PCLN vs. SPX vs. GILD - Position Comparison Into Tomorrow
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PCLN vs. SPX vs. GILD - Position Comparison Into Tomorrow

John F. Carter - February 19, 2016

Hi everybody, this is John. Welcome to the free video. Very sloppy day in the markets. Let's take a look at a couple of positions. So you might think from this chart of Priceline that it's like a nothing trade here. It's actually really good for options trading in terms of premium erosion.

So essentially the idea here is, what we're looking for is, slightly up to choppy after a big move, because what happens is after that big move, the implied volatility spikes, and the options are at a premium. So what we did here is--well first, I was bullish on earnings, but I didn't really want to take a lot of risk.

So I sold an at the money put spread, and obviously get to keep that money. And then when it spiked up, and it came down to $1230, sold an in the money put credit spread for $870. I was trying to get as close to a 1:1 risk-reward ratio that I could. Right now it's $2.22, and then finally did an iron condor, the 1270/1280, and then the 1190/1180 for $3. Right now it's $2, and obviously tomorrow--let's see, the call side's getting some juice here--obviously tomorrow, in a perfect world, if we close, let's call it at 1260, everything just expires worthless. Okay, well, between 1240 and 1270, everything expires worthless. If I don't have to have a lot of headaches tomorrow, that would be great. Of course, the market doesn't care what I think, but anyway, that's that's what's going on with that trade.

From there, I'm kind of intrigued. I mean, the markets have obviously had a fantastic rally, but I think the easy "up" move is over. We can certainly pull back, and there's a lot of open interest on the SPX at 1900. So what we did there was we set up an iron fly at the 1900 strike.

We had to do this in SPX PM, those monthly expirations. The SPX actually closes at the Friday open, whereas SPX PM is the Friday close, like we're used to. So here we sold the 1900 call and the 1900 put, and we sold this actually when it was fairly close to this level. So you can see here that our maximum loss here would be a $25 debit, well, we sold it for 1875, which puts our max loss at 6.25. So the risk/reward is nice.

If, for some reason, we magically close at 1900 tomorrow, obviously I think that's wishful thinking, then we have a great profit in this. My thought is, could we buy this back tomorrow at half off? I'd be perfectly happy with that.

The last interesting one was Gilead. We had a great trade on it last week, and this week I was just looking for more of a pin. The term pin is a misnomer. I'm just looking for it to trade in a narrow range. So we did the 89 call/put straddle, sold it for $1.79, right now it's $1.30, and if tomorrow, we continue to be choppy, then we look for premium on both sides to kind of get sucked in. That's what I'm looking for, just kind of a premium suck.

And last but not least, the reason we've been so bullish this week is because the skews did get under 118. That, to me, is a signal to absolutely not be short and to actually go long. We've had a fantastic rally, but now we are back into neutral territory. So the easy lifting is over. I think there will be good trading opportunities, but right now, it is time to be patient.

So, one question I've been asked a lot is, literally, how do we navigate these markets? They're so volatile. And the best way to be able to navigate markets like this is to understand correlations. And the best person who understands correlations in terms of currencies and things like that is Raghee Horner. So we are setting up a class with her.

Strategy class Thursday, Feb 18, 6 pm - 9 pm Central. Live trading on Friday, February 19, essentially during the entire trading day.

So, simple rules and strategies for thriving in the current conditions. She loves these kind of markets. These are the topics that she'll be covering. You've got using fundamentals and technicals to find opportunity amidst confusion and uncertainty. There's certainly a lot of that. How to day trade markets and also set up bigger trades. The two simple indicators that she uses to define trending and non-trending markets, as well as the specific setups and mindset to avoid the common account killers and volatile conditions using her I.C.E. system to identify opportunities in any market and time frame, and the best types of chopped trade, and what chop can tell you about the markets.

Her three hour strategy class is just $197. If you would like to do the live trading, her strategy class plus the live trading, this is $297. That includes that. This will be incredibly valuable, especially for what's going on in the markets right now, to kind of get you up to speed on all the stuff. Hope it helps! Have a great night, and we'll see at the next update.