Potential Routine for an Investor | James Boyd | 1-14-20 | Using Options as a Stock Investor


hello and hello and welcome to using
options as a stock investor my name is James
Boyd we welcome you here this morning on
January 14th hopefully wherever you are
it’s nice and warm Scott Miller says
welcome from Naples uh he that he’s in Naples
Florida sunny and mid-80s Scott it’s gonna be snowing here
today not a ton of snow not like
chubby Riya Illinois but I think tomorrow’s
national snow day so if it’s not warm
where you are stay inside that’s why
that’d probably be a good idea and with
that we can talk about stocks we could
some of the options here today and
today’s topic as always is using options as a
stock investor with an emphasis on a
routine right and so I think this is one
of the questions that gets brought up
quite a bit is what is it that I might
consider on a daily basis what should I
be looking at well and why would I
be looking at it in terms of a
management managing and setting up a
portfolio so if you’re just tuning in my
name is James Boyd you can follow me on
Twitter at JB underscore TDA or just go to Twitter and just
type in James Boyd you should see my
face there and also you can follow many of
our other instructors Mike flat
Cameron May Ben Watson Pat Pat Mullaly etc
feel free to you could search for those as
well also remember that when we talk
about today examples we’re going to be
using the platform and we’re gonna use
actual symbols we’re building a
portfolio together remember that as we do
this we’re not making recommendations
and understand that you should
decide for yourself the suitability of any
security or strategy and any investment
decision you’re making your self-directed
counter solely your responsibility and
also remember that all investing
involves risk including loss of principal
and those unrealized profits and
when we talk about options remember that
options might not options are not
suitable for all investors special risk
inherited trading options make sure you
have that pamphlet pamphlet of the
characteristics and risk of standardized options
and remember the option Greeks as
well so let’s take a look at what we’re
going to cover here today stuff very briefly we’ll take a
look at the market we’re gonna look at
it very briefly initially because we
really want to be talking about this in our
routine that we’ll discuss here today
second I’m gonna give you a quick reminder
of our class portfolio what are the
kind of the confines or the foundation that
we’re using for the class portfolio
and number three what is a portfolio
routine example what are some question
I’m going to pose it as questions that you
should consider on a weekly basis to
say am I aligned with what the market is
showing okay and fourth we’re gonna
demonstrate new stock and ops and examples
together with that said let’s go ahead
and work and let’s go ahead and take a
look at the Nasdaq first okay now what I
have right here on the screen and
I’ll pull this up okay and I’m gonna go to
just real quick this bottom line the
red line that is going to be that’s our
30 period moving average okay this blue line right there that
is the ten period exponential moving
average and we’ll see that right up top
and these two moving averages up
here this that blue line the upper blue
line that is the ten H that stands for the
whole moving average and that green
line that’s the twenty Hall moving
average now I just want to kind of show
you this on one chart and compare it a
little bit if we were just using a 10-day exponential on a 30 day simple
moving average the bottom two lines the
30 is still telling us that there’s a
trend the 10 day exponential tells us
about momentum price action is still
above both lines they’re telling us
the same thing now if we take a look at
let’s say the whole moving average the
upper blue line again that’s telling us
strong momentum blue line upper blue
line and that green line right there the
20-day whole we’re still seeing more of
that buyers are in control EUR now
what I want to do just real quick is so this is
really painting the picture for the
most part of what we’re seeing in the
market I’m not going to make a ton of
comments on this because we’re gonna come to
this but if we look at this we’re
seeing the same thing on the SP okay now
when we look at let’s say volatility
okay as we look at volatility volatility is
still at depressed levels of 12 which
probably says the market on a day-to-day
basis is fluctuating about three-quarters
of 1% okay so no change from last week
still bullish okay and so what we’re
still going to be watching is we’re
gonna do in a second is monitoring some
areas of support so we’re gonna mark
these areas in just a moment now last week
what we did is we launched a portfolio
together okay now let’s kind of just take
some inventory of what we talked
about last week but this is also gonna be
the test of how much did you remember
from last week I know it’s tough I don’t
remember it either I’m joking I like to
write it down so I can remember it now
can anybody remember the class
portfolio size go ahead and type that in
so for this portfolio how much were we
actually uh what was the portfolio
balance that we were starting with to start
the year go ahead and type that in does
anybody remember the allocation of this portfolio and I’m gonna start
with those two questions okay what’s the portfolio balance
what do we start at and then what was the allocation okay now answer
number one we’re starting with in this case
175,000 we’re kind of taking the
viewpoint that if most investors here on
average on average we’re 40 years old
that’s probably an average balance
probably right around that 40 year old
figure okay could be higher could be
lower but that’s probably about an average
so we’re kind of making a subsidy
or someone here might be
potentially 40 on average so that was first now
the second is what’s the allocation well we
talked about stocks being 70% of the
portfolio we said that we were gonna try
to have out of that 70% about a ten stock positions bonds we
said 15% and the other 15% would be in alternative investments that
would be like gold something that tries
to track gold or something tries to track
oil and/or gold stocks in Orgel
stocks themselves okay and so notice
what I said right there something that
tries to track gold or oil and then the
gold stocks themselves and the oil
