[MUSIC PLAYING] Hello, everybody. Welcome once again to
TD Ameritrade on Twitch. I am your co-host Anthony
Panzeca joined by-- Bill Ruby. We have a very
special guest today. We are very, very excited. We're going to bring
him in a second. Quite. We have the market's
up a little bit today. Yeah, let's take a look. Dow is up 52 to 29249. We got the NASDAQ
composite up 42 to 9412. And the SPX is up 8
to 3328 right now. So up across the board. There's a few big movers,
and a few new followers. That's right. We've got
[? DaveBruss. ?] We've got JayBurns81, Chris5642,
SkittleMonster, in jail, out soon,
2020 [INAUDIBLE].. [INAUDIBLE] just looking
at-- and he commented, too, in the chat. That's what I was looking at. BearSpider,
OneCoffeeTeaOne, ChopsBump, PermanentMillionaire. And I think we saw
JimCramer last week, but thanks for the
follow, everyone. Thanks for the follow. Might be one of the
best user IDs thus far. So far, I think
it's my favorite. Says he gambled on Tesla this
week, and made a bit of money today. Well, anything on Tesla is a
gamble these days, I feel like. Let us know what you did. I'm curious to see what you did. Did you buy calls? Buy stock? What did you do, sell puts? Hey, OmniCapital,
how are you doing? How you doing OmniCapital? Or OrmiCapital. Excuse me. Ormi? Yeah, Ormi. Ready to get through a
few ground rules, guys. And unfortunately I got
to read this every week. The information
presented in this stream is for illustrative purposes
and educational purposes only. It is not intended to
be investment advice or construed as a recommendation
of any particular investment or strategy. Bill and I are not analysts,
and we cannot provide opinions on stocks performance. No ETFs. If we talk about ETFs, we
cannot archive the stream. No ETFs. Please follow the chat
guidelines listed below, the video player
on our Twitch page. And if you choose to shadow us
in your paper money account, that is fine. However, if you place any trades
in your real money account, you are on your own. And we're just going
to move right in. And we're going to
bring in our guest. We're very excited
to have chief market strategist for TD Ameritrade. He's a 30 year trading veteran. Bill, how old were
you 30 years ago? I would have been-- You were still in diapers. I probably wasn't
even crawling yet. OK. We will welcome JJ Kinahan
to the episode here. How you doing, JJ? Thanks for really
making me feel at home. Hey, you're old. And we have guys
listening from jail. Awesome, guys. Exactly the type of thing I
want to be associated wtih. [INAUDIBLE] We like traders of all kinds. Yes, we do. No, excited to be here, guys. Looking forward to it. It will be a lot of fun. Yeah. We've tried to get
you on the show. Busy man you are. We appreciate you coming
on though, and joining us. We've been talking
about it for a while. And so you were a market
maker at the CBOE, correct? I started before
Bill was even born. December of 1985
was the [INAUDIBLE] Oh, wow. As a market maker at CBOE. How did you get started
in the business? I'm always curious about that. Pure luck. So quickly, I grew
up on the north side of the city of Chicago. I'm the youngest of eight kids. Eight kids. Wow. Kinahan, that is an
Irish name, isn't it? Yeah. My middle initial
is O, for oops. And then my folks
were from Ireland. They were smart,
but not educated. And neither of them graduated
from grammar school. My parents, same thing. They were born there? Yeah. Born there. My three older sisters
were born there. They came over here. So we worked in a very working
class-- great area to grow up, a million kids. I didn't even really any
of this stuff existed. And fast forward, I'm at college
at a holiday break, come home, my brother in law's first
cousin happens to be a trader. Brings me down. Meet him. I'm trying to get a summer job. I'm like, hey, do
you hire runners, because back then
there were runners. And he's like, you can come
work for me as a clerk, for a gentleman named [? Zach ?]
[? Fishman. ?] Great guy. I owe a lot to him. And I clerked for
[? Zach ?] and his group. I clerked for many
different guys. Back then nothing
was electronic, so you got in every
day at 6:00, you made sure everybody's
stuff was in order. They trade. They leave. You'd make sure
everybody's stuff was in order at the end of the day. So you worked 6:00 till 6:00. And for that, I got a
whopping $700 a month. Wow. Whoa. Was that a lot back then though? No. No? It was exactly what
you think it was. [INAUDIBLE] In fact, they gave me every
opportunity in the world. They were wonderful people. I used to bounce. There's a bar right down
the street [INAUDIBLE] Chicago called Pippin's Tavern. Been there for about 30 years. Well, no longer than 30. Probably 50 years. And I used to bounce every
Friday, Saturday, Sunday night while I clerked on
my first year and a half of trading, so that way I
didn't have to take money out of my trading account. But as I said, I owe a
lot to a lot of people. And they were very fortunate. And then I was very
fortunate that they gave me this opportunity. I was lucky enough
to have some success. And then started
with thinkorswim. And I had known Tom and
Scott for many, many years from the pit. And started with
those guys in 2006. And you traded,
what, index options? I traded primarily OEX. It was the biggest
pit in the world. There were 600 people in there. Then I went, traded
some equities for a while in the early
2000, Cisco, Oracle, Microsoft were very busy. And then I went back
to the OEX and SPX. So this is something we got
asked last week that you could probably put your two cents on. Put my oldness to. No, well, it's really
how you learned trading, how you learned options, right? Now, you probably had a
couple of mentors there too, I'm sure, that helped. But would you say it's
a combination of doing, mentorship, and kind of
reading up on yourself? How would you describe
your learning process? I think you have to
start with yourself. Again, I was fortunate. I clerked. I worked for a group of people
every day this is all they did. This is all they talked about. But I would say the biggest
thing for most people, as you're playing along
at home, so to speak, is start from probabilities,
because all options are is giant probabilities. So just start thinking about
probabilities with options. When you buy things
that are in the money, you have a better than 50%
probability of making money. When you buy things out
of the money, you don't. And so some are made to
buy, some are made to sell. Let's put it that way. That all said, I think a lot
depends on you reading up. There's a reason we
created paperMoney, because, go in there, have fun. Actually, we're so generous, if
somebody loses 100 grand today in paperMoney, we'll
give more in the morning. This is the type
of people we are. But quite honestly, Anthony
said it at the very beginning when some of the forward stuff
we read from a compliance point of view, but the
most important message I could give anybody is when
you start trading real money, trade way smaller than
you possibly think. Easiest thing in the world to
do is to become a bigger trader. One of the hardest
things in the world to do is to make up money
when you've lost it. Trade small, trade small, trade
small, a few more contracts, a few more contracts. Get used to the
risk at every level. When you first start
your first trade, you're going to want to
throw up on yourself when it goes against you. That's great. It gets you used to the
feeling you'll kind of crave for the rest of your life. If it goes your way right
away, what's the fun? And the market doesn't go
your way right away anyways. If it did, everybody would
do it every single day, and have success. But over time, the
people I know have had great success are humble,
they define their loss, and most importantly,
they trade smaller than they think they need to. What would you tell somebody
that's just starting out? They might not know
or be able to do certain types of calculations to
see how big they should trade. What would you tell somebody? Is it based on when you
start to get uncomfortable? If you start with one-- you can't go smaller than that. That's true. And so start with one. Again, be humble. And the beautiful
thing about the market is if you think you're
smart, it will remind you, well, you're an idiot
every single day. You guys know it well. You get humbled. You get humbled quickly. And I think going in being
humble, start with one, get used to one, get used to
the mechanics of making a trade. There are mechanics. When I started
trading in the pit, I was limited to five contracts. It's the most
humil-- you got guys around you going 200,
300, 1,000, you're going, I'll buy 5. And you're like, get
out of here, loser. But what it taught you was an
incredible sense of humility. But what it also taught
you was just the mechanics of making a trade. It's different. Go one, to two, to
four, get comfortable, as I said, at every level. And you're going
to get to a place where you're like, that's
enough risk for me. Yeah. And I like the word you
use there is comfort. And I always tell
people, when it starts to feel like it's
uncomfortable for you, you're trading too big. If you've lost a
wink of sleep, I feel like, you're
trading too big. Or if you're stressed
out, and it's affecting other parts of your
life, you are trading too big. That's the way I kind of
look at it, too, right? But maybe you're taking it out
on your dog, the dog walk-- ah, I just lost $75 today. You know what I'm saying? No, don't take it out
on the dog, Anthony. Yeah, poor dog. You get the idea. You guys will also
identify with this. One of the guys here
is getting married. He was talking to me about it. My wife made a terrible
trade almost 31 years ago, and so she just can't get out. No bust. No bust. No bust. No buyers anywhere. It's the worst pick she
could have ever made. But outside that, we won't
dwell on her mistakes, he said he's getting married. And I said, I'll
tell you something, my experience has
always been, when I have something really good
going in my personal life, my trading seems to go to hell. And when I have something-- if something is really bad on a
personal side, all of a sudden, you're making money
hand over fist. It's just funny
how life works out. I've had that, too. And I was wondering, is
that cause and effect, or is that just luck? Am I focusing more on my trading
now, and then it does well, or I don't know. I think it's focus,
honestly, Bill. I really do. It could be. It's a mix of both. Now, JaredLetoFan said
something in the chat here. I think there is a picture of it
online, and you in front of it. There's a bar called JJ Kinahan. JJ Kinahan is on
26th Street New York. And so the people
who [? run-- ?] been there many times, they have
my badge hanging above the bar, actually, if you go there. Oh, wow. They're really nice folks. They're from town 10
miles over from where my parents are from in Ireland. The JJ Kinahan was a
championship bicycle racer, came over from
Ireland in the 1910s, and set three world records
at Madison Square Garden. And so that bar is right
near Madison Square Garden for that reason. And so I'll tell
you-- and I don't want to take up a whole
thing with stories, but I'll tell you one
quick funny story. First time I walk in the
bar, it's just opened. I walk in, I walk up
