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hi I'm Steve Spencer a partner at SMB

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Capitol proprietary trading desk in New

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York City where we trade stocks options

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and futures in today's video we are

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going to discuss how to use options to

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express swing trading idea without a lot

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of questions about options using options

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over the last year I don't think I've

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done a video on it and so in today's

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video we'll discuss how to capture a

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swing trade in Tesla if that topic

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interests you stick around

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[Music]

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before we get started one of the things

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that SMB capitals trading desk is known

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for is for trading the best stocks in

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play each day we treat those stocks

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because they offer the lowest risk for

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the highest reward we did a two

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three-hour workshop if you click on the

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link above or go to treating workshop

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comm you can sign up for that two-hour

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workshop where I spent 30 minutes

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explaining exactly how to find the most

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in place talks during the day and as a

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bonus there are three low-risk

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high-reward trading setups that we use

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on our prop desk as well it's free it's

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great check it out so in today's video

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we are going to talk about Tesla Tesla

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is what is known as a momentum stock

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momentum stocks are more volatile than

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the market overall and throughout the

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year they offer both very good trading

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opportunities for intraday trades but

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also occasionally we'll set up really

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nicely for swing trades as well so what

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I want to do today is discuss a recent

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swing trading idea I had on this stock

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on the long side of bullish swing trade

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and next time we do a video we'll do it

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on the short on the short side these

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setups are kind of mirrors the mirror

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one another and it's to probably of the

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four most frequent options setups that I

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use options trades that I make and I'd

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like to kind of cover all the bases but

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today we're looking at a bullish trade

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in Tesla and so we're gonna look at

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several different time frames if a

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tassel has been trading recently my

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reasoning behind putting on the bullish

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trade and give you some details of the

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actual trade itself so first thing I

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want to understand is that castle on a

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higher time frame on a monthly you know

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in a longer time frame it had been

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trending lower over the last let's say

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six months or so if we look at this

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chart from 2018 coming to 2019 didn't

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been moving down for a while between 280

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and mid 300s August of 2018 and

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and again I guess at the Sandberg

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January of 2019 it topped out at 380 and

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then after that it came off really hard

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down to 300 it bounced again but it

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didn't make a series of lower highs and

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you can see I drew it down trend on the

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daily chart and then eventually what

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happened was recently in the last couple

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of months it it cracked that to a tee

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and once it started to spend a time

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between 280 and 260 it really was

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setting up for further downside people

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were becoming more bearish on it and

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over the last month it really really got

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hammered and so what I've drawn in there

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on the long-term chart is the long-term

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downtrend you can see it kept on

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bouncing up to it even recently like a

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few weeks ago it bounced up to it when I

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went bouncing to 32 to 58 before moving

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down again and in the last couple of

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weeks but down the downward pressure

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accelerated and I drew that steeper

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downtrend whenever you have a higher

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time frame downtrend like that and then

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it gets steeper the steeper trend can't

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sustain itself and you'll get a bounce

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where that steeper downtrend will break

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and you'll start to move towards the

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higher time frame downtrend and that was

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the basic kind of a basic concept on the

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bullish tree that I made and as I said

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we'll do the same thing on the on a

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bearish set up in something accelerates

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the upside and that'll be the next the

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next video so let's zoom in a little bit

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more on lower time frames so we can get

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take a look so the Tesla 30-minute chart

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is going to show us over the last few

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weeks kind of what it did it basically

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had come off to 230 a few weeks ago they

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announced that they were raising money

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via stock sales and some bond sales the

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market was looking for them to raise

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capital the market had signaled that it

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really wanted them to raise capital was

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not comfortable with their cash position

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which i think was one or two billion

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dollars said hey why don't you go I've

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made some more money we'll feel it feel

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better and actually reacted positively

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the first little circled area there was

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when they said they were gonna raise

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capital it spiked from 2:30 into the two

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40s actually got all the way up to I

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think to 58 that's the last time I did a

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video on it and then it came down they

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raised the capital at 243 and then after

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getting below 240

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started to come off pretty hard and then

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actually when you look at the most

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recent week the downtrend really started

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to accelerate even from the 30-minute

