Video Transcription
Guy: Later, here we are. You have to ask yourself, is the bull market still intact? That’s a question honestly you don’t have to answer. I don’t think
because I think the market will tell you. Again, I’m somebody who thinks we’re on extraordinarily dangerous ground in terms of the macro economies but I
think as long as we can maintain the 1570 level in the S&P. This bull market is still intact. Longer term, I think the real level comes in around 1520
but let’s take one step at a time.
Again, above 1570, I think we’re still intact. Markets can stay irrational longer than you can stay solvent and you’ve heard that countless times. Again,
you know some people like to fight against this for whatever reason. I think a lot of times, our intelligence tells us this shouldn’t be happening and you
want to fight against it. One thing you hear about all the time, at least one thing I like to say is would you rather be right or would you rather make
money.
A lot of times those two are mutually exclusive. As much as I like being right, I think making money is more fun. I think that’s we’re here to try to help
you folks with today. In terms of the broader market, those are sort of my views. Again, I think you have to have a level of vigilance constantly but as
Greg will speak to the VIX and Options premiums have traded down to levels where even if you want to stay long, the insurance stay long in this positions
and they maintain positions is such and really is not going to cost a lot to stay in positions that you might be scared to have.
As this goes on, we’ll talk about how to trade in earnings and we’ll talk about a few stocks in particular. I think we have to start the ball off with
Netflix which is a very interesting name and one of my favorites but before we do that, I want to sort of pass it on to Greg, maybe he can sort of give his
views on to what’s going on in the broader markets here.
Greg: Thanks, Guy. It’s always a pleasure to be with you. Not to repeat the exact same thing that you just said but I’m right there with you. Markets are
irrationally higher. I’ve seen this before. I watched it happened in the ’90s with the internet stocks and everyone talking about the “new normal” back
then and the new economy. Everyone, logically was fighting against stocks that had these enormously high PE ratios which you look at it now and you say,
“Well, we had a bubble that burst in.”
Yes but the market had an enormous move from ’97 to ’99. Those people who were whether they were trying to short the market saying it shouldn’t be here. A
lot of them traded themselves out of the market because they were trying to short that irrational move to the upside. The other side is the people who
stayed in cash, those people missed out on a huge opportunity on that move from ’97 to the tops of ’99, first part of 2000.
I’m there with you, Guy, on the concern about what we’re doing, what the federal reserve is doing driving the market right now. The fact that they don’t
have an exit strategy or have no idea what the long term consequences with the free money but in the short term, it’s moving the market higher. If you sit
on the sideline and just say, “Well, it’s wrong. It’s irrational. I’m not going to participate.”
Well, you missed on huge opportunity. You know all four of the stocks were going to try to get to there, having huge moves to the upside. Amazon isn’t
having those big move. We’ll talk about that in a little bit but the other one’s having very big moves and you threw a very good point here in that most
people approach the market with the idea of you don’t have to long or have to be short. There’s no in between. Either I’m going to make money when the
stock goes up or I’m going to make money when stock goes down but I have to pick the direction to be able to make money.
You bring up a good point that because of the low level to the VIX, the Options trade that are available to you right now as an investor are actually,
they’re huge. Not just in the leverage options and use options in the way of increasing your return exponentially but being able to hedge long positions.
If you want to stay long … Disney for example, which is one of my favorite stocks right now.
I can still be long but I can hedge in the short term with Put options alongside with either my stock or my longer term leaps. That allow me to still
participate in the bullish rally but still be able to sleep at night not fearing that, “Oh, when this QE Infinity comes to an end, the market’s going to
crash pretty drastically.” I agree with you. I think it’s concern in long term. I don’t know where the market’s going long term but in the short term the
trend is the trend, I’m trading higher as well.
Guy: That’s exactly why you do it and that’s exactly right. Just allow yourself to … you got to put a lot of times in trading. You got to put your ego on
the shelf and just sort of trade the market. You hear this all the time as well. I don’t mean to be repetitive but you trade the market you have, you don’t
trade the market you want. You want trade what’s in front of you and what’s in front of us right now is a market that seems to defy odds, shake off all bad
news and continue to ratchet higher. That will change, I’m almost certain of but I don’t think if you’ll change today.