to the bar tender, I happen to be at an event
where I had a nametag. And it said, JJ
Kinahan, TD Ameritrade. And he's like, hey,
can I help you? I go, yeah, I hold up
the name tag, I'm like, yeah, you owe me a drink. And he's like, get out of here. I said, I'm telling you. This is who I am. He's like, you gotta
come meet the owner. Owner is sitting at
the end of the bar. I walk over. He looks up. He sees me. He goes, I know who you are. And he goes, I'm sick
of seeing you on Google. And I said, oh, that's great. He goes, did you
come here to sue me? I said, no, I came
here for drinks. Was he serious. Yeah. I said, I came here
for free drinks. He goes, you've got a deal. Sit down. So anyway, nice couple. Everyone should stop in there. I don't have any financial
interest in the bar, but I will tell you they're
very, very nice people, and I hope they're successful. Yeah. That is cool. So they didn't recognize
you from your appearances from CNBC. Well, like I said, as
soon as I walked in, he knew exactly who I was. Yeah. And then he probably
saw some graphics there. If he was googling
the name, or whatever. So I hope it goes well for
them, because they're very-- they're a nice young couple. So getting back to
the trading side, when you were trading OEX, you
mentioned that you could buy, or you could sell. What kind of strategies were you
guys doing on the floor mostly, was it a buy side,
was it a sell side? Well, I would say what we
did is it's interesting, but it's not relatable
to what the folks that are listening to you are doing. And the reason I
say that is, you guys experienced it,
you're a market maker, you buy when everyone
else wants to sell, you sell when everyone
else wants to buy. In markets like this, you'd
be selling a lot of things, but what you'll learn
how to do is to hedge. And that is a skill
everybody can identify with, defining your risk. I mean, you can't do anything
more important for yourself, in my opinion, as you
try and build wealth. And many of the folks, I'm
going to guess, listening here are starting out, many
of you are in terms of building your nest egg. Don't think about home runs. Single, single, single, single,
single, till your ears bleed. And I'll be honest,
that is how I traded. I did not trade for home runs. I traded for singles. And I was very consistent
in trying to make. I had a goal I tried to
make every single day. And I was like, OK, if I
make this kind of money every single day of
my life, my life's going to be pretty darn good. And it was a matter of
accumulating small amounts in every trade. Now, take that to what you're
doing as a retail trader. You have to have a little
bit different selection. I'm selective now. Back then I would trade all
day long because I didn't care. You had an advantage. The reason I became
a retail trader is because I don't believe
the advantages to the person on the floor anymore. I believe it's at a person
behind the screen who's saying what they want to
do when they want to do it. Now it's more so than
ever around probabilities, defining my risk, and starting
with this is what I can lose. Every good trader starts
with, this is what I can lose. Because when you first
start trading, you're like, look what I can make. And then it goes against you. And you're like,
they screwed me. Right? I mean, you guys get those
calls [? on a test call. ?] Never. This way. I swear. But what good traders
do is they say, OK, here's what I can lose. Is the amount I reasonably
think I can make in line what I think I can lose? If it is, I'm willing
to put on that trade, because I have nice
probabilities for doing so. And that's the
biggest mind shift. And if you're new, and you're
swinging for home runs, unfortunately, you're probably
going to strike out a lot and end up with
very little money. Singles pay the way
through a lot of-- not in baseball right now,
but it will always come back, because consistency matters. Right. And that goes back to
what you were just saying. Starting with a one
lot, and doing that. We've talked about on this
show that position sizing is something that
a lot of places just don't talk about enough. And if you're starting small-- the best traders I've ever seen
are just taking those signals. They're looking for
a robust strategy. And they're just doing it
over, and over, and over again. It's nothing crazy sexy,
or anything like that, but they're still making
money on a regular basis with what they're good at. Go ahead. I was just going to say,
if trading is not sexy, despite what many
people think, it should be almost
robotic in many ways. And I consider myself a
little bit robotic in what I do as far as my trading. What I would tell
you, if it's sexy, you're probably
taking a lot of risk. If you want to do
that, go to Vegas, at least you're going to get
free drinks all night long. That's true. You've got something
to show for it. Yeah. Exactly. Yeah. Those defined risk strategies
are so key, I think. Some of these
things you look at, you could look at
on a risk profile. And it does look sexy, right? Long call, right? That's the sexiest thing
you could probably look at. It goes to a million. Or just being short straddles. And it looks like, wow, look
at all the money I could make. But those strategies, they
might work a couple of times, and give you a false
sense of success, but over the long
haul, you definitely want to have defined
risk strategies. MemeReversion, hello. Hey, MemeReversion. Choppery13. And he's working on
[? LGOs ?] it looks like. Well, good for you. Wow. You got smart listeners. The guys [? who are ?]
in jail are smart. I think even our jail
guys are pretty smart. I would say so. If they're listening
to us, they're already off to a good start. That's true. So we have some position
management to do. 2020 has not been the
greatest year for us. We had a good 2019. You sold something? [INAUDIBLE] Right? Every time we've gone
against the market and try to pick the top,
it has gotten in our way. And you'll see it here, AMD. Why are we selling
call spreads in AMD? We were trying to pick the top. We doubled down on this. So we had the 1 by 2. That's probably all
your idea, Bill. It was a call three. I believe it was a team effort-- or I mean, a put three on. It was probably my idea. So we-- I don't know--
it went against us. We tried to call the top. It looked like AMD was going
to turn a corner looking for that psychological 50 mark. Obviously, we didn't get it. And then we funded it
with a call spread, which has also gone against us here. Nothing we could
do with these puts. That's going to be a loss. Maybe we should just buy
this call spread back, or we can wait a day and hope. But we've talked about before
how H-O-P-E is not a trading strategy. That's right. And that's what we're
kind of going off here. When need to get this
vertical back for $0.74. $0.74 on-- how many do we have? Or just we'll hold
it for another day. We have just a one lot. I would let that ride. Well, here is what I would
say to your listeners. I think a couple of things you
guys said really resonated, but the one thing I
would say on that. So the way I try
and look at those is, do I want to risk
$0.26 for one day? Yeah, because
that's all there is. That's a personal opinion. I mean, now it's $0.28. I agree with that. Was there a point today where
you would say, you know what, if it got down to, I don't know,
$0.69, $0.68, would you buy it back, or are you saying you're
willing to risk it one day? And that's, I think, what
people have to ask themselves. For one day, $0.25
seems like too much. I think that's a little
too much to expect, a dollar and a half
move, especially when AMD has been going up. AMD has been going up
just nonstop it seems like over the last two months. Now, this is a
short in the money option as part of a spread,
so we could be assigned. It's not something that's
going to happen in paperMoney, but that is something that
could happen in the real world. So you kind of have to
take that into account too. That could happen. Most likely going to
happen before a dividend, but it could happen at any time. Yeah, we could get to
index options fees. Can I ask you guys a question? Yeah. Yeah. Because you both
said something there that I think is
really important, as somebody just
listening to the-- I'm talking but I'm actually
listening to you guys, believe it or not. You both said we
tried to call a top, don't you think that that's
a pretty important thing to talk about, the
fact that that is often a really tough game? And I'm glad you only did it
with one contract, by the way. Well, it's a mixed
thing on this. So we were talking in the chat. And there was the
psychological level of 50. We kind of talked about
that calling a top is like catching a falling
knife on the other side. It's very hard to do. You're almost never
going to be smart enough. You're essentially
saying, oh, I'm the smartest one in the
room, and, oh, trust me, this is all it can get. No, I do not think
that's a good trading strategy on a regular basis. This we were trying
to do, the put side, and then we also kind of
doubled down on our loss there, which is not
good trading there. We've kind of talked about
that at the time, but if-- I mean, this one, obviously
we're paying the price. This is the thing, you should
often have the discipline to be able say, OK,
well, this isn't working, so maybe we should take it out. Yeah. And if you look
at anything that's happened in the past year,
two years, three years, I don't know how far
you want to go back. I mean, we're in a bull
market, really just want to spank that bull
all the way to the top. And when you try to
go ahead, and like I said, do the reverse of
catching a falling knife, we just keep getting burned. And then you ask yourself,
well, why am I doing that? Why am I doing that? We should just go with
this basic strategy, or this basic bias,
because that's what the market has shown us
until it proves otherwise. But I love that-- I mean, sorry, but I do
love that this happened, because it's nice for people
to see that even if you-- listen, I do stuff
like this all the time. I think it's
important for people, in particular those
who are starting out, to see that we who
do this every day make many of the same
mistakes, or same biases you have at home. The difference you guys did
with what other people are going to do is you know right away,
you know what you could lose, so it makes a lot of sense. And you're like, OK, we
should get out of it, and we know when
we're getting now. And I think those are really-- it's OK to have these
biases and lose some money, just don't do so on
a bad [INAUDIBLE].. Right. SwampYankee693,
thanks for the follow. Thank you. No, I agree. And that comes back
to what you were saying earlier, JJ, being a
little bit robotic with these. If you're getting
that bias in there. And when you have bias-- obviously, any
trade you put on is going to have some sort of
bias, whether it be vol bias, whether it be a
directional bias. But if your bias changes
to something else, then you have a different idea. And you don't necessarily
want that same trade. It may be time to bail,
or readjust in order to switch that new bias. If your ideas change, your
trade probably should too. Yeah. I agree with that. And it's funny you
mentioned that, because in Texas
Instruments, and I asked you and producer [? Oby ?]