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trends so you can see on this chart

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we're in the lower timeframe already we

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have a downtrend from around 250 or so

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and it's come off too into the two 30s

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and you see that downtrend even that

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30-minute downtrend is really

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accelerated over the last few days so we

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have the daily downtrend

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we've moved well below that and then we

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have this 30-minute downtrend that was

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forming over the last couple weeks and

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we started to accelerate to the downside

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there on Monday gapping below 200 and

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that's that's when I initiated the the

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bullish options trade you think to

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understand about this too is and we'll

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get it to not only Monday we'll kind of

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work our way to today where we kind of

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had the capitulation bottom in Tesla at

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least that's what it looked like

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but what you had was musk sent an email

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out to his employees six days ago or

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seven days ago saying we've got a really

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tighten up thing on expenses we got to

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be careful here if we don't if we spend

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too much money we keep on losing money

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of this rate things are going to get

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really bad as soon as I actually saw the

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headlines for that email I was like wow

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this stocks already weak Alaska's

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warning about expenses I know people

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there's gonna be some analysts or some

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guy talking head on TV it's gonna say

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wow they're really the sales must be the

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worse than we think

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let's you know let's really start

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selling it and you can see the next day

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it really started to accelerate to the

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downside then used for more negative

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headlines Morgan Stanley analyst who

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apparently had been bullish on it for a

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while talked about worst case scenario I

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think ten or twenty dollars it was just

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it was kind of like when stocks it's

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it's the same thing when stocks go up

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you start to see more bullish headlines

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when stocks get weaker you start to see

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more bearish headlines and you get this

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crescendo where the bearish headlines

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they build and they build and people

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talk about stocks going out at companies

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going out of business and the stocks

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going down to crazy prices I mean we're

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talking about a stock that just sold

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this just holds stock a week or two ago

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at 2:43 and the stock comes off to 220

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and you've got the a Morgan Stanley

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unless saying

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worst case scenario $10 even though he's

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still kept a 230 target on it but those

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sorts of things or what happened when

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you're getting near bottom

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and so one of the safest way to play

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something that's starting to get

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accelerate to the downside is via

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options you jump in with stock sometimes

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it'll go down another ten before it

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bounces twenty or thirty dollars and so

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this trade that I'm going to show you

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with options how we structured it was to

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give us some cushion so the stock had

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sold off they sold stock at 2:43 sold

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off really hard down to down to the

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front of 200 and then Monday morning it

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was gapping below 200 that's when we

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decided to put on our bullish options

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Creed and one of the ways that we like

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to do this is with options because we

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don't have the exact timing we thought

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that day would start the balance but we

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want to give ourselves a little bit of

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time and it happens on a Monday so we

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have to make a decision do we put on the

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options forex plan for Friday four days

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out or do we go out a week further and

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give ourselves time you know maybe this

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day firstable or 200 only bounces five

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or six dollars or $10 and it doesn't

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really have a big bounce we can give

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ourselves two weeks to capture a bigger

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move up to 215 to 225 if the pricing is

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good and it turned out because it had

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come off so quickly and because it was

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gapping below 200 down to 197 we were

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able to sell puts which effectively

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would make us long down into 180

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we sold 185 puts and we bought 215 calls

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we actually got paid for putting on the

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street so it was on Monday the

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expiration was not this Friday it was

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the following Friday what it looks like

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here is that this is a complex order

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ticket and basically the default setting

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is to buy 10 Kandra is 10 contracts and

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so right here what you're seeing is

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buying 10 contracts 10 calls selling 10

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puts and you're actually getting a

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credit I'm in this case I think we got a

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credit of close to $4 for putting that

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trade on and so we were basically making

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the bet that over the next couple of

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weeks this stock was not going to close

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below to 185 and was gonna hopefully

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close below above 215 and if it did that

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not only would be we would we collect

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all the money that we got for putting

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the trade on but the calls that we owns

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would move up in value so that's that

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and you can see here's the chart from

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the day we put it on right on the open

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it flush to the lows we sold the puts we

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bought the call

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it popped up in the next 15-20 minutes

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to above 200 in this situation when I

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put a trade on the on light on this on

