Investors Observer Workshop. Wednesday, April 19, noon ET

Transcription

1 Investors Observer Workshop Wednesday, April 19, noon ET

2 Debby Clowney 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. MBA, Chicago Booth BA, U. of Pennsylvania 20+ years options experience Worked on Wall Street Consultant for KPMG 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

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 SPY -- pulled back but is holding at 50 day moving average Pullback Consolidation Trump rally, part 2 Holding at 50 day moving average

7 NASDAQ tested 50 day moving average and bounced Consolidation Initially techs selloff after election NASDAQ goes on a run

8 Small caps were very strong post-election, but have been range-bound since then, tunderperforming the SPY and Nasdaq. consolidation Small caps outperform initially after the election

9 International markets

10 The volatility index is sometimes called the fear index, because when the market is under pressure, volatility rises.

11 What we will do in our STRATEGIES Managing around earnings Looking at how some companies stocks reacted to earnings Looking at the relationship between after-hours moves and follow through once the regular session begins: NFLX Examining option prices on NFLX after earnings Opening a trade on a post-earnings pullback Red Hat

12 Tuesday s stock action in companies reporting after the bell Monday and before the bell Tues Premarket gap Chg since previous days close

13 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

14 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

15 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

16 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.

17 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

18 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

19 Covered call after a post-earnings pullback with a target of 25% annualized return We wait for a little pullback buying the stock at and selling an 85 call for a net cost of

20 Letting a stock come to you is a way of describing not chasing stocks, but showing patience in finding opportune times to enter a trade. The example of RHT that we just looked at falls into that category. We saw a favorable reaction to earnings, but waited until RHT retreated to old highs as support to minimize the risk of this trade.

21 Important icons on your chart Most important Linear Regression, i.e., the channel the stock is trading in Let s look at how we can change the time frame

22 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

23 Featured Trades You will be seeing more ETF trades right now as we avoid entering trades before earnings. In the coming weeks there will be more and more stocks again.

24 TIG Screens

25 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 3 ENTER Taking earnings risk on BAC Order types What you need to know about your broker

26 Entered trade. Paid equivalent of for long leg Sold an April 23 call for 1.34 Breakeven at Stock rose to 11% above our strike price But our GTC exit order never got filled Closing the position before earnings would mean a 50c loss or about 5% We decide to hold thru earnings. Stock gapped up, gave some back along with financials, and is at max profits right now

27 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.

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

29 NEXT WORKSHOP May 3, at noon Eastern time

30 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.