this morning, is-- I think it was the
132 level, and I think that's an all time
high in Texas Instruments. I said, hey, we broke above this
level, is this a breakout here? Because I was going to go on
fast market and put on a bear trade. And what happened intra-day,
the stock's up like $4. We're going to take a look
at it in a few minutes. But the stock's
up like $4, broke through that resistance level. That changed my bias. And I went on there with
a whole different trade. It ended up being a bull trade. Hopefully it works out. But, yeah, it's like
Bill was saying, if certain things happen
in the market that might change your
bias, you either got to bail, and
say, hey, you know what, this isn't
working anymore, or just change your
strategy completely. And the macro picture,
I think, changed for chips over the last
couple of days, too. And then with IBM last night. So news that came
in probably had something to do with that also. Yeah. 100%. We got AMD earnings
coming out next week. We're going to look
at Beyond Meat. Wait. Do we want to buy back that
call spread, maybe we should? No. We talked to JJ, JJ says
if it's for [INAUDIBLE].. No, I agreed with Bill. Oh, to close it out? I just said, what
do you guys think? Bill said-- It's only $0.22 worth of risk. Just leave it. I said, do you think one
day is worth $0.22 of risk? Bill said, I think
that's too much. I was looking at it
like the other side. So it would have to come
down over [INAUDIBLE].. It's you guys' position. Hey, you want to get
out of it, that's fine. That was kind of
my initial intent that was kind of
like, don't want to try to catch the reverse
of the falling knife, because we're just hoping. That's all you're doing. You're hoping with no
real rationale to it. So we'll go ahead and
we'll route that one in. Right. We'll route that at $0.75. We'll see if we
get price improved. And we did dramatically there. Got filled below the mid $0.73. So we'll take that one off
and move on to Beyond Meat. And this one actually
did work out for us. We did a short vertical
put with a long call. And then we ended up
making money on that one. And we did it again. We sold another put spread. That worked out. All of those trades
have worked out. And you can see, it's
the same thing, right? We're not going
against the market. We're not trying to pick a top. We're just saying, hey, this
is the directional bias, and we're just
going to go with it. So we put this out as part
of an iron condor, and that bottom, 69, 70 put
spread, that was the put side which worked out. Obviously we got blown
through on the top side, which I think our strikes were
87, 88, something like that. So we got blown through
on the top side. Then we switched our bias,
and we went from a long-- where we were doing
a long [? vol. ?] That was when it
was trading a range, it broke, and we thought
it would continue. This has obviously worked
out to try and recoup some of those losses. Now, Andy, I was
seeing that you're talking about putting money
in a real money account to trade futures. So $250 is not enough
to trade futures. So you would need at least--
is it $1,500 to do that? Well, if he wants to-- yeah, 1,500 has to
be the net [? lick ?] just so that the futures
will be not turned off. They'll be on. And then you'll need the initial
margin for ES, which is, what, 720? Not ES. He's talking MES right there,
which I think is still-- But the initial margin
is 729, I think, for MES. But outside that,
with less than $5,000, it's just a little hard, because
it doesn't allow for movement after you put on the trade. I agree. Even with the micros,
it's moving around. With futures, you really want
to give a lot of wiggle room, especially at your
support and breakouts, because there's going
to be that battle. 65,000 is a good amount. I just think that that gives
you [INAUDIBLE] with the micros now, it gives you room. Listen, the hardest
part about trading is being right immediately. I mean, I don't think most
people's problem is, I just can't stand that I'm always
so right right away when I buy or sell things. Problematic. Exactly. And so you have to
build into the fact that you're probably not
going to be right right away. So you want to give yourself
a little bit of wiggle room. And as you said, put in the
stops at different areas. Know your exit before
you even go in. But if you're like, I have
to be right immediately, unfortunately, it probably
just won't go well. So I'd rather see somebody
have a good experience, and a bad experience. And I think that
with less than that, you're setting yourself up
a little bit for perhaps a bad experience. You get one or two
times to be right. And that's hard. That's pretty hard to do. Plus even with the micros and
minis, the commissions on there are the same as
the full contract, so you could get-- if you're
going in and out a lot, even with a smaller
contract, you could see a good
portion of your profits be taken out by commissions
if you're day trading, which you can do in futures. But like JJ said, you got
to be careful with it. Yeah. For sure. So 250, not enough. You need at least 700. And I think it's $29 to even do
one lot for the initial margin. But going back to Beyond Meat,
everything looking good here. We could probably just
leave the put spreads. Those are going to come
off, unless we want to buy the short legs back cheap. We could do that. I mean, these calls
are $8 in the money. What's left on? Let's see. It's a $5 wide spread. I [? would ?] be adverse
to taking this off. We've got a win. We've got exactly the
move we wanted to. It is early. We're leaving some on
the table for sure. $270, I think. If we get filled
with 4.10, right? Because that'd be 90 times 3. We'd be leaving
270 on the table. And we've already
basically made 1,300. So I'm OK taking that loss. What do you think
about this, JJ? We've got the 115 1/20 call
at a very volatile stock. So we're well
through it obviously. So here's how I like to
think about these also, is, do you think about taking
off two and leaving one? That's a good idea. I think that's a great idea. And I like to think
about partials a lot rather than being
all in or all out. You're putting a lot of
money in your pocket, even if the one
lot goes to zero, you're still going to be
up money on the trade. And now you're giving
yourself a chance for the home-- these
are the types of trades where you get the home run. If you take off enough of
it, where no matter what happened to that last
piece of the trade, you're still up on the trade,
that's good trading to me. And [? what's ?] great about
the no ticket charges now. You're only paying
a per contract fee. You can use a scaling
strategy, and it's not going to cost you any more money. Before that did with the
ticket charge, but now it's just a straight up
contract per contract fee. You can go in there, and
you can go, one, two, three. So it doesn't matter
when you do it. Yeah. We could take two off. Yeah. I like that. We'll try to go right
in the mid there, 4.02, and see if we get anything. We'll just kind
of let that work. We'll have one left
until tomorrow. We did get filled there at 4.05. Hey, ArmyCapital, we're
coming up on index options. Yeah, we'll get there. Let's get through
the rest of these. We got Cisco. This has been a poor man
covered call strategy. And we're probably going to
want to look to roll that. That's gone up and
away against us. We probably want to roll that
out to maybe a week or two out. So let's look at
the chain there. This one is trading 128,
and we sold it for 129. I believe this area now is
where we are about break even. Right? We are break even. We kept rolling this out. To buy that back, we'd be
realizing a loss of about $0.80. Yeah. Which I don't necessarily like. I might let this
get called away, or take off the whole
strategy, I should say. You think so? You don't want to roll it
out another week or two? Well, if we roll it up, then
how much are we getting? We can roll it up. I mean, we could roll it maybe
to the 50 strike, Feb 7th. We could be getting,
what, only $0.41 there. Not a ton. So we'd be paying 129 minus 40. There's not a lot of premium
in Cisco options traditionally. No. Especially now with the VIX
being, what, at 12 and change? I think if Cisco
itself, if you look out, even next week's only at 18 VOL. Yeah. Do they have earnings
coming up any time soon? Theirs are late in the-- Are they? Yeah. OK. Let's see, Jan, Feb. Yeah, Feb, 12. I don't know. Are we even on this? We really just want to get even. We are even on this now. We got to be close. OK. Let me see. I think we're down just a hair. We should go like 60
days back maybe ish. Would that get us
in there maybe? [? We did it ?]