stocks okay and we could also maybe
look at perhaps if we ever want to do
currencies okay so that was really the
breakdown now what list were we gonna use
on a daily basis to really create a
watchlist what we’re gonna use for a
watchlist where were we gonna take the
stocks from where are we gonna get the
examples well we said just kind of pause for a
second where are we gonna get the
watchlist what are we gonna use a run a
search every time what are we gonna do
well we talked about the example of
using the Dow 30 the Nasdaq 100 and the
S&P 100 as quote the stomping ground if you
will of our examples okay so we really
have about 230 stocks to pull from
okay that would be stocks are often
examples why those very liquid stocks
probably have liquid options not all of them
some have weekly offices some don’t
probably going to be looking at something as
some larger market caps as well so
exposure to institutional investors now
the other thing is when we talked about
the max loss per trade does anybody
remember what the max loss per trade was
go ahead and type that in I told you I
was going to test you okay because because
if someone asked me in the middle
of this hey where are you getting these
stocks it tells me maybe they weren’t
on in the beginning or they weren’t
listening so the max loss per trade we said
was going to be three quarters of one
percent which was $1300 the next
question is when we look at buy setups okay
we said CAHOLD which stands for close above the high
of the low day a and or a 20 day high in or a
55-day high those who are really more
the entry setups we talked about and we
mentioned those last week now the last two
things I really want to bring up is
when we look at this portfolio okay the and I’m going to kind of
let’s go to the board here as we kind of
come to some examples so first off when
we look at let’s say what we when we
talk about the strategies and I want to
kind of write these down we said for
example and I’ll just write this down here
we obviously said stocks yes cover
calls CC we also said protective puts and
callers do you understand that all of
these cover call protected puts and
collars these are all linked back to
stocks the main difference between one
versus the others the rights and the
obligations but the moral of the story is
you still own the stock okay so it’s not drastically different now if we
look at let’s say the other section is
we’re going to do short vertical puts
or short puts okay and we also said LS
for long synthetics so let me recapture
this SVP for short vertical puts in short
puts yes the main difference between
one versus the other is one has
downside protection the LS is a long
synthetic which links back it’s think of
it as a leveraged option that it has
stock type movement the entries are the
same the trends the same the position
sizing is the same okay the difference is
we don’t get the dividend so those are
going to be some of the strategies that
we really go after on this class okay so I
when we think about jez there’s some inhibitive or strategies it’s
not necessarily really true because
on the left-hand side we’re talking we
own the stock okay on the right-hand
side we’re really talking about these would
be more income potential okay probability based type of
trades and the LS this is going to be more
of what we call leverage okay all right
so I just want to kind of write that
down right real quick down the simples that we talked about
last week so let’s just kind of take some inventory of what we did and
then go to work together so number one we
talked about we did the Boeing example
and oh my goodness gracious the day
after we put this trade on I’ll just say
the word Iran I’ll stop there and what
you’ll notice is that position is a
short vertical put that position we
know it’s a short vertical put because we
have a low Delta it’s only about 17 the
theta here it’s positive theta so it’s
a bullish trade with a positive
theta ok and we know we probably sold it
because the Vega the sensitivity to
volatility is negative must be a some type
of bullish position okay so that
position is slightly down not up max loss
second position we put on is Baidu up a
little bit has pulled back the last two
days third position we put on with
Facebook up a little bit and you’re going
to see the third position we put on is
the golden arches for some of you
that live in Illinois I know who you are
and you’re going to see that good
the golden arches up about 336 so from last
week to this week on just a small number
of shares or Delta haven’t invested
the full portfolio at all you’re gonna see that we have a
128 Delta the theta here is about
nine two of the four positions are theta generating okay now so that’s
kind of where we stand right now and so
when we take a look at this before we
actually start going through the routine
I want us to really be thinking about
kind of where this is and I want to kind
of show you maybe some things that you
might be thinking or maybe you should be
thinking okay let me tell you what I mean
by that so whenever you look at a
portfolio I really want you to be thinking
about and I’m gonna kind of stay down here
if you don’t mind okay in a clear space
so number one and I’ll kind of make
this as big as possible and I’ll change
the collar there we go so I like to
think about this in terms of the equi let me change that there we go
let’s go blue the expected return and I want
us to kind of think about our
portfolio like this and I’m gonna actually
really write down here is that stands for a
beta all spell it out just in case okay and so when we look to build a
portfolio the idea is we want obviously
the goal would be we’d like to actually
increase the portfolio value well we like
to kind of break this down into like
well what type of sectors maybe could we
be looking at well if we started
off with the very least volatility
typically typically we would probably be
saying and I’m gonna kind of draw a box
you for utilities V for healthcare and
also we would put right here P for
consumer staples so if we bought
utilities we bought healthcare we bought
staples those were to have the lowest
expected returns potentially and also the
lowest beta they’re also the ones that
will also pay the dividends okay if
we took a step further and said well geez
James what about the next I’m going to
write I for industrials I’m gonna write
also T not for technology no no no no transports and I’m also going to