With that, I think we take a look at and it’s interesting that we pick this stock because this is and in some ways a microcosm of the broader market. The
first stock we want to look at was Netflix. Now, I know maybe a lot of folks will say, that’s a $200.00 stock, $215.00 stock, it’s not the best trading
stock out there for a number of different reasons. Greg can speak to why it potentially could be vis a vis options and why having an education and Options
is so more now than ever. I believe, having a good background and good formal education and options I think is critical if you really want to lever your
trading up. I think that’s what we’re all here to do. Netflix is a name and if you watch Fast Money, you’ll know. It’s a name that I sort of got
constructive on and this is sort of blind squirrel thing but I got constructive on this stock in the fall when it sort of had $65-$70.00 handle.
I remember that the day particularly vividly, I was on the half time report and the market was getting torched but Netflix has this making this stealth
move higher, it didn’t make any sense to me. I’m like, “That’s sort of interesting.” I recall sort of the final trade of the half time report, I said to
Scott Wapner. I said, “There’s something really interesting going in here in Netflix. I think it’s worth the watch you might want to look to get long
here.” Blow and behold, that afternoon was the first announcement that Carl Icahn took a stake in the stock.
It sort of been off to the races ever since. With a minor pull back here and there. People have tried to shoot against Netflix for literally the last
$100.00 or $150.00 based on valuation. You can understand why which is again another thing, if you just look at one metric in a vacuum, you’re not going to
make money. You’re going to get your face basically beaten in if you look at one metric, because if you’re the only metric you’re looking at Netflix, was
trailing PE or forward PE, you’d say to yourself, hell at 500 times trailing and it’s 70 times forward, you got to be short to the stock.
Listen, on those valuations alone or those metrics alone, I can understand why but on the other hand, they might be missing a bigger picture. Sometimes
stocks are speaking to a secular change and that maybe what’s going on here on Netflix which I happen to believe that’s a case. Now, obviously, here at
215, it’s a much more difficult long side trade that it was anywhere between 100 and 175 when really, really speaking to it in earnest.
Again, this is one of those stories that works until it doesn’t work and let history be your guide because guess what folks from the beginning of 2010,
when the stock had a 60 handle to the middle of 2011 when I think it printed 300. This was the same basic story, people shooting against it the whole way
up, making the same arguments that they’re making now. They did come to fruition to a certain point at the end of 2011 but I think now, we’re in this new
cycle higher.
Obviously, Icahn choose something with it. I’m not convinced that he’s 100% percent right in his views. You don’t have to 100% right sometimes. Although
Netflix has had a tremendous move, I still think there’s room to the upside. I still think there’s still a chance to think and push towards levels that we
really started to break down from an earnest, sort of the 250 or so reason that we saw in the summer of 2011.
You stay at … percentage wise, you’re talking about another 10 to 12 percent move to the upside. If you played vis a vis options that 10 to 12% move
could return probably anywhere from 50 through 100% in terms of an Options position. Again, the beauty of Options is there’s a measured risks. You know
what you’re risking. There’s to a certain extent an unlimited reward obviously a change depending on the strategies you put on.
I think these stocks are giving you tremendous abilities to lever views. I think Netflix provides you with one to leverage towards the upside. Now, look
anything could happen here in Netflix. Again, any analyst could come out and down grade the story but guess what, as Travis pointed out ahead of the call.
Just had a new announcement with Disney, you’ve seen analyst sort of jumped on board as well.
I want to say, at the end of April the Lazard upgraded the stock. They raised their priced target from 250 to 3.25. I’m not saying, it’s going to 3.25. I’m
just pointing that out. Now, you’re starting to see analyst who would historically, at least historically last 6 to 12 month’s been negative. They’re
starting to see some of the good things that Reed Hastings has going on over at Netflix.
As much as you want to stay at 215, it’s a no touch. It’s had its move. These moves can sometimes extend longer than you think. I think that’s we’re in
store for here in Netflix. I think Greg can put you into some sort of an interesting Option strategy here to take advantage of that but again, that’s what
we’re looking for here. We’re looking for opportunities to lever views and I think again, options provides you with those opportunities and with that I’m
going to turn it over to Greg.
Greg: Netflix to me is a perfect example of why you need to understand how to trade options. I’ve talked about this stock for the last couple of months
even before the latest big earnings jump to the upside and that there was a … there’s a reason why people missed the big jump that they had in January in
earnings. The stock jumped from 100 to 150 and then subsequently ran to $200. People missed that because they remembered 2011. They remembered the stock
being at 300 and then dropping to 60 because of Reed Hastings PR blunder that he did with splitting the pricing and … we won’t go back and revisit that
but people remember.
They said, “I can’t trade this volatility.” To me this is the perfect stock. If you understand how to use options correctly, to make an enormous amount of
money. Even be able to play it on the equity side and use the options to hedge it. Really, I view options right here with Netflix. There’s two different
ways to trade it. One of them is I can say well, I want to trade the equity. I believe in the long term story. I believe that they are the future of media
and streaming entertainment. I can go in and do some form of collar trade.
