getting everybody on years interest into yesterday this time
I was a scuba diving about 70 feet under
so mean through a school about a hundred seven footlong tarpon
and at the other end of it i Sol two 500-pound sea turtles going out like
newlyweds
so it's kind of a transition from that too
hey let's talk about options other I was presented with two options I guess on
that on that dive
and so I'm what I want to talk about those just
I'm mean I i've seen its I mean I started trading about gosh it's been my
22 years ago now
and I first started trading in options it's always been kinda where I cut my
teeth
I think it's it's been interesting because is as we progressed with our
our main site trade the markets it's always been more of a focus on
commodities
and what happened is over time is people his kayak asking like everyone's my
choices option trades
would like to know more about options as I go camp so
what I want to talk about tonight is kinda dive into this and I was like how
many people right now actually actively traded stock options
okay and how many people who have never traded options before
the sack ya city okay alright that's fine and yes
a perfect okay
okay so you have on the PC muscle car undersea
we do have them this is a a four-day live trading seminar to DVD was
nineteen hundred dollars to attend this and we did this back in Chicago on March
and it's a four-day course every recorded I'm only giving 10 days away at
the end the talk
and understand it does Taco does talk a little bit about all
the strategies that we doing things like that to you and we'll see the drawing
for this after the talk
okay so start right into this now
what I'm not going to do in just for those you don't trade options I'm not
going to be spending any time explaining what options are
because there's put information out there but I do wanna talk about the
strategies that I like
%uh that work because literally there are hundreds of different strategies
that are out there
on what I found is that a lot of times I'm especially brokers
they will teach strategies that actually encourage a lot of trading
leg in laying out adjusting and different weeks and things like that
in order to maximize commissions okay and it's now all that's kinda their job
and why this tragedy is yr you know the net neutral delta neutral
I'm a lot of its like you know you have these you know iron condors
which are fine in some situations but only some trades that actually enable
like
a trades to put on the trade actually don't think you need to be that
complicated
to do option trading okay so I was gonna focus on my five favorite styles and
trading
and but what I want to talk about first in the first regiment talk about is
directional swing trades last couple weeks
but before I dive into that because I found that i've talked about this before
and that out the questions that again afterwards it led me to realize that
maybe some people don't fully understand the importance of volatility in the
markets
okay so when a dive into that real quick because this is a really important tool
that'll let you know when you should be focusing on selling options or we should
be focusing on buying options okay
so why talk about ball till the a lot of people misunderstand that because they
think that
ok I'll tell you that the Vikes rate matching not talking about the Vikes
I what I'm talking about is the volatility on the individual stock but
your trading whether it's the stockers index
on the time zone not the time zone the time zone is what I'm doing it right now
the time frame that your training okay whether that the daily chart 1 hour
chart excedrin now
examples these are the Bollinger Bands bonior percent be
Dabbashi ranged AD ax men also the one that we have developed called the TTM
squeeze
all those together I'm all this together work really well
so why it is important what we have a low ball till the environment
it's essentially a pre-concert consensus regarding the fair value of an asset
as the snow it's common choppy market our bodies fine with where prices are
right now
and during his period of time there is a specific strategy just called reversion
to the mean type training which will talk about
that works really well okay to something you can do both directionally
and as well selling credit spreads so let's get a graphical interpretation
this because it's important understand this so what i'm talking about here
is now this happens to be a weekly chart it could be an hourly chart it could be
a five minute chart it doesn't matter
the singles I'm talking about here in terms of a squeeze okay so here's a
Swiss ignore the red dots
here's another squeeze signal with the red dots and here's another one
now what this is is if you don't know all that represents
is a showing us that the Bollinger Bands actually contracted to the plate
we're almost rain i'm for is all to each other
okay most the time you know Bollinger Bands are kinda all over the place but
when I get really really quiet
they get into what's called a volatility squeeze and it's important to understand
when this is taking place
because it will completely impact the choice of option trades that you do
and a lot of times I talk to people they'll talk about the option strategies
that they tried that lost money
and they're doing him at a time when literally they shouldn't have been
you know kinda doing them as an example on this I'm
you know right here say like an apple if you look at this and say wow Apple's
been trading sideways here
I think I'm gonna do an iron condor here in a few places here
i mean you know your trade went completely against you
so what you're looking for here is two things one you're looking for a squeeze
the squeeze is telling you that but volatility is got really really low
and it needs to release energy okay so here you can see a squeeze
setup with an 80 X have about 30 okay
and Apple had a nice move here it was a fantastic but it was nice
here's another squeeze at this point with us we started the 80 X is about 28
and when it released energy was another decent move
here's where it all comes together here was a squeeze at the beginning in the
2012
they had a very low 80 X reading okay and this is what you're looking for
when you get the combination %uh volatility squeeze with a very low 80 X
reading
the chances are very very high that you're gonna get a very explosive move
in the underlying stock
okay and what's nice about this and a lot of options theory
talks about oh you don't need to worry about market direction hey if you've got
you know if you got this to sell some iron condors you don't have to worry
about it
and i really disagree with that because if you get something like this that