write a difference here F for financials
now if we bought industrials
transportation and financials those tend to have
more volatility or in other words a
higher beta higher beta you would be
expecting to have a higher potential
return to be compensated for that risk and
the last area is if we go all the way
over to the right I’m going to write here K
for technology I’m going to write Y
for discretionary z’ I’m going to
write also here is e for energy and B for
base of materials so if an investor
bought a company like Tesla oh my
goodness okay if they did or they bought some Netflix a discretionary stock
they bought Halliburton and energy or
they bought freeport-mcmoran those
are going to have higher betas they’re
more volatile relative to the SMP and
if they’re more volatile the
investor’s saying I like to potentially get
a higher expected return now let’s
take quick inventory before we build
this portfolio so when we look at
let’s say the portfolio and I did this
this morning and this was the picture
that I was thinking about is where is
this portfolio really set up okay and I want you to be think about
this in terms of your own portfolio so
we have one position and I’ll put an X
right there and we have Boeing okay
number two position we have we have Baidu where would Baidu fit on this
utilities healthcare and staples ain’t
wrong no it’d be over here it would be
over here and technology discretionary
energies and materials what about the
third one Facebook well Facebook’s come in
technology we’re out here thirds are for stock we
have McDonald’s where does the
McDonald’s fit well McDonald’s is consumer discretionary well we go over
here when you actually say we’re over here
again now what’s good about what we’ve
done so far well if if you think of this
is where are we on this diagram
we’re in the upper right hand corner
which is saying is that we’re bullish and
we’re quite a bit bullish but if the
market were to go up these stocks might
out potentially perform the S&P
could but if the market were to go down these
stocks might get hurt the most because
they’re more volatile than the S&P one
of the things we’re seeing right now is
we don’t really have a whole lot in
this area here and here we don’t have
a whole lot there so this might be an
area of deficiency in the portfolio and
I’m going to tell you what I’ve seen
in the in 20 years of doing this when individual investors build a
portfolio they don’t think of their
portfolio like this they just start stacking on positions and if they put the
whole portfolio on a diagram they
would be in the upper right hand corner and
if they do so what they’ll find out is
their portfolio is gonna be very very
very very volatile the market goes up
they feel like a genius if it goes
down feel like a loser what this portfolio
is going to do is take a broad diversification each three of
these areas okay we might have more in
one section the other but we’re
going to try to add to each one of these
boxes and understand that this here
utilities healthcare and staples might do
better when the volatility of the VIX
in the market increases okay now let me
let’s kind of take some inventory are
there any questions on what we just
discussed now I know you’re still seeing
the screen in the back I just want
to really kind of see if there’s any
question I know you’re not seeing me you’re
seeing the screen in the back I’ll come
I just want to I want you to take a
good look I also really want you to reflect
upon your own portfolio and where is
your portfolio now so if you had to
plot your portfolio where is it okay now
what I’m going to do let’s kind of walk
through some questions when we talk
about the things that we should ask
ourselves in terms of routine let’s go
through it together now something we can do
more quickly than others so first
question I would be asking that you could
ask yourself is index and sector
performance you should be thinking about
doing this on Sunday don’t wait til Monday
morning when the market opens up and say
hey what’s really moving so if I
were to ask you the following question and
listen to the question I’m not gonna tell
you I’m gonna ask you the question and
if I ask you the question now you start
to internalize what I’m really
getting at so if I were to ask you of the
four indexes which of the four
indexes name two of them were the strongest
in terms of relative strength in terms of
price performance name the two right I
could play some jeopardy music here
but I’m not going to dude okay I will name two of the
four that had the strongest price
performance these would be questions you
should be asking yourself before the
market even opens up on Monday if you don’t ask yourself the
question you’re kind of unprepared when
you come into the market on Monday so of
the four which ones have the strongest
price performance now Erik your
question would be the bio if you said bio tech
tech tech okay the upper right hand
corner Erik that would be in technology
okay regular healthcare company is
that we would be showing the example at
the lower left hand corner of that
okay McDonald’s so if you pull the
McDonald’s and said where does McDonald’s
go pulp the sector what sector isn’t its consumer discretionary that
would be the y example we pulled up all right
so now first off if we looked at if we
looked at price performance and I’m
going to pull this up so we can see this
and I just and I did this even for
myself just as we knew we’re gonna talk
about it so number one and let me kind of
pull this up I want to pull up the right
list let me grab that there we go so
what I’m doing is I’m just really using
let me make sure that’s correct yep
that was adjusted so let me put the
whoops let me put this back let me just make
sure the right number is here okay yours is right someone must have
played with mine I knew that wasn’t
right so all I’m doing is I’m just
changing this there we go all right so first
off when we look at let’s say the highest one-week return the one week
you’re gonna see that it’s going to be
the Nasdaq in the SP again that kind
of tells you something if you’re an investor it likes to look for
relative strength those were the two
indexes of the four that had the strongest
relative strength if you spent last week
looking at Russell that wasn’t where the relative strength to us second
question you should be asking yourself is
from a monthly perspective name the two