Now, with the trend that it’s currently in, the best way to collar trade is just by the stock just out right get long. If you want to be a little more
cautious and say, I’m not that bullish because it is trading up at 215. You could start with a Married Put strategy. You buy the stock at 215 and you go
probably out to June and you buy a Protective Put right alongside it. Typically, when I’m buying my long Puts I’m going to right at the money. Maybe
slightly out of the money if I want to be a little more bullish.
Let’s go right at the money here. Again, I’m going to buy the stock at 215 along with it combine it with a Protective Put. It’ll give me the right to sell
the stock at 215. I now have limited risks to the downside and unlimited upside. If it does take off and run back to 300 or 325, the price target that got
thrown out there by Lazard. I can take advantage of the $100 move and at the most risks the price of my option, the price of my insurance policy
essentially. That’s one way to trade it is in an option, in a collar trade.
Now, that’s only one of the piece of the collar trade. I don’t have to time in today’s session but we do have many classes at OptionsANIMAL where we
specialize in showing you how to implement this trade to take advantage of stocks like this. To me this is bread and butter on how I trade is this collar
trade. Now, the other way to use options besides this protective way and some might look at that, yes, it’s boring, is to use the leverage of options.
If we do get the move to 250 like I was just talking about in short term. I could structure a simple called vertical or a bull call spread is another term
for it. For those who are relatively new to Options, don’t worry we’ll teach all of these concepts. I know sometimes you look at an … I know the first
time I look through an options chain like this, it was a little overwhelming, little daunting. I was just like, “Wow! What are all those numbers mean?”
Don’t worry you’ll get it. Just stick with it.
Probably go a month further out, Travis, let’s go to July on this one. I’ll give myself a little bit more time to be right with the bullish move. Let’s
structure the trade. I’m not going to clear up to 250 with the spread because I don’t want the move to go that far but I’ll start it right at the money.
I’ll do a 220 long and maybe short to 230. Now, what this essentially is doing is it’s creating a $10.00 spread between these two strikes. I’m buying the
July the 220 call and I’m going to sell the July 230.00 call.
I changed my expiration on the cell to July, you still got me in June on my short … there we go. That’s a better price. Again, notice the pricing on this
it’s about 405. I might be able to work the spread a little bit and get a little bit better price on that maybe I put the order in straight out $4.00, try
to get a nickel there. What I’m essentially risking is I am risking $400.00 to make $600.00. Now, what do I need to have happen, again, it’s 150% return on
investment. That’s a pretty good return.
What do I need Netflix to do? Well, I need Netflix to go to 230. I don’t even need to move to 250 like I was talking about. I just need to pop up to 230
between now and July for me to have that happen. Now, of course, if it happens in the much shorter term, if it happens by the end of this week. Say, this
Disney news really catches attraction and Netflix starts to take off, you’re going to see that I’m going to make money pretty quick. I’m not going to make
my maximum gain there.
Again, my maximum gain is $600.00. Usually the only time you’re going realize that maximum gain is when you actually finally get to expiration in July.
Typically, what I do when I’m putting on a trade like this and my max gained on risking four to make six. My max gain’s 150%, if I make a 50% return. In
fact, sometimes even if I make a 30% return. I’ll take the profit off the table and go to the next trade.
I have found over the years of trading it’s much easier to get a 20 to 25% return than it is to get a double or a triple. You can double your money
sometimes. You can triple your money sometimes but they’re a few and far between but I can get 20 to 25% all the time. If I find myself being disciplined
of taking profit off the table when I have profit, the long run my portfolio is more profitable and I sleep better at night.
That’s the way you can use the leverage of options and again, I don’t have to have a huge move right. If I have move from … as you can see here on the
chart that Travis is looking at from a move to 226, I’m at a 22% gain. That’s a $10.00 move on a $200.00 stock, that’s not even a 5% move in the stock yet
I’m getting the 20% return in options. That’s the leverage power that they can give you as well.
One of the things I’ll say before I pass it back to Guy. We’re going to talk about Amazon next. As far as the fundamentals go on Netflix, a lot of people
argue and say well, anytime a stock is trading that high PE, they’re going to come down, they shouldn’t be up there. It’s eventually going to fail. Well,
people said that about Amazon a long time ago too. Back in the ’90s when they first went public and we all know where Amazon’s at today. Is Netflix going
to go there? I don’t know but I think you’re right and you got to be cautious about just using one parameter to make your decision on where our stock’s
going.
