The Long and Short of Trading Verticals | John McNichol | 10-23-19 | Trading Vertical Spreads

The Long and Short of Trading Verticals | John McNichol | 10-23-19 | Trading Vertical Spreads

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And. A good afternoon everyone, John, McNichol. Here and welcome to. Trading vertical. Spreads, hope. Everyone's doing well today hello to you there Mike everyone. That's with us here live as, well as listening, to the archived session, - appreciate you being here today, let's. Take care of our disclosures, and we'll get right into our topic, for today. Options. Are not suitable for all investors as, these special risks, inherent to, options trading may expose investors, a potentially rapid and substantial. Losses carefully. Read the proofs, about a copy of characteristics, and risks of standardized, options, spread. Straddles, and other multi leg options strategies, can, entail substantial, transaction, costs include, multiple commissions which may at impact, any potential, trade or potential, return also, advanced option strategies often involve, greater and more complex risk, than, single leg option trades investors. May also wish to contact a tax advisor regarding. The tax treatment applicable. To spreads and other multi leg option transactions. Now while this webcast may discuss technical analysis, other approaches, include fundamental, analysis, may assert very different views and in. Order to demonstrate the functionality of the platform we will be used in actual symbols, however TD Ameritrade does not make recommendations. Or determine, suitability of, any security or strategy, for individual traders any, investment, decision you make and your self-directed account is solely your, responsibility past. Performance, of any security or strategy does not guarantee future results or. Success, and, utilizing. Tools such as probability, analysis. Probabilities. Such, as a probability of the option expiring in-the-money are theoretical. In nature not. Guaranteed, and does not reflect a degree of certainty of an event occurring. Transaction. Costs commissions. And other fees an important factor should be considered when evaluating, any trade and as you can see updated. Recently zero, Commission applies to online us. Exchange listed, stocks ETFs and, option trades there, is a $0.65. Per options. Contract, fee applies, to option trades now, we have a demo account that we're using looks, like a real account but it is not, we. Use, this for our practice trades, you. Have the ability to practice as well with, paper money that software application, is for. Educational. Purposes only and successful. Virtual training, during one time period does not guarantee successful. Investing of actual, funds during a later time period as market. Conditions change, continuously. Texas. Jon thanks for joining us Gerry Edie everyone. Else let's, go ahead and we'll bring up the thinkorswim platform and, let's, get into our topic for today now. Those you that may, have followed us over, the last few weeks you, know we have gone over, different. Strategies. Last week with short call spreads on hedging. And account. In. Previous weeks we've also looked, at short. Call, spreads, short, put spreads and even, long. Vertical. Spreads what, I'd like to do today in kind of the title, of this session I believe I'll call it the long and short of it with, verticals, what, we'll do is we'll go ahead and look at several, stocks, on. Our practice account we. Will go ahead and, identify. A potential, spread, based, off of bias whether. One is bullish. Or possibly. Bearish, and then. We'll incorporate. Price. And, determine. Are we looking to be more, neutral. To. The bias or are we looking to be slightly, more, towards. That bias meaning are we expecting, price to move or not. So. By the time we get through a section or learned objective. Would, be able to place a short. Or, a long, vertical. On an, individual, stock that you're looking at now, if you have any questions feel free to utilize the chat window would certainly love to hear from you as we, go through this together, and, let's. Get right into it. All. Right you. Know just a glance at the market traders. May look at the market, to get an idea. Of possibly, their overall, bias on the market. We've tweeted, about this a few, times and, if. You'll notice over in the. Scratchpad. You. Can see my twitter. Handle at, j, McNichol underscore, TDA and. If. You do follow me you'll be able to see. Information. On our education, maybe learn a little more about me as well. And. You say more recently we've done some updates on the. Markets, as we're looking at right now what.

