Technically Speaking: Trading the Trend | James Boyd | 2-4-21 | Price Patterns with Potential Trends

Technically Speaking: Trading the Trend | James Boyd | 2-4-21 | Price Patterns with Potential Trends

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hello and welcome to trading the trend weeks to months my name is james boyd great to be with you here today let's do a quick uh quick check in terms of the video i want to make sure the video is actually coming out okay looks like we've got ray ram amun terry george texas sk yoku medi bill and many others just let me know if that actually the video looks actually good okay looks like av is good good irene from san francisco we welcome you uh let's go ahead and get started looks like a couple you were actually in that frigid cold air and uh yeah so uh little snow flurries here in salt lake not much so uh but hopefully we'll get some soon all right real quick we always talk about how thursday is trend um thursday yeah i just want to make sure the video was good kind of was showing a little bit different on my side so we're good to go we're going to go ahead and let it rip and we'd like to welcome everyone also we have cameron may a fellow instructor here as well and just know that you can find us on twitter you can go to twitter.com type in cameronmay geniusboyd pat malawi etc and so you can just follow all our educational content there throughout the week great place to actually get updates et cetera and educational content just real quick as we're getting started remember with what we talk about today if and when we talk about options we'll talk about half stock half options remember that options are not suitable for all investors or special risk and heritage trading options uh remember that uh the investor can also be watching or have read or have in their hand really that the pamphlet called the characteristics and risk of standardized options also remember we're going to demonstrate the function of the platform we're going to use actual symbols that does not mean that td ameritrade makes any recommendations determines any suitability of any security or strategy it's up to the investor to decide what they want to invest in and also remember when we talk about let's say trading in general all investing involves risk and there's also what's called the option greeks now this class is mainly going to be talking about technical analysis obviously and options not really that much fundamentals the other time we'll talk about fundamentals is maybe when we bring up earnings but this class is really not meant that's why they call it technically speaking okay i also call it fundamentally speaking so it's technically speaking now just real quick we want to take a look at the indexes real quick sectors and then we want to actually do what i call the one and one okay the one and one means we're actually going to look at one new entry example stock or option okay you pick and then we'll look at one management example and so we're going to do that throughout the session but also throughout the session we're gonna need to take a look at a couple stocks that are being what i would call little runs okay runts some there's about three or four that have not really done as well as what was thought and we need to actually talk about those because those rotten apples could actually really uh have an effect on the overall portfolio and we want to make sure they don't become so rotten they take the whole basket the portfolio down with it so we're going to do that throughout the session now just real quick uh some of you uh you know i i know a couple of you have said hey the boy does it was actually uh barb who actually started that i'd like to change that a little bit uh and i like to call it the tradistas okay because i'm not the only instructor here cameron barbara pat john mcnichol et cetera and so i just kind of just for a little fun as we kick off here i just thought maybe we'll just use this as a starting point and let's go ahead and actually be the three amigos here be the 300 amigos and let's start talking about trading and investing all right so here we go a little fun there so let's go ahead here and actually take a look at the s p first now remember this portfolio we're really using really a hundred fifty thousand dollar account five hundred thousand dollar account and we're going to actually just look at first the s p 500 first now remember this class is not really focused on just short term trends uh so if you kind of think about the waiting and said is short-term trend more important than long-term trend we would say no okay it's a long-term trend first that that's the foundation and then the second piece of that is what it what's happening with short-term trend okay but the over it's overweighting what is the dominant trend so if someone said well how would i know what the dominant trend is if you looked at a three year weekly chart a one year daily chart and that chart's going from the lower left to the upper right in three seconds or less you should know what the trend is okay now if you take a look at this you're gonna see that the s p fell down to that green diet that green uh diagonal line and what you're gonna notice is the price got back up above both moving averages now that's actually really good considering the paper money portfolio is a net long or delta positive portfolio delta positive just means if the market and or the stocks were going to go up they could benefit from the rise in the market and or stocks so what you're going to notice is really that diagonal okay we talked about that on tuesday on february 2nd price gets above there and then you're going to see like a little down day but day over day still higher yesterday and then you're going to see like