Investors Observer Workshop. Wednesday, October 4, noon ET

Transcription

1 Investors Observer Workshop Wednesday, October 4, noon ET

2 Debby Clowney MBA, Chicago Booth BA, U. of Pennsylvania 20+ years options experience Worked on Wall Street Consultant for KPMG Workshop Coach: Debby Clowney Our goal today is to provide a workshop where we discuss how to translate the Trade Idea Generator s ideas into profitable trades. We will talk both concepts and practical tips to make and manage the trades. We encourage you to ask questions throughout the workshop. If you have a question, likely others have the same question. My colleague, Bobby Raines, will be joining us and fielding questions or bringing them to my attention as we go along. To get the most out of today s workshop, I will ask that you have your Trade Idea Generator launched and during the case studies that you follow along with me. Jot down names of stocks you would like me to review in the Firing Line portion of our workshop.

3 Disclaimer Today s webinar is for educational purposes only. Nothing in today s presentation should be considered a recommendation to buy or sell any security. All stocks and options shown are examples only. Any pricing or potential profitability shown does not take into account your trade size, brokerage commissions or taxes which will affect actual investment returns. Stocks and options involve risk and are not suitable for all investors and investing in options carries substantial risk. Past stock or option performance is no guarantee of future price appreciation or depreciation. Prior to buying or selling options, a person must receive a copy of Characteristics and Risks of Standardized Options available at:

4 SMH

5 What we will do in our STATE OF THE MARKETS What will drive the markets from here? What is the S&P weekly chart telling us about overall trends? Zeroing in on the S&P daily chart How is the Nasdaq doing compared to the S&P? How are small caps (the Russell) doing compared to the S&P? What is the volatility index telling us? How should market conditions guide our trades?

6 NASDAQ continues in the new parallel channel it created when it dropped below its uptrend line. After months with no progress, it is now approaching new highs.

7 SPY -- setting new highs

8 The Dow (DIA ETF) setting new highs

9 International markets ex-us (VEU ETF) paralleling the action in the U.S. markets

10 Small caps finally break out from being range bound 2 failed breakout attempts Successful breakout consolidation

11 What we will do in our STRATEGY INSIGHT Understanding how earnings affect options Predicting a stock s price using option quotes before earnings Directional option trades vs hedged option trades before earnings daily A case study in Netflix options around earnings vs. Apple example Option trading AFTER earnings when you think the stock will go higher

12 Insider tip on estimating a stock s earnings move BEFORE it reports earnings

13 DIRECTIONAL trades before earnings? Pro s If the stock makes a HUGE move in the direction that you predict you can make substantial gains Cons You can LOSE money even when you are RIGHT in your prediction. Summary Buying options into earnings is a high risk activity that can lose you money even when you are spot-on in calling the price action

14 HEDGED trades before earnings? Pro s Can collect more premium since volatility rises on options before earnings Cons If the position goes for you, your gains are capped If the position goes against you, only a portion of your loss is protected Summary Use caution in holding hedged trades into earnings or avoid these trades Does the company have a history of beating on earnings and revenues

15 Stocks will often gap up to old highs or gap down to old support after earnings

16 Netflix Mon night and Tues day What happens after hours often isn t sustained the next day EARNINGS Day BEFORE earnings After hours Day AFTER earnings

17 Netflix Mon night and Tues day What happens after hours often isn t sustained the next day $150 EARNINGS A good earnings report will often test old highs After hours highs Can it break through or do old highs become resistance

18 Price action in NFLX options after earnings If you bought an ATM CALL right before earnings -$580 If you bought an ATM PUT right before earnings -$199 Why did you lose money if you bought a CALL OR a PUT?? Volatility drops when the uncertainty over earnings is over

19 What if you nailed it? If you bought a 144 or 143 put -$285 Why did you lose money if you predicted EXACTLY what NFLX would do after earnings and so bought a 143 or 144 put? Shouldn t that have made you money? Volatility drops when the uncertainty over earnings is over. Falling volatility means falling options premiums. So no profits here even if you were right.

20 Important icons on your chart Most important Linear Regression, i.e., the channel the stock is trading in

21 Important icons on your chart Comparing a stock to... the market its sector its competitors All Stock Futures Forex CFD Bitcoin Index Economy Quandl You can check a market index type in a sector description or ETF symbol type in a competitor s company name or symbol

22 Featured Trades

23 Investors Observer s Option Trading Framework 1 FIND Early exits with full profits Early exits partial profits 5 EXIT Featured Trades Trade Finder 2 CHOOSE Charts News Strategies 4 MANAGE Managing a trade that goes against us 3 ENTER Order types What you need to know about your broker

24 1) Why is this position going against me? Wall Street saying: Hope is not traded on any exchange. 2) How do I feel about the underlying stock or ETF now? 3) What is my objective now that the position has moved against me? New Goal 4) Translate your new goal into an action plan.

25 What you can do when a position goes against you How do we decide which of these is best?

26 Steel Dynamics when it is fine to break even Why we entered the trade Results at expiration Why we closed our position when we did

27 McDonalds taking a hit with restaurants with retail food establishments (our only position not at full profits) Breakeven = bought leg strike + Net debit Breakeven = =

28 NEXT WORKSHOP Next workshop in 2 weeks at NEW TIME : Wednesday, October 18, at 4 pm Eastern time Going forward 4pm will be our new time for our workshops

29 FIRING LINE What names would you like me to analyze? We can look at the support and resistance lines on these charts Also, a thank you! to the many of you who are completing our survey and letting us know what topics you would like covered in the future, and what is most helpful or what is confusing in our presentations. -- and let us know whether or not your are interested in earning more about candlestick interpretation.