Some Traders may be looking at technically, and. From. There let's go ahead and focus on the thinkorswim. Platform well look at the S&P 500. So. I'm looking at SPX, the, cash index here and, you, a lot of talk about market, trying to possibly, reclaim, previous. Highs you, know in striking distance of doing that however. You know there is some resistance. So. Some traders may be looking at this as the weather. The glass half empty or half full. As. We'll try and highlight, a little bit looking at some of these previous, highs. Notes. From yesterday's, price, action a little more of an engulfing pattern. Prices. Attempted, to bounce a little, bit earlier. In the session it, looks like it'd been fading, down around the lows as the sp500. Pretty. Much a flat, on the day with. Earnings, continued to come out and certainly, concern of China. Trade some disappointing, earnings from. Caterpillar, although. I believe caterpillar, may have. Even. Bounced, a little bit. Because. Of, possibly. Some. Traders or investors not, thinking that's as bad as they thought. McDonald's. So. Different stocks could certainly, way down on, the, indices, and. McDonald's. Very widely traded you. Know kind of came out of a, reversal. Pattern. Some. Traders refer to as a head, and shoulders we discussed these patterns and technically speaking every. Monday, at. 2:00. P.m. Eastern Time and you. Know not only has it broken, down with. Earnings, some, of that momentum continuing, to be down and so it may be fear that you know other companies, may be behaving. In a similar fashion. And, we'll going back to the sp500, SPX. As. Reviewed, before you know the, markets still kind of generally, going in a a slightly. Upward channel however it's been a relatively. Wide range so. Some traders if, you're, more inclined to be bearish maybe looking at this as a resistance, bounce with the expectation, that over. The near term prices, may continue, trading in that range if. One was being, a bit more optimist, optimist. Or bullish. They. May be looking. For or waiting for prices, to break. Out of this resistance, from. A short-term standpoint, you know we've had a nice. Swing and nice rally off of those lows that we've highlighted previously. The. Bounces. Off support, you, know after, a sell-off. Some. Of those short. Put, spreads that we've discussed, where. One can generate. A possibly. A reasonable, credit and, benefit. From not only price, holding. Those levels, of possibly trading, higher. But. Currently more, hanging, out that resistance, so. If, some traders, were looking to sell, a spread. They. May be more inclined, to sell a short, call, vertical. Alright, that's what we got going on with the S&P. You. Look at a couple of other indices, Nasdaq.