indexes that have the strongest relative strength it’s still going to be
the Nasdaq it’s still going to be
the SP so as an investor you might be
looking at tech specific type of stocks
or SP specific stocks now it would
also be a really good idea with this is to
be drawing the levels of support
and resistance on the chart okay you might even draw the lines
maybe at the ten period moving averages
or average that it’s been acting as
far as the level of support and I’d
like you to do that for yourself second
question we want to be asking ourselves is
the following when we take a look at
the sector’s okay and I’m knocking
I’m not going to really give you this
list quite yet not yet if I were to ask you
the question name the three sectors
that have the strongest performance
in the last week what are they these
are questions you should be asking
yourself and if you’re not asking
yourself these questions you’re probably not in
the areas of relative strength named
them three sectors strong this weekly performance now what we’re doing
is it’s not really up for debate it’s
just really calculating the
percentages well okay let’s so let’s pull it up
so if we go back to the sector’s what
you’re going to see is from the highest
rank to the lowest it’s going to be
yours truly it’s technology.i XT followed by
xB that’s basically riyals followed
by that would be utilities and
industrials when we actually take a look at the
one-month returns technology basic materials
industrials okay and actually that list let
me kind of rank that there we go and now
what you’re going to see is they’re
still technology so these are the same
whether we look at the one week of the
one month we see discretionary x’ higher
beta okay there’s the energy there’s the industrials and if you look at
these these are sectors that are more
mid beta or higher beta in other words
investors chasing returns the areas that
have underperformed which is not too
shocking as more like your staples okay
again those are dividend paying stocks
less growth now if we take a look at
SEC question so first question we
want to ask herself is if I were to ask
you the question name the three name the
two indexes the strongest in the
last weaker month can you ask answer that
question if I ask you the question name
the three sectors that are the strongest
in the last week in or the last month
could you answer that question if you
don’t answer that question you it’s highly
unlikely that you’re in the areas of
relative strength now number two question
and we did this what are you allocated
to when we pulled up that diagram drew a
drawing and I was trying to really
figure out where is this portfolio
allocated to we saw that this portfolio was
allocated to the top right and we said that
it lacks this portfolio so far really
kind of more or less lats
diversification okay so think about the areas that
maybe you might where you allocated to now
also what that is number three third question is what types of strategies could you consider in
the current volatility environment
so if we had a Vic sub and I want to
answer to this question for sure if the
fix was down at 12 what type of
strategies and again this is a routine you’re
thinking a if the mix is at 12 what type
of strategies would you consider
what type of sectors would you consider
well when the VIX is low stocks are
typically up trending above support and that
probably means buying options it’s
probably less expensive strategies you might
be thinking about would be a long
calls potentially potentially or
buying stock and using the low-volatility
environment to buy the puts as a way to
protect the stock hmm those might be two of
the main strategies okay question number
four can you I what are maybe some ideas
of stock candidates for portfolio weak this so I saw that we didn’t
have anything in utilities some
staples nothing nothing so it what I’m
going to do right now is if we were going
to pull up let’s say the area let’s say
Excel you what you’re gonna notice is
xou kind of has you know it’s not perfect
but we kind of see like a shoulder this
low word goes down a little lower
and on the right hand side kind of like
another shoulder nevertheless it’s not
perfect but really kind of more the
resistance is right around about six and
change six and a half six fifty now if the utilities were going to go up
there’s one stock or there could be a
couple stocks in there and this is
we’re going to get in the application of
some stocks that might go up ahead
potentially of what the sector does although
utilities one of the stocks that is more
volatile or tens or historically doesn’t
be more volatile in the utility space is
a company called me now me what
you’re gonna see is it is a larger
dollar stock ah can’t invest in it well
that’s not true now what you’re going to
notice is if we take a look at from a
trend perspective remember this is a
utility company okay trend going from
the lower left to the upper right go back
and look at the three-year weekly chart
that’s what it looks like historically
this stock is used at thirty week
moving average as far as the support
level we go back and take a look at this
now James why are we looking at
utility right now the reason why we’re
looking at utility as we ran through our
routine and we said we have nothing in
that bottom left-hand corner nothing
that’s a concern a little bit because if
the volatility in the market were to increase most of our portfolio’s
in the higher beta area now what I’m
going to show in this example is if you
take a look at this we have a stock
that has gotten above a 20-day high okay
20-day high and if you don’t mind what
I’m going to do is I’m just going to
put NEE in this list that we have right
here and let’s see if really NEE kind of
checks some of these boxes here so if
we take a look at let’s say NEE if we go back and take a look at
this you’re gonna see that we are at
a 20 day high guess yesterday we saw that
the price yesterday was above the
high of the low day okay that low day
being the tenth that red candle and
yesterday was more of what we would call a
bullish engulfing candle now again the
both of those moving averages they’re
turned up so they’re still showing us a
trend and sometimes these stocks might try
to come back into the middle of that
candle and try to bounce right off that
support level now what I’m going to do
from a capital standpoint because
remember what we said we only have a portfolio