[? in November. ?] It was November? I'll try 90. Let's see if the PNL diff is-- let's see here. Where are we? Cisco. OK. So we're at 48 bucks. [INAUDIBLE] Well, then we were
down like $500 on it. And we just chipped away
at it just by rolling calls every week. I'm OK with taking it off. Yeah. I mean, this is one
that went against us. So we put this on going into
earnings, kind of calling-- we had a deep in the money call. And then we sold this above. It ran against our
deep in the money call. And thinking that we'd
get something back, we just kind of held on tight
and kept rolling it out. We're positive now. And we wriggled our
way out of a bad trade. So maybe just-- Cut our losses. Cut our loss. It's a win. Yeah. Right now it's a small win. I think some of your best
trades are trades that you didn't make any money on. Or you didn't lose. Right? Right. That was ugly at first. We'll route that one in
right in the midpoint. And we'll let that
kind of work for us. To be honest, I'm tired of
looking at the Cisco one. It's just boring. We got assigned-- what
did we get assigned on, the short call? That's right. That's right. So we did have a
calendar on this. We did get assigned
in the short call. In this case, we
probably just want to get out of the
whole thing, right? Do we really want to short
stock in Morgan Stanley? Yeah. This is the one we should
have managed last week. Yeah, we could take that off. Yeah. I'll just take the whole
thing off as a covered. All right. We'll just go ahead and-- I don't even remember. Did we end up making
money in this? Was it small? Let's see. Let's see, Morgan Stanley. There it is. So we did end up making a
little bit of money on this. Yeah, that one did,
because I think that was also part of a condor. I'm going to go ahead and change
the price to get that done. We'll raise it up
a penny or two. And we'll just go ahead
and get out of that. So we're out of that. Next position is-- All right. ON Semiconductors. Now, this was a trade that
we put on for somebody in the chat. The StockGuy. TheStockGuy. TheStockGuy. So he was talking
about going long dis. This was a way to
get upside exposure. We sold a 22, 24 put
spread to fund a 28 call. So this one we've
got a lot of time. This one's out till April. Let's see what we put
that whole thing on for. Pardon the pun. It was 1 by 2. Yeah, so we collected,
what, 120, and then paid 85? What is that, 35? $35. So we collected 35. So it's got a ways to go,
but we anticipated that. We've got to get it over 28. It has a pretty meteoric
run right now, so kind of-- Meteoric? Meteoric, if you will. I like that word. Can't spell it. Well, that one we'll kind of
stick to our guns for now, I think. We need to just stay. OK, so where's the stock? Like 24.97. 25-ish. So we really just need it to
stay right above the 24 level. And we'll let theta kind
of work for us, right? So theta is going to
bleed out of those puts. Not enough to offset what
we paid for the call. So doing nothing
on this strategy, I like strategies
like this where we take one fundamental
strategy, when you use another to finance it. I do like those, and hear that
that could work out for us. So you want to just hold there? Yeah, hold still. All right. Twitter, last one. Last one. We're short Twitter stock. Why? Well, this was another
assignment off a condor. So this has been-- it was lower earlier in the day. Now it's higher. This one is another
one where I feel like we'd be trying to call
the top if we held on to it. No. It's running into
a gap right now. Let's take that out. Concur. All right. Too late. It's gone. All right. Scared money doesn't make money. I am ready to do it,
StockBoys [INAUDIBLE].. So we can talk about
index options fees. Yeah, let's talk
about SPX in general. We can put on a
trade in there, too. Yeah, I'd like to. Yeah. Well, what did you
look at, JJ, when you were down in the floor? What are the kinds of things-- I know you said you like
to trade small and just go for singles and
stuff like that. Were you ever a delta trader,
or anything like that? Yeah. I mean, you had to
be a delta trader, especially in [? SPX. ?] So
you had to say, I'm going long, or I'm going short,
or whatever it may be. Actually, because
you were reacting rather than picking what you
want it to be to start trades, to initiate them,
from that point you had to kind of make sure
that your deltas were in line. Now, to be honest
with you, my Greeks were probably smaller
than my volatility. I usually had bigger
opinions in volatility. I think if you trade-- one of the things I think you
have success in is limiting-- I always say, I'll make a
trade in a lot of products, but I trade very few products. So there are a few things that
I trade very regularly where I know the volatility's well. I'll make trades
in other things, but they're kind of one offs. Whereas when you're trading
something every day, it's easier in my opinion to
manage your volatility risk, and to say, all right, now I
want to be a lot longer vol, or I want to be a lot shorter
vol than I am normally. And I would keep my
deltas then in a range. People talk about
flat delta, I think it's a very person
to person type thing. That's true. And what may be
flat delta to Bill may be long or
short 5,000 deltas. For Anthony it might be 3,000,
for me it might be 1,000. So everybody, that's
a very relative point. I got a question from the chat. [? AdrickWhetstone, ?]
question for JJ, at some point, could you elaborate, or
give some examples of trades that you are focusing
on probability with? Thank you in advance. And hope you're having
a great day, he says. Well, thank you very much. Thanks for writing in. Glad to be part of this show. And I would say
that every time I trade a vertical
spread particularly, those are all about probability. Actually, if you bring
up the options change, any trade that I'm going
to make involving options, I like to look at
probability of in the money when I bring up my options
chain all the time, because I want to know-- personally I tend to buy
things that are in the money, and sell things that
are out of the money. The reason being, if I buy
something that's in the money, it has-- when I do buy options, I
like to start by selling. If I'm going to be very
honest, I look at them as decaying assets. But although no call has
been, it seems, so far. Yeah. That being said,
when you sell things that are out of
the money, I always joke I'm Sanford, Fred Sanford. You guys [INAUDIBLE]
doesn't remember. He's like 12. Sanford and Son. Yeah, of course. [SINGING] Coming to you [INAUDIBLE]. But I want to sell junk. And things that are out of
the money to me are junk. They have no value. In the money, when I buy things,
it has some intrinsic value. So I buy value, sell junk. So I just look at those
probabilities to start. And I like to-- I often find myself drawn
to somewhere between a 40 and a 20-- or I'll say 20 probability
in the money of good places to start when I do
vertical spreads. So you'd be selling an out of
the money [INAUDIBLE] call, and [INAUDIBLE] like
between a 20 and 40 delta for the short leg. Calls or puts,
depending what my-- Or do you net the two out? No, I start there for myself. Gotcha. Because to me, a vertical spread
is all about the option I sell. That's all it's about. That's true. The only reason I
bought that other option is to define my risk. Because people always say,
should I use stops on options, blah, blah, blah? Well, if you think about a
vertical spread, in a way, that's all it-- I mean, you can't technically
say it's the same, because it's not, but it's
very, very similar to a stop. And if I define my
risk, isn't that what the job of a stop order is? So I think sometimes people
take the wrong approach on vertical spreads. In my opinion, a vertical
spread approach should be, here is the option
I want to sell. Now, what can I buy against
it to define my risk and to give myself
a probability range that I'm very, very comfortable
with for the whole spread. Right. And just talking generally
about SPX, if you're hedging, you have to do it
in that because it is a cash settled index. So if you're looking to
get a directional play, there is no underlying
here, so you do have to take it in the options. And spreading it can be a great
way to take advantage of that. And I would say this, we
can't really talk about ETFs, but there are ETF that equate
very, very heavily, shall we say, to the SPX? Some of the initials
might even be similar. And with that all
being said, that might be a place
for people who are interested in indexes to start. The SPX is a wonderful
product, but it's 10 times the size of
the number one ETF that it sort of reflects. And so it's a big boy product. If you're going to go in
there, just be aware of that. And the markets you see on the
screen are great right now, but if you go out a
little bit, you'll be like, oh, my God, these
markets, they're so wide. Well, keep in mind,
first of all, you often-- Anthony, if you noticed,
routed his orders between the markets, number one. But number two, it's
a $3,300 product. The markets are pretty amazing
when you think about it that. So divided by 10, and
divide the markets by 10, and you start to see how
really tight those markets are. If you go back to [? what you ?]
[? had. ?] So on a $332 stock, that 38.30, 38.70 would
be a $0.04 wide market. Yeah. Yeah. Which is not too bad. But when you're
doing the conversion, that can be a little tough. Now that we're talking
about it, we might as well talk about it, too. You do have to take into
account SPX index options fees. This is something
that [? OrmiCapital ?] was talking about. So it's going to be
different depending on which ones you're trading. I think it's $0.65 for the
weeklys with a premium over $1. There's like a chart. There is. Is it available on
the platform though? I don't know that it is. I think you have to go
to CBOE to see that. Every index is going to carry
options, index options fees, which are carried over the
price of the commission that you pay on there. Depends on the product. It does depend on the product,
depends on the expiration, depends on the price. So there's things. I think they range from as small
as $0.08 in some of the indexes all the way up to $0.65
per contract in the SPX for the weeklys over
premium over $1. Then what is it,
like VIX, RUT, SPX? I don't believe it's
at the RUT anymore, because I don't think it's a
proprietary product anymore. The RUT's not single listed? [INAUDIBLE] No. I don't think so. OK. Please double check. I'm not confident on that one. I'm not sure either. I thought for some reason
that the RUT was in there. It might be dually listed. It might not be. I can't remember. But SPX and VIX are
the two largest trading ones in terms of volume, and
where a lot of clients trade. And so just something
to keep in mind, it's not a fee we're
putting on there. It is something the
exchanges charge. There's good and bad
about every product. People don't love
that part about it. The great part about it for-- you've got to remember
one thing about the SPX, the SPX was not designed
as a retail index. Not to say you shouldn't
trade it as a retail trader. It was designed for the Goldman
Sachs, et cetera, of the world to hedge their big
positions, where they can get one price on 1,000
options, or 10,000 options, in two seconds and get filled. And that's what it was
truly designed for. So you have to keep that
in mind when you go in. Again, it's become a wonderful
retail trading product also. There's XSP also,
which you can trade, which is 1/10 the size of this. But knowing a little bit
of the history, I think, helps you with
your expectations. At the end of the
day, I think there's a feeling that market
makers want to screw you. Market makers don't. And in fact, I know
many of you say, they were watching my
trade, blah, blah, blah. As I've explained
to people before. My brother said it one day. And I'm like, do
you really think that Goldman Sachs
paid the bonuses they paid last year
on your 300 shares? At the end of the
day, I know there's a they that we all feel is
behind the screen whose job is to get us. And I always joke with people,
the market has one job, and that's to screw
each and every one of us individually somehow
every single day. It somehow manages to do so. But in reality, no one's
watching your orders, no one cares about your
order except for you. So please take the
risk considerations, make the best decision for you
on those risk considerations. Well, we can put
something on in the SPX. Yeah. We can look for something
similar to maybe sell like a vertical and start
with the short leg [INAUDIBLE] somewhere. I'll tell you what,
so you guys both seem to have a downward bias. I'll say-- no, no. So here's a way-- I think I do. Here's a way I like to
trade downward market, or what I think
something's downward. So I'm going to start with this. It's probably a little more
risky than maybe many people are used to. I'd probably go
out a little bit. I wouldn't just play a two day. Or to be honest
with you, Anthony, if you want to open a
trade, maybe open up like the 21 day Februarys. And so let's look
what the markets are. You may have to open
some more strikes. One of the things I often like
to do is to go out, as I said, maybe sell-- start with the 33.60,
33.70 call spread. And we're looking at a
probability in the money 33 there. Let's call it 34. It's 33.92%. The 33.60, the 33.40. 60, 70 call spread looks like
I'm going to get about $3.5, $4, right? Yeah. Yeah, right in there. 3.90. What I often like to
do, and because this is such a big product,
it's hard to do, but what I'll do
in some of the ETFs is then I'll try and
look for a put to buy. Or I'll buy a put
spread and try and pay about the same amount,
or actually less amount, so I still get a
credit for the spread. So you get the credit. Yeah. So if I look at on that
side, now, again, normally, as I said, I like to buy
things that are in the money, but in this instance, it's
going to be hard to do, but what if I bought the
32, 85, 32, 75 put spread? Looks like I'm going
to spend about $2 in order to do that,
which all in all still gave me a credit
for a couple dollars. Let's see. I'll bring it back up. 32.85, 32.75. There it is. $2. Yeah. So now I get a credit
if I [? rough ?] the whole thing together. I still get a credit. I'm still going
to risk about $8. So let's be honest
about what I'm risking. But if we go down,
I'm a double winner. If we go up, I lose. Basically, I look at selling
my call spread, cheaper, with a chance to make some
nice money if we go down. And this is how I really
like to look at trading, is using one spread
to pay for another. Yeah. Right. That's what I like
about this one. Yeah. Anthony's talked about
this quite a bit. And this is something that you
could do just the other way, too. Let's say you had
an upward buy, you could sell a put spread in order
to fund a call spread, too. We could step that the other way
if your bias is upward, right? So we'd be selling an out of the
money put spread essentially, and then buying an out
of the money call spread. Yeah, absolutely,
whichever way your bias is, if you're we're to try and
catch falling knives, I'm in. And let's try it that way. So I put the short
at 34, probably in the money on the call side. So we'll do the same
thing with the puts. We'll sell the put spread here. And then we'll buy
the call spread that-- let's see here. Do you want to
buy that same one, or you want to go a
little farther out? No. I actually might even
come closer to the money if possible. Yeah. Let's see what this
one [INAUDIBLE].. 55, 65. I do it on the credit. Where can you get a $2 credit? Let me add that to Analyze tab. OK. You're probably
going to have to not go as close on the call side. On the put side. The put side has-- [? you ?]
