Relative Strength
Learn To Trade Options with John Carter. Get options trading strategies and options trading tips from a professional options trader. Simpler Options provides a daily options trading newsletter with video analysis to explain option trading and help in your understanding of options trading.Option Trading Strategies | Online Training |
Home    Free Options Trading Videos    Become a Member!    Blog    Refer A Friend Program    Login
home | Free Options Trading Videos | Relative Strength

Relative Strength

John F Carter 1/31/2014

Welcome to the free video. I am in Memphis, Tennessee for undisclosed reasons, which I'll talk about more in the near future. But let's see, staying at a hotel...the Internet's kind of slow. But I wanted to go through -- obviously do a market recap today. I did have a plane trade going today and that was evident by the market reactions and let's recover -- oh, we'll cover a couple of things.

So first of all, SPY, we've just kind of come back up to resistance. So it was a great day yesterday -- or what is it, Thursday -- it was a great rally on Thursday. But so far it's just a rally to resistance. Now I at this point am not willing, as I've talked about, I hate the market long and I'm not willing to short anything, so the only things I'm really wanting to do is be long stronger than average stocks. My favorite one, we've talked about this in the trading room...bam we got paid on this one today. So this one we've had, we talked about this a lot. There was a lot of early warning on this and we were able to get a nice chunk of this move from the trading room. So now how this one is constructed -- it looks a little odd here because I don't have it arranged by order. But the main thing here is these 80 puts right there are part of a spread. So you got the 80 puts but of course that's protection for the 90 puts that I sold. All right. You can see all these are Feb monthly and then I got kind of a little bit of a lotto ticket here on the 120 calls because of the weekly squeeze. And then here we have some calls... some calls there. So anyway the idea was to buy calls and then sell some premium to offset the Theta decay on the calls.

If we look at QIHU again here on the charts -- you know while this daily chart may not look that interesting the play here is on the weekly chart. And you've got a squeeze and I mean this is my favorite chart on the planet right now. And weekly squeezes are hard but if this thing goes I mean, this thing could really, really move. Of course it's going to depend a little bit on the markets. And oh, and this is -- gosh I was going to dive into a bunch of stuff, but this is the free video. So there's other stuff I'll dive into on the premium video here.

One thing I wanted to show you is Google...Google a pretty crazy move here after hours. OK. So here we go. So we had the flush down, the flush up and then eventually it started going higher. Now I did an experiment today I want to show you guys, and before I will talk about a strategy I will risk my own money on it first. And I'm not sure yet if this is a workable strategy or not. It worked this time assuming that we open at 1183 tomorrow. But next time it might not work. So you gotta analyze the pros and the cons.

So for Google you'll notice -- so for an earnings play instead of selling the wins and selling the straddle I was bullish on Google. I thought it would go higher or trade sideways. So what I did was I sold 10 of the 1110 puts naked and 10 of the 1145 puts naked. Now I sold these when Google was around 1148. And then it sold off into the close actually by a about 12 dollars. So the loss I have here -- the 14 thousand dollars I lost, was based on the sell off into the close. But these are options that expire tomorrow. And if we can open up at 1180 and these expire worthless, then I mean you know, 10 contracts at 32, that's 32 thousand dollars, and 10 contracts at 33, that's 33 thousand dollars. So what's the risk on this? Well, so what I was doing then was that I was looking at the expected moves. I want you to -- you can kind of look at my mindset here. Now what if it had gone the other way. So what I looked at this as is a one to one risk over ratio. Meaning that the expected move was 64 dollars. So my risk was, that if I sold 10 of these at 32 dollars, OK, then...and then if it fell essentially 64 dollars, what is my risk. In that case it's a one to one risk over ratio because if it fell 64 dollars then these options -- remember at this point that's all premium. So if it fell 64 dollars at 11.50 to 10.90 then those options would be trading at 60 dollars. So it'd be a one to one risk over ratio.

Where it gets tricky obviously is that if it's a greater than the expected market maker move, in that case I would have had to short Google stock after hours to hedge. So needless to say that would have been a hairy kind of a thing and you know, let's chalk it up to probably a little bit of luck on this trade, but the same time also not fighting the trend. But anyway, stuff like this I always like to try out first. So what I want to do though is I'm going to keep trying this and then one of these days when I get hammered which probably will happen at the next one, see how it is to manage it. But again, just looking for different ways to capitalize on earnings plays. All right.

So tomorrow's Friday -- at this point it's going to be an interesting market. Google reversed. Amazon was a little tricky. It sold off after hours but then started coming back. And we'll just see. It would make sense tomorrow that the markets actually just kind of grind higher and for shorts to cover, and then Monday the battle resumes. I think we can actually get up to about 18 hundred on the S&Ps. We closed around 1785 and that's where the next battle will take place. OK. Hope it helps. You guys have a great night and we'll see you at the next update.