a close above the high of the low date that's if we close here and you're going to see that it's really not that far off really from that prior high now you go take a look at now some of you are saying james forget the s p go look at the russell okay i will so if we actually take a look at the russell the smaller caps you know when you actually take a look at the small caps now the paper money portfolio does not have small cap companies okay uh but when you think of small caps what maybe two other industry groups do you actually think about or what sectors do you think about if you say russell stocks what type of sectors tend to get talked a lot a lot about i i could think of two industry groups one for sure that would actually be in the small caps what is it well when you think about russell now remember what we said before if an individual investors are buying small caps that typically means they're risk taking they're exhibiting a behavior of taking risk these are companies that are not jp morgan's or walmart's they don't have these billion dollar coffers of cash etc these are kind of those small to mid cap companies that they're trying to grow and become the big ones and so if investors are actually buying these there is actually kind of being more of a positive expectation in what these companies could do so when you actually think about small caps you think about for sure financials and you might even smell that you might even think biotechs and you might even think that if investors are going to maybe buy let's say the russell they actually might buy semiconductors too so the first thought would be is financials number two actually there would actually really be probably uh biotech stocks and also maybe the third thought there is semiconductors any industry groups and or sectors that have potentially more risk associated with them okay in other words they're more volatile okay now if you don't know which ones are more volatile you haven't been around long enough if you've been around long enough you know which ones are more volatile okay now if we take a look at let's say the nasdaq not quite a brand new high but again it's very similar to the really the s p kind of more of an inside day but kind of looks like what we call a trigger a trigger is actually where the stock it's an update it's just not up to such an extent where it's actually closing or trading above yes or exactly no so it's a trigger now when you get a down day close higher day what sometimes can happen the very next morning down day close higher and then what well you get a down day close higher and you get what we call say it say it out loud yeah it's gap okay the price gaps up there's investors lined up ready to buy in the morning that doesn't mean that it's guaranteed to go up the rest of the day but that just means other investors saw they actually bid on it and they put their orders in and the price pops in the morning that might be actually something that the investors really watch here and i want to go back to something right here remember one of the oldest phrases and technical analysis okay is really if the price just made a new high the highest likelihood is to make a higher low and it did it again okay so if the price were again to make a higher high what's the highest likelihood probably make a higher low that probably means the trend is still going remember if someone said to me well i'm not really sure if train is going up well it's because they haven't looked at the three-year weekly chart okay when you look at the three-year weekly chart you know you're seeing that this we've been above the 10-day exponential moving average for how long how long that's right it's been a long time hasn't it and what you're going to notice is when the price is above that 10 exponential moving average there tends to be strong momentum and you're going to see that buyers are still net long they're still in control here now remember the blue line that moving average line that can act like a support so a price can stay above there the bulls are probably still and they're still in control if the price starts getting below that blue line the moving average line sellers are now starting to take control okay good a lot of you actually saying gap i feel good about that now let's go ahead and take a look at this so i want to now go to sectors just real quick and when you actually take a look at sectors i'm going to actually we talked about those small caps right and we said that hey when you think of small caps okay you think maybe about financials you think about biotech you think about those assets that might be more volatile well it was hard not to kind of notice okay this uh huge reversal now i want to kind of point out something you're going to notice that really from the very high point i'm going to kind of measure from the high and i'm going to draw down now when i draw down what you're going to see is that was about 12 days 12 trading days down that's not unusual that sometimes you get this two to three week pull back the pullback is really to this old area of resistance and the old area of resistance now becomes a new potential support so this is what we kind of talk about when stocks actually fall down some people choose to be fearful and others are saying come on down to daddy or mama okay they're saying i've been waiting for you to go down really that's what they're thinking in the mind and then actually if the price actually starts to break above that diagonal slant okay all of a sudden that momentum starts to change and you start to get really a intermediate bull flag now this is actually taking a look at the financial sector so when we look at some stocks there could be some stocks in the financial space because of the sector i think when i say sector think neighborhood if the neighborhood looks like this there's some stocks that are causing that neighborhood to move when you look at let's say that other area that will actually bring up let's say energy you're gonna see that energy really kind of has like also that same thing where you get like a a diagonal upward support trend line and it's kind of something where if you look back in like early january kind of like a pullback right and then you see like a another pullback and you know what the question is going to be how do you know it's going to go up nobody knows if it's going to go up every entry has a risk right we already know that so it's just looking for transits looking for entry setups and then it's just seeing if they can actually continue to go now if we take a look at let's say this other sector let's say uh technology you're going to see that the technology the sector of technology this i'm looking at the index here you're going to see that it's the technology index and it did actually make a brand new high and then i'll bring up the last one which is discretionary and if you look at discretionaries kind of more like a bullish engulfing candle right at the prior high so i just named four sectors okay financials energy hold on fingers let me do the other way energy financials technology and discretionaries now are those higher beta or lower beta energy financials tech discretionary those four areas those are higher beta those are not utilities those are not staples those are not health care stocks non-biotech those are actually areas that typically have more volatility okay so let's kind of talk about a couple of these stocks and i just kind of want to see enough fees says i like your french accent you're welcome okay a little fun here now here we go so let's go take a look at some of these now i want you to imagine that there's no searches there's no scans there's no scripts okay i want you to think okay so let's imagine the average person here is 40 45 average let's let's just say it's 50. so if we lived for 50 years we drove down state street main street whatever there's a pretty good chance we wouldn't need a search to run for financial companies we could think of financial companies as banks we could think now it could be commercial banks it could be regional banks it could be insurance companies right so you probably wouldn't have to run a search if we just thought we could make a list because we've already driven down the street so many times okay now i'm going to kind of take a look at a couple stocks just dow related okay these are just dow ones okay so this would just be in the list of the dow 30. so if we actually pulled up let's say the dow 30 these would be if we said dao which we always kind of talked about this is kind of like the home plate right dow 30 s p 100 nasdaq 100 you see the ones at the top you got visa financial you could also say technology has technology too goldman sachs travelers is a financial company home depot consumer discretionary american express financial company and you're gonna actually see the the other one right there jp morgan so if you're watching the list it'd be impossible not to say wow i wonder if financials are doing well okay we just talked about that right now when we look at a stock for example let's say like goldman sachs it's something that's been in a very strong upward trend i mean it just went from 189 to 309 and then one time in that run it actually pulled back down to really about 271. now i'm just going to kind of go through some and let's kind of set on a couple that we might actually want to look at when you look at american express you kind of see like a sideways price action back that chart off a little bit it's it's kind of like down i think what it's doing is creating like a higher base of support but i think like recently you don't really see like a breakup but it is still participating here today okay when you actually take a look at let's say a stock like travelers you take little travelers that one has a little bit more of an upward diagonal slope to it okay kind of a recent pop recently got above 100 percent rallied not quite to the 161 but has fallen right back down to that 100 retracement line and getting a very strong bounce matter of fact if you looked at the kind of w this is you're seeing like a what we call a tilted up w pattern so we have a longer term trend up and then we also see a shorter term trend where we actually get a recently a recent move down a run up in the price back up to the moving average fall back down and now what you're seeing is the price getting up above the middle of the w this now really being a higher high okay so travelers actually even getting kind of a little participation here now when i actually go back what i'm gonna now do is let's kind of take a look at some others when we actually look at let's say a stock like for example like jp morgan okay now jp morgan also we're clearly talking about the commercial banks but when you look at this what type of potential price pattern do you really see on jpmorgan what type of price pattern now sometimes people struggle with maybe seeing on the daily chart but first off if you actually go back and look at this chart and you see james i see a prior high in the middle of this i see a whole lot of base on the right hand side i see run back up to the prior high and on the right hand side i see a recent potential bullish flag pattern so when you actually look at this this kind of is kind of more that set up of a longer term cup and handle pattern and if you take a look at this kind of a recent pullback run back to the upside it would take a look at let's say a three year weekly chart this is what it looks like okay so if you were to kind of take a look at jpmorgan someone who's trying to trade weeks to months they might like these type of patterns where they might have a higher potential probability of success okay those probabilities change they're never f they're never always staying the same but let's kind of start with actually jp morgan at the begin with okay now i'm going to kind of play the role that the investor said james we're right back up near an area of resistance and i want to kind of touch upon a question that was asked before james could an investor buy a stock but then at the same time maybe just buy a put at the same time now we do this all the time in our life we buy a car before we actually leave the parking lot of that dealer we make a phone call you actually buy a phone and some people are concerned about dropping their phone and they might want to actually make a phone call and say i want to protect this asset that is going to go to zero okay now in this case the investor can kind of do this same idea but with stock and i'm gonna there's been a question on this so let's kind of address this so what i'm now gonna do is let's go to jpmorgan and step one the paper money account is gonna buy the shares of stock so clearly if someone is going to buy the shares of stock they think the stock is going to go up okay unless they want to be buying the shares they might say well james i was kind of thinking about the dividend the problem is the dividend is only a quarterly dividend okay you got to wait quite a bit of time to get the dividend now if the investor were to say single order first triggers seq what it's really doing right there is it's gonna also add on one more piece so step one is making sure that doesn't have at least 100 shares of stock step two it also is actually coming down to if the investor wants to buy a put okay which put do they want to buy and this was the question that was really brought up could an investor in the current market buy puts well typically when an investor is buying puts they want to buy the puts where they can when the vix is low just go look at where the vix is lately right in the last two days it's back down near the low end of the range now what does that really do for sometimes individual stocks it lowers the implied volatility now if an investor is buying calls or buying puts lower implied volatility reduces what the investor pays for that put and the less they pay for the better okay because that means this means the stock doesn't have to go up as much to break even now let's say the investor said james i'm just kind of more concerned really about let's say the next and i'm going to kind of even choose something i'm just kind of concerned maybe in the next let's say two weeks or so whether or not maybe jp morgan will break up through resistance typically the concern is not like i'm concerned for the next year it's more concerned in the shorter term so that's why the investor when they're buying they might actually say i'm going to buy an option 20 30 40 days out etc to where they're not having to pay as much for the time okay and i'm just talking about the premium in context so if the investor we're going to say you know what james i'm going to go ahead and buy the stock at let's say 38 138.25 and if you don't mind let's kind

of go back to our little sheet of paper here i'm kind of feeling a little a little exercise here and i just kind of want to make sure we're all on the same page here okay so what i'm going to do is i'm going to kind of say uh stock price okay and i'm just going to go ahead and type in stock price 138 25. all right there you go now the long put stee right now when we actually look at the long put strike okay the strike that is purchased this is where the investor has a right to sell the stock from now until expiration so at any time from now to expiration they could call up the broker and say look i want to exercise my right and sell the shares at 134. if the stock were to close below the 134 it's going to sell 100 shares of stock if the investor bought a put so let's just do some quick math here so the investor buys the shares at 138.25 they have a right to sell the shares at 134.

what's the risk here what's the risk what's the what's the risk here on this trade that's just the difference so we're just going to take this and say well it's 138.25 less 134. now that's that's correct okay that's the trade risk so this is this stock risk stock risk per share however this does not include well what did the investor pay for the put okay let's kind of put that in context okay so let's kind of actually put this the long put premium all right so here it goes how much is the premium well let's say the investor maybe got it and if you don't mind i'm going to kind of say somewhere in the middle let's say 205 okay now what's the most the investor could lose on that long put how much could they lose they buy the put what's the most they could lose i mean they lose their shirt how much well they they can only lose 205 okay so that's kind of nice it's whatever they pay for 205. all right so let's kind of add that so i want to kind of touch upon this first so when investors buy puts they typically don't just blind just blindly buy the puts they typically think geez is that is the put expensive fairly priced or is it inexpensive and so you always have to kind of think about this in terms of a percentage so let's kind of just take this and i'm just going to kind of show the the uh let's just call it percentage right now let's say the investor paid 205 for and the stock value in this case was 138.25 okay so the percentage it's showing really right now is about 1.48 percent now for some of

you actually traders out there who've had some experience trading is that low would you say that's actually fair okay well that's actually not that bad so that that actually means the stock would need to go up about two dollars and five cents to pay for the put which is about just one and a half percent okay of the current value of the stock really kind of interesting okay now if we were to do this over and over again now when i say this over and over again maybe let's go 20 30 40 days to expiration you might kind of notice some numbers over and over again okay and i'm going to kind of say low low range i'm going to kind of say one to maybe ah if you don't mind i'm going to say 1.49 i'm going gonna get real nerdy on you right now okay so medium range okay i'm gonna say maybe like 1.50 uh to 1.99 okay now don't worry i'm going to kind of show you this 1.99

and then if we kind of said geez these are kind of low these are like say the higher range okay higher range let's just kind of say in this case uh two two percent plus okay now here's the deal so if we were gonna actually take a look at this and say okay where does it fit here well the put that's two dollars and five cents it's about one and a half percent of the current stock price it's more in the medium range what does that probably tell us about implied volatility it probably tells us that the implied volatility that iv if we were kind of forecasting might be in that area of maybe 24 to 34 probably somewhere in that bracket but if we started seeing let's say puts they were higher we'd probably actually say the the implied volatility is probably going to be 35 or less or 35 plus what would it probably be well if the investor's paying more for the puts that doesn't mean the volatility is less that means the volatility is probably more and if the investor was able to actually buy puts for cheaper this actually is probably saying the iv is let's say 24 maybe or less this would be a guess go verify okay but when you do this over and over and over again you're going to kind of see these same numbers over and over again that keep coming up okay so now on this trade if we kind of said what is the most the investor could lose so let's kind of look at this max loss so we know the investor could lose 425 on the stock we already mentioned that but they could also lose the long put what they paid okay and so for every 100 shares in this case the investor is willing to risk or can dollars risk 30 cents okay now i need you i this is where i'm going to give you a little quiz here okay i want you to imagine the investor said to you well what is the break even what would the break even be can you tell me what the break even would be go ahead and give it to me break even would be what at expiration well break even i'll just mark this as i'm getting some answers break even what does the stock need to be at this price or higher what is it well you've already bought the stock for 138.25 but then the investor paid two dollars and five cents for it the stock would actually need to be at 140 okay 30 or higher if it's any less than that what happens well if it's if it's any less than that it's going to be net down okay the overall position is down the price rises because the the put let's say it goes to zero so theoretically the investors raised their average price if the stock goes flat what does the investor lose they just lose the premium on the put if the stock actually were to close below the 134 what happens they have a right to sell those shares at 134. so let's kind of do this how does the investor actually buy that put now okay so advanced order first triggers scq there it is just click on the ask if you click on the ask you'll see right there it says creating a buy order now this is nothing that someone hasn't done already okay remember what i said you buy a car you buy electronics you buy a house you buy anything they buy the asset and then they buy something to use to protect that asset that same idea here but it's a paper asset now in this case and same thing though it has an expiration and what you're now going to notice is there it is the orders are in green because they're long meaning they're you're buying those positions the investor is now in this case if the investor's okay with that we're going to go ahead and actually send that trade right there but i want to kind of touch upon that because there's been some people that says james i see you talking about cover calls i see you talking about callers but you don't really bring up buying puts well the one thing is if an investor is going to buy puts they might purposely look for stocks with a little bit lower implied volatility that way if the stock were to go sideways it doesn't theoretically raise up the average price of the stock and then also kind of want to kind of throw in there when the vix is low okay when the vix is low is probably one there's going to be a lot of stocks with lower implied volatility now the comment from marcel is what is the logic picking the expiration on this one 26 feb so the whole idea is when an investor is actually maybe concerned about the stock and initially the concern is when the investor gets in they don't have any profits to protect right they're just trying to protect their capital so sometimes the investor is just more concerned about launching the position in other words they buy it can the stock at least move up so they can actually have some profits to protect so the purpose of actually going shorter term is just that if the investor were to buy a put for june we know they're more expensive right and so that's kind of and the whole purpose behind well why the strike of 134 it kind of goes back to when the investor buys a put let's say with a delta of 30 to 40 that is just creating what we call a safety net below so the stock is purchased at 138 and the safety net below is at 134.

now could the investor buy a higher safety net yeah they can but what is it going to do to the to the price or that premium clearly it's going to increase it the more the investor pays for the put the higher the stock has to go to offset that okay so there is that risk and reward of it right the balance now what's so nice about this last point we're going to move on is if the stock were to go down to 134 it does not mean the stock is sold the investor just has a right to sell so in this case gonna go to confirm and send there's no commission to buy the shares there is a commission per contract to to buy the option 65 cents and now what type of strategy is this call what what is this now some people call it like hey james you're doing like a protective put but it's actually doing it at the same time you're buying the stock you're buying the put at the same time some people call it a married put you could call it both okay but that's the same idea now guys and gals if we've been living any length of time people have already done this a hundred times over okay you've already done 100 times over we we do it all the time in our life already okay this is the same concept but i want to kind of bring it to the idea with stock send the order there we go now i want to kind of actually change this real quick kind of talk about a couple uh positions and now let's actually kind of take a look at the stock uh i want to also go back to one other stock so this is jp morgan but let's actually kind of go back to maybe a uh capital one financial now if you take a look at capital one financial again we're talking about trading the trend weeks to months now when you look at the trend it kind of has where you had a prior high and if you were to kind of draw a diet excuse me a horizontal line all the way over it kind of looked like it broke out okay broke out right in here kind of fell back down some people got so fearful and then all of a sudden forgot that it was still above support and now what you're going to see is a little bounce and if you look zoom in what you kind of notice is sprinkled all over a lot of these charts i know you saw okay is you see these little sell-offs in price and then it runs back up that right there is what we call the middle of the w notice when the price actually pulls back this pullback area right there is not as low as prior and then all of a sudden it goes doink and then we actually get a brand new high now bill that was for you okay now what you're going to notice is that's what they call a a w pattern w's could actually be double bottom w patterns could be slanted down lower lows but if you actually get more of a bullish market the investor could actually start to see a lot of stocks that really look like what we call a tilted up bottom okay now here's the thing some investors they say james i just kind of i like to do more income now income could be dividend income could be let's say shorting puts short put verticals among other things right but if the investor said james i'm kind of thinking that maybe the stock might try to stay up above the middle of the w the middle of the w technically is a lower high but the lower height really become potentially the higher help me out here where's my water higher ran out of water finish it out for me yes high or low so yeah that's the whole idea can the lower high really become the higher low can it flip it's like saying can the old resistance become the new support now let's kind of take a look at this so why does the investor care well they actually might say well james i'm going to try to sell a strike or a put spread maybe at that area where the investor thinks it's going to stay above well if they did this they could actually go to cof and again the whole idea of maybe being on the selling side is the investors trying to capture time decay now look if the investor wants to capture time decay go sell the ones that are going to expire tomorrow but with that yes it's true it actually does have higher time decay higher theta but the problem is the obligation is really really quick okay so maybe not that close but maybe the investor says james i like to go at least 20 days so that way there can be some ebb and flow ebb and flow ebb and flow and that way that trade doesn't it's not so active where it's almost feeling like day trading okay now in this case let's say the investors said i'm going to go out at least 20 days maybe even go out farther and the investor says you know what james when i look at these weeklies i'm really seeing very cruddy bid-ask spreads well this is why the investor might go to the monthlies because when you look at that you're right they are and then when you take a look at these i'm even seeing on cof at least what i can see don't really see that great of spreads there either now i want to kind of just double check and i don't see on any of these that we're seeing that any of those spreads are very tight we're going to verify what's the open interest yeah it actually is kind of a little doubtful i don't know if this is in the paper money account uh just kind of double checking here yeah it's that's kind of doubtful okay with that many contracts have to verify with that many contracts okay thousand contracts 1600 1100 it's doubtful that the bid ask spread would be that wide okay now if the investor were okay gonna sell this let's say they decide to sell this strike of 105. now why 105. well remember with 105. let's go back and look at the chart the 105 was really that lower high area we questioned okay you're going to notice that if that stock is actually you got a lower high that could be the lower the higher low point and if we were to actually go back and take a look at this we're going to actually go back and change this to the mid price now this is very it's dangerous okay if the investor recognizes in this case a wide spread a limit order then becomes critical because if the investor says hey market order they're most likely going to feel closer to the bid but if they said limit order they're saying look do not sell that put unless it's 340 or higher so if it can't fill at 340 or higher it just never sells okay now in this case it's going to try to sell for about 335 because the price moved down a nickel and now what you're going to see in this case is at least for the margin account it's gonna sell one put okay sell one put and for the ira it's really gonna sell two puts now here's the deal at expiration the options are just going to be become worth their intrinsic value or not at expiration it's not really what the open interest is it it's over so the the trader is betting that the stock is going to close up above that strike if it does they could just let that option expire worthless if they were trying to be more active trader okay and they want to get in get out trading options that have a wider bid as spread carries more risk so if the investor were to do this they're really thinking i'm not going to get in and out my plan is to potentially buy the stock and hold it closer to the expiration but it's kind of interesting to see it that high in the open interest and the bid now spread that bad so to take it to be careful about that we said 335 bid okay that that mid that mid price said 335 or greater now the single account is going to go from multiple accounts it's going to show that it's shorting one contract shorting two contracts and now what you're gonna see is there it is right there okay gonna send that order right there now the one thing is if investors said james i was kind of thinking about buying a stock maybe on an option where there's wider spreads like that there you go right maybe the investor says this is not a volume issue for the stock it actually has currently four million shares but sometimes you might have a situation where the spread might widen out if there's maybe some pending news about the company okay and and maybe that's kind of why it's showing wider like that something we're gonna have to keep an eye on so the investor is actually getting a net credit remember it's the obligation to buy the stock at the strike price 1.95 for three contracts and now if that's okay the investor can send the order and now what you're going to see is it's going to try to sell those sell that option really at the 105 okay now i'm not going to talk i'm just going to kind of fast fire a couple stocks when you look at another company like berkshire hathaway let's say the investors said you know james i'm not i just don't like that wider bid-ass spread well when we actually go take a look at different stocks that's okay the investor might kind of see other stocks that might have similar type patterns so if i were to ask you what type of potential price pattern do you see on berkshire hathaway now there's two different types of shares there's the a shares that i think are a quarter million a piece in that ballpark and there's the b shares that are these let's just call these the common folk okay okay now if you take a look at this you're going to see that we kind of really have a horizontal area of resistance and more of like an upward sloping support if we were to go back and say look let's look at the three-year weekly chart here's what it looks like now if you take a look at this the recent pullback areas okay we've kind of seen where it ran up in the price and then it pulled back and it pulled right back down to the 10 period exponential moving average then it rained up again pull back right to the blue line to the 10 period moving average and so lately what you're going to notice is kind of this old resistance area kind of trying to become that new support area and maybe trying to get a little bit of a bounce here so let's kind of say the investor said james i don't really like uh capital one financial what people who don't have experience will do is they'll leave the area what they might consider is say i'm gonna just go across the street in the same neighborhood and look and see if there's any other stocks that are in that space so if we were actually going to go look at berkshire hathaway and throw out the question hey does this one have option liquidity yes or no does this one have option liquidity now when we actually go take a look at the the stock volume 2.5 million shares yes when we actually go take a look let's say just we'll start with the the march expiration you're gonna see that these are in the thousands okay thousand thousand thousand and you're gonna look at the bid ask spread there you've got 35 cents 20 cents 20 20 13 and about 9 cents so remember a rookie would actually just say well you know area must be bad that's not true you probably actually bet that there's probably some pending news on capital one financial that's causing that spread to be like that we don't know what that news is yet but that's unusual okay now in this case if the investor said you know james i don't even want to maybe look at let's say buying shares at 235 dollars a share you don't have to right the investor has the choice to use options as rights and obligations now this kind of sounds just like marriage when you got married you had the right to get married when for example you have things happen in your life in the marriage etc raising the family there's obligations kind of sounds see that's what i'm saying marriage right family now what you're going to notice is if the investor said well where do they want to have a right well they might choose whatever strike price they buy that is the right to buy the shares at that strike price so if they are buying a call or long the call that's just where they're contractually agreeing to buy the shares from now until expiration now if the investor said i'm just going to buy the call by itself they buy to call shares they buy the call by itself the most they can lose is the premium it's kind of nice where if the investor bought the stock the stock could go all the way to zero okay but if the investor said you know i want to kind of maybe try to collect some income here to try to help reduce the average price of this maybe that call the investor might come over here to maybe the put side and say could the investor actually buy a call and also sell a put at the same time the answer is of course all right the call and the short put the obligation now the investor can also stagger they don't have to do the exact same strikes okay they could actually in this case by the long call they pick the strike why the 235 the whole idea behind the 235 is getting something with really uh implied vault something that has some intrinsic value not much here in this case but it just has some intrinsic value and the biggest thing is why the 230 well the whole idea is when someone sells a put is to try to actually buy the stock at a potential discount from where it is now now when you go look at the implied volatility tell me what you're seeing over here on the implied volatility is this lower implied volatility than you typically see or is this higher implied volatility i'll tell you what i've seen after i you tell me is this like one of the higher examples or is this one of the lower examples tell me what you've noticed because i'm telling you i i i'm almost positive i have not seen an implied volatility on a stock this low that was a stock okay now this is just kind of saying this is the annualized percentage the forecasted movement is expressed in a dollar amount plus or minus from now to expiration okay yeah this is relative i agree with white belt investor what okay yeah white belt i love that okay just call me yellow bell investor okay so but i love that so here's the deal that's pretty low now that does not mean that stock can't go down two just because there's low volatility okay uh if the investor were gonna law by the call right click on the ask go where it says buy and we're gonna kind of treat this for example like a stock position okay so we're gonna actually go up to where it says buy synthetic okay so there it is right there and the investor can change this to the strike they're selling on the put the put was the 230 strike and it's really in this case what is the investor paying they're paying 2.45 cents

now in this case what the investor can do let's put that second line there first triggers seq this is where it's going to give us a stop and it's going to give us a potential target okay we're going to right click on that line and guess what we're going to pick well in the paid money account we're going to go ahead and say create opposite order this is just going to be the cell okay now on the cell the paper account just changes this to a limit to a market because it's going to be a condition contingent order day to gtc now the investor is wondering well where do they think the stock would go up to where do they think the stock could actually go down to and they could just put that in so if we were going to go back to the chart and say well at what price would the investor want to say if it goes below where sell it at what price what's maybe like an area of support on the chart well if we kind of said support we actually might say let's say 227. if we said let's say one or two percent three percent below that area let's just kind of throw out a quick number here well if we say let's say 227 okay less two to three percent it's going to be kind of verify that 222 46 if the price for example in this case were to break up through resistance they actually might measure this recent ascending triangle and add that distance to the resistance area let's kind of mark that so if we were going to kind of look at this and say well if this stock were to break out that breakout potentially the width there is about 13 dollars they might take that 13 and add that on top of okay that 234 now in this case it's going to mark this so let's say at 247 target and a 222 if it goes at or below where we're getting the 222 just taking that green line less 2 to 3 percent i got to kind of hurry on this one but let's go back let's click on the gear just want to put that in there guys symbol method add a row above okay and you're going to type in a price of 247. so if that stock were to go up to 247 it's going to exit those options and try to bank the potential gain but wonder if it were not going to go up well it's actually if it goes down to 222 or lower it's going to exit those options and so now what we can actually see is a target price and also an exit to the downside that which would be or will be for a loss now in this case if the investor were to send this order what again is the cost remember the cost up front is the debit it's 245 dollars it has collateral because there is a short option position okay but what is actually the commission well it's to buy the long call and sell the put hence a dollar 30. now this is where leverage comes in right someone was buying shares they need 23 000 but in this case it's really 245 dollars plus the collateral the collateral is just holding the cash in the account as long as that short position is still open okay so in this type of strategy what is this this is a long synthetic this is mimicking like the ownership of shares so i'm out of my time here today now the one thing we talked about is we talked about the rosso hitting new high we talked about financials number two we actually brought up the example of jp morgan that was a long stock position with some protection we also brought up the example of capital one financial cof we also brought up the example of berkshire hathaway as well and if the investor's okay with that they send it and now it's going to be sitting there now coming up right at the top of the hour okay uh john mcnichol for example will be teaching a class on long verticals and diagonals and so that's going to be a class that doesn't have as much directional risk but still direction that would be coming up right at the top of the hour this class really is trying to focus on getting exposure to those trends and also if that stock were if that trade were to be entered and the stock were to go up that it has a higher potential return but also with that could have a bigger loss too right so understand the difference between this class and also john's class so i'm out of my time here today if you enjoyed today's session as we talked about these trends support resistance and momentum reach out and smash that thumbs up button sean mcnic will be coming up at the top of the hour and also i want to give you a quick heads up tomorrow we'll be on schwab live with lee bolt tomorrow i'll post it on twitter as well thank you so much for your comments your questions and your participation also want to give us a quick reminder that with the examples we talked about here today we did demonstrate the function of the platform and strategies we did use actual symbols and also remember that all investing involves risk thank you so much for your comments and your participation and thank you cameron for answering as many questions as possible with

2021-02-09 02:03

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