Guy: Again, great point at the power of options and how we’re having the same view as I have in the underlying stock. With a move of only $15.00 to $20.00,
how you can talk about making multiple percentages vis a vis option strategy which is again Options is so powerful, so misunderstood, so feared. Yet again,
I would submit that options are probably where the commodity market was 15, 20 years ago. People were scared of it, didn’t understand it but it’s become a
staple of a lot of investors and a lot of traders day to day process.
I think Options are becoming that. Again, folks we’re not trying to sell you anything here, I think you need, I believe this with my heart, you need to
have a solid foundation and education to be able to do this properly. Again, I’ll make this analogy. You could go, get on a plane, go to Las Vegas tonight
put money down on a craps table and through blind luck have a great run and make a lot of money. That’s not like trading, bull markets makes us all
geniuses and through blind luck without any knowledge at all, without any education you could do really well on the stock market but overtime, without that
basis and education, you’re going to lose money just like if you don’t what you’re doing in the casino, your chances are zero as opposed to may be evening
up your chances with the background in education.
The two are extraordinarily similar. Think if you want to do this for real and if you want to make it a vocation instead of a hobby, you have to have that
education background. With that let’s take a look at Amazon which is another name that people just love to shoot against and they love to shoot against it
for the same reasons they love to shoot against Netflix on valuation. I’ve heard people say this now for literally the last $100-$150.00 that Amazon is
short on valuation.
If you started putting that trade on in the fall of 2008, they have been a few occasions along the way that you’ve been rewarded for but as Travis will
point out with a longer term chart, the last four years has been a pretty nice uptrend. Although we’ve seen a sell off from the all time highs, I believe
we made in I want to say, what was that, I guess it was 284 in change. I guess it was in January if I’m not … late January early February. Now, we’ve
obviously seen a bit of a pull back. I believe that uptrend that we’ve been in, it’s still intact now. I’ll say something I don’t mean to be glib. That
uptrend is intact until it’s not but right now, it’s still is intact and as you can see on the chart, there have been opportunities that this stock has
given you on sell off of the same magnitude that we’re seeing now.
There was the moves in late 2011, early 2012, that Travis is showing you there. There was another move we saw late 2012 and obviously, we’re sort of on the
verge of one now. All along we’ve stayed above the 200 day moving average. I believe that green line that Travis is showing you now is a 50 day. To a large
extent basically without a little hiccup here and there, we’ve stayed above the 50 day moving average. That’s basically where we are now so people sold it
on a quarter, April 25th they reported. I think people got caught up on the revenue side of things. I think they were concern of falling revenue. Here’s
finally our chance.
I think and this is me talking, I’m not an analyst. I don’t pretend to be but I think what people are missing is that operating margins continue to improve
for this guys. Now, granted the operation margins for Amazon are razor thin. We’re talking about non-gap operating margin of 2.7% but the street was
looking for more like 2.1% and gross margins were better as well. Although revenue seems to be sort of on the wane relatively speaking, they seem to be
doing better in terms of running their business better.
When I say revenues were missed, I think they reported $16.07 billion. I think the street was around $16.14 billion. I also think that people were a little
concerned about their second quarter revenue guidance. I think that’s what got people between in the stock. I think that’s what empowered the short
sellers. We’ve seen this movie before in terms of Amazon and trust me, I get it. On valuation, it is rich and again if margins starts to wane, I think
that’s going to be … I think margin compression will be the reason to sell Amazon not the stalling in revenue growth, that’s just me.
With that, here at 260, sitting basically right around the 50 day moving average give or take. Again, with the backdrop of a market that seemingly want to
continue to go higher, again with 1570 sort of in my back pocket in terms of where I start to get concerned. I think here Amazon looks interesting again.
These are the options, I think you could put on an interesting trade. It will provide with some incredible leverage if in fact we’re right. Again, I’m not
saying we’re going to be right.
Everything is just educated to a large extent educated guesses but when you start to do your homework and you understand the benefit that Options give you
and then with the premise of having the proper disciplines in place. I think on a risk reward, Amazon looks interesting here in terms of an Options
strategy. With that once again, I’ll pass it over to Greg. Hello. Hello.
Greg: I guess I needed to unmute myself. There we go. Sorry about that. I was saying, hey, the Amazon would probably use a similar type of strategy here as
I would with Netflix to be honest. I mean depending on it if I wanted to say, hey I feel the stock has pulled back after earnings with the down trend. It’s
showing a nice balance here off of a 200 day moving average. Looks like it’s trending back to the upside. Similar type of call vertical would work really
well to take advantage of a move back to the upside.
