy four dollars and, Terp. Tara, I think it's called terraform power which. We're up three hundred dollars, on now, in this class we're making a couple of assumptions we're. Assuming that we started out with twenty, thousand dollars, and. We're, our. Rules. Of, engagement, or our position, sizing is, we, don't want to lose more than two percent on any one trade that's our max position. Our. Max loss four hundred dollars, we, also. We've. Given ourselves some, latitude, but, we don't want to take a position that's. Bigger, than about five thousand, dollars which would be 25%. Of the account why, did we do that it's, so that we have the ability, to buy, some. Stocks that we may want to either sell calls against, or protect. With protective, put so we'd want to be able to buy a hundred, shares and if. You have a larger, account you. May not want to have a position size that big in fact a rule, of thumb for some. Investors with larger accounts, might be five to ten percent, or. Even smaller depending on the size of your account but with smaller accounts. Sometimes. You'll. Modify. The rules, to, fit what you want to do so. Let's, have a quick look at these three, positions so it's LSCC. The. First and the. Only one that we're currently down on so we can see that, this has been an uptrending, stock I mean. Back. In November. Of last year this was trading for $5, a share and it's now up to 21, we. Got in after, it gapped up on earnings, and it's been kind of it went up a bit and has come back and consolidated. So it's just sitting here at a. Support, level it. Looks like we aren't showing our exits, so let's show, our orders, here, hit. Apply. So. You can see we have a stop, just, actually. Below where it went today and it. Was low enough that we did not get stopped out. This, candlestick, would, indicate that perhaps the pullback is complete, and we'll know tomorrow but. If it continues to head down then, we have a stop in place and we would exit, this position. You. Know for, a relatively, small loss, now we don't like to take a loss on any position do we but, a small loss. Really. Beats big loss you. Know what I'm saying. Okay. So. That's LSCC. Let's. Look at our. Telecom. Friend AT&T. So. We can see here that AT&T, has, also been up trending, we got in this as it bounced off a. 30. Day our 30 day moving average, so it has moved nicely, to the upside, our stop. Is now, placed, above. Our, entry. Price so we've. You, know this stock has moved nicely, and our goal, here, is to. Try. And protect some of the profit we've gained now is a stop a guarantee, that we'll get out at, the stop price we've entered know sometimes, there can be some slippage. But. It's, it's, one of the ways that we can try and protect our positions. So. And this is up trending, and, you. Know it doesn't look like there is any action necessary we, have a dividend, coming up AT&T. Actually. Pays a dividend, of over. 5%, and this is where we can see that right. Here this yield, number, is telling. Us that our. AT&T. Is. Paying just over 5%, see. That, okay. So. That's our AT&T, and, the last one, is. Terp. Our power company, and we. Talked, about power if, we look at the last year in the markets, utilities, and real estate have been leading, and why, is that well, because bond, yields, have been historically. Low and, so, people are looking to things like utilities, and real estate investment. Trusts as an example, or other dividend-paying. Stocks like, you, know the dividend aristocrat stocks. Like coca-cola, and, McDonald's and. Schoo which. All are part of that category. Let, me just pull this over here. Yeah. And so, this terraPower, pays, over four percent and when we come and we look at the chart it, too is up trending, it, looks like we may not have adjusted, our stop since we got into this, but. It is continuing, to uptrend, so. We're. Strong there now we have two other positions one. Is on Weight Watchers and. On, Weight Watchers we. Put, this position, in last week so we can see looking at the one-year chart that. Weight. Watchers lost. A lot of weight it actually, went down from just over a hundred, and five dollars a share and came back all the way down to this low of sixty and seventy one, but. We can see that this has kind of broken.
Out Of this sideways, channel it was in and seems to be moving up nicely to the upside, so. What. We did with this it's called a buy right and our intention, when we place that trade. Was. To, put, our our. Call. That, we sold in. A, place where. An, investor. Might. Think it could be run over with the goal. Of only being in the trade for a short term and being called out and this, is just an example trade. And it's one way that. Some. Investors will. Use buying, a stock and selling, a covered call at the same time they're. Looking, for a short-term. Return, and. So. Far things seem to be you, know coming along just according to plan now does that mean they'll stay according, to plan, of course. Not nothing's, ever guaranteed, but, when we come and we look at this stock. You, know, we bought the October. 1837. Call, what. Did we pay when we got in well. We paid, $34. And 88 cents, what's, the most we can make on this trade well if we were to be called, out or, assigned. Because. When we sell a call we're agreeing to sell the stock at the, strike price so. The most we could make is 37, dollars or, two, dollars and 12 cents a share. Or. 212. Dollars on this trade how, much have we made so far, 66. 43, which, is interesting, given that, it's already gone through our strike, so. We still have some time value, kicking around here, 18, days left and, what some people some, investors, would do if they were in this trade is they, would watch this and when it gets to the point where it's, getting close, to that being, worth. 37. Dollars maybe, 36, 50, they might say hey I've got three-quarters of my potential profit, I'm ready to call it a day. Excuse. Me. So. With that one we're, going to continue to watch it we have a stop put in just in case the trade goes against. Us, that. Doesn't mean we would necessarily need or want to wait until we're stopped out. Excuse. Me, okay. Last. Trade, is our short put vertical on Goldman, Sachs and. We. Sold the 205, foot, and bought, the 202. 50. Now. Is there, anyone, on the, call today for whom, this. Is a brand, new strategy, you've never seen it before or. Relatively. New and you kind of sort of understand, what it's about but maybe not quite because. If you're in either of those boats my friends I just taught, a getting started with options, cost on Friday and what, did we talk about for half an hour short. Put verticals, so you may want to go and watch that recording, it was September 27th. I believe. So. And with. Goldman sachs. Here. We are so I put. This right on the chart. So. We got into it on this day we, were, expecting. For. This example trade. That. Goldman was going to continue, to go up and it did and then, it started, to pull back. And today, had actually, closed below, the 30 day moving average, which, we haven't seen it do. You. Know for. You. Know some time like it crossed back here at the beginning of September so. Our sure. Put vertical is here when does this expire. Well. If we look at this. This. Expires, October, 4 so we have only 4 days to go and we. Have 2 dollars and 50 cents, worth of room, so. As long as it stays above this, 205. This. Could expire, worthless and. We. Would earn our money however, if it continues, to go down we, have a trade, right now where. We're basically breaking, even, without. Taking transaction. Costs into account so. Where, are we to close it out now we, actually be. Slightly. In the negative because we have to take our transaction, costs into account but. Tomorrow, morning this is something you'll you may want to come, and check on Twitter, because, if this starts, to move to the upside. We, might let this go for another day or two but, if it continues to move to the downside we would exit, and you, know immediately. With. The idea of you. Know once again. If. We're, going to take a loss we'd rather that be a smaller, loss rather, than risking. Taking. A max loss on this and right now we we're. Not quite at $1 to the good so. You. Know we'll just see what tomorrow, brings and. Then feel free to have a look on Twitter to see what we've decided to do with this, and. You know one thing about investing. You're saying wow well we've talked about two trades where there could be a loss and that's true but. We do also have three, trades in here like our net gain on this account right now, unrealized. Because. We haven't. Exited. These positions, and what the market give us giveth. The market can taketh away we're. Up about six hundred and forty two dollars on, this account right, which. Is about 3%. You, know so but. One. Thing, that we. Don't. Want. A risk or an investor, has to keep in mind is they, want to let their wint winters run so if you're in a stock that's continuing, to pay a dividend, and continuing, to, move to the upside, then. There isn't a reason to exit, that position, you. May want to try and protect that position, using a stop loss or, you could use protective.
Puts And we've talked about those in this class, so. That's. Our, current positions, let's look now at adding. Some. Short put verticals, so. Our, first, one that we're going to look at is Microsoft. So. And because, these, are new trades for us I'm just going to not. Show any orders, that might, be in the system. Already. On this, so. If we look at this, we. Saw something that was kind of forming, up a bit of a pennant pattern, it broke to the upside, has come back in it today, is bouncing, off this diagonal. Resistance, line it's, also an inside, day so. If we looked at this and said hey. Could we maybe sell, something. At you, know below, this recent, low maybe, 136. Or even 135. So. If we came out here and said ok. And. This is looking at just 18 days which is a very short time frame so, general. Rule of thumb is somewhere in the 20 to 50 day time frame but. If we said ok. 136. Or, look at there were almost, 5,000. Contracts, traded, today, on the 135. So. If we came in and said could we sell the 135. Which. Just gives us that much more of a buffer. And. Say, the, 133. Instead. Of that it'll always give us a smallest, increment that, would, give us 40, cents, and so if we look at our return on that you're saying ok that's 40, cents, much are we risking. $2. Less the 40 cents so 40. Divided, by 160. That's. A 25%, return. On our risk for a trade we would be in for 18, days, so. With our trading parameters, if we said okay we'd be willing to do two contracts. Because. That would be risking, just over $300. We're, going to put our exit, in before, we get in first trigger sequence. Right. Click, when. Might. Be, an example, of when one. Might want to come get out well, maybe when you've got 80% of your profit, you might, choose to take your risk off the table so I've. Just multiplied, the four by two and said when this is worth about eight cents. Let's. Shut. It down, now. Some might just prefer, to let it expire worthless, others. Will want to take the risk off the table, so. I'm moving pretty quickly here the most we can make on this as $80. The. Most we can lose 3:20. What, was our goal in this class well. It was aggressive, but it was to make one, percent, a month or, $200, so. If you look at this and say wow we're only making 80, but. If we could do three of these in a month and, you. Know get 80% of, our number, that. Would be our goal. Now. You. Know that's assuming, that these work out and we've seen in this account some that haven't in fact we, just talked about you. Know our goldman sachs trade which may. Not work. Out so we're going to tee that one up for tomorrow. Second. One we want to look at is Apple. Are. There any questions on that and I'm. Going quickly, so if you're new to this the, recordings, should be up you. Know by, early, tomorrow if they're not up by the end of the day today, and. The only reason they may not be up today is because it's already fairly, late in the day so here's apple, recently. Uptrending. Broke. Out. Consolidated. And kind of moving to the upside today so if we look at this recent support, level somewhere around this. 216, level, could. We maybe sell something, just below that maybe around the 215. Mark and. So. What's the goal well. The goal here. As you, know with a short put vertical is if. We believe something is moving bullish, ly if it goes up we have a successful, trade if it, goes sideways we, have a successful, trade well, this thing is right, now it closed today at almost 2:24. If we, can sell the 215, it could even come down a little and we could still have a successful, trade, so. That's, what. One. Of the characteristics. That some investors, like, about, this strategy or appreciate. Is that you. Can even be a little bit wrong, so, to speak, and. Still, end up with a successful, trade, but it's why we you. Know an investor, would want to be below as many support, levels as they can be okay. So we're going to come up to our trade tab. Again. We, could look at this 18. Days or we could come out here and we could look at the weeklies. Not. Quite as high of volume, here we're seeing like tens of thousands, and, here, we're seeing you know thousands. But. If we look at this 215. We've. Got a 75%, chance of that expiring, worthless. So. Vertical. So. We're looking at, 50. Cents on a two. Dollar and fifty cent wide. Risk. So that's two dollars how, much are we risking. And. Well we're, risking two dollars the 250, minus the 50 so 50 divided, by 250. My. Spidey sense tells me that's a 25%. Return. 20. It. Should be 25. 50. Okay. Let's just clear that fifty, divided. By two, dollars. So, that's a 25%. Return on, our risk, how, many days would we be in this trade. Hmm. October. 25th, 25. Days so. Again, if we, did, two, contracts. Come. To single order first, trigger sequence. Right. Click if, we. Got out at 80% if we were using that as our. Example. For today our example, exit, 10 cents. Good. Till cancelled, on our exit. Confirm. And send how, much can we make a hundred, and that's if we let it expire worthless. So. If we get out when it's worth 10 cents, and, we'd end up making 80 how, much are we risking this is our max risk.
At 400. I'm. Gonna put that into our, trading, a smaller account. Okay. What. Do you think have we got time for one more. Okay. One more target. Tarjay. So. When we look at target, we saw that it had a pretty positive response on, earnings, didn't it and then, it kind of continued, to go up has, been consolidating. Came back. Retested. A support, level and is moving, to the upside again, today so, again this is one you, know could, we. Look. At this or could an investor, look at this and say could, we maybe sell something, around that, 105. Or, maybe even a little below, that 104. So. If we came to the trade tab and the, further away we are so if we sell the 105. We're. Looking, at a 35, percent chance. Of having, a losing trade or a 65%. Chance of this. Expiring, worthless if we go to the 104, we've got a 70%. Chance. So. If we right-click on, this and say that we want to sell our vertical. At. 104, it'll automatically. Just give us a $1, spread, so, if we make it two dollars, that's a 44. Cent. Credit. So. If we say okay 44. Divided, by our two dollars. Minus. The 44, cents so we're dividing it by 156. That's. A 28, percent return, on our risk, for a trade we'd be in for 25, days so if that met and, investors. Guidelines. They, could come up here and go ahead and Oh before, I create that opposite, order two. Contracts. Now. Right, click anywhere, here opposite. Order we. Make that 8 cents we might want, to round up make it nine cents. And. Again. One, of the challenges, here if you have a bigger account, and you're doing 10 contracts. The. Transaction. Fees take a much smaller. Bite here. You, know we're looking at our. Max, gain of $88. And you, know if your commissions are you. Know $6. Or 695, whatever, they are plus, a per contract, charge, so, you know it would be. 75. Cents a contract, it takes a much bigger, bite, out of our, potential, gain, but. In the beginning it's just how. We start, and then. As your account rose these. Transaction. Costs will become a much smaller percentage. Of our, potential, total gain so. But this is one of the things we have to be aware of like when we look at you. Know the gain and let me just finish teeing, this up. You. Know when we have a $300, gain, if we were to exit, our AT&T, trade, for example that's. 695. Is a pretty small percentage. You. Know it's a much bigger bite of these trades so, okay. Our half an hour it, has come and it. Goes so, quickly doesn't it but. So what have we done today we've got it we've done a quick review of our current, we're, long, or, we've bought three, stock. Positions, AT&T. LSCC. And, Terra, form, power and, so. We had a look at those we looked at our short. Put vertical on, Goldman. Sachs which has kind of been threatened, by today's pullback and looked, at how we're going to look at that tomorrow. We. Also place, three, new trades we did Microsoft. Target. And Apple. And we did short put verticals, two contracts, each on those so. I hope you have found this how helpful. Your. Mission should you decide to accept it, is to go out and look for another, example. Of a, trade where you could do a, short. Put vertical and, practice. That in your paper money account, and I'd, say if you can find and put two on and then. Just, write, in the annotations. In the notes like just. Practicing. But. Then manage, it as if it were in your live account, treat. This seriously. You know these trades you're putting in your paper money account and it. Will, work. Out nicely. For you again. Just in closing remember that all investing, involves risk including, the risk of loss, also. Remember that an order we used in. In. Order to demonstrate the functionality functionality. Of, the platform we did use actual symbols, but, that was not to be construed as a recommendation to buy or sell any particular stock, or use any particular strategy. Any decision. You make in your live account is your. Responsibility. And. The paper money platform, it's brilliant, for practicing, but just because you're successful during one time period and paper money doesn't. Guarantee you the, same degree of success when you go to your live account at a later, time period. So. It. Panatar. Is asking, do we need to do anything too close so we're going to talk more about that next week and also, follow, me on twitter panda, heart and we'll talk about closing.
Out Positions, there. Also, because. Our time is so limited. Here so. Hope. That answers your question also, panda, heart there is a class dedicated, on Wednesdays. One. Hour every, week just on trading verticals, taught by the, wonderful John McNichol, at three o'clock Eastern, you may want to check that out also if you want more on short put verticals, and how, to manage them so, on that note my, friends, that's a wrap thank you so much for joining me today Oh last bit of news last. Bit of news but it's important we are moving to Friday's effective. October 18th. So next, Monday join me here on Monday. And the following link will, be going to Friday's so look. For more news on that also. Looking. Forward to seeing you in a webcast coming up soon take care everyone bye, for now.