of 175,000 if I buy a hundred
shares of NEE and that’s not going to get me
very far okay well it’s good as well I
should say like this it’s gonna take up a
lot of capital now remember we said if volatility is low an investor
might try to look to say could I buy calls
that investor might say they could
also maybe say could I maybe also do long synthetics okay which is the
buying of the call and the selling of the
put together mimicking the stock
ownership okay now what I’m gonna do is
gonna go to the trade page and what we’re
going to show in this example is if we
go let’s kind of go to let’s try to
go out a little bit farther maybe
something like the 20th ask is me yeah the
20th of March and if we look at the 20th
of March that’s gonna really be 66
days to expiration if we looked up by a call that
was in the money okay in other words a
strike below the current price that
caused nine dollars and 80 cents now here’s
the deal we might really be looking this
and say I don’t want to pay nine dollars
and 80 cents well we could come on the
other side and try to sell something
that could help us reduce the value
or the the debit of that call so if we
paid 980 and then collected 370 the
net of these two is really going to be
about 6/10 now here’s the major point
we have a right to buy their shares at
240 ok when we buy that call we have a
right to buy those shares of 240 the
right is not free the debit that we’re paying
is 6 dollars and 10 cents now what
you’ll notice is in 66 days the stock
would need to be at or above 246 10
now you should be scratching your head a
little bit and thinking well it’s kind
of awkward because the stock is
already above 246 10 that’s exactly
correct we just need the stock to stay
where it is anything above where we are
right now could be gravy ok and the thing that you also want
to really remember he is here is
when we buy a call and we sell a put the
deltas are both positive not negative
positive if you add up 66 34 34 ding ding
ding 100 now what we’re gonna do is
we’re gonna right click on that call
right click on that 980 we’re gonna go
to buy and so Ricardo says earnings on
January 23rd if anyone has followed me
for any length of time any length of
time we always talk about maybe trying
to look for an opportunity prior to the
earnings now when I say prior to the
earnings does that mean wait 2 minutes
before the earnings fell no we typically
talk about days to weeks probably more
weeks to try to get in weeks prior to those
earnings with the expectation potentially
that investors might start to
speculate and if they speculate they might try
to buy the stock could they might try
to buy ahead of earnings ok now if we
go to buy and now we’re gonna go down to
where it says collar synthetic now all
we’re doing here in this case is 5
plus 1 the 240 call selling minus 1 240-Put there’s the debit we’re
now going to come down to where it
says single order we don’t want to
just put on the single order we want to
have an exit if we come back to this now
what you’re going to see is it’ll say
first triggers seq that just means
first get in number two we can now
right-click anywhere on that green line
anywhere and we can now go to where it says
create opposite order if we do that now
this is going to allow us to set a
target if we wanted one but also to set the
stop we’re now going to go over to
where it says limit and change it to a
market it’s conditional date or GTC
again conditional when I say
conditional think market GTC over to the right
you’re gonna see that when we put the
cursor over to the right there should
be a gear we’re gonna click on that gear
and if we click on that gear now we can
actually set place where we’re gonna set
the stop now if we look at it kind of the
support level let’s zoom in on this
quite aggressively well the support
level on this we might look at let me
kind of mark this these might be some
levels that you might be thinking of so
number one okay let’s say you said 240
for a secondary area might let’s say
be 240 clearly if you set a stop below
244 it’s really really tight okay greater probability of being
stomped out if we set the stop of let’s say
240 and change less probability of being
stomped out so if I take 240 86 less to
to 3% it’s really gonna give me a stop
off to 3600 4 so I’m taking the stop
underneath the secondary line so we go back
and take a look at this we go to the
gear again we showed that bring it
back up right where it says symbol we
click on right below their method is mark
at or below we’re just going to type
in the number to 3604 okay when we type
that number in and we click on enter that
number at the bottom should read to 3604 if it
does not press enter again make sure
it’s showing down below now if we go
over to the right we’re gonna click on
save and if we go confirm and send the transaction fee is gonna be 65
cents per contract since we’re buying the
call and selling the put ok 130 when we
sell 2 contracts hence the 130 the buying power
is only 5200 okay because this is a
margin account and what you’re going to
notice is there’s the exit it’s saying
if it goes at or below 2 3604 again
what was the reason why we were looking
at need we said in the portfolio we
didn’t have anything in this section it’s a
little concerned because of the market
became more volatile investors might
try to sell some of those higher beta
stocks by some of those lower beta stocks
and one of the stocks that’s in that
area that has a higher beta in the utility
space is NEE since it’s a higher price
dollar stock we didn’t have to buy the
stock we could use options as a stock
investor could have sworn that was the
title of this class if we come back we’re gonna go
ahead and say send that order now remember
also on that exit it’s really saying if
it gets at or below that price sell
those options at their market prices
we’re going to go ahead and say send
that order there we go now if that
order can fill them we’ll see if it does
but you’re now going to see that
really NEE is right there now what I’m
going to do is let’s kind of bring up and
I’m gonna fast fire through a couple
stocks okay and I’m going to fast fire
through a couple stocks that could be in
this area so number one we said NEE second
one we also might look at there might
be a lower dollar stock I’m not going
to art it in one but it’s Esso ok
that’s an example of the same type of
setup cover more of a bull flag stone run-up pullback bounce above the horizontal resistance