[? do ?] it, right? So you're not going to get as
big a spread on the put side as you would on the
call side, because as we go down, if those
playing at home, and I know you guys have talked
about it before, the implied volatilities continue to
go higher on those puts. [INAUDIBLE] call side,
they continue to go lower. So did I do this right here? It doesn't look like it. I got something messed up. I got to find both. So you want to be
selling this one here. There we go. So 3.85. So we need to get something a
little more out of the money. Let's try the 70, 80. Right. Because of [? puts ?]
skew, it's going to work-- it's a little
bit harder to replicate the other way. You can replicate the position,
but just not the price. But you come closer to the
money too to get more-- let's see if we can go 33.10. What are you aiming here for? Trying to get a little
bit of a credit. OK. Now we're getting closer. I guess I could go one
more strike up on the calls to try to net these
two out to about zero. You see that? Yeah, I do. See, we're still
below the line here. So we could either roll-- one
of them has to be rolled up. That's pretty tight. 33.10, 3,300 put spread. Yeah. Well, we got filled
on our Cisco. Bye, bye Cisco. Goodbye. Good riddance. Well, we can raise the put side. Yeah. I mean, I don't know
if you just want to stay with the other side. You're showing people, I
think, what the problem is. I'm doing it the other way. But it's just kind of fun
to start thinking about. And in SPX, you start
to see a little bit more drastic pure price moves
than you will elsewhere. Yeah. I mean, this could be something
to hedge a portfolio, too. I mean, if we're long a lot
of pretty much everything, we're not, but if you were,
most people [? ought ?] [? to ?] take a long strategy when
they long-term invest. This might be a good way
to hedge it a little bit. And actually this is-- the vol column there on the
right hand side over here, this is definitely displaying
just what JJ was talking about. There's a put skew in here. So look at the difference from
10 strikes on the put side and implied volatility. This one's 0.4. It's half on the other side
going up on the call skew, almost equidistant on there. So the vol definitely has
a steeper curve up there, making that further
one more expensive, so you're not collecting
quite as much of a credit. Yeah. All right. Which side do you want
to go as, bull or bear? Well, let's let the chat decide. What do you guys think? Chat, we'll go bull or
bear on any of that. Do you want to go
over beta weighting? Yeah? SPX? Well, we could do that. So beta is based off-- essentially the SPX
beta test is based off this, which is going
to be where it's actually like the covariance
of the market and the symbol over the
variance of the actual symbol. But so what it
is, it essentially says how much a move
in SPX would be, how much that would be reflected
in an individual symbol. And you can SPX beta test
your portfolio in order to have it, if you wanted
to be a little bit more reactive than the market, or
a little bit less reactive. Now, typically that's done
with the stock portfolio, to try and have it match
the performance of an item. And now we're using
leverage tools. So that's a little
bit tougher to do, but you can still
take advantage of it by using the underlying
beta in the symbol. So [INAUDIBLE] is asking if
it uses linear regression. I guess technically-- It's beyond my pay grade, Bill. Technically, it would. Sell the call spread. Well, we have a bias. That's what
OrmiCapital is saying. He's saying sell it. All right. Sell the call spread,
buy the put spread. I'm scared to do anything
bearish in this market, man. All right. We'll do it. I'm agreeing with him. Yeah? OK. All right. We'll do it. Well, we could put that one--
we'll put these top two on. This being said,
this is when you guys are going to have to manage. Right. Absolutely. Yeah, I think so. It'll be fun. We got some time. We got some time. Well, I went out purposely. On these types of trades
I like to normally go out about 20 to 40 days. Is it just because the
extra premium out there? It's a little extra
premium out there, but also I want some time for
it to, again, part of, I think-- listen, I don't
think any one of us have said we have a really
strong feeling right now something's going to happen. I do think within
the next 20 days we're going to
have an opportunity that the market will go down. You want to give yourself
time to be right. Exactly. Or wrong. Anything can happen, right? We could look at [? this-- ?]
speaking of earnings, we do have a big chip
manufacturer coming out with earnings,
Texas Instruments. I don't know. I feel like I haven't looked
at this stock in so long. It was a huge high flyer when we
were on the floor of the CBOE. I believe it traded
in the Qualcomm pit. And it was Texan and Qualcomm. And those were huge. And the last time I
remember, really, I don't know, thinking
about it is when we had those big graphing
calculators in college, like TI-84s. And those usually they sent you
back whatever the number was. Is it $200? Is it really that much? No, it was more than that. Yeah, they were
pretty expensive. I mean, they might
have been more, yeah. Wow. Yeah, I don't remember. Well, Anthony stole his. It fell of a truck. I did. I stole mine from
some guy that went to the University of Kentucky. I don't know. I couldn't see. I don't know anyone
who went there. Well, I'm wearing my alma
mater colors, kind of. Where did you go to college? Aurora University in Illinois. It's a Division III school. And I was lucky enough
to play baseball there. That's awesome. And I got an
extracurricular grant in order to play baseball. Oh, [? Oby ?] played
baseball, too. A couple of baseball guys. Look at that. I'm a little older. I'm sure you could
still hold your own. Our schools were rivals. Yeah, our schools
were [INAUDIBLE].. You guys were rivals? Yeah, [? Oby's ?] school and my
school were definitely rivals. Oh, that's funny. So I was looking at this one
earlier today, this symbol. And if you look
at the year chart, it's very interesting here. And my bias actually
changed today. I messaged you two guys. And I said, hey, is
this a breakout here? And both of you guys
kind of looked at, and said, OK, if we finish
above 132, this is a breakout. They have earnings, I believe
it's today after the close. And so we could put
something on in here where I feel like maybe the
bias coming into the day is bearish, because we do have
this kind of double top here. Looks like there was a
resistance level there. Well, we've talked about
that when stocks break out of resistance levels, now
it's possibly a support level. Well, I think you
could also interpret that as a failed breakout. Look at that. It's coming all the way up,
and really tried to run. It got pushed out. That's very judgemental of you. Hey, I play devil's
advocate here. You always got to have a
devil's advocate's trade. On the other side of that,
Anthony, if you bring up the-- you were talking about
doing the reverse. Here's one where you
could do the reverse, if you bring up the trade page,
and you bring up an option chain going out here a little
bit, maybe go out nine days, or so, just give
ourselves a little bit. Maybe here's one where you
do-- you said this 132 level. Well, maybe you start by selling
that 132, 130 put spread. Turnaround and use that money
to buy just an outright call if you wanted to. On fast market, I did almost
the exact same trading, except for it was the
24th, I sold the 132 put. So we could do it
in this explanation. Why don't you do the
trade you did there? Well, I mean, that's
a little redundant. No, I don't want to do that. No, he doesn't want to do it. But basically, what I did was--
and this is a little different, too, where I went with a $1
wide strike on the put side. And then for the call side, I
went a little bit farther out of the money. And I did it $2 wide there. And the reason why
you do it $2 wide there is because it's
a little bit cheaper, and we can possibly get. See, like starting to
whittle this down, right? So we're only paying $0.21. Maybe if we go a little
farther up, 138, 140. Let's see what that looks like. Maybe we get close to-- see, that's a good
way, I think, to look at these types of strategies. Now we have it all combined. And if you want to
do something possibly for a slight credit,
or maybe even money, you can come on this
tab here, especially it'd probably be better
do it in analyze tab. And then just kind of adjust. Another thing you can do, too,
is maybe take the quantities-- messing around with it, right? We can't change the one, right? We got the call spread here. But we need a little
more of a credit. So actually, this is kind of
what I did, I did a two by one, and that flipped us
over to a credit. And this kind of gives
us that stepping stone. What do you guys think of that? That's a great idea. Yeah. I like that you're
doing it for credit. Now, this does have a
long way to go before it gets back up to that 138. We're breaking
out the new highs, so you're expecting a
really good earnings on top of new highs. So that can be hard
to do sometimes. Now, if you don't get
the full move though, you still get the credit. So we could see how that goes. Yeah, I mean, we'll still be
able to salvage something out of it. Obviously, if we don't
get any move at all, we'll collect a
little bit of money. So I mean, I don't know, we
could change the expiration. But I'm just kind of
trying to show people, there's a lot of