We're. Seeing this fashion across the board you, know kind of coming up to some previous resistance, a little, volatility. Over last few sessions notice, you, know there are some red, candles, there implying more downward momentum, on. The bullish perspective, not as much of a strong bounce there, although. A couple of good earnings, can change. That. And. Looking, at the Dow, djx. What. We're doing here is just you're, looking at some of the indices from, a standpoint of bias. Now, all three of these major indices generally, have had a slightly, upward, bias but. Again kind, of approach in more, of a resistance, area. Bulls. Are looking for this area to break out. And. Those were the last couple of sessions with the Dow. You. Know with a few of the earnings haven't. Benefited, by. Pushing the Dow, higher but. It hasn't necessarily sold. Off either they're barely holding. Areas. Of support, from, going back to when. Prices. Had sold off in the summer and. Notice. When one looks at some of the moving averages, kind of an intermediate average, represented, in this case a 55, period some, traders may out of 55, you know that bias this sideways, so again it's. A you know anyone's, guess as far, as where that direction may be also. From a historical, perspective going. Into elections, prices. May end up going much, more range-bound as well and it's something that investors just. May have to deal with. Now. The last index looking, at the are UT. The. Russell has had more, of a slightly downward, bias and. Investors. Traders, may. Be looking for some leadership in. The small caps based, off of economic. Growth, also. As far, as with interest, rates things like that, the. Russell. And. We had. Tweeted this as far as some of the different patterns as well. You. Know russell, has kind of approached, a resistance. Point its downward trending, resistance, point kind of come in and striking distance of that you, know it's backed off time and time again now. There's no guarantee that it'll back off again. Prices. Can possibly, break higher the. Russell was to breakout that may point towards. Some of the indices, retest. In some of those highs as well. But. Notice that the theme is prices. Are more closer, that resistance. Now. If we, go ahead and take a look at some individual stocks, let's. Go ahead and kind, of a little apply a little, exercise, again, we'll kind of call, the long and short of it. Will. Bring up and, what, some traders may be looking for is from, a bearish perspective, looking for stocks that, have traded, up to a resistance, point. Possibly. Stocks, that maybe a little weaker. If, I go ahead and just, looking, at a list. Of penny increment, stocks, we. Do have some, script that may imply, different. Trends, whether up or down or if prices are bouncing. Whether. Bouncing, down or bouncing, up if. You want to learn more about these in detail I. Surely. Hope my mute button worked I think, it's the first time I've had to do that sorry I had a little sneeze there I hope, at the post of you if. You're interested in. Some of the shared script it's right here and if, you go ahead and look at the archive. For technically, speaking on Mondays with, John McNichol Lee would be the one that would have posted Monday. You, can learn a little more in depth on that so. You. Know in this list, let's. Take a look at Marvel. MMR VL. Implying. That it's trend may be a little bit down and that may, have bounced, off. Of a, resistance. Point or at the very least prices, traded lower than, the previous day none of these are buys, or sell signals, what, they are they kind. Of a productivity tool that, may point, a trader, or investor to, take a closer look and see if, some of the characteristics. Of whether, a bullish or bearish setup are showing, themselves so, I'm going to go ahead and type in EM RVL. Also. These, things are linked as well so if I click on a symbol it should push to it I'm going, to zoom in, as. We look at it you'll, one, someone. May look at the chart and determine they're biased bullish, or bearish. We'll. Look at it from a standpoint at least over the near term possibly. Being more embarrass, prices. Have made lower, highs and lower lows. You. Apply and looking at moving averages. How. Moving averages have generally been fallen, look at this 55, period moving average acting, as resistance, we're. Seeing lower highs, now. There have been some, higher lows kind of been squeeze on what we call a triangle. But. Potentially, that triangle, may be breaking down. Prices. Trading, below, below. Of, a high day that's another technical, indicator, that some traders may look at.

Now. We. Can address as, far as verticals, there are two types of verticals, that we, can look at here we can look at a short. Call, vertical, which. Would be receiving. A credit, and that, would. Be a neutral to bearish bias or. We may look at a long, put. Vertical which. Is also bearish, it's going to be a little more directional. Now. If I go ahead and let's say we go to the trade tab on this, one. Now. Another concern some, traders may look out you. Know earnings you. Know when is the next earnings, event looks like this is going to be coming out sometime. In November, towards, the end of November so what. Some traders may look is to have the spread not go through that event unless, they're willing to speculate on that. So. Let's, say that's, going to be again towards the end of the month in November. I'm, gonna go to a trade tab and. Then. We'll look at an expiration, that is within that period. Now. A lot of examples on the spreads, whether. Long, or short we're, looking for a balance of time. As. Well as a reasonable. Credit, or return. On risk. A. Lot, of the focus has been looking at you, know going from 20, upwards of 50 days out. Let's. Say for our example reflective, off of earnings. We. Can go ahead and look at 30 days out. Now. If we were to look at a call spread and a. Lot of the concepts, we're going over are discussed. In our, coursework so if this is the first time that you're here great, but. Hopefully you've also spent some time in our education, tab right. At the top on the thinkorswim platform, education. By, the way there's also an education, tab in the, TD. Ameritrade website. By. Selecting education. If. You want to follow up in some of the topics we reviewed here today. One. Can select options and. Once. You're on options, go ahead and select a course, trading. Options, or some of the basic of options, that we're discussing here today and. Vertical. Spreads. Are, covered. Into. The income, based. On. The income based but also the. Spread. Option strategies. Long. Verticals, as well, as short verticals, so, make sure you have a chance to review that after. This session. All. Right so we got a bounce there again we're on the trade. Looking. At. Looking. At the list and. We. Can go ahead and find. If. We're selling, a spread. Looking. At examples, that may be a little more out of the money let's. Say for our examples, looking, at Delta's, that are around 30 to, 40 deltas what. That'll represent is that would be the, example. Of. As. Far as price action is, that. The. Probability of those. Options expiring. In-the-money. Now. In, a selling, strategy, one is looking for those options expire out of the money so. With that a, 40, Delta between a 30 to 40 Delta that, would be approximately a 70. 60. To 70 percent probability, that those options would expire worthless. That's a desired outcome for. A spread. Selling. Strategy, so in your short calls. And your short put spreads one. May be looking to sell those out of the money's for. A higher, probability, of a. Positive outcome now. Again it's probability, not certainty, so. If. I'm looking at Marvel and let's. See what type of credits, that we get on this, if. I go and right click and select. Sell. Vertical. This. Is a 50 cent wide. Now. We can make this, spread wider but. We're also looking for a, combination. Of probabilities. And also return. On risk, if I make this let's say a dollar, wide.