hitting a little high here today ap is
also another one where it kind of has
that right shoulder type setup not breaking
the horizontal but you’re gonna kind
of see that looks very very much like
the industry the excuse me the
sector up near area of resistance about
ninety five we’re gonna keep an eye on
that now if we flip this and said what
about staples well to to stocks that
we might be thinking about in terms of
staples one we’re going to take is
Procter & Gamble that kind of pulled back
made another run to the upside but
I’m also going to look at a stock like
coca-cola that is a lower dollar stock
that did get above this area of
resistance and yesterday being a breakout of
the potential air of about fifty
five fifty and the stock is in the mid
section of yesterday’s range now here’s the
deal well if you were to ask people
why don’t you invest in utility stocks for
staple stocks I don’t want to put that
much capital in that area well could
you use long synthetics as a way to
apply or get exposure to those areas yes okay
so we still get the directional move
but we’re not having to put as much
capital in those areas now the other
example I’m going to do here and I need to
do this one more quickly is I’m going to actually also show coca-cola now
I’m going to mark this chart think
of their 5585 5585 is the S one area the
first support area we’re at it may be
that area of 55 and change we
activate that move that down just a smidge maybe that first support level
for you might be fifty five thirty six
and that secondary air we might look at
is let’s say 5439 now again I’m going to
set the stop underneath that lower area
let me kind of get it kind of more realistically probably about
fifty four and a quarter well if we were to
take that stop fifty four and a
quarter less two to three percent that stop
is going to be right down around fifty to
sixty two it’s about right there so if
the stock is entered up here about
fifty five and that stop is down there
about 52 that’s $3 okay so if we just did
one contract on this just one that
really means in this case that each
contract we’d probably lose about $300 on
a contract so for the sake of kind
of showing some difference here I’m
gonna go out again a little bit
farther let’s go to the March so let’s go
closer to 70 to a hundred days try to show
that example look at the first call
that’s in the money have some intrinsic
value 89 cents selling they’ll put that
is out of the money and we’re really
looking at the let’s say the 55 the call
put there we right-click on that by
synthetic just like we did it before let’s get
some one more practice here if we go now
let’s change this to two contracts two contracts would now be not a
hundred Delta but it would be two
hundred Delta okay if we go back to single
order kind of refresh your memory how do we
do this first triggers seq how do we set
the stop or the target right click
on the line say create opposite order
if I said the words to you conditional
what does that mean you should be saying
James you taught us well market GTC well
if we click on that create opposite
order we’re gonna go limit to a market
day to a GTC god just do the same thing
we’re gonna go over to the gainer
because if I put my cursor over to the right
we should see that gear we see it
we’re going to click on it the only
thing we’re going to put right here is
coke at or below market or below and we
said that price was 52 okay 62 now we
want to make sure that the number that
we type in is down below once I typed in
the number 52 62 we want to verify
to that prices right there now what you’re going to
remember is if we did two contracts and the
stock went down three dollars two times 300
each contract is 600 yes so we can even do
more contracts than we’re doing now
now I’m just trying to kind of get your
feet wet here we are walking in the pool
together now I’m going to take you to the
deeper end of the pool in just a moment
okay but right now now remember each
contract before was at all 30 but we have
two contracts so that’s why it says
two sixty it’s saying exit that long synthetic if the stock were to
breach the area of fifty to sixty two
and sell the options at their market
prices okay buying power effect since this
is a margin account is we have to set
aside really in this case about twenty
four hundred dollars if we do that
we’re going to go ahead and send that
order let’s see if that can fill on
the market or on them excuse me on the
monitor tab right there the order of need
did fill has a delta one hundred SATA
slightly positive 0.3 and so far it’s
slightly up all right and then coke right
there what you’ll see is we have an order
but the Delta there just says zero okay
now let’s take a let’s take a
timeout we got about 17 minutes or so but so
it’s so far what we’ve done is we’ve
last week we tried to get in those areas
that had higher beta the reason was we
were setting up a portfolio and we
saw the market was what’s called risk on investors were trying to capture
some of those tech like returns okay
today what we’re doing is we’re swinging
back so far and we’re making sure does
this portfolio have some built-in diversification that if the
volatility went up could maybe we have some
other stocks that might do well if
volatility were to rise now let’s take a
quick timeout are there any questions
with what we’ve talked about so far
any questions okay yeah so Lisa says
yeah correct yeah we were only
risking 600 on that we could even risk we could probably do about four contracts
of coca-cola I don’t want to I am gonna op it
but to start off I did two contracts
but absolutely we could have done
really about four okay Louise says if
the volatility were high would we
look for a put well when the volatility is
high typically investors like to sell
options in the current market volatility
we don’t see high volatility we
don’t see a lot of stocks that really have
in this case high IV percentage there’s
way more stocks that have lower IV
percentage than higher okay and I could
show you that but if we just look at the
VIX we know that’s probably true okay
question from sandy sandy says are long synthetics allowed in IRAs if
well you’d have to so this is where
you call up your broker and you say can I
buy a long call the long call you are
paying for the long call it’s a debit
it’s a defined risk trait that’s what
the broker wants to make sure is