different things that you can do to adjust
things to get the debits and credits to kind
of line up for you, adjusting strikes is one,
adjusting quantities another. And one of the things
I like about it, too, is if it goes against
us, we lose 179, but if we get the move
we want, which would take a little bit of a push, right? We'd made 221 on the upside. So kind of interesting there. So we could put
something like that on. I'd be willing to pay
a little bit of a debit to take some of that risk off,
because we got two puts setting the spreads, and we're
kind of butted up against at the money
after it's already kind of broken out of
an area and starting to retest it again. I might try and reduce
some of that max loss. And then I even
pay a small debit to do it, just
maybe tighten it up. Yeah. How so, though? What do you want
me to move around? I mean, I guess we'd
want to do the credit, and we move down the long. What do you think here, JJ? I don't love this trade. You look uncomfortable
a little bit. I'm uncomfortable
because it's hot. That's nothing new here. I'm sweating like
I stole something. I've got to be honest. But anyway-- when
I look at this one, I'm actually thinking
about people who might already be long stock. And when I'm long stock on
these types of situations, I like to do one by two
call vertical spreads. So selling two call verticals
versus buying one put vertical? Well, buying one more-- so
if I was already long stock, I would buy one call, sell
two calls out of the money. But we're not in this case. I got you. That was just the first thing
that came to mind for me. Then the other
thing I'm wondering is do you do a condor,
basically, because if we are, you're both talking about you're
expecting some movement here? So do you buy the straddle, or
sell the strangle against it? You're going to pay
some money for it. But you guys are both
talking about big movement. Not that I'm a big buyer
of options, normally, but it's just one
of those situations where you'd want to consider
it, because you both have just spoken about how you
expect a good move. Now, that is very,
very much true. And I think it's a good lesson. And listen to yourself when
you're talking about a trade. What I hear out of you
guys is we expect movement. Well, if you expect movement,
are you willing to pay the-- Bill just said, I'd be more
comfortable paying premium. Well, why not pay
premium where you're going to get a better pay off? Buy the call vertical,
buy the put vertical. You can you straddle,
strangle, or you can use two vertical spreads. Here's a situation where I would
certainly consider it and make it more short term. Right. And going long ball
in these situations, if you expect a move, it might
be better to pay up a little. And let's face it, it's not even
vol necessarily if it's a week or less, you know what I mean? It's pure movement. Right. Well, JJ, I know you've
got to get out of here. Yeah, thanks a lot, JJ. So I really appreciate
you coming on. Thanks for having me, guys. Finally coming on. It was fun. Any time. Well, I shouldn't say
any time, because we all know that that never works out. Some time soon in the future. Yeah, for sure. Appreciate it, guys. We're going to take a
quick two minute break. So for you guys, we're
going to actually be running an extra 30
minutes longer with you guys all the way to 2:30 central. We're going to take
a two minute break. We'll be right
back at you, folks. Welcome back to TD
Ameritrade on Twitch, guys. We're back. We are back for another
half hour, minus JJ. Yeah, JJ has left the building. He's a busy man. We appreciate him
coming on, though. Yeah, that was pretty awesome. He's got a lot of experience. He didn't like my
trade though, Bill. Yeah, I don't blame
him, you know? You don't like it either. I don't love it. Yeah, that's OK. Well, you know
what, this is what I love about the Analyze
tab, is that you can really just kind of-- you could formulate
an opinion, and then you could kind of move
everything around and tweak everything around,
so we can get this to look how we want it to look. How do you want
it to look, Bill? Well, I think this has
a lot of downside risk. Ladder trade? Ladder trade. What's a ladder? Oh, yeah, yeah. I got you. I thought you meant
like the trade ladder. Got it. Yeah, I like the
ladder trades, too. And I think this
has a lot of risk on the downside for not
a very big move when you would need a big move
to the upside to do that. So I think it's a little
off balance in that way. That's true. You are collecting a
credit, which is nice. But if we could tighten
that up at all-- and like I said
when JJ was here, I think you could
argue that even been doing this for small
debit might be worth it, just cutting off
that debit on the bottom. Because just like
you said, I mean, we did have a breakout
here, but it kind of came a long way back. Genzie520. Thanks for the follow, Genzie. Thank you the follow. That's the first
semi-normal name. We had InJailOutSoon. Yeah. I enjoyed that. OutSoon2023. But yeah, so I don't know. I think you're really
leaning into it. Now, if you're very bullish
on this, then, yeah, this could work out, this
could work out great. But this is really directional,
something that we'd be [INAUDIBLE]. You need a big move. You do. You need a big move. So I don't know. How do you want to
tighten this up? I think, well, let's
take a look at it if we just go down to a one
lot on the put side to start. We could center-- or maybe we
can bring the strikes down, like the calls. The call strikes? Maybe both. Because we don't want to
pay too much, and then we don't want too much
of a credit either. We kind of want it somewhere
near even money-ish. So we did bust
through the 135 level. That's still a pretty big move. $2. I mean, our market
maker is $6 on this. So the market
maker move up here, which we've talked
about before, that's $6. I think that's
not off the table. Getting back up to 135
on a good earnings. Now, we've widened our
strikes quite a bit, now we're paying 116. Well, I'm thinking that's a
little high, what do you think? To pay out on. Yeah, maybe, sell-- yeah,
let's see what that looks like. What's moving this down. So this is 3. So are we in agreeance
here that we definitely want to use the 132 level as the
support and then sell that put? That's kind of where I'm at. The 132 is definitely-- I mean, I wouldn't
say definitely, but I think you could
argue that's definitely the old resistance level where
it tapped a couple times. Which now is the new support. Right. Change of polarity
would say, boom, that might be our new support. So if we're banking on that,
we could build our trade around that. So in this example, we've got
131 and the 132, so just $1 in the downside, and
with a potential max gain of $3 minus our
credit of about 67. This is a little
bit more temperate. Now, we [? are ?]
paying, so if nothing happens, then we're
still losing money on there, which is not something
that we typically do here. What do you think
about this, Anthony? To widen out the strikes there? I mean this gives us a lot of
potential to the upside, right? So we got 235 in the
up, 165 in the down. There's the long strike
on the call side is lower, so we have a higher probability
of making money on the upside too. 138, what would that
be, like a $5 move? Yes. We need a $5 move to get
this thing fully valued. I think I'd be a little more
comfortable just paying less. Somehow. I think so. Maybe we'll come down to the--
well, I'd be paying more. Let's see. Let's see. What if we put the
137 strike in there? Going down to-- so
cutting our max gain. [? The short. ?] Oh, the short? OK, so that brings
it in [? to ?] 35. But you're right, we cut
down the max gain on the top. By $1. So this is kind of
one to one here. What if we did-- and what is that market
maker move again? $6. About $6. $6. It brings us up to about 139. Right. I don't think
that's off the table based on the market
maker [INAUDIBLE].. And the last earnings
on that chart, one gapped up huge, one
gapped down huge. Yeah, the last one
was a gap down, the one before was a
gap up, not as big. And that kind of goes back to
what [? AdrickWhetstone ?] was saying, any type of negative
earnings, we might go down $10, we can't really say that. $10. I mean, the market maker
move is implying 6. So I tend to lean into
that when reviewing these. And the only other thing from a
technical standpoint, all three of those moving averages
that we've put on our chart are trending in a similar
slope, in an upward equal slope, which could be a bullish
signal for a technical analyst. Now, earnings may change that. But if you look at all
three of those lines, they're sloping almost on the
same angle, same direction. They're not what's
called confused moving averages, like they
were earlier on in the chart. Yeah. OK. Well, what do you
think of this, Anthony? I don't hate it. Paying $0.34. We're hoping for a move. If we get a move
to the upside, I feel like we can sell
this for more than 0.31, what we paid for it. We don't have to get it
fully valued to 137, right? We don't necessarily need
that move to make money. We could take this
off before it expires. Right. And really, I think
obviously what we're banking on here
is it not moving down. If it moves up, we're good. And if it goes down-- I mean, if it
stays where it is-- [? We just have to lose money. ?] Yeah. We were paying a little bit. But like you said, I should
say, I think this is somebody that's going to require more
management after the initial put [? it ?] [? on, ?]