showing you
that not only is about to release energy but the way the momentum is going to the
upside here the chances are very high dose can be upside
then you can start taking advantage of strategies
better more directionally based ok a lot of times you heard about strategies that
a market neutral
yeah I D idea market neutral neutral works great 10 months out of 12
than typically the two months out well that it doesn't work you get back to
your profits
so you feel good because you're making money most the time right
but then the times you lose money you give it all back so it's like a
ike so this is what I found so
the first thing is that I understand in this kind of a scenario right here
so basically during this is when I see times in the market
where there is no squeeze develop in then that's great
I'm gonna do tighter strategies like selling iron condors
however if it's something like this really low 80 X reading
in a squeeze this is where you can actually step up and do some directional
players
the Drexel plays are nice because they have very limited risk and unlimited
reword
and take advantage is bigger moves a cramp alright
I is another example Priceline same thing you know once you get that squeeze
with very low volatility
it's typically you can see a very exponential move after that
okay so when volatility is high it is better to sell options credit spreads
are condors X enter a
when volatility is low is better to buy options and I preferred ultimately 70
which we'll talk more about a minute
and then um the thing about it is when there's something like a volatility
indicator like to squeeze
what is telling you is that a market is switching ok and that's the one part I
see a lot of people don't get
but markets are either doing want two things are either trending on ross
latenan
when you see a squeeze a volatility squeeze like this it's telling you that
the markets about the switch
okay it's got about to go from aus lady into trending you have to understand
that because if you start doing
oscillating strategies in a trend in market you're going to get killed
and vice versa case you understand what kinda markets about the switch to
its easy to tell after the fact oh wow we've got a trend other hand
Apple's down from 450 to 650 yes that's a trend
but you wanna know during the process when it's transitioning okay and as for
the ball till the indicators come into play
okay so so the examples and directional place this happens the MasterCard this
is why I like to trade quite a bit
here's a squeezy it sets up remember the compression
were looking for we're looking for this to release energy
and on a trip like this
i'm looking at deep in the money July options so even though MasterCard is
trading at 170
I'm actually looking at the 155 dollar calls okay now for those
if you never traded options before will happen is you gonna look an option is
changing and say wow
I could buy the 100 eighteen-hour calls for like two dollars
okay why do you wanna buy 255 dark also like seventeen dollars
well the idea what this isn't just has to do with
up premium decay now you could buy the 180 dark all options on MasterCard
and MasterCard's goes from 170 to 180 you lose all your money
okay you got the direction right arm
you you bought a call option and you lost money
ok and I can be a frustrating thing that's why I like to go
further in the money because what you're looking for on these situations as
you're looking to capture
the underlined move with the Dell 270 option if the stock moves up a dollar
the option gonna move 70 cents I don't get me wrong there are times when our
money options are great
if you buy that 180 calling the stock goes from 170 to 200
you make a killing issues that you're talking about a 10 percent chance of
happening
so why risk your capital on something that has a 10 percent chance happening
okay so different things like that
okay so
on something like this for directional play like to use a signal to get in
we're getting the trade now there's two ways to do it you can stay all in
until it starts to lose momentum at that point you can exit the trade
what I like to do is still a scale-out I am
essentially every one standard deviation so in this particular case
I Barack where to go so all start off and say this option cost sixteen dollars
so for a hard stop on a risk half the price the option
okay so obviously don't put your entire account into this one trade it gonna say
well I don't miss more than five per centum a county one trade
then great you put ten percent you're buying power into a tree like this
the biggest opt out you've just lost five percent directly okay
work its 3 percent you can adjust accordingly
so that's a stop loss now the first target is 50 percent
so for third sofa goes from sixteen to twenty four dollars
I'm a take off let's add three contracts on a take off one contract
second target is a hundred percent sofa goes up to
thirty-two dollars I'm a take off another third right
and on that last piece I'm just gonna wait to lose momentum
now it may happen sometimes it may lose momentum before then great
he does take off the entire position but I'm going to hold on to that
takeoff a third another third and then hold on
it will get a loss in momentum to see if we can actually get one of those big
kind of fat tire events there
so this particular case if he held onto the end you buy an option 17 bucks
he sold at fifty-five end up with a profit of thirty eight hundred dollars
per contract
okay now that same situation you could've bought outta money calls and
actually lost
all your investment so that's why it's really important to know which one to
buy either
the other thing I really like about this now if you're beginning options trader
does not make much sense don't worry about it
if you have traded options for a while you like this quite a bit
what I like to do with the squeeze too is because when there's a squeeze like
this
its telling you that there's a low volatility period in that stock right
now
that's actually when you wanna buy options you can see here this is an
indicator on TradeStation implied volatility are the options
the ball till here is very low when the squeeze releases energy
now it is the price accelerate but the implied volatility
also accelerates you're getting a double-whammy they're not only are you
getting intrinsic value the option
right there but the implied volatility is increasing and that's also increasing
the premium portion the option
okay so the really good strategy for buying options
I'm you guys always heard it's like well why would you wanna buy options
neighbors in a time they expire worthless
it's because people are buying the wrong options but he a situation like this
