Is Directional the Best Choice in This Market?
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Is Directional the Best Choice in This Market?

John F. Carter - March 16, 2016

Hey everyone, it's John. Welcome to the free video. Looking at VRX today, which was kind of a stock of the day. It's got a low here of $5.65 in 2009, and you can see this move, it just obliterated today. On huge volume. And this is not a position that I was in. I just get interested in some of the "stock of the days," simply because it does stir up a lot of interest, and like, wow, if I had magically bought puts before that, it would have been fantastic today. The answer is, "Yes." Absolutely, it would have been.

But one question comes up. Can you day trade something like that? You can on smaller time frame charts, and we'll talk more about that here in a second. But at the same time, what is the difference between something like that versus what I would call a normal setup. A normal setup would be like saying, Tesla. Here's a 78th minute chart, a squeeze, Tesla consolidating for a little while at $207, and then boom, it pops up, and now here we are at $218. That, to me, is more of a ... you can plan for it, you can evaluate your risk. It's not too stressful. Those are the kind of things that I like. And what I like to look for.

From a daily chart or perspective, Apple has been an interesting one here, where it was trading, trading, trading. We fired off the squeeze, and boom. We're just chugging along here. Chugging along. And Apple is having a little bit of a resurgence here. That's the kind of stuff that I like, is just looking for, like, what is setting up here.

The big question, of course, in terms of what is setting up here, is what is setting up here that we had in the FOMC? The main thing there is, I like to keep things pretty simple. If we have a skew that's at over 135, I'm not that interested in the long side, because the potential of a sell-off is higher. Conversely, if I am sitting there and looking at the stock market, and the skew is 120 or below, I don't want to be short. In fact, I'll look for a bounce.

As we head into FOMC, we're back into that "be careful being long" area. That doesn't mean that there's individual stocks that I don't like out there. But in general, my thought is that I don't really have a short signal, but the idea is that I go in into the FOMC meeting a little light on directional plays. I.E., I don't want to have a ton of directional plays. But I do want to take advantage of this uncertainty, and focus on premium.

So if we look at Netflix here on a 78 minute chart, we do have a nice squeeze setting up. It's a bullish setup. The moving averages are stacked and everything like that, and you got a nice, clean move to the top of this current channel, which would take us to about 100. All right, so that, to me, makes sense. I don't want to make any huge bet that it's going to make some Tesla-type move, but this is certainly a great environment, because of the monthly expiration, to sell some premium. We'll come back and look at those positions in a second, but the idea here is that if we go and we look at the $100 strike, which is what we're looking at at the top of that channel, we'll also see that the open interest there is fairly phenomenal. You got 34.000 contracts on the call side, 24,000 on the put side. Now, it doesn't mean that were magically just gonna stick there and close exactly at a 100, but what happens is this does become in-play. It does, especially if it's within the expected move. And we're within that expected move.

So what's a way to play that? Well, instead of going directionally, I'm just selling options around it. What's nice about this is, I'm not so much pushing that Netflix has to go higher. I mean, it'd be great if we kind of went to 100 and fizzled out there. I've got a couple of positions on here. One is an iron condor, where essentially, I'm just making a bet that Netflix will stay between 104 and 90. Right now, we're kinda right in the middle of that, and that's a sweet spot. And then this is an iron fly, where we sold $100 call, and a $100 put, with the idea that we're just going to kind of stick in that range.

And then I got one call for good measure, since it is a long call, in case NFLX just completely takes off, and that helps alleviate my risk if we blow through $100. So you can see here, it's got a kind of a strange equity curve, but the main thing is that I'm not interested in a max loss, right? So I have to know, first of all, where do I need to take action? Well, if we start crossing below about $93, then I need to step it up. I don't mind this risk, but this risk is a little too much. And from there, it's the same thing on this side. Well, you know, around up $104, not a big deal, but then all of a sudden it falls off of a cliff. And of course, that's where my iron condor is sitting. So my sweet spot is right here at about $100, and if we can kind of pin at that $100 level, and then all is well in the world. In this kind of environment, that's the kind of trade that I want to look at into the end of the week, unless I'm day trading.

So, for those who don't know Chris, he has provided an immense amount of value in our trading room. His focus is on day trading. He's going to be doing a really quick day trading class coming up. Go to

The actual class will be in the evening, this Thursday, March 17 from 6 - 8 Central. I was talking to him the other day, and he's like, "John, I've got 120 slides. How am I going to cover that two hours?" I'm like, it's okay. It's okay if it runs a little long. It's gonna be recorded." So he's got a lot of amazing information there, and then he's going to do live trading from 8:30 to 11:30 AM Central on Friday the 18th, which, of course, as you guys know, is going to be Quadruple Witching. I'm super excited about this class. It's essentially focusing on a step-by-step process, how to combine 3 free indicators to generate consistent returns from the markets, when to put on and take off the trade for maximum profit while alleviating risk, how to find the most consistent trading pattern. He's really good at that, comes up with some really great ideas there. And then just building a trading plan, from a conservative all the way to an aggressive strategy. For those who don't know Chris, great guy. Tons of knowledge. He's been doing this for 30 years. This is one of those, "Hey, $97 bucks, best $97 ever invested in your trading career." If you want to do the live event as well, which I highly recommend, it's just $197, and that includes this.

He's not only one of the best guys sitting there explaining this stuff, doing it in front of you, but also answering questions. He's just a machine. It's gonna be fun, watching him do this class, and you guys are in for a treat. All right, have a good one, we will see you at the next update.