so after the earnings. And then with nine
days expiration, obviously the earnings
will be coming out today. So we only have eight days. But we still have some
time to manage it. Right. Absolutely. Yeah. I could see us
putting that one on. All right. So we'll go ahead. Is that the same one we built? We have the 135, 137, 131, 132. 131, 132, 135, 137. You just delete the
trade and [? queue ?] up. There we go. There you go. So right now the
midpoint of 30, I don't know that we'd
actually get filled there. This is a pretty wide market. We've got four legs in here. Would you ever route
that order like that? I would, honestly. Really? Yeah. I'd see if I could get
filled with a [? 35. ?] [INAUDIBLE] to break those up. I know you like doing that. I mean, I think
that's fair, too, because you're getting a
tighter market on both of it. Do you want to spread them out? Yeah, I don't know. I just feel like a
lot of times the algos don't pick up these types
of four legged trades. I feel like they only pick up-- and I have to do a little
bit of research on that, but I feel like sometimes I
don't get the fills that I want to when I do them like that. Iron condors are
different, I feel like. The algos pick those up
better, but I don't know with these customized trades. I'd rather break it up. All right. Well, that's good. So we'll try and get-- I don't know-- is 45-- I think realistic would be 40. We could say that. It's at the money pretty much. I think that's reasonable. OK. So we'll try and get this. We're doing one V one here then? Yeah. So I'll do that. And then we were
buying the 135, 137. The open interest, he's saying,
is less than 250 contracts. There's been a pretty good
amount of volume on them, though. So we did get filled at 40. Remember, we're doing one
week after earnings on these. I think there's probably
going to be more open interest on these strikes
in the near term, but we want to give
ourselves some time, right? Yeah. And honestly, [INAUDIBLE],,
that is a good thing to be looking at, too,
especially, I mean, Texas Instruments
is a little bit more on the liquid side, so
it's not [INAUDIBLE].. But if you're seeing in
the tens of open interest, you may have a pretty
hard time getting out. I mean, 250 is middle
of the range, I'd say, but, OK, if we get
filled on the 75 on this, that's a 35 net debit
for the strategy we got filled. We did. So $0.35 net debit,
hoping for an upside move. We are going to have to
do some management in case we get it wrong. We'll have to take a look
at this after earnings and maybe take something
off, or kind of move stuff around in case
it goes against us. And the interesting thing too,
about the open interest-- here, let's actually bring that up. I believe that's here. So yeah, I mean, and it's
kind of being reflected, too. If you look at the options,
like the bid/ask spreads, they're a little bit wider
than we usually like to see. So here's an example of a stock
that is very liquid, tight markets, open interest
is heavy in every strike. And you could see that reflected
in the bid/ask spreads, right? Nickel wide, nickel wide,
$0.02 wide, $0.03 wide. But when we go back to TXN-- where'd it go? I think it's at the bottom-- you're seeing a
lot of stuff here. Look at this,
right at the money. You're like $0.16 wide. $0.12 wide here. $0.13 wide. I mean, so you're seeing a
lot of big bid/ask spreads. And that's usually a correlation
with the open interest. And as you can see
here, this one's got just 46 open interest. But like [? Oby ?] said,
going into earnings, you usually see
that number kick up. This is always a lagging
indicator of the day before. Open interest does not
update in real time. Well, let's look at
this expiration here. Much heavier open
interest there. Yeah, absolutely. That's the one that people
are mostly trading right now, because, well, I don't know. Quick buck? Well, I think always
the front does, too. The front is always going
to have a little bit more. And that's the earnings. That's where you're
going to hedge. If you have a stock position,
you're going to write calls, or you're going to buy
puts on this expiration here to protect yourself. Exactly. Just going through
earnings most of the time. And you'll also see
it in the monthlys. Monthlys typically have a
little bit better open interest. No. Not the case in these ones. But looks like
these maybe just got listed on the
single dollar ones. Hey, chat guys, do you want
us to put on any other trades, any other symbols there? Otherwise we'll just
go through and pick. I know Procter and Gamble also
has some earnings this week, and that's a different-- I don't know. I guess we can bring up
the option chain there. You're not going to see-- I mean, you're going
to see heavier vol, but not like crazy. Right? So let's bring up PG. That's a huge company. If we take a look at the-- 2.5 billion shares. 2.5 billion shares times 126. Oh, boy. Yeah. That's 2.5 trillion,
something like that? No. It can't be. Oh, no, 250 billion. Billion, billion, billion. I think there's only one
trillion dollar company, right? Isn't it Apple? No. Now there's Google, is it? It was Apple, Microsoft. Is Microsoft trillion now? And Alphabet, did they
get into it recently? Yeah, I think they
just recently did. So there's only a couple
of trillion, but, yes. Still not used to it
being called Alphabet. I'm really not used to that. I don't
[? know if I'll ever use ?] [INAUDIBLE] Google's
parent company. It makes no sense. So we're going to change
that, even though everybody knows it-- do you know
why they changed that? I don't get it. They incorporated all their
business units under Alphabet, because they bought
YouTube, they have all these other
businesses besides search. More corporate structure. 315 billion is what
that comes out to. OK. So with something like that,
very big company, oftentimes it's a slow moving
ship, so it takes a lot to take this thing on a ride. Is that an all time high, 127? Let's take a look. Boom. Let's go. Where's max? Max available. There he is. Now I messed up the
other one though. That's OK. Go like a quarter, or
month, or your chart's going to be too long. Yeah. Sorry, Anthony,
I'm driving here. Hurry up. Yeah. Yeah. Wow. Look at that run. That is steep. Yeah. Steep, steep, steep. So we said a $315
billion market cap. So in the past,
what, a couple years, that market cap has probably
shot up by about 100 billion? Huge. Huge. So trading at all time highs
here going into earnings. See, the implied vol
is not quite as high as it is in some of the
more reactive stocks. But if we go to-- And I think a lot of that
is that heaviness of how many shares there are. You got 2.5 billion shares. You're going to typically
get a lower implied vol. That means this. There you go. You're typically going to
get a lower implied vol, because it's not going
to be quite as volatile. Reactive. Right, reactive. Because it's just
that much heavier. It weighs more, right? There's so many more shares. So it's going to take
more cash to actually move the stock in one
direction or another. Right. And also, look at this
current IV percentile. This is 45%, which is
relatively low compared to some of our big movers. But this is still in
the 57th percentile of implied volatility
that you see in this. So this is pretty high
implied volatility over-- it's more than--
is half the time, so you can still see how you may
want to take advantage of that if you're looking at a higher
implied volatility going into earnings. OK. Well, I mean, if a
trader were to spot that, that higher volatility,
we're looking at the IV percentile,
what trades would come to mind to fit
that type of strategy? Well, that's high
IV lends to selling. Iron condor is one way
to take advantage of it. And if this is a
slow moving ship, we could try and do one
a little further away. Look at the market
maker move on this. So we were just seeing a stock
that had a $6 market maker move. This being a much
bigger stock, 367, maybe something outside that. And try and take
advantage of that. But do we get any premium? I mean, I don't know. A 122 strike would
be, what, 4 points? Maybe the 123. So if we're at the 120-- let's go with 126. We're expecting, let's
call it, a $4 move. 122 and 130. 122 and 130. Those would be your shorts. The shorts. So if we're doing
it just $1 wide, I mean, $0.19 on
the bottom side. And then 130 on the top. Going $1 wide. $0.35. So this is pretty tight. It's not terrible. It's not too bad. $0.35 in the dollar. I was expecting something less. Right. Well, it's the front, so we only
have to manage it for one day. And we are selling two
spreads for something that's a max loss of $1
just to get up to $0.36, or $0.35, worth moving around. That's true. So this-- I don't know. What do you think here, Anthony? Do we stay inside? You know what I
like to look at too? And I feel like everybody
else hates this tool. But I always use it. And it kind of gives
you an idea of what is done in the past on earnings. So right here, it
went from 119.08. What's that, a $3 move? Yeah. This one we got at 116. That was a 4.41 move. But then it did retrace. Notice it retraced afterwards. So then if we have this
on for a couple days, we might be able to
squirm out the day before. This also retraces. Sorry, did we do this one? We didn't do this one. So this one was a 1.06 to 1.03. $3. And then it slightly retraced. The same thing here,
we got a $4.40 move. And then, what, a
$0.50 retracement? $0.50 retracement. So we'd probably be getting
out for a little less than a scratch if we were to do
it, if the same situation were to happen. Obviously, who knows what's
going to happen this time, but this can give you
a nice little pulse on how it's reacted to
earnings in the past. Do you guys ever sell
straddles going into earnings? It's unlimited risk, right? But there are some traders
that look at selling straddles as essentially selling
your iron condor but without the protection. Yeah. Do I personally do it? No. I mean, I don't take on
non-risk defined strategies. Yeah, exactly. Non-risk defined. I think it's a good way to
capture implied volatility, but even then I'd
probably put a cap on it. We could do an example of
that where we're doing-- Sell a straddle, and just
buy some out of the moneys. Iron butterfly. Yeah. And then just buy them
really far out maybe, maybe like $5 out. See, the thing that-- That would be a synthetic
way to sell a straddle. We're getting $4, and then
if we were to go about $4 out on each side, this is 123,
and then 130, we'll call it. I mean, you could have-- I got the 127. Let's do 131. This is for real. So we saw a market maker move
of Netflix yesterday of 26. Literally, if you sold any
option that expires the 24th, calls or puts, you
would have made money. Any one of them. Because if you bought puts,
it didn't go down enough, and the implied
volatility shrank so much that even if you bought
puts, you still lost money, even though the stock's down. And obviously, if you bought
calls, you lost on both. Now, that's not always-- That's [INAUDIBLE]. It was a pretty muted