regalo implied volatility situation you gotta squeeze about to release energy by
Delta seventy options
that taken make money directionally okay
alright now the first as you know the longest one the restaurateur
I directional swings trades at last a few days
now this is my favorite there's a prior to five then I'm gonna show you this is
my favorite
I ruling II fine I've got and I've got a sleeping issue and I find that
a fight and less Mehmet three young kids in the house is always one crying at
night
I'm but unless I A
happened was I don't know if I i'm flatly couple have any positions on I
cannot sleep
okay I rely the kids can be cryin like my wife gives me crap because the B two
kids crying she's run around houses like I want to have some help and I'll sleep
through the whole thing
I'm which is good for me it but it does it mean in the morning that we're gonna
have a conversation
I'm but what happens is little if I'll have a position on
during the evening I I do get a little antsy I just can't
you know I wanna wake up in this be a part of what's going on the markets and
that's probably something where
its Justin join the markets you know I decide love the markets are like what's
going on
and I like to at least have some exposure overnight so I can wake up in
you know it's like life is like a box of chocolates you never know what you're
gonna get
and this is a strategy for that because
it's not something rhyming to be in it for weeks I'm literally looking to buy
something on Tuesday
in either sell it Wednesday or Thursday okay and its
it's that meet above the move that you're trying to grasp when you're not
sitting there you're not having to stare at charts
on you not having to sit there and watch a retake but you gotta potential for
bigger swing type moves
with all with the small timeframe like that okay so here's what we're looking
at
%uh this to me as a as a as a fantastic set up right here
Goldman Sachs is a stock I like the train quite a bit now what i'm looking
for here
hourly charts okay their signal to take off the hourly chart
and I'm typically looking at I've got
the trend you always want to have but trended a trend indicator and isolating
the indicator in volatility indicator in your chart K one other story
so my training indicators on this or the waves on what these measure
are the long medium a shorter-term momentum
on whatever market whatever time very much looking at ball till the indicator
here's the squeeze
course and what i'm looking for here is wanna squeeze fires up like this when I
see these red dots
if the momentum here is lined up for its all about zero
the chances are about 80 percent that this is going to trigger
to the long side in that Goldman Sachs and then move to the upside
okay now show you another example here
on that same day this is a chart of Amazon
okay and this triggered a short trade were in this case heard by put
however I didn't take this trade because it was it clean because you're the
longer term momentum
above zero which meant a longer term momentum was higher
okay and the cleanest rains like this are the ones when everything just lined
up
otherwise you're kinda fighting the prevailing trend so this is an example
the trade that I would not take
never go back into Goldman Sachs this is to me almost like a text book trade
that I would just take over and over again now this isn't the only piece to
the puzzle
for any fight an hourly chart looks like this is like fantastic
it's all coming together next we need to do is check the daily chart
okay just make sure that your trading in the same direction is the daily chart
here the daily chart is clearly an uptrend you get the sea wave about 0
degrees above zero the A's above zero
you've got clean sailing ahead and again this is something I wanna be trading on
the path of least resistance
yes
I'm so the waves are there similar to one
the summer to moving averages on Mac D's in different things like that but what
they are is
they're measuring both the Schur there's three alarm so the shorter term
medium term in the longer term momentum on whatever market whatever time frame
you looking at cracked
correct okay so there's those
and
okay so we were in others the directional place we've already talked
about what an options we wanna by directional I'm
so this case I wanna go in the money on a good ultimately seventy
and if you're new adoptions that's really is just like that just means that
you in one or two strikes in the money
okay so the stock is at 160 then you wanna go down to like the 155 caller may
be the 150
in this case the 155 said adult have 68
which is close enough us we pick those up
and then I'm here's my rule of thumb with us first ball
let's talk about targets first what I'm looking for
for a move here is a percent a specific percent move in the underlying stock
okay somewhat what i'm looking for here is a 1.75 percent movie online stock
the reason these percentages because a $600 or stocks like Apple
a 1.75 percent move is going to be a much bigger point value:
now twenty dollar stock OKC I wanna say I wanna make a dollar in and get out
now you get up 1.75 percent on the underlying stock
you dump happy position at whatever the market prices
okay so I'm very big on directional trades on using the actual online stock
to exit the trade cannot so and this case is not so much like why I bought
this
about the options 70 want to get out a bit 14 on this particular one
that the stocks up one and three quarters percent boom give me and I have
my position
the other thing you not hear me talk about here is
I rarely if ever hold trades expiration
that's another thing always annoys me in books like oh you buy this in
holders expiration or resell doesn't hold expiration
there's nothing wrong with taking a profit before expiration okay and why
it's
II be a little careful to about any strategies like that one word
one other riskier strategy is that start out there that's taught as a
conservative strategies
is due in iron condors two weeks out exploration are so many things that can
go wrong with that
the best iron condors are actually down about six weeks before expiration and
taken off about two weeks before expiration
but I mean here you know gets very sexy the last two weeks a premium decay
to do that that's actually the highest risk wrist time to be in that trade
but that's another discussion alright so
in this case a 1.75 percent moved
that mean that the move two dollars in ATT's two cents on the stock
if you've got a Dell 270 option that means an option gonna move a dollar 97
give or take okay you're gonna get out that trade I'm on this particular one
things we buy a bot calls at seven dollars in 20 books