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what we do is when we put it on we say

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okay if the trades not working meaning

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we put it on when the stock was trading

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196 will take off half of it if it's not

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working if it continues to go down so if

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it goes down a few more dollars let's

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say below 194 will take off half the

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trade and we'll give it a chance though

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because the puts that we sold it out on

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185 we're not particularly nervous we

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also sold that strike because we knew

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the longer-term support over the last

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couple years was in the 180 to 182 area

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and we knew we basically wanted to be

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long between 182 and 180

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can finde you'd lower over the next

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couple of weeks and so that's why we

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sold that strike and then in this case

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you can see it bounced up at eight or

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nine dollars it came back down and again

271
00:10:25,640 --> 00:10:29,750
made a higher low at 198 and then

272
00:10:28,400 --> 00:10:31,310
eventually started consolidating above

273
00:10:29,750 --> 00:10:35,060
200 so we felt pretty good about the

274
00:10:31,310 --> 00:10:36,620
trade and eventually it moved up to 205

275
00:10:35,060 --> 00:10:38,420
206 and you can see it started to move

276
00:10:36,620 --> 00:10:39,890
sideways about ten dollars above where

277
00:10:38,420 --> 00:10:42,710
was in the open we put in the trade and

278
00:10:39,890 --> 00:10:45,380
it was having trouble there it was a 5%

279
00:10:42,710 --> 00:10:48,080
move so the general rule I use by the

280
00:10:45,380 --> 00:10:50,360
way that the puts that we sold were 5%

281
00:10:48,080 --> 00:10:52,280
below the market when it opened and when

282
00:10:50,360 --> 00:10:53,810
a stock is ill extended to the downside

283
00:10:52,280 --> 00:10:54,080
it's sold off three four or five days in

284
00:10:53,810 --> 00:10:56,360
a row

285
00:10:54,080 --> 00:10:58,160
what I'll try to do is help puts 5 to 10

286
00:10:56,360 --> 00:10:59,780
percent below where it's trading at the

287
00:10:58,160 --> 00:11:01,910
time to give myself some cushion and

288
00:10:59,780 --> 00:11:04,280
then when it bounces five percent what

289
00:11:01,910 --> 00:11:07,550
I'll do is I'll use common stock short

290
00:11:04,280 --> 00:11:08,990
common stock as a hedge against the

291
00:11:07,550 --> 00:11:11,090
calls that we own because we have to

292
00:11:08,990 --> 00:11:13,010
deal with times again options one of the

293
00:11:11,090 --> 00:11:15,200
things you have to deal with is each day

294
00:11:13,010 --> 00:11:17,870
they lose a little bit of value based on

295
00:11:15,200 --> 00:11:20,630
time decay and so nice 5% balance up to

296
00:11:17,870 --> 00:11:23,000
205 we head to off 20% of the position

297
00:11:20,630 --> 00:11:25,250
and so that way over the next week if it

298
00:11:23,000 --> 00:11:26,870
doesn't continue higher we covered the

299
00:11:25,250 --> 00:11:31,430
risk of that time decay by being short

300
00:11:26,870 --> 00:11:32,930
from 205 we will also can capture if it

301
00:11:31,430 --> 00:11:34,670