move in Netflix. But if the implied
vol is that much, and it doesn't get a directional
move, then you're selling vol, you're not selling
the direction, you're selling the vol. Thanks,
[? AdrickWhetstone, ?] you're the first person to not hate
that tab when I showed it. I like it. I like it. Everyone hates it. I think a lot of people just--
there's so much data on it, you have to understand
what you're looking at. That's the only thing I look at. There's so many
different data points, like, price,
straddle, like, what does that straddle
percentage mean, right? I don't know. I only use it for
that one thing. The shapes look the
same every time. What do they mean? The Wall Street. The ATM straddle
always looks the same. Well, yeah. Because it should. It should show the
crush every time. That's what it's doing. And we don't really
need to see that. I only use the
top, the movement. So this strategy is a way to
play where you don't think there's going to be a movement. Now we're leading a little bit. We're at the 127 with this. And so we'd want just a
little bit of a spike. And then for it to die. We could do an example
of a trade of that. I don't think we've done
one of these before. We haven't. No. An iron butterfly. Could we just do-- what's the width? Four and four. Want to do five? We could do that. It's adding more risk. It's adding more risk, but
it will be a higher credit. It's risk-defined. But the market maker
move here is 363. Let's go with 132. And there's a reason why I
actually want to do that, because it's for
educational purposes. I want it to be $5 wide to make
a lot of the other math easy, too. And we'll collect a
little more of a credit. So the most this
could be worth is $5. And so if we throw it
in the Analyze tab. We're risking $1.87. There you go. We actually did do something
similar to this on Netflix a while ago. We were going into earnings. We did this off balance. So in that situation
we'd be like the 120 short, the 127
straddle, and then we'd be buying, say, the 125
to butt up against it having a directional bias. So if it went down, then
we still made money. But if it stayed where it
was, we made our most money. If it went up, we would lose
probably a little bit more. So I mean, this is
just the straight want it to just stop moving. Earnings comes out,
business as usual, nothing to see
here kind of thing. And the quick back
of the napkin math is plus or minus that 127
strike is your break evens. So plus or minus 312,
we're making money. Yeah, exactly. So we need nothing
outside of, we want nothing outside
of a $3.12 move. And the market maker move,
again, what are we looking at? I think it was 4, right? It was 3.90. 3.62. 3.62. So we're definitely
inside of that. I mean, if you
wanted to go more, you could widen the
strikes out, but I really wanted to just show this
as an example trade, because I want
people to understand that this is a butterfly,
iron butterfly in this case. And I know it shows up as iron
condor over here, but whatever. But the most it could
ever be worth is $5. That's the difference between
the two strikes on either side. It's the most it
can ever be worth. Most we can make is if it
pins at those short strikes. And that's what
[? we collect. ?] Which is very unlikely. But something that I like
that people don't think about is, like, we have two
days to deal with this. And the days coming
out of earnings are usually pretty volatile. If you're keeping an eye
on this, it goes one way, and you get a crush, you
buy back the short put, or the short call, depending on
the direction it is, and then let it go the other way. You can get close
to the max gain, even if it doesn't pin there. I mean, that's also you're
depending on oscillation then, which that's something
you can always depend on. But there are ways to manage
this if it does come out and you don't get exactly
what you want it to do. Now, Bill, you've mentioned
before about scalping gamma, right? Yeah. At this point, after
earnings comes out, and vol crushes, and we're
into those last day or two of the option's life, let's
say we get that move up, we buy back those
short puts, and then you're getting that
swing back down. Essentially what you're
playing there is gamma, right? Those last few
days gamma is going to be really high
on those options. It is. You're playing gamma
in the options. A lot of times-- Anthony, you used
to trade, you'd hedge in the underlying
to scalp gamma. This is sort of scalping
gamma by buying back the option, right? Well, no. I mean, if you're just buying
back the short leg on the put, if you were really scalping
gamma on a short straddle, you'd actually be buying the
stock above the short strikes, because now you're
basically naked short a call because the puts
aren't helping you, and you'd basically
be naked short a call in order to cover the upside. Hey, thanks for
the host, StockGuy. Thanks for the host. Hey, StockGuy. How you doing, buddy? What's up, dude? So basically above the
127 strike, you're naked, so you'd have to be
buying stock above 127. Thanks for the follow,
Frosty_Cupcake. So in this scenario, you're not
going to want to scalp gamma because you'd be reverse
scalping yourself. So if it went up,
you'd basically be short the 127
call, and that's all you'd be thinking about, and
all the way up to 132, anyway. Then maybe you buy stock,
and then it goes back down. It goes down to 126. And now you're worried
about your short put. And you just bought
stock against it. Now you're going to be
selling stock below 127. Well, so it is reverse
scalping, right? Yes. It is reverse scalping, but
you're Texas hedging in a way that would actually be how you
do it if you're long scalping gamma rather than short gamma. But that's how you
would hedge that gamma. StockGuy, I'll reach out to you. You should be able to
Twitch at TDAmeritrade.com. But if you're getting denied,
I'll reach out to you. Yeah, so there are
ways to manage that. Let's put this
example on and see how it plays out, because
there's a couple things that you can do afterwards. And maybe we'll go
over those next week depending on what shakes out. For sure. And I just want to
kind of point out, so this is how this is
going to work, right? So you're buying power. And we're going to talk a
little bit about buying power. This has a $500
margin requirement. So that's basically you're
going to have to put up $500 to do this trade,
but you're going to collect $310 to actually, if
we do get filled at that price, so that's a net of $190. So when you put a
trade on like this, that's really the
two things you're going to want to look at. What's your credit? What's your margin requirement? Net those two out. It's 190, and that's
how much buying power you're going to
need to put this trade on. It's going to be $190. There it is right there. Yeah. This is really short term. We've got two days out on this. But that's something that
can really hold you back. Let's say you put on a trade
that's got a really big margin requirement further
out, if you want to hold that trade
till expiration, you're locking up that
money all the way to. This, like we said, it's only
got a $500 margin required. We're receiving a
3.10 credit, 3.13, so it's going to be 187 on
our margin requirement out of option buying
power, I should say, with a $500 margin requirement. That's not going to be as
relevant in this situation because it is a short term play. Yeah. It is. It's an earnings play. Again, those break evens-- what did we get filled at? 3.18, is that what it was? 3.13, [? 3.18. ?] [INAUDIBLE] [? SpeedToTheMoon, ?]
EiffelTower. Good. Thanks for the follow. They can't see that one. So what producer [? Oby ?]
was saying is right. So we got a 3.12 credit,
or whatever it is, and what we're basically saying
is we don't want the stock to move outside of 3.13
in either direction from the short strikes,
which were 127. So that's easy to
calculate your break even. Take 127 plus and minus 3.12. There's your break
evens right there. Right, right. So if it does move a
little bit, hopefully we'll get some oscillation, try
and squeeze something out. If it totally blows
through, there's not a ton you can do except
for buying back the max loss. Like we said, we'll have
to see how this shakes out. We'll kind of manage
it after earnings. And we're going to
go over it next week. But I think this
goes to the point you made about the stock
having such a large float. It's such a big stock,
you need such a big push to get this thing
either direction, some massive catastrophic fail
on earnings, or some amazing-- we had a quarter that
completely beat expectations. And maybe that strategy,
the first time we did it, we can kind of see
that zero move almost. Well, think about it, right? So there's 2.5 billion
shares, with a B, billion shares outstanding. So that means that if
this stock goes up $1, its increased its net
valuation by $2.5 billion. Think of how much cash
that you personally, Bill, because he's loaded. Thanks for the
follow, gorillamasks. That you would have to have-- Loaded with hot air. How much cash would have to
come into the marketplace to move the stock that much. Can it happen? Absolutely. Think of it with every cent,
every cent, every cent. That [? means ?] that would
be, what, [INAUDIBLE]?? 2 billion-- 2 billion. No, that'd be a dime, right? It's $250 billion, so
two decimal places over is 2 billion. Well, it is 2 billion
if it's $1, right? So $1 move would be 2.5
billion of market cap. Oh, I see what you mean. Yes. So a dime would be 250
million, and a penny would be 25 million. That's still a lot of money. That's per share though. You got to multiply
by the share price. So remember we said it was
$300 billion, so every cent would be two decimal places
over for that $3 billion. Every cent change on this is-- No, you'd multiply it
by the amount of shares. Right. So by the amount of shares. So if it's $1
movement, then that means that their market cap
will adjust by 2.5 billion. One minute. One minute remaining
in the period. We got it. We'll be hard out. So we've got a hard out now. Any Chicago Blackhawk
fans out there. We used to be able to
slide a little bit, but we added a half hour. So we've got a hard out. Going forward. We're going to be going an hour
and a half from 1:00 to 2:30 central every week. Yeah, every week 1:00 to 2-- right? 1:00 to 2:30. 1:00 to 2:30 central. Check us out every week. That's every Wednesday,
we'll be here next week. Do we have a guest
next week lined up? We don't know. Working on it. We might be. OK. So, again, all of these
episodes are archived directly to YouTube after the show. Bill has a Twitter handle. What is it, Bill? WRuby_TDA. You always say @. I don't know why I do that. I don't know why
you do that either. I'm Apanzeca_TDA. I almost said @ now. Oh, boy. Till next week. Thanks guys for the follow. MatthewActual, thank
you for the follow. And Tiger, thanks
for your follow. Till next week. I'm Anthony Panzeca along with-- Bill Ruby. So long guys. Thanks for watching. Happy trading. Thanks for watching. Have a great day. [MUSIC PLAYING]