seven dollars and twenty five cents seven dollars and thirty five cents
seven dollars 40 cents
and then flip them out at 925 925 905
so on these trains like this and you don't have to hit a home run
in options trading: up to buy something at to install a 10
you can make a living by in something at seven and sign in at nine
okay kinda like wal-mart
so they buy it one is on at nine alright so
22 alright
this or my favorite day trades and
I'm real big onto outfit but not you level sand for me not gr extensions
I follow a Caroline broadens work if you've heard of her
but the 1272 extensions a very clean cut the third set up here
and all that is is what you're doing is you're looking for a stock that's making
a new high okay does have to be a new all-time high just
a new high for the day to be a new high for the year the high for the month
and once it pierces through
okay then what you gonna do as you gonna take the feminazis from this height and
a slow
you gonna find out where the 1272 extension is
because when I found is that if it breaks through to that new high
it's got about a 90 percent chance of hitting that 1272 extension
okay there's a lot of information that you can do with that
so is example a MasterCard
what's great about this is that is you guys know look if you try to do
options players I mean people bot say
options like on a stock like Apple the day before earnings
mister curiosity go on least three people had the guts to admit that they
tried it okay
I'm prepared what happens a lot of time is that the implied volatility gets so
high before earnings it's impossible to make money
by an option like an atom any option before earnings on Apple can be like
thirty dollars
so you buy it the stock jumps up thirty dollars in your break even on the train
okay so it's mean the system is rigged on that kinda stuff
however after earnings there's opportunities this is MasterCard
afternoons
it popped up made a good move higher then start to pull back
again when I found is especially on these earnings players rather a pop
opera pop down
is that if they make a high early in the session at some point during the
afternoon or the next day
they're gonna break out that high okay because they gonna take out all the
people that were short
so I to do then is as we you as a pops up here and pulls back
I don't look for a squeeze the squeeze tell me it's like a two things get
really quiet
it's starting to break out you know getting to move great
I'll buy some in the money calls here with a stop at the low the day
and my target is simply the 1272 extension
now what I'll do though is if the move happens very quickly
for example time holding it overnight and hits at 1272 Accenture Lee quickly
all sell a portion of it and then see if we can get up to the 16 18
typically have seen its about a 50-50 shot that'll get up to the 16 18
so in this particular case and I actually like to use the transition
matrix for options trading
I don't know how many people do that they've actually recently come out with
a lot of improved tools
in their option options pro but I've always for day trading
lobbies in the matrix you can sit there you can leave your stops around
I think every time the move stop brown doesn't that cost money though
be some complicated for me I like that
okay of I'll be sure to read it um
so okay sohn something like this then i member this this particular position
closed it was up
I'll like 30 cents or something like that in the next morning it gapped up
and move to that 1272 extension right away such great
I took off summer-like on tracks okay moved up my stop and i wanna see if we
get to 1618 extension
now what happened here you can see it went up to the 1272 extension
it then it came back to its breakout point and that's when things get a
little dicey I mean you gotta sit there realize like okay we've taken a profit
you moved up to stop to break even
and this point really get brought you gonna get stopped out for a scratch on
the second half your tray which is fine
or its gonna reverse and go back up which obviously is better
in this case a diverse in go back up but I mean I'll be honest with you know what
happens is
I'd say 55 to 60 percent of the time in this case unit scratched out on that
second one
okay the 1272 extension very high probability
it's okay to take all your profits there if you want if you receiving a little
more
that this realize it's about a 50-50 shot
so at this point the main thing you want to do is protect protector profits in
case the strain yourself a case at least have a stop-loss were
he is top down a second half is at least a scratch trade if not a little bit more
question
alright so one question too I found that people ask
is especially the first couple years a train journey can be kinda rough
I remember um gosh the first time the first time I had a big loss when I was a
my wife and I were we've been married about a year
and I came home one day and said something like you know is coming off
the cuff remark i
said something like I had a really bad day today she's like what's wrong allied
lost like 30 grand in the markets now it for me it was a big time is a big loss
at the time and down United think too much about it as a spouse you wanna be
open with each other and stuff like that
and you now into a room change happen the shower came out near my wife's like
on a sofa like bawling her eyes out like you know
oh my god Ra and and it's tough cuz it's like durian I and II just had a
the second additional my book came out this master the trade and she actually
wrote
come I've got it's funny cuz its thing on page 21 or 22 or she actually wrote
like an article on their like what's it like to live with the trader
like what's it been like an when I read it I mean I like laughed I got a little
nauseous
was like wow you were you I did know she is paying attention you know all that
time
but it was pretty interesting and so question a valid question comes up is
like you know can you actually make it as a traitor
because you hear that the success rates are pretty low you know it's like 90
percent Raiders
you know that special Ian's like leverage instruments to make it
and in their little is good news and bad news here in the good news is yes
trading is a very valid career path
you know traders from all walks of life that have found their groove
and they just you know they this is what they love this is what they do they
found a way to kind overcome some the psychological battles
other cousin lose money the bad news is it is one the most difficult Kors on the
planet in most people fail at it because
largely because the psychological issues
the real rub here is that in trading
train is difficult because it requires us to consistently do