their defined risk number two in your
IRA are you allowed to sell puts or cash
secured puts if the broker allows you to
do strategies where you are the one
that are backing them up in terms of
cash could be likely that you’re
allowed make sure call the broker and
say am I allowed to buy a call and sell a
pot okay ask them now lisa says can
you recap talking about the 70 to
100 days so the biggest actually thing is
let’s kind of go back so I can show
you this so if we went back okay – and
what I’m going to do is let’s kind of let
me kind of show a different example here
so we see that today the Dow is the
index that is really making some of these
well actually hit a high here today
over breat or I should say this
breaching 29,000 now a member the list
that we’re pulling from Dow 30 Nasdaq 100
S&P 100 you’ll never wonder around
pulling them from because I’m gonna pull them
from those one of the stock that came up in the list today
today today today today was uh
American Express now why would this stock
be a potential interest well we take
a look at the stock we say geez what do
we see on this stock well first off
you’re going to see and Lisa I’m going
to come to that question we see an
upward trend we see a prior high okay so let’s draw that here’s
the prior right here there we go here’s the base
here’s the run-up there’s the pullback and
now what you’re going to notice is we’re
up near that rim of the cop or up near
the rim of the ball this is the most
probably looked at type of potential
pattern for a longer term investors what
would they call cop and handles right prior
high base run back to the upside and
then a push to the upside not the only
one but probably one that’s looked at it
quite a bit now on the right hand side
what you’ll notice is a flag a run up
in the price pullback and a little push
today we’re actually hitting some
brand new highs here an American Express
with the stock having earnings on January
24 now here’s the deal if you pick a
shorter duration as far as time so if we
went to let’s say February and we said
hey let’s say we pick something that’s in
the money you know what’s the
purpose of going in the money the purpose
of going in the money is that we get some intrinsic value in other words
who are buying or what’s in that package
in that six dollars is equity so some of
that six dollars is the intrinsic
value if we bought let’s say the 130 we’re
not buying any intrinsic value it’s
all extrinsic value or time okay so
we’re trying to buy something that has
some intrinsic value where there
could be at the money or in the money in
this case we’re just going one strike in
the money on the selling the put side
we’re typically going to the
corresponding poured over to the right that would be really the 125
that has the Delta of 28 now here’s the
thing if we did something like February
the con about that is that you know once
those 38 days are gone it’s over okay
so this is shorter and maybe the move
doesn’t happen that quickly so let me
just quickly show you something I
think we know what we’re getting at but
let me just kind of show you something
so if I were to say look the paper money
account is going to do the February ok
long synthetic here we go here there
it is now the debit right there is 448
for the February 1 25 the call put well
wonder if we wanted to go a little bit
further out let’s say two more months
now watch the debit watch the debit for 49
well if we went two more months how much
more is it really going to be well it
didn’t change at all if we went out
let’s say let’s verify this if we went to
July ok it didn’t really move that much
you went to 467 so fee if we just buy
ourselves a little bit more time the debit
is not really going to be that much
different so you might say what’s the real
purpose of going shorter dated you might
say there’s no purpose at least if I
go farther out I just leave myself
some more time and we’re not seeing a significant difference in terms
of the debit so why would an investor
go shorter they might realize in
this type of strategy I don’t really see
the purpose of it if we go let’s say February April or July the
deltas are the same okay we look at the
price or the debit difference they’re
within twenty cents of each other okay
you might go shorter because you
just want something they might have a
tighter bit outspread more liquidity but if
we go shorter there’s greater risk of
you being put the shares in the
short put because you’re closer to the
expiration the deltas are the same okay now
what I’m going to do in this case is
let’s what I’m going to do is let’s
take a I’m going to show the example
here of we talked about if we have a stock
if we have a market where the VIX is
low that means stocks are at high so I’m
going to be breaking up about resistance
okay one thing we might say is could we
maybe buy the stock and if the volatility typically is low could an
investor buy the Put as it away to define
risk now if we come back to this so step
one okay now this stock if we go back to
James you said we were gonna look for
example of CAHOLD this is we’re actually
closed if we close here we’d be closing
along the high of the low day the low day
being the red candle of what we had
two days ago James this is also an
example of a twenty day or a fifty V of five
day high that’s correct if we can hold
here okay now does that guarantee that the
stock to go up no we’re just looking
for a setup so if we go let’s say the
trade page step one if we come back
and say look we’re gonna buy 100 shares
of stock step number two let’s go out
maybe thirty or so days and let’s see
what the implied volatility is so if we
were going to buy a put as a way to
protect the shares now here’s something
I’m not really sure if investors
completely understand so when we look at
the implied volatility it’s at
nineteen point eight nine the lower that
number is that means you can buy a put
closer to the current price okay low to
the current price so the stock price
and the strike price are closer together
when that implied volatility is lower
and the debit you’re paying for the put
it’s probably less now if we wanted
to could we maybe even pick a strike that
might be a little closer well let’s
let’s take a look at this so if we go let’s
say look at the weeklies and this is
the benefit of seeing weeklies could
we maybe go look for something with
a delta between thirty to forty now