actually rolls over and goes all the way

302
00:11:32,930 --> 00:11:36,680
back down below where we initially put

303
00:11:34,670 --> 00:11:38,840
in the position we have some downside

304
00:11:36,680 --> 00:11:40,490
protection meaning we're going to

305
00:11:38,840 --> 00:11:42,590
collect money on the short from 205 as

306
00:11:40,490 --> 00:11:44,210
it goes moves lower and so we're really

307
00:11:42,590 --> 00:11:46,310
in a position of strength at this point

308
00:11:44,210 --> 00:11:47,750
meaning over the next week if it trades

309
00:11:46,310 --> 00:11:49,759
up to 210

310
00:11:47,750 --> 00:11:51,740
we're gonna capture the value of the the

311
00:11:49,759 --> 00:11:53,569
80% of the calls that are unhedged

312
00:11:51,740 --> 00:11:55,129
the puts that we sold will expire

313
00:11:53,569 --> 00:11:57,410
worthless we have all that money that we

314
00:11:55,129 --> 00:12:00,079
collected as I said it was close to $4 a

315
00:11:57,410 --> 00:12:01,339
share that we collected and that's how

316
00:12:00,079 --> 00:12:04,040
we're positioned for the trade it's a

317
00:12:01,339 --> 00:12:06,470
low-risk way to kind of play the trade

318
00:12:04,040 --> 00:12:08,029
now after that initial bounce on day one

319
00:12:06,470 --> 00:12:10,399
Tuesday and Wednesday happened more

320
00:12:08,029 --> 00:12:12,230
negative headlines as I said Morgan

321
00:12:10,399 --> 00:12:14,240
Stanley said the shares can drop to $10

322
00:12:12,230 --> 00:12:16,970
a share then yesterday Consumer Reports

323
00:12:14,240 --> 00:12:18,829
came out and said autopilot breezes

324
00:12:16,970 --> 00:12:22,850
safety concerns and it's just pile on

325
00:12:18,829 --> 00:12:24,470
pile on pile on and it actually on

326
00:12:22,850 --> 00:12:27,170
Wednesday sold off and was pretty weak

327
00:12:24,470 --> 00:12:29,000
and closed down below where we put on

328
00:12:27,170 --> 00:12:31,519
the position on Monday below 196

329
00:12:29,000 --> 00:12:33,170
actually clues that 192 and so I was

330
00:12:31,519 --> 00:12:34,699
prepared for it to gapped down today so

331
00:12:33,170 --> 00:12:37,279
we actually bought some puts expiring

332
00:12:34,699 --> 00:12:38,089
Friday the 180 is thinking if it gapped

333
00:12:37,279 --> 00:12:39,889
down this morning

334
00:12:38,089 --> 00:12:41,480
those puts would get juiced in value

335
00:12:39,889 --> 00:12:43,490
we'd sell them and we would still have

336
00:12:41,480 --> 00:12:49,310
our original position on the short head

337
00:12:43,490 --> 00:12:51,740
from 205 the the short puts at 185 and

338
00:12:49,310 --> 00:12:54,470
the long calls and so here's today's

339
00:12:51,740 --> 00:12:55,879
action here are the the labels of the

340
00:12:54,470 --> 00:12:57,559
support resistance levels because this

341
00:12:55,879 --> 00:12:59,329
was kind of a capitulation day and I

342
00:12:57,559 --> 00:13:03,199
want to talk to you through capitulation

343
00:12:59,329 --> 00:13:04,699
day support and by the way we do this

344
00:13:03,199 --> 00:13:08,389
before the market opens so obviously all

345
00:13:04,699 --> 00:13:09,920
the levels basically an email leaked in

346
00:13:08,389 --> 00:13:11,839
the pre market where musk said thing

347
00:13:09,920 --> 00:13:13,730
another militant employees probably

348
00:13:11,839 --> 00:13:15,709
because he is not too happy about it

349
00:13:13,730 --> 00:13:17,839
the stock getting obliterated dropping

350
00:13:15,709 --> 00:13:20,059
20% in the last couple of weeks and he

351
00:13:17,839 --> 00:13:22,129
basically said he said what the orders

352
00:13:20,059 --> 00:13:24,110
were through the midpoint of this

353
00:13:22,129 --> 00:13:25,610
quarter he said that they're expecting

354
00:13:24,110 --> 00:13:28,250
based on this current rate to actually

355
00:13:25,610 --> 00:13:29,930
beat the December quarter which was a

356
00:13:28,250 --> 00:13:32,389
record quarter where they made a ton of

357
00:13:29,930 --> 00:13:34,910
cash and immediately the stock bounced

358
00:13:32,389 --> 00:13:37,459
about $15 and so you can see we had our

359
00:13:34,910 --> 00:13:41,180
levels in there we had s2 was 182 was

360
00:13:37,459 --> 00:13:43,129
the long term support s1 we had was 184

361
00:13:41,180 --> 00:13:46,069
kind of early in the pre marketed moved

362
00:13:43,129 --> 00:13:47,209
above 184 to 185 186 so I thought in the

363
00:13:46,069 --> 00:13:48,829
open maybe that was the first place I

364
00:13:47,209 --> 00:13:50,779
could potentially support and then all

365
00:13:48,829 --> 00:13:52,309
of our resistance levels actually on

366
00:13:50,779 --> 00:13:54,379
that pop and the pre market got taken

367
00:13:52,309 --> 00:13:57,380
out but I felt like it probably would

368
00:13:54,379 --> 00:13:59,160
come back down and either our to our one

369
00:13:57,380 --> 00:14:00,840
might be imply on the open

370
00:13:59,160 --> 00:14:02,520
and then we would go from there but the

371
00:14:00,840 --> 00:14:05,490
point was this thing is extremely

372
00:14:02,520 --> 00:14:07,470
oversold came out with news which was

373
00:14:05,490 --> 00:14:10,110
verified by Reuters and some of the big

374
00:14:07,470 --> 00:14:12,420
players big news organizations that this

375
00:14:10,110 --> 00:14:14,460
email was real and so understand the

376
00:14:12,420 --> 00:14:16,920
mindset people are just the stock is

377
00:14:14,460 --> 00:14:19,170
like you know it's gone from 280 to 250

378
00:14:16,920 --> 00:14:20,910
and then they sell stock at 243 then it

379
00:14:19,170 --> 00:14:23,340
drops the 220 and then it closes below

380
00:14:20,910 --> 00:14:24,960
200 and you're just seeing analysts

381
00:14:23,340 --> 00:14:26,580
after analysts jump ship jump ship

382
00:14:24,960 --> 00:14:30,000
people are panicking they're getting out

383
00:14:26,580 --> 00:14:32,010
and when that happens you generally see

384
00:14:30,000 --> 00:14:34,200
these really large bounces I'm actually

385
00:14:32,010 --> 00:14:35,550
even surprised today it ended up losing

386
00:14:34,200 --> 00:14:36,570
you know what we're doing this writer

387
00:14:35,550 --> 00:14:48,180
and that's probably gonna close in the

388
00:14:36,570 --> 00:14:49,440
mid-19th century and into 20 at which

389
00:14:48,180 --> 00:14:51,660
point I'll make some more judgment

390
00:14:49,440 --> 00:14:53,040
adjustments on the on the options trade

391
00:14:51,660 --> 00:14:56,460
I should say this morning we did take

392
00:14:53,040 --> 00:14:58,950
off half of the 205 short that we put on

393
00:14:56,460 --> 00:15:04,620
the hedge a when it flushed down on the

394
00:14:58,950 --> 00:15:06,330
open below 194 and we are you know we're

395
00:15:04,620 --> 00:15:09,630
gonna continue to maintain a bullish a

396
00:15:06,330 --> 00:15:11,820
bullish stance as long as it continues

397
00:15:09,630 --> 00:15:14,580
to make higher lows I hope you learned

398
00:15:11,820 --> 00:15:19,320
something here the basic concept is when

399
00:15:14,580 --> 00:15:21,090
a downtrend accelerates we sell puts 5

400
00:15:19,320 --> 00:15:23,730
to 10 percent below where the its

401
00:15:21,090 --> 00:15:28,050
accelerated over a few days we buy calls

402
00:15:23,730 --> 00:15:30,240
generally 5 to 10 percent above where it

403
00:15:28,050 --> 00:15:32,310
is and that accelerated and then we we

404
00:15:30,240 --> 00:15:34,740
look to go at least a week one to two

405
00:15:32,310 --> 00:15:37,260
weeks out to give it a chance to kind of

406
00:15:34,740 --> 00:15:38,820
reverse and if we capture that quick 5%

407
00:15:37,260 --> 00:15:41,040
pop on the day we put on the options

408
00:15:38,820 --> 00:15:43,950
we'll look to hedge off 20% it goes up

409
00:15:41,040 --> 00:15:45,600
another 5% will hydro up another 20% and

410
00:15:43,950 --> 00:15:47,040
then we'll kind of sit on our hands and

411
00:15:45,600 --> 00:15:49,280
see how much upside we can capture in

412
00:15:47,040 --> 00:15:49,280
the bounce