what is psychologically uncomfortable in a natural okay
and this never goes away in our no matter how long you been doing this
I'm what would be a definition psychologically on country on a natural
an apple breaks out to all time new highs through five hundred dollars a
share
how many people want to buy it then how many people wanna buy a new hire
purchase waiting for the safe pull back to the 21-page moving average
well the people who wait for the pullback that's the safe trade
you know they never get filled the people who in that case by the new high
make money on it but does that work every time know there's gonna be a lot
of false breakouts and everything like that to you so
its it's one of those where it is you know the top the top trade is typically
the one
are that the right tree is typically the one that stuff is to do and you just
gotta remember that that
if the trade feel safe guess what it feel safe everybody else to
and the trade that feel safe the tree that's obvious never works out
if there's a crystal clear head & Shoulders pattern there guess what
everybody season everybody's lawyer for the trade a trade going to fail
most times so just kinda remember that as you're going through and that's you
know it's kinda that's what I found is about obvious set-ups the that seem like
there is a trades
typically don't work out was a lotta money moving around out there
arm you know it's like things like eighty percent at the moment in the
market are controlled by twenty hedge funds
you know the 20 largest ones that are out there they'll see this up to
you know it's not a mystery okay so
is I wanna see an example the trade here that I did
I wanna say the training is not easy and I remember this because I was packing up
as
doing a flight to chicago and I woke up and I had some calls on overnight
on Apple and by the UN Amazon an Apple is doing great Amazon
in by the we're not doing so great but I had about an hour before my flight times
in there trying to pack and watch a quote it's not like that
and as you can see here this is the same setup that we just talked about on
MasterCard
I'm looking for is for Apple take this momentum and get up to the 1272
extension
okay and possibly the 16 18 but realistically I was looking for the 127
to not get out
so I said no I looked at my limit orders in place and Diaz paquin
and as I'm watching along here met in cmd i'm taking a hit on by to Amazon's
doing okay
and then Apple's you know it's exploding up through here looks great
and then you can see are getting really close to my target here
and then what happens is that some report comes out an Apple starts to
crater okay and craters a strong term it went down about 28 points
and I joked I mean I'd got outta the market
and you know I was I've gotta pack and gotta do this I don't come back against
me
okay the heart rate here would have been just to follow my plan to leave it on
cuz your ego like
you know 30 minutes later as a one minute chart
it comes up in its my target right um
national made money on the trade by it again it always comes back to
doing a hard thing following your plan and a hard thing for me here
in this particular case was staying in the trade
the speaker you look like I gotta go catch a flight I mean all these
different things are always going to distraction in
distractions in your trading came and got three young kids to run around
on there's always gonna be distractions but what I found
is that the takeaway here is that if you get your strategy down
that you can actually make a lot of money trading my not being perfect
okay you don't have to have the perfect rate I can count on one hand the number
of trades I've done this year though
call perfect raids it's always something coming in
om you know there's there's there's never the ideal entry
there's a good injury cocaine use have to be prepared to do that
alright so already begun time what it will just talk and
okay American eye-catching take a breath here okay
I'm
so for those you that trade options just outta curiosity how many you an entry in
the weekly options that have come out
okay week weekly options are fantastic because
they have very high premium decay and I we looked on in general is
I'm I'll biweekly options but I just won't hold an overnight
okay I'm I don't mind a trade in weekly option
but in general I'm looking to sell weekly options now is a couple
strategies you can do with that they're not include in its presentation on a
strong out there for you
on 10 things I found is that out what a lot of people come up and say like
hey John I'm gonna sell these weekly options on Friday because
there's gonna be premium decay over the weekend sheesh
okay there's no free lunch okay what happens is
the market makers know that people want to sell these weekly options on Friday
because they think they're gonna be premium decay over the weekend to the
market makers actually push down the premium
to two with to what option will be on Tuesday
and then everybody sells them on Friday and the donor stand why on Monday they
don't make any money on it
okay strategy can do it weekly options
you can actually sell them on Thursday and buying back
on Friday like the next day when the market makers are pushing down the
volatility
okay it works really good on spiders on you can do it as a
credit spread its fine or how he got the margin
to sell an outright what happen is my first come out on Thursday
like that first hour that the trading that's when you wanna sell 'em
by Friday afternoon the market makers are pushing down the implied volatility
for all the people that are coming in Friday to you
test we capped and sources were things again we got how look if it's obvious
out there in
a min guess what the market makers know that they're going to take advantage of
it
however that is this that is tragic weekly options you can do
I'm typically you know you can sell %um selling it damn it spread
it typically make fifteen to twenty percent on that debit
and then you can close it back you can actually hold that over the weekend if
you want but there is an opportunity there
okay on another when you can do
is if you're doing I'm must-see for weekly options
are so many fun things you can do with them one thing I actually like to do
with weekly options I call it kinda like a landlord play
where say that you've got a longer term position that you like say an Amazon
a directional play maybe it's you know you but the option two months out
I one thing I do is just sell now the money weekly in this case a about a deep
in the money call
is every week to selling out of money call against it every week when it comes
up
and most the time is worship you saw that you know I'm usually sell about two
strikes out the money
many times for weeks will go by where you just click the entire premium on
that
are many cell for four dollars in my back for a dollar but typically
by the time you're halfway through that holding period you've already paid for
the option
okay so now become kinda free trade told Sky called the landlord play because
it's like you own
you know you own this piece a property in your to selling you know you're kinda
rate it out for a week at a time
and a core sometimes the stock may just jump up and now you're
the one he sold and the money but historic the spread on it
okay so no big deal the biggest thing i watch where there's a price you know the
price plummet
so that's a strategy that like as well on
other other credit other useful things I found with weekly options as we were
talking earlier about how I can say right before Apple earnings
how the implied volatility get so high and that the at the money calls it at
the money put her son for 30 bucks
which is crazy so I do is before
I the day before earnings come out like on a Google or a nap or something like
that
you'll see that like on Google we did this where
the strikes sixty dollars out the money you could sell a credit spread sixty
dollars our money for a dollar
okay you can't do that the day after earnings the day after India
you can get a penny for it so what we were doing tonight that you actually do
an iron condor
icon Google like sixty dollars out of money both ways
now what your bed is obviously is that the that the
move after earnings is going be less than sixty dollars okay
if it's over sixty dollars used to be the slider is your ratio in place
om boredom that North Google and Apple and different things like that
the nice thing about the weekly options as they actually kinda give you his
window
a bumper tune in to play earnings to take advantage a premium selling
just for the love of God don't like same
by an alum money weekly option like on Tuesday
and hoping that it'll go higher I mean it's just the the premium decay on it
is literally I'm like a mule in 10 our money call options on Apple
you lose about seven hundred dollars a day in premium
okay I see just gotta realize that you discover take billion against you
very very much on us
know okay so was talking right now if you sell it that's great
it's good because you're essentially making so if you sell
on like say you know credit cell put
okay on Apple the salt n along you're makin seven hundred dollars a day just
in premium erosion
if you buy it you get your taken a hit on it so you just gonna be very very
helpful careful
when you're buying weekly options because they can really screw the pooch
i GNA
and now I'm not a technical term did
okay so on Thursday by Friday I cut the Delta like
twenties right around there I mean look at Del 220 is you can go
you can go um 345 strikes out the money like that
on what I've also found no you get a little bit especially if it's quiet if
the markets quieter
if you sell closer um at the money
you get about so he sell out the money like a delta 28-year-old you know you
get a it's a diesel kicker
if it looks like the markets pretty range-bound especially Thursday I'll
actually sell at the money
and then you usually get a look if you do a debit spread you can usually get
like 15 to 20 percent on the dead it's ready so at the money
if you sell lube it for other money you think it is
as much a bang for the buck picture you know you gonna collect
it's more like five or six percent or something like that
I your questions ok axles diving I'm
okay so
I'm always talk about the three times a technical analysis you've got %ah
slater's trend following in volatility
as the only type of indicators are out there and there's no amor magic anything
like that it just
missus math on the one of those is the most what important those volatility in
as the squeeze that we looked at the beginning of this
on but here's what I wanted there's the next set up a lot to talk about
we didn't talk about we talked about Balsillie we talked about trending
bulletin talk about oscillators and this is my favorite
set up for doing weekly credit spreads were actually just doesn't have the
weekly
any type a crossroads this happens to be charted by do
on it's a daily chart will not do this on other time frames I like doing this
on daily charts I want to a five minute charter
hourly chart or anything like that but what you're looking for is you want two
things
I one you wanna move to the upper band now this is a
it's called a reversion to the mean band but it's just like the color channels
case the color channels are set up is 13 period moving average
manana one-and-a-half times standard deviation in
perhaps Average True Range we're looking for is that we actually
slam into the upper band and will get an overbought are Sirion
okay this is your basic 9 period our side
okay and all i'm looking for. is for this market to then revert back to the
mean
okay in this case that's an eight-point move in by do
now what's nice about this is that now you can do direction if you want
but I prefer actually in this case to sign a credit spread okay
and you're not actually looking for the credit spread expire worthless
in this case you sell I to sell at the money
if it's a five dollar spread out to be like to get half addition to the spread
so two dollars and fifty cents
give or take and then typically for reverts back
on you know you can if you're close not expiration you will expire worthless as
great
the big problem on credit spreads is that at some point you get to where he
sold it for 250 N Out at fifty cents
well now you're trying to risk four dollars and fifty cents
to make fifty cents hey there are times when those credits president are so
close to expire worthless
just explode against you the next day so to prevent something like this
looking to sell it to fifty maybe buy it back at fifty cents and make two bucks
okay very high probability very consistent play
even in a situation like this one overshoots okay and overshoots like this
he sold for 250 in its like but wow
well the spread still in place so it's not like you can completely hammered
here as I don't know in this case
yeah the stock moved up six dollars against you your position like a dollar
against you
okay and then who do we come back down we're back to the mean
remember that okay yes
yes yes yeah so you have been questions 09 period our side
overbought is 65 oversold 35
alright IOM
so it was talking about earlier is why
its is critical to understand when something like a squeeze is taking place
because as we saw earlier we saw those charts have apple on Priceline
with a squeeze is taking place in energy is released
and those markets just explode higher this tragedy does not work in that
situation
okay so the main thing with this is that you want to look at a market
that does not have a squeeze in place on okay you look at something where
there is no volatility squeeze going on a market you want to see this going to
do this during what I call normal market action
okay I'm
so and then for stop-loss if your gonna do this direction allowing
which you can do is just put down of 14 pretty diverse you range
and then you come over here and say like okay at this point for by the new
up average arranges a dollar's
so this means that it could go against you eight dollars
but the chances are high that it won't go beyond that now it's nice about this
is a persona credit spread that's not a big deal
I mean the transmittal go against you depending how much time you got
maybe a dollar dollar 50 if you do
directionally you just wanna make sure that you're outside that range you can
see here
it spiked up through that range but quickly snapped back
okay but a as the biggest thing a lot of times I've seen as people do these
trades
but then they use to try to stop okay these are high probability trades
but if you go in there and you're nervous about it knew the big position
it got really tight stop
the chances are very high that you're gonna get stopped out okay
I would rather see you use more positions use wider stops
and let the trade work itself out okay
I'm just you know we've done studies at this and we found
that the harder you store your screen actually has a zero impact
on what you want the market to do
so you place your trade you give it room and you go outside to mow the lawn
no care do something else because watching the trade is not gonna help it
will happen a lot of times people watch the trade you know they're gonna get
that unblinking stare and in the US are doing some stupid stuff
when I say they i mean everybody I'm not tomorrow and I'm in a trade nobody a
smaller ones are in a trade
but there are tricks that if you know that when you're in a trade
you start you know freaking out in looking at it take my take
the trick is one catcher position size in half
to you place a stop loss three get the hell away from a computer
you'll be amazed I'm actually wasn't there was a experiment I did Road Newark
grain trades
I place a stop with an open target okay and not go to lunch and come back ten
minutes before the rain close
you know I stopped out or the market had some fantastic move that I connery
every point every bit of and I knew without a doubt that had I been there
I wanna you know in that positive trade I went across the whole move
I mean like wow I'm up five cents I need to take this profit
so this remember that is control your risk and let the market do what it's
going to do
it helps a lot okay there's example the Amazon so Amazon here as this fantastic
move all the way from two hundred dollars up to two hundred and forty-five
dollars almost straight up
at this point guess what it's time to sell a call credit spread mean
you're looking for a virgin to the mean and
honestly on some like this here I'd feel more comfortable doing a cockroach read
the directional put just because the stock is so strong
I'm so here's a screenshot other you can see here
I was sold the clothes so if universal credit spread all you're doing is like
you hear that use in this case its own and they can call
and then you're buying another call outside auditor stop-loss
that's all it is so sold 100 other the 2 40's
by 230 45 per for protection and there was you wanna see obviously is that the
one the soldiers making money
and if the one that you bought is losing money that's what's supposed to happen
and then you keep the difference
so in this case was sold for two dollars and twenty five cents so the max
profitable trading be two dollars and twenty five cents per contract with a
hundred lots that's twenty thousand five hundred dollars
and the max loss would be two dollars and seventy five cents per contract
are tours only five dollars per contract and sales manager that way
and again on these trades it's very rare that actually let it expire worthless
it's great when they do when you get to a point where
near the trades to 20 cents and now you're risking twenty cent profit again
support ornate East Los
the math doesn't make it make sense the exception is if it's like you know
45 strikes away from re from from near break-even point then okay fine
but I mean you guys know if you've been training like Apple or Google
couple weeks ago Google dropped from like six hundred and twenty nine dollars
to six hundred
on expiration day I'm if you had like a 6-10 credit put crack all credits bet on
that day
like wow it's gonna expire worthless you got hammered okay so yeah if you're down
and you can take it off for a nickel or 10 cents
just taken off thanks you know people say are gonna pay the commission on it
that's better than
getting stopped at a light rain on some crazy move okay
okay um
22 we talked about that okay so here's the last ravaging but I like to do
as well I called I V crush arm astrid I think ima cool acronym for it but I can
come up with one
benefit I think that search a check word for something I'm not sure
on but essentially what you're doing is on I wake up in the morning
you can I just turn on like CNBC or you know looking Yahoo News whatever
and you're just looking for stocks that have bad news
okay earnings as good on the typically about
any bad news is good except for like an SEC investigation
that's you know what to do Alan but the result like this is that
the markets are very efficient in that they priced in all those bad news before
the open
k the markets trade you know a classic one is always when steve Jobs was sick
and even when Steve Jobs passed away the same thing happened what happens is
people panic Apple was down twenty or thirty dollars
well guess what and when it opens it already opens
at that price with a price in other news K in the very first few minutes of
trading
the implied volatility at the money puts explodes
okay and what you wanna do is you wanna sell those two people were panicking
because there's been a lot of people there'll be people at Apple okay who are
probably
you know they're buying puts to hedge against you know their stock
there'll be lots of people are panicking because they're thinking why would Apple
goes down a hundred dollars
you know I bought it at a hundred I want to take these capital gains I need to
buy puts
they panic a nearby points at the open that's what drives the implied
volatility so I
so what you wanna do is you wanna become a market maker anyone help them out
in provide them liquidity and sell the parts to them