remember where would American fit on that graph we drill well
James you said industrials
transportation ding-ding-ding financials that
be kind of more what we call mid bata
okay so now we have Boeing already in
our example so what I’m gonna do is
instead of going the monthly by going
the weekly we’re able to get a strike
there’s a little bit closer to the current
stock price the closer the strike is
to the current stock price the closer
your protection is now if you take a
look at this just real quick so if we
bought the 127 again when you go to the
grocery store and you let’s say you’re
gonna buy a steak you typically want to
say well how much is it per pound you go
to the gas station how much is it per
gallon well if we’re going to buy the
put how much are we paying for the punt
per the one dollar or one share of the
stock well let’s take let’s take a
look well if we paid a dollar 89 for that
punt and what is for one chair of the
stock please 1:29 31 it tells us we’re
really paying about 1.4 percent now
we’re concerned about that because if
that number is lower that’s really
saying you might consider buying the puts
okay then if that percent was higher it’s
really saying that the stock would have
to move up more to break-even okay now
what I’m gonna do is going to come down
here stop by plus 100 number two we’re
going to come right here and say not
single order first triggers seq right there
left click right on that 188 and so
let me kind of just back up for a
second so we’re talking about buying
protection we want to typically look to buy
protection or consider it when the implied volatilities is low this has
pretty low implied volatility it also has
earlier earnings coming up okay and so we also ran the the
numbers and said a dollar eighty-eight divide that back
into the current stock price it’s only
1.4 percent so that’s pretty low
that dollar 88 represents what how much the
stock has to go up to a break-even the
lower the number is the more the
investor might see the value in buying
the put okay and the opposite would be
true it feels higher now what I’m going
to do is I’m now you know what you’re
going to see and let’s just kind of pull
this up so when we take a look at this
if we buy that stock at about let’s say
let’s change that color so we can see
this so if we buy this stock at one
twenty nine thirty six okay we have a right
to sell those shares at one twenty seven
so simple math here so we take a
look at this we have we’re really
risking two dollars and thirty six cents
buying the stock here we have a right to
sell the stock at one twenty seven to
thirty six November the rights not free
it’s not free okay so what you’ll notice
is if we add that also in here you had
that in here oh my gosh do you know what
it feels like to do math on TV on
YouTube so if we take a look at this
we’re really risking for everyone one
hundred shares of stock check me if I’m wrong it should
be about four dollars and twenty four
cents or four hundred and twenty four
dollars since this is really $129 stock
we can’t buy any more shares than 100 so
this is really going to be the risk
we’re taking from now and till that put
expiration now what happens if the stock
goes below the 127 you stop right to sell
the shares at 127 what happens if
the stock closes down below the 127 the
stock is going to be sold at 127 at
expiration what happens if by expiration
the stock is that let’s say at 133 well we
bought the stock at 129 36 we need to
add the 188 the average price in which
we own the stock is going to be raised
because the put value will go to zero okay so that’s what we’re
concerned about how much we’re paying for
the put that’s not free but it is giving
us a way to define our risk and also
as if this stock were to gap down we
have some gap protection now we’re gonna
send that order in confirm and send
remember the stock in this case is going to
be transaction there’s no
transaction fee we can see that they’re number
two we also talked about therefore the
put we have one contract or in other
words sixty five cents and notice that
can really act like a wade we can
define the risk this is different than a
stop though we go ahead and actually
go down now and say send that order
there we go so these are some of the things
we did let’s so let’s kind of capture
what we just did so some of the
differences we made to the portfolio today we
did a we did knee okay we’re down to the
lower section lower corner of that
port the picture I drew we also did cope
which is not filled yet we’ll take a look
at that make sure that fills and the
other one is American Express and that one
did fill so in a period of about two
times of getting together we’re
starting to build more of a diversified
portfolio where we have some stocks in
some options each week we’ll kind of
look to build on this and also manage
this together okay has this been
helpful for you today as we talked about
some of the pros and cons of what we did and
maybe some changes we might make to
the portfolio okay now remember what
we did here today is we talked about
the market update still seeing a strong
upward move we talked about again recaptured
far as the class portfolio what are we
really going to be doing for the year
of 2020 third we talked about a
portfolio routine example and we talked
about based off that routine example
how to demonstrate some stock and
option examples and we did three of
those here today okay so with that said remember that
coming up in a little bit we will have
my good friend Pat Pat Mullaly be doing
a class on active trading strategies we
will also be having Connie he’ll be
doing a class on trading stocks and
options as well coming throughout we also have long options and
that should be Scott Thompson he will
be coming back to the lineup of
presenters so with that said remember that
in order to demonstrate demonstrate the functioning of the platform we
needed to use actual symbols we did
remember that TD Ameritrade does not make any recommendations determine
suitability of any security or strategy and
remember that all investing involves risk stay tuned for actually Pat
Mullaly coming up just in a little bit
thank you so much I will be teaching
tomorrow Thursday I’ll be flying out to
Boston teach the event there in Boston
so with that said thank you so much for
your comments and your participation stay tuned for Patrick Mullaly
take care bye bye you

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