Again, you could target to move back up to 280. I typically, when I’m doing call verticals like to stay about 45 to 90 days out when I’m structuring the
trades. July is perfect for time frame, I got 72 days probably go up and again buy him right out the money. I might go a little bit in the money on this
one because it’s trending bullish or at least potentially trending bullish right here if that’s my read. If I agree and think it’s bouncing higher right
now. I’ll go buy the July 260, maybe I sell the July 280. Again, I can do a $20.00 spread this time. You’re not always just limited to a $10.00 spread.
What this $20.00 spread gives me is it’s a little more cost in doing it that way but I also give myself a little bit more potential return. In this case,
I’m putting about $1200.00 into this trade and make about 158% return max reward. I’m risking $775.00 bucks to make $1225.00 bucks. I would use the same
type of exit planning here as well. I’m not going to shoot for the 150% return or 160% return right here. I’m going to shoot for 30 or 40 or 50 as my
primary plan.
If I get a short term pop here in the next couple of weeks, great. What I have found is that with discipline in your exit points, some people might hang on
to that trade the whole time and hit the 158% return. What I have found though is that if I’m disciplined enough to pull it off at 29% and all I have to
moved is up to 270. A $9.00 move right here on a $260.00 stock. Again, that’s about 3-4%, not a even a 4% move on the equity. I’m getting almost a 30%
return with this option trade.
What I found if I’m disciplined with that, the trend may continue to the upside. I may pull out and take my 30% off the table and if the trend is still
there and all the reading say it’s still moving to the upside I can reposition the trade and do it again. Maybe not the exact trade I had before, the July
260-280 maybe in three weeks, if I hit this profit, maybe I’ll jump out to the August and do the same trade. Maybe now the 270-290 or the October, I guess
I don’t have an August yet.
It gives me the opportunity to still take advantage of the trend that’s going on but the mental discipline of taking profits off the table following my
exit plan that I put in place before hand helps me be consistent long term. Every successful investor that I have ever met because I know many of you will
probably agree with me who’s listening. You’re one of the biggest things … you know I’ve talked to thousands and thousands of students of people in your
shoes who are looking to start trading their own money.
They’re tired of their money manager doing it for them. They’re taking control of their portfolios. One of the biggest challenges as I talk to individuals
like you, individual investors is consistency in results. You know you have two to three good trades in a row and then you have one bad trade that wipes
out the profits from the previous two. The only way I have found and again speaking not just from my own personal success in investing this way but every
successful investor I have ever spoken to over the long term is very systematic in their approach to the market.
Now, those systems can vary from person to person and we have a specific one that we teach at OptionsANIMAL that’s unique to us and unique to our culture
of how to use Options. It’s still very systematic. If you’re systematic and diligent about following that process, you’re going to find success over the
long run versus maybe just success in the short term while the bull market is making us all geniuses.
Then when the corrections comes around, it’s going to come, I don’t when it’s going to come. We are going to have a big correction one of these days and
hopefully your educated enough and well prepared enough for that. When it does come, not only will you be able to protect your portfolio, you’ll be able to
actually take advantage of the bearish trend that’s coming.
If you wanted to go bearish on Amazon, I’d still structure similar type of trade rather than do that, let’s move on. Because there’s a couple other names
that we wanted to talk about. I want to give you guys some more insight into Guy’s brain now, I’d like to sit and listen to Guy as well. Guy back to you.
Guy: One of the few. Greg’s one of the few but I appreciate that. One that I wanted to bring up and we weren’t sort of scheduled to speak about. I’ll make
it sort of quick is Green Mountain Coffee Roasters so GMCR. I bring it up for a very specific reason. Again, since anybody watches Fast Money, on Monday,
we had a questions about Green Mountain when the stock, I think was probably trading in the mid to low 60s. I don’t think it was below 60. You know what,
my bad, it was actually on Monday and the stock had a 58 handle on it. The question was what I’d do with Green Mountain here? I said well this is going to
sound somewhat kind of intuitive. It’s not typically the way I look at the world but I actually think you own this into earnings. I said, there’s a huge
short interest, the tape is behaving.
Anything that they tell that it’s positive on the margins are going to squeeze to shorts [inaudible0:30:34] not because I’m some genius because I’ve seen
it over and over again over the last few months in terms of heavily shorted stocks. Sure enough, Green Mountain comes in. They actually had a relatively
solid quarter. They obviously then just a sort of little salt in the wