Technical Analysis: Selling A Bear Call Spread Into A Rally | Active Trading Strategies

Technical Analysis: Selling A Bear Call Spread Into A Rally | Active Trading Strategies

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last trading day of may markets trying to follow through from last week's rally uh well probably time for a little bit of a pause uh who knows for sure though pretty strong week last week we'll talk about that look at some trades that we have on try to take advantage of the price at resistance and some of the big moves we had last week so stick around good morning good evening good afternoon everyone and welcome to active trading strategies my name is pat malali and i am joined in the chat first and foremost by all of you but also by barb armstrong who many of you know if you if you are new in the chats don't know barb she is another td ameritrade education coach so welcome everyone uh as i was saying we're going to get uh we're going to take a look at the last trading day see what happens here take advantage of some of the some of the moves that we had last week to uh to maybe take some trades off that we had and maybe add to trades that we uh to those existing positions so before we do any of that of course though uh remember this is for intended for educational informational purposes only not investment advice or recommendations options are not suitable for all investors there are special risk inherent options trading spreads and straddles multi-leg options can have extra transaction fees short options can be assigned at any time up until expiration regardless of the in the money amount and then the money option has a higher risk of being assigned early and what's also important about that is that if you are paper money trading on the paper money virtual trading application that will not assign a short option position early which can be different from a real trading account probability analysis is theoretical in nature and not guaranteed we're going to discuss technical analysis but there are other approaches that include fundamental analysis that can assert very different views please be aware of that all investing involves risk including the risk of loss any decision that you make in your self-directed accounts solely your responsibility past performance mini-security does not guarantee future results or success any trailing stop or stop loss that might be mentioned will not guarantee an execution at or near the activation price so with that we're going to review the market real quick we're going to review positions that we have existing positions that we have and then add to some of those sample uh positions out there so let's get uh let's get rolling before i do remember that you can follow both barb and i on twitter at underscore tda and of course at b armstrong underscore tda capital b capital a armstrong uh and uh capital p capital m olali u l l a l y m u l l a l i want to say hello of course to uh shubey and vijay and sandeep and robert namar and russ and grace and rongyao uh and juanita saul as well as mary and george in texas uh marcy russ dylan and everyone else crazy foxy in connor as well eddie walker is in in the room hello hello all right let's uh let's get rolling out there and um to do that i got to do this there we go but to do what we're going to do we're going to hit the markets first maybe and get control of my fingers on my mouth so we can see here the market had a nice six percent rally uh into uh last week off of off of the lows some unusual action uh three days on the conviction indicator in the 80s very uh fairly rare occur occurrence and you know over the last um uh you know going all the way back into some of the time frames that we've discussed into the 60s uh that's only happened you know not even 20 times so a fairly rare occurrence over the last 50 years or so and uh of course the uh advancers decliners have been very strong we can see that here with the net advancers uh on the mcclellan oscillator now the discussion that everybody is going to hear uh and this goes kind of uh directly to crazy foxy and any further thoughts on a current rally being possible bear flag seems like we are battling uh yes we are battling around 4 200 uh the 4 200 area so that's the that's the uh discussion you're going to hear out there is it a is this just a bear market rally that we're seeing uh or is this the beginning of the end bear market rallies if this is truly a bear market uh then we would expect this to fail and but we don't know when it's going to fail so we're going to take advantage of these price movements it can move like i said we've had a six percent move uh last to see last week alone uh off of the closing at the 20th if i just take a uh about a six and a half percent run uh just from the closing of uh the previous friday into where we are into the closing of last friday almost a seven percent uh run off of the lows of course more than that nine percent so we can have pretty strong rallies of ten fifteen percent in a uh in a bear market and then watch it roll back over if it does and we're what are we going to do we're just going to watch these these areas these zones and we collapse this side over and here and so this 3 800 area is going to come into play that's a 38 fibonacci retracement if it does fall below that uh people may expect further downside let's see if i can't give us some more room here and that further downside uh you know what a lot of people are going to be watching not necessarily uh the way we drew our fibonaccis there's two ways that we draw them on here projections as well as retracements if we just do a retracement we can see we bounced off that 38 percent so the next area would be around 3500 to the downside if it breaks 23 percent then the then what we have uh to the upside uh whoops better trying to erase that what we have to the upside is no fibonacci but we have plenty of price resistance that we've talked about in the past areas that we expected where we would expect some turnaround and possible follow through so again the biggest resistance may come up around the 4500 area an area that people are going to watch presently you're going to be right around this 4302 area so i'm going to draw that in there i'm going to edit that and we'll make that uh yellow to and change up the uh the dashes a little bit because we're going to go back to a one-year daily chart and that's why a lot of people are watching this they're watching this area where we had resistance come into play for a couple of weeks back in may and we shall see again what happens passing that area uh is what a lot of traders are going to look at for the uh support or for a resistance area and maybe a higher high and so when i say higher high what we would expect is a rally up into there maybe pull back here and then maybe we get a rally into that area and maybe a pullback and then maybe another rally through there so at that point we would be marking this is just one type of uh possibility higher highs and higher lows in that in that in that way it could just keep on going from here make a higher high and then pull back and make a higher low in that sense so that would be more this obviously would be a heck of a lot more bullish with a higher high and higher low in those zones there and then looking for resistance to come into play along those old highs in there and ultimately the all-time high over here we've got there's there's a pretty good amount of um what i want to say there's pretty good amount of uh bullish bias out there discussions as well as bearish bias so anybody's guess what can happen but just know your levels know what you're going to do when you're going to do it as far as and that's what we're going to do today we know what we're going to do when we're going to do it and why we're going to do it we'll take a look at some uh trades here the nasdaq uh similar continuing its rally trying to push higher it's got a little ways to go before it hits up into this uh 1290 12 980 area so that might provide some uh resistance it's it's definitely back up above the down trending channel line and heading towards the midpoint which is going to be a confluence of resistance in that area with the midpoint downtrending midpoint and this horizontal area in here so it's getting fairly close into that area so there you go for that and the russell 2000 pairing uh not as strong as the rest of the market right now the spx is up uh about 1500 and the nasdaq is up about half a half a percent if we look over here expand this out a little bit here nasdaq up six tenths of a percent s p up uh about a tenth of a percent now and russell continuing to continuing to be weak so a little bit of bifurcation going on uh and that's going to bring us to our uh discussion uh today about what we're going to look at a couple of couple things we're going to look at first we're going to look at is going to be tesla and look at is there any opportunity to take some take some trades off and put some trades on or is there just an opportunity to add back into position so what we have on tesla right now the trades that we have on tesla happen to be uh the uh our uh two short puts were the remnants of iron condors that we had done we closed out our uh we closed out the uh calls sides of these two iron condors if you knew what's an iron condor an iron condor is selling a put spread at the site and simultaneously in this case simultaneously selling a call spread and we took in a credit of two dollars and 35 cents well we closed out those uh 630 uh or excuse me 9.95 one thousand dollar call spread right up in here for 20 cents and we took in about 70 cents on that difference between 14 95 and 14 25 so we ended up taking in 50 cents and then we sold uh uh the uh uh the next iron condor that we sold we sold for a credit of a dollar fifteen closed out those calls uh for for ten cents that calls brett for 10 cents now since then of course we watched the markets uh bang down a little bit further we put that these iron condors we started these iron condors back here and the first one that we put on is going to be the short strikes of uh up in here and we keep we we kept applying iron condors uh on the way down and then we had the uh short put strikes down here you see we got into our uh our 630 dollar strike and we have since popped off of that to the to the upside so the opportunity where does the opportunity lie right now well let's look at that 6 30 uh strike and it's still worth uh a dollar ten we sold it for a dollar sixty five it's worth a dollar ten the second set of puts spreads of 565 560s uh sold for 75 cents they're worth 25 cents 17 days left to go now the idea why and why is this falling into active trading because we've been fairly active we've uh number one uh just playing on words there in plan was because we we took the opportunity as price started to drop to add to the position and to take off some positions so we we no longer have these uh these call spreads up in here those are gone okay so let's uh recognize that they no longer exist they no longer give any kind of upside uh delta type of a delta protection after a fashion so what we're going to do is we're going to remove those and then we're going to look at selling another call spread as price has had a pretty strong run we've had uh some minor minor gap here a gap up on friday and then running into the 20-day exponential moving average if we look at our volume well volume has been fairly good on the way up are we getting any change in relative strength relative strength starting to pick up a little bit relative strength index momentum is at an area where it can fail so what we're looking at to do is just going to continue to add to these iron condors looking to sell another call spread up in here not necessarily doing a full iron condor so let's take a look over here we're going to go over here to the trade tab here perhaps there we go and we're going to see what we can do inside of the 17 still staying in the same in the same expiration i'm just looking at here's our put spreads over in here you can see that the the we're way out of the money on this on this put spread as a matter of fact let's pop over here and take a look at possibly just setting this up on this put spread to close that out sell that vertical for 23 cents we'll just take that down well it's 20 cents now we'll add we'll take that down to wrong way pat and put a limit order in to close that out at 15 cents and so we'll just leave let let that one let that one play along with us now we're going to look at adding another uh selling another call spread remember there's short options involved in selling call spreads what are call spreads we're gonna we're gonna look to sell something that's out of the money and so we'll start off with though let's say somewhere around the 890 area so the uh 890 895 and see what we can get for that spread that has a [Music] delta which is a proxy for the short strike we'll have a delta which is a proxy for probabilities again it's a proxy it's not perfectly mathematically sound depending on how you calculate your uh your probabilities uh the probability of this strike being out of the money is about 86 percent doesn't mean that's what we should do just because these probabilities have a high probability of being out of the money doesn't mean they will there's two sides to probabilities remember they're they're theoretical in nature so a five percent uh five dollar wide spread 65 cents now for just a straight trade just a straight call spread five dollars wide bringing in 65 cents means that you have four dollars and 35 cents worth of risk uh in here five dollar wide spread less your credit of 65 cents but what this really is is just adding to these previous iron condors that we have over in here so we're going to add in another call spread perhaps at 590. i mean excuse me eight eight ninety on the short strike right here so 890 where does that land right click uh edit the properties we're going to put in 890 and click ok so that puts that up here if we were to do an iron condor a total iron condor which would mean simultaneously selling a put spread as well we would look at possibly about the same delta down in here at the 660 strike and i'm going to hold ctrl key down just so you can see what this looks like and sell that vertical and that ad that makes us a dollar 42 on a five dollar widespread dollar fifty so that's about thirty cents per dollar risked uh which for some people as a guideline so that can be done as well at the 660 strike which is going to bring that up into here we're going to leave these alone for now we're actually just going to leave in the uh call spread and just sell that call spread for 65 cents and just keep adding to as price moves as price rallies to the upside as price moves up and pulls back down we first put it on saying we thought price was going to stay in a certain range over a certain a certain amount of time so we sold a call spread up in here so we have a call spread and we sold a put spread down below so what that does is anything between my fingers there that's what we're looking for we're looking for step you know some neutrality based often based off of a certain uh a certain action or a certain occurrence in the in the market and what that occurrence was or is uh is uh the uh the fact that volatilities have picked up so volatility is it picked up when we see price run into some support areas with volatility fairly high what that means is that uh what oftentimes that may mean is that we see some back and forth a back and forth nature in in the market so we're just going to send this off hit confirm and send and let that one fly out there now when we look at me not putting it in our back here in the monitor tab what we're going to do is come down in here and go down and find it because i didn't put it right into our right into our group so we'll put it in technical analysis and options and then we'll roll back up in here and now we can see we have a call spread that's sitting up in there hopefully uh you know over time see if this can decay enough to to bring in some more gains now why would we do this well number one from a technical standpoint we did it because we have a fairly sharp rally off of these lows expecting maybe price to roll over if price rolls over in here let me ask everybody a question if price rolls over and starts heading down what this is our short our short 6 30 strike up in here so that's the 6 30 strike the short put okay so we're short that put can be assigned at any time because it is short that put spread so if it starts heading down there what happens to the the to the uh price of that put spread the premium on that print spread does it go up or does it go down and while you're asking that question or answering that question or thinking about that question the idea is that if this does roll over and start heading down this call spread that we just sold up here at 890 is going to become what it's going to become worth less not worthless but worth less okay in theory right that's supposed to be an s in theory so the 630 becomes more valuable while these calls become less valuable so what have we just done by looking at possible ebb and flow meaning we expect price to run up come back down run back up come back down we have taken we've added some credit that if that credit goes if this starts to drop in value these premiums start to drop in value then we've after a fashion have taken some of the sting out of these options down in here becoming worth more okay becoming worth more now we can close this one out and take in our 50 cents on this one right around this 22 area and knowing that we've just took in another 65 cents we keep lowering the risk in theory if we put remember these are all separate trades now we keep but as a group of trades we're lowering the risk on a spreadsheet because the initial uh the initial risk will continue to get lower until we finally have some kind of a loser or they all go out worthless there is a survey by the way in the chats and uh if if you could please put your comments in there you fill out that so it's just a couple questions really easy but please fill out those comments and uh that helps us define future uh future webcasts as well as try to get a handle on what we're doing right try to build on that and make those even better and what we're doing uh that could have it could be managed up a little bit better so we'll look for that okay so that's tesla nothing else to do there let's take a look at um disney uh disney is continuing to move higher we have on disney same kind of a situation an iron condor now i want you to look though and the idea behind this is not possibly doing something similar just leaving it alone these puts are worth about three cents as put spreads worth about three cents now what you can do a couple different things you can do here remember all of these trades are going to have some kind of uh we'll have a transaction fee so if i come in here and not do that by coming here right click and create a closing order on those puts we can close out that put spread for about three cents okay so three cents closing out the whole thing or you can come in here and say well what if i just closed out the uh the 85 put with 17 days left for say six and uh where is it for around seven uh seven cents or less so we'll take this down uh to about five cents and put that in so close it out buy back for five cents hit confirm and send and um you note that we have those uh those fees in there and leave the long one on you know for the sake of uh two dollars what do you think could possibly happen uh to if this decides for whatever reason disney uh the investors into in disney decide to sell it really hard and fast over the next seven uh 17 days then this long put this 85 or this 80 put could possibly become worth more than three cents it might who knows maybe comes where it becomes worth 15 cents or something like that there's no guarantees it's getting pretty low in the uh low in the in the spectrum out there of risk and reward so what we're going to do is we're going to leave that one on the 80 put we're gonna we're going to take this 85 put take that down to 5 cents and look to close that out buy that back the short put those two short puts for five cents and leave the rest leave the rest on so we'll see if that gets filled uh it could it can continue to rally and who knows but right now that's what we're looking at there if we look at it from a technical perspective now that we've done that now we've kind of managed that position what do we see here different here than what we saw with tesla is really disney really underperforming the rest of the market it has been oversold uh and so when we see the rsi and many uh any of the oscillators that are similar like stochastic or anything like that we see these oversold areas what we expect in the near term there's a high probability of some kind of a bounce and then when it gets up into the 50 zone this the these blue line this blue line over in here that's where we are now maybe a little bit of resistance ultimately up in the 60 percent area on the rsi looking for resistance and that's where it has been it may be getting a little long in the tooth as far as bearishness goes so we may see there's a possibility certainly always a possibility that it breaks uh breaks out but the reason we did the iron condor was again we were expecting pretty much what we're seeing here a rally but maybe some kind of checking back before it gets going uh to the upside so just expecting price to base out in here the selling demand may be starting to come back in this is just one way to look at things especially when the markets are somewhat in in flux meaning that we've pulled down to a support area we've got a rally we've got a lot of uncertainty out there and that may bleed over into the rest of the rest of the markets okay let's see here back to the monitor tab here so that's disney uh i don't know that i wanted to let's take a look at the trade we put on friday see if anything needs to be done here this is ulta we sold a call spread on ulta up at uh 454 55 and sold a put a naked put now remember this is a naked put it's a short option can be assigned at any time the difference here though it doesn't have any protection below it it doesn't have a long put to minimize any uh risk in that trade so in this put we can have you you have to be willing to buy um ulta at 385 in other words you're going to have to be willing to put out a certain amount of dollars for a hundred shares and in this case three thirty eight hundred and uh thirty eight thousand fifty dollars for a hundred shares of ulta if it falls back down in here so we've sold a call spread up in here that's working out well uh dg we put on friday uh dollar general as well uh that one's pulling back in the idea is these sharp strong rallies to the upside that we saw in dollar general uh dollar tree and alta on uh last week may be expecting some kind of a pause now that pause doesn't necessarily mean that we expect the pause right away it could continue with ulta up into here before we see any kind of a pullback if we see a pullback all right i wanted to take a look at um i think it was mcdonald's yeah so mcdonald's had a really strong run coming into some resistance areas in here now this is part of the discussion here is going to go with what we're what mcdonald's happens to be experiencing and that is uh interesting as far as the rally goes strong rally volume sliding as it is rallying up into a resistance area previous resistance area now it's rallied pretty far pretty fast a lot to see what the options look like on this one again looking for some kind of breathing out period after a pretty strong run when we look at when we look at mcdonald's can it continue to run sure anything can happen when we look at mcdonald's from a performance basis the relative strength index for comparing it to the s p 500 this line is rising that means it's outperforming the s p 500 starting to flatten out a little bit as it reaches up into these resist this resistance zone up in here so pretty strong update today volume's pretty good we've got some strength up into the 60 area on mcdonald's the decision here might be to look to sell uh take try to take advantage of maybe a over exuberant move in mcdonald's to the upside the problem here is is in 17 days left until expiration there's not a lot of strikes out here that that we can choose from we still are looking at a possible selling the 260 which is about six dollars away if we come up here back to the charts and look where 260 is that's going to come in right at the top right at the top of the resistance area up in here so giving a little bit of room in here with just 17 days left until expiration you could go further out in time and go say to the standard 40 standard options still don't have a lot of choice out in here let's go in and there you're going to see this probably be the case all the way through these expirations because of the far and fast move that we saw in in disney or in mcdonald's if we you see far and fast moves at some point they're going to slow and uh not all doesn't have to be i've seen don't be very careful about what i just said they don't have to slow i've seen stocks move and continue up upward uh closing higher you know every day for almost a month 20 some days back in for intel there's several of them so they can it can continue to move uh to the upside if it wants and so for that reason we're going to go we'll take a look at a shorter term and come back here to 17 uh 17 days out look at this 26 delta short strike and sell at vertical above the market for 92 cents on a five dollar wide spread so above the market at 260 expecting maybe a little bit of a pause if it rallies maybe it pauses uh right you know debt straight away who knows for sure it's hard for people to grasp this idea of trading against the trend because really right now what we have is a high over in here and a higher low over in here so we're starting to see a possible uptrend but uptrends don't typically they do sometimes continue to go but we're expecting this kind of a pause and let some time decay out there in uh in the uh in mcdonald land and the reason for that is the far and fast moves so crazy foxes if price moves in the range of the put or call spread might we close out the position uh of concern out of concern for being assigned despite yes especially if it's between the strikes if we have a call spread up here on mcdonald's say 260 265 and here and you're in between you have a short strike here this lower short strike can be assigned at any time right and it doesn't really even have to be in the money or even very far in the money if somebody wants it they can certainly do that so yeah you want to manage those positions give it a little bit of time your working probabilities here as well all right so mcdonald's we'll put that one on we'll just do it one time we've got a 91 cent credit a risk of 409 with a 27 delta giving us the a probability of uh 27 chance it'll be in the money by a penny on expiration uh or a uh you know 70 chance 70 some percent chance of being out of the money on expiration so we'll send that one off and we are filled on mcdonald's all right uh take a quick look at the market and the russell's still about the same place the nasdaq uh bouncing back and forth the s p bouncing back and forth uh today as it runs into some resistance we'll see if that bleeds over into the rest of the market right now some stocks know some stocks yes and look for look for certain levels to be broken out there all right if you could please remember to click that subscribe subscribe subscribe give us a thumbs up if you liked what you saw share it with somebody if you liked what you saw today uh from the from the archives but definitely subscribe and you'll be able to find all the great stuff that the td ameritrade education coaches do out there faster and it helps you it helps us and we certainly appreciate uh certainly appreciate that coming up next is john mcnichol is with swing trading so uh please join john uh as well as uh stick around and you know the rest of the day and join all of the great td ameritrade education coaches got a lot of stuff going on right now interesting action in the markets so with that uh let's take a look markets continuing trying to continue to the upside uh today uh just because you've traded something once doesn't mean you can't keep trading around it that's the that's the point of selling spreads around price action price moves up price up price moves down breathes in breathes out and so we've been you know we've been taking kind of a a experiment if you will after fashion if none of you have seen this with tesla looking at certain areas for prices certain support areas for it to bounce from selling uh selling around those areas of support selling put spreads around there looking for areas above where tesla is trading selling calls where we think tesla will struggle to push through and in the idea is that over time those may all go out worthless now that doesn't mean they'll all go out worthless we we've sold some calls today took some risk off the table uh after a fashion uh on on tesla because those were you know five and ten dollar wide spreads that we did out there so selling uh other spreads away from the market takes in takes uh uh possibly takes away some of that risk out there so add to positions when it's when it's appropriate and and take positions off when it's appropriate take some positions off in in half steps close out a portion of the disney trade in case price drops we still have a long position on uh it's a pro a very low probability so remember that though probabilities are theoretical so everybody please uh take care and please remember that everything we're doing here today is for educational purposes only not recommendations you're responsible for the decisions you make in your self-directed account and again we appreciate every single one of you hopefully you had a great weekend we'll talk to you soon take care

2022-06-02 20:28

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