now so here's what happens there's example by dr. the 5 minute chart so by
doomed
close at four hundred thirty dollars it opens the next day and now this
this is a line chart so it actually open the next day
down at three hundred seventy dollars so is sold it at the money puts the three
runs on your part to the open
for 10 bucks now happens here is by DU
stars to trade sideways the first like 10 minutes what is the put do
immediately gets cut by a third
okay that's an implied volatility this getting crushed
now the beauty in this is that it by dehydrated dead sideways all day
the move would have been about the same by do kinda traded sideways to up
being see these pussy sold at ten you could buy back at four dollars later in
the day
I what happens like this is that you again when the stock opens up
the bad news is already priced in and so there'll be some fluctuations like that
but what you're doing is you're getting an explosion %uh volatility the people
are panicking
that's what you wanna sell into menus buy it back when things quiet down
now which wanna be careful love is on something like this too is you can also
courses sell it as a
you know even sold as the spread so you can work or sell the at the money and
buy one out to some protection
I'm cuz you know you wanna be careful in case you get something that is goes
if you're selling something make it like this and just keep going against you can
get pretty scary pretty fast yes
right
write a
yeah I'd so it's a good question so the question is is that
um gay don't catch a falling knife to like for example on BP
so I figured that said BP is a good example I i've come look at it is more
on
gas some good examples are it's like you know I mean
bad news for the company I mean the oil spill has come in houston won in fact I
don't
I don't think I remember I don't think we did on that but I have done it on
companies before where
you know it gaps down and they just keep you dislike while keeps going if you
sell spread a lot of time you'll be okay
because it'll like the tool can even themselves out I'm
if it's like a stock is like 60 hours in below
annual sales like I mean like amgen gap in like four bucks
alright so will sell it naked watch it really closely it looks like it's gonna
keep going down either by a backer by some protection
but there's a lot of times when it's just like its price did you get some
will go on and things settle down the
you know you can't sell for a dollar buy-back for 60 cents gonna bang
okay I'm your questions on that
a gap yeah okay
yes a good question is if you're going to the spread is there another juice out
there
I'm especially if you do so. if you're selling at the money spread and you can
get
half the price in the spread which is typically pretty easy in a situation
like this
the so you five dollars five dollars why'd you sell for 250
generally by the times things settle down you'll be able to buy it back for
like
120 130 something like that so this is a rich me like going like okay I'm gonna
grab a Bach
but when he and others verses you know sign something for 10 and buy it back at
three
some like this ya doing a snake it is very you know it's like okay
gonna be a little careful there but down there is
the other thing I do is also sell at the money and instead of just
it's in a bind the next right down go down like three or four strikes
so at least now you can in obviously are not your watching that one very closely
and then a you know if it looks like things are starting to settle upgrade
working dads more protection but
the first three or four minutes are pretty can be pretty hairy but then
things settle down fairly quickly
yes yes
absolutely on applies to bat earnings very much so
now the thing is I found that this does not work on upside
so it's always bad news is good news down yeah I just
it was things as people on people panic on down moves cuz
down this can happen so much faster than other moves but I move aside
I tried it like twice and I was over to now is good enough for me
I and a question on a no
good okay alright alright so well good time inner
so two things one I you got the card here we go to a drawing here real quick
I will collect those and then I guess Christine how you wanna do is have a
pass into the middle
yeah passing toward the island ok electoral to the grind
I'm so for those who are interested in more options information when you have a
website that's dedicated specifically the options
is called simpler options
and I we do on this where we do actually have a nightly video we talk about the
different strategies that we're looking at
I we also have a portfolio or we tried it you know specifically tracks in the
trade that we're doing
I'm I believe you have a form was a form saying
a form on your seat okay perfect so
here that's a good deal I'm a 10-year trial
so if you wanna try out the site essentially it's tough you can's
you can sign up on this today we don't actually have a free trial on the site
we like to keep you know people who are actually focused on their by you can try
it for 30 days for seven bucks
I'm what I encourage you to do is to do it and for seven dollars you can get all
the questions answered
that's you you know to make sure that you know it
go the site though is that if you know it once you know the challenges you
don't need it anymore
great go do it herself that's fine the reason people stick around as if they
like the community
so it's just options traders there's a discussion forum is alive trader was up
like that so if you're looking for community is pretty good but
for seven bucks arm are you sad try anything for seven bucks but that's not
true
I'm but for seven bucks I think it's a pretty good deal
and yes
also big question indicators so I'm some these indicators are actually
a with built let's see
all the indicators that we have we have built for TradeStation
I'll we do share the charts in our room
if there are we have on a couple other platforms but for the most part
I mean it be something to wear if you
I in the in the chat room that we have all we share our chart to actually see
the charge that we're using so what people have done is either they'll get
TradeStation
and get the indicators or daughter so there's a you know I like
my broker but I can like look at your charts and see the signals
or just get used to the strategies and you can actually you know try to figure
out
you know that's the main thing is we're you know I options trading as well as
England's it's not
too difficult when she knows him the basics and that's the main thing is like
once you learn the basics even so there you go
okay once can use as moving average and I can do this setup
and that's fine too