The. Short strike the one we're selling is twenty, four fifty. We. Would be buying a cheaper option against. It, let's. Say I go up to twenty five fifty that would make that a dollar wide there. Is about, a 25, cent credit, on the mid price now, natural, price is a little bit less there. If, I wanted to go a little further out let's, say I look, at twenty, six that would be a buck and a half wide and what some traders will do is look at the, return. On risk, on, that. Spread. So. For instance at this point if. I hit the confirm and send, maximum. Profit, is. Going to be. Thirty. One dollars. Maximum. Lost 119. If. We go to our calculator and divide that. 31. / 119. That'll, be equal at 26, percent return, on wrist now some traders may be looking for a minimum, return. On risk. In. High 20s, 30, percent, or more. With. This that's about twenty six percent now if I wanted to compare against. A. Different. Spread, so. We look at a dollar. Wide in this example and one's. Going to see this on lower priced options, I saw a question there on prices. We'll address that in a moment I, by. Going to that dollar wide we. Got 25 bucks with a maximum loss of 75. So. We're going to take 25. Divided. By 75. That'd. Be a return on risk of over 30% so. That could be a determination, as far as how large the spread is, relative. To the. Credit. Received now. Keep in mind the. Smaller the spread to, position size one may be, buying. More, or selling. More contracts, and. Keep. In mind that there are contract. Fees 65. Cents per. Contract. So since this is a spread that's - just for one spread. And. Hi Remy thanks for being here now, if I want to position size this to a maximum loss now this is much larger account and this is a. Lower-cost. Spread so, you, know kind of each their own their delay let's say I go ahead and I just do 10 contracts, here. I'm. Gonna go ahead and change this 10 contracts. Hit. Confirm and said and. So. There's my maximum profit, there's my maximum loss, there are transaction, fees there and there's my neck credit. Now. Some shredder traders may also go ahead and compare neck credits, based. Off the probabilities. So. Here, we have a, over. 30% return on risk for. A probability, trade currently that may be closer to about 60 some to 70 percent so. I'm gonna do is I'm going to send this one out, now. Notice there's a break-even the, breakeven is twenty. Four seventy five. Traders. May like to see that breakeven to be at or above, the resistance.

In This case on the short call spread. Let's. Go ahead and actually bring that up on the chart. Here. Is 24. 24. And a half approximately, right here. So. In essence over the, course of this next month as. The price stays below that level, this. Would be a profitable, trade that would result in a max loss okay. So. We'll. Go and place that through and to. The question, from. We'll. See if that fills. Now. If doesn't feel right away one. May need to adjust the price to be more marketable there Robert. Says does, the break-even. Price. Change. With time or. Does it stay, the same throughout, the length of the option. Based. Off the way this spread is constructed. That. Break-even, price. Is assumed, at expiration. Now. Earlier. On if the price moves, you can be in a profitable trade it doesn't mean that you're in a losing trade until. It. Goes, through that breakeven, that, break evens assume, that it is held to, expiration, so. Actually, your. Your. Breakeven. As. As far as I, should, say that's, that is the worst case scenario for the, trade is that break-even but. Over the course and looks like we got filled. Just show you real quick on that since. You asked the question, if. You go to your analyze, tab and. Select. Risk, profile. So analyze tab risk profile, this, is where you can actually bring, up, the. Trade in question also some. Of your practice, trades and. This. Is showing a construction, of a, short. Call vertical, maximum. Gain is to the downside. Maximum. Losses, to the upside and in, between there's going to be a break-even. That. Is the break-even what, I just marked at expiration. But. Actually the current, break-even. Is. A, bit. Lower so prices are going to fluctuate, so. This is assuming at expiration, these changes, to breakevens, are. Going to be based off of the, time decay as. Well as volatility, which can rise or fall so. That breakeven. Is assumed, at expiration. And. If. You want you can also on, the, chart, down. On the bottom where it says price, slices, you. Can actually go ahead and click on it and select set, slices, to break-even, and. If. I go to expiration. There's. The breakeven. 2476. And if. You want to set the breakeven for a certain, date for, instance what is the break-even today, the, break-even right now is twenty three thirty eight okay. So. If they own answers the question thank. You Robert and also earlier, Jerry said on your watchlist can you filter for a minimum price for a stock to show on the. List you, know as far as a filter, on the watchlist. Itself. No. Not that I'm familiar with however. When you go ahead and do a screen, or a search you. Can go ahead and filter. It out for. Lower price stocks I think.

What I'm looking at is a public. List of pending increment, stocks so, as you go ahead and build your individual, lists you, can go ahead and filter out those smaller stock. You can even simply just go ahead and click, on the last price and you, can just start deleting out some of those lower price stocks if, you wish off your list okay. Alright, so there are something we did a Marvel there and time is going. By quickly. So. Let's see what else we have here. Bringing. Up, CFCF. Industries. This. Stock that recently, broke below support. That. Support can act as resistance now there is an earnings event that's coming out on that. You. Know some traders may look to speculate, in the earnings that you. Know whatever momentum, the stock has may continue. And. You. Know if I go ahead and take a look. Let's. Say of a call spread on this one. We'll, go to trade. And. Again. Considering. That we have earnings. Coming up, this. Would be more, of a speculative trade and you'll, notice that there may be more premiums. As well because volatility, is rising. Going, into that event. It's. Still an example, of a defined risk. Spread, now if I go ahead and look at, let's. Say options, that are. A. Little. More out of the money. And. I'll, do a right. Click and, we'll. Do sell. Vertical. We. Can go through the same process on, identifying. A spread. That. May give a reasonable, return on risk a good. Starting point is possibly looking, out a buck and, some higher price stocks it may be five dollars or more. Let's. See so we sold a forty eight and so. There's. A one, dollar wide now. To get an idea if you see a quarter, for, every one dollar wide that's. Approximately, about 30-some, percent so. It's kind of a quick, rule on seeing. If you're getting a desire. To return on risk if. I go ahead and branch a little bit more let's say you go to 4950. Okay, there's 39 notice. When you go further out your. Return on risk you know may diminish. In. This case here's a $2 wide with. 48 cents that's actually pretty close and some, traders may look at the balance between possibly. Having a little less of a credit but, also having. To position. Size less. Contracts. Because. All things being equal if one, can sell. One. Spread instead. Of two spreads they.

May Be able to save. On some of the transaction, costs and again, it all revolves, around potentially, what that net credit, is. So. With this example. If. We were to do this trade risk, in 48. Our. Correction, risk in 152, to, make 48, if. You go ahead and edit, will. Actually run through the math on that. Take. 48. Divided. By 150. -, there's. That example. Of 30% return on risk. Now. What. I'll do is I'll position size this, as. A. Percentage, of the account we got about three, hundred and seventy four thousand. About. A half a percent of that would be about $1,800. And, whatever. Size of your account you can position size to, the amount that you're willing to risk on that trade. Now. If. I go ahead and I'll. Positions, I'm gonna do two things here I'm going to position size this for a smaller amount and I'm also going to do contrast. That with the long trade we've been talking about the short of it so, to speak well let's talk about the long side so. 30%, return on risk if. I, go ahead and let's say I do seven, contracts. I'm. Gonna edit this and do seven. Hit. Confirm and send risking. About $1,000. Potentially. Make three hundred three, hundred thirty six, so. I'm gonna go ahead and we'll, send this through. And. We'll see if that fills now, let say one was, more, directional. You, know for this example when. We go ahead and look at that potential, trade. The. Strike that we sold was, the 48 strike, so. We'd like to see for, a desired, outcome would. Be to see the stock stay below 48. Now those 48, happens. To be above. That resistance. So. The trader is expected, that the price would stay below that resistance, and possibly continue going down. Now. All again, once again since it's a short spread price just has to stay where it's at go. Down you can even go slightly, up as long as it stays outside. Of that short strike of 48 this, would be a profitable trade going. In expiration. Okay. Chuck. Says 25% of a dollar is 25%. That is correct. My. Reference was returned on risk if. You take that dollar spread. You're. Risking, 75, cents to make a quarter, that totals out to a dollar, you. Take the 25 cents divided, by 75, cents, that is the return on risk well. You are right, one. Quarter of a dollar is 25%, but, not not, to what. We're talking about here the return on risk. 25. Cents divided by 75 cents, should come out to be in about. 33. Some, percent if, my math serves me right which, diminishes. Towards, the afternoon if anyone saw me teach me a lot see, me teaching live in a late afternoon there. You go 25/75. 33%, all. Right now let's. Go ahead and see if we can do a little more of a directional and so. One, may consider doing a long. Put, spread, and. Let's go look at the other side. Now. In. The. Course work on. Buy-in. Spreads. Or. In these long spreads, we, may start off by looking at the at the money that would be the strike that's closest, to the current stock price which. Right now is just shy about 46. Closest. Strike would be, 46. Right here notice. It's about a 50 Delta it close to that the Delta kind of a 50-50, tree now this is not a higher probability traits, a little more directional. It's. Going to be less. Less. Probability. But potentially, higher reward. And. We'll see how that adds up so we're here I'm going to actually buy, the spread, we're gonna right-click we're, going to do by vertical. And. Keeping. An eye on the, short strike, the. Short strike is pretty much the target. For this long vertical it's, where you believe the price to trade down to or be below, in this, example at. Expiration. In. The case of a long.

Call Spread you wanted to be above that, short, strike so we're looking to actually trade to. And through, that, short strike that'll be a maximum, gain in this example now. If. I go and look at the chart. You. Know some traders may look at a price pattern, and. Measure. The distance between support, and resistance, we do this in our. Technically. Speaking class. And. Then. Go ahead all I'm doing is just doing a square, drawing, and. Then. Use that to protect the target, you know over some time. Now. That could be a pretty big move however you know will. It happen over that period of time you, know we're looking at it over the course of a month and keep, in mind earnings. Can, have a tendency of changing, that momentum. Now. Let's say I go ahead and look at, the. Straight again let's. Say I just do a a. $2.00. Do. An example of a $2.00 wide so. Based off of analysis, believe, that the price may be below 44. By. That. 22, November expiration. This. Is an 89. Cent debit. Although. Maybe. Closer to a buck with the natural price or maybe a little more of a spread here. If. I have to confirm and send you'll notice the dynamics, are going to be a bit different maximum. Profit, maximum. Profit, is, to be the. Spread. Which, is a $2 wide -. The debit which happens to be our maximum loss. I'll. Notice when you do the math on this 89. Will. Do 89. Divided, by. Actually. Take that back. It's going to be the net then max gain 1. 11. Divided. By 89. Return. On risk is going to be about 124. Percent, lower. Probability greater. Gain. Also. Still, define risk. Now. If I go in position size this to. A maximum, loss between. This and the short spread I'm trying. To position size about, half a percent of this. Practice, account we. Don't have control over outcomes we. Have control over risk. So. Let's say I go ahead and I'll do let's. See five contracts, on this but. That comes out to probably. Do six. Between. The two spreads I was trying to keep it under, about. 1,800. It's, probably about right so. Risking, about five hundred dollars. On this directional, with, the potential, to make. 666. -, transactions, knows there's a transaction, fees for, the contracts. The, break-even price, 4511. This. Is what makes some, spreads forgiven, is the, price does not have to move. Very. Far, for. This price, to, spread to be theoretically, profitable. At expiration. 4511. That's only. About. 60 cents below the current price so, this was held towards expiration, the. Price just, has to be below that level to, be profitable that will not be a max gain for, it to be a max gain it'll, have to trade through the spread and put be below 44. Let's. Go ahead and send that through and. We went and got that filled let's see if we have any questions I do, not see any questions at the moment I believe. We may have time for possibly. One. More here. Let's. Do an example from the we'll, do an example from the bullish side. Nvidia. Earnings. Are coming up around mid month. Now. We did a long. Put. Spread, on. That. Was on. What. Was that he did that on that. Would have been on CF. Let's. Go ahead and do a long, call, vertical. On. The. Video notice. That this was in a triangle, for some time it recently broke out. Broken. Resistance. Has. A tendency, of acting, as new support, so we're seeing a little support their. Price. Attempting, to bounce here today you know a little a little. Choppy there may. Require another breakout, and there's, no guarantee that prices. Will stay there prices can fade there let's, assume that prices. May hold that support. So. What. I'm going to do is we're. Gonna look at the trade tab and, we're. Gonna look at an example of, buying. A call spread. And. We. Can see where ones. That are close to being at the money I'm. Going to right click and I'm, going to do a buy.

Vertical. Now. These, are a minimum about two and a half dollar wides. So. In this example this, is almost a, close. About a hundred percent return. On risk if we're able to buy for about a buck and a quarter you'll. Risk in a dollar. To make a dollar. Looking. At the break-even prices, price doesn't have to move, strongly. This is looks like less than a two dollar move. I'm. Going to position size this to a maximum. Loss. And. What you go ahead and do the math take the. Percentage, of the account and, divide. It by, the. Maximum. Loss and, that'll. Come out with the number of contracts, which. Is eyeballing it, 750. You, know I can risk up to. Twelve, contracts, based off of that if, I'm looking for about 1500. I'm. Gonna edit that I'll. Just go ahead and round this out to ten. Hit. Confirm in sin. So. There's my maximum. Loss, there's, my maximum, gain. Basically. The price would have to be trained above 196. 23 at expiration. To be profitable, -. Any transaction. Fees. So. I'm going to go ahead and we'll attempt, to send this one through. And. Notice it didn't fill right away again. Uh if. It doesn't fill you, can go to your work and orders. You. Can right click and do, a cancel, and replace order if you. Do see a little bit of a larger spread between the natural price which is the market price and your, mid price you, can potentially go ahead and adjust that. Up, but. Remember if you're, paying more or receiving, less of a credit that will, impact, your return on risk, so, this. Return on risk is going to be a bit less than a hundred percent right. About ninety seven percent I'll. Click send and notice, by, adjusting, the price we got that one fill, all. Right real quick folks let's. See I don't see any questions, but. Just kind of a follow up, from. Some of our previous sessions, together looking. At some. Of our, verticals. UnitedHealthcare. Which, was a, this. Was a short, call vertical. Where. The expectation, was for price to stay. Below that short strike at 250, now. There are still 23. Days left on, that and so. When it comes to profit. Management you, know one may be set in a target, or. If we do not hit our target going into that last week, possibly.

Looking To close, that out now. With the examples, of the trades that we just did. We. May be looking to close them out on the long verticals, you, know if we've realized, let's say as an example 50%. Of that maximum, game. And look. At UnitedHealthcare. This. Is the risk on earnings you. Know we had a downtrend, I, took, the risk of going through earnings, but. Earnings. Went ahead and broke out. Notice. It is finding a little resistance, around 250 so I have 23 days just for the price to basically stay away from 250. So. This. Is where patience, comes in as well there's a difference between prices, touching, and prices. Expire. In at that, level. To, track. Your. P&L, you can add a column, on your. Monitor, tab. To. Track your profit, on a position, all, you, do is select, right. Click on one of the column headers, actually. It's not here you. Actually go to the gear, to, the far right on the positions. That you're looking at. Click. On it and. Then. You can select start, type in P. Slash. And there's. P&L. Percent. So. They click on P&L, percent. That'll. Add it to the column, and. Actually notice I already have it added here but. You can go ahead and position that wherever you want in the list, I. Just. Sliding it up or down and, click. OK. So. On as. Far as for the P&L. You. Know looking for these to be positive. So if I was let's say on UNH, trying, to target. 50. Percent 60 70, 80 percent, you can use this as a daily routine, to see if you come in that area now. Notice these are not positive. Percentages, that's. Because typically, on any of the winning positions, they've already been closed out and, I, will probably do a review, of some of those from some of the previous months, but. Notice when you look at the P&L it's, still defined, risk we define the risk before we got into the trade and a, relatively, insignificant. Amount. Of our overall portfolio. Value, on this practice account. Now. Anthony, says can you show how to set a 50%, of max exit, on to position, sure. If, I go ahead and go to the trade. Tab and we'll finish off with this. You. Know here's your filled order on the, video here. Let's. Say we go ahead and, just. Kind of do a little math on that. We. Have a debit of a, buck, 30 so. If, we're trying to target. Let's. Say. 50%. Of that risk we can go ahead and just take. 65. Cents and add. That to that or. We. Can figure out the total profit, which, is the, spread - 50. -. A buck 30, that's. Gonna be a total maximum profit, of. Let's. See that would be $1, and 20, cents. So. That, would be 60, cents, would. Be 50%. Of that maximum gain so if I take 60, cents plus a buck, 30 that, would be a buck 90, what. I can do is whether. On. Your existing orders, or, just go to your. Position. Itself. Nvidia. You, can right click, create. Close in order to. Sell the vertical, and. Then. What, you do is you make it limit. GTC. For good to cancel, and you. Go ahead and put in that amount, which would be a buck 90. Pick. Confirm and send and then. Send that out. However. One may wish to monitor, the position daily, instead, of closing out the position maybe consider scaling out but. That is one way you can do to, close out that position, thanks for the question there Anthony guess, what folks we are out of time. What. We went ahead and we did today was we discussed. Kind. Of the long and short of it applying. Some of the principles we learned in previous weeks on short. Verticals, as well, as long verticals, kind, of a summary what that is short. Verticals, will give you a crédit high. Probability. Relatively. Lower reward. Less. Directional. Looking. At the long, verticals, lower.

Probability. Greater. Return, on risk. Also. Relatively. Price doesn't have to move but usually the consideration. Is from, a short to long spread what is your expectations, for price if you're, expecting a stronger, move with, your bias long. Verticals, can be one of those options for you if you're just looking at generating. Income based off of a credit, not. Concerned, about, a major, move in the stock or do not perceive, a movement, then, these. Short verticals, could be an option for you as well so. Thanks so much for joining with us here folks and remember, in order to demonstrate the functionality of the platform, we, had to use actual symbols, keeping in mind TD Ameritrade does not make recommendations. Or, determine, the suitability of any security or strategy through the use of our tools any investment. Decision you make and your self-directed account is solely. Your, responsibility. So, John McNichol signing off coming up next you're gonna have mr. James Boyd so stay tuned bye now. You.

2019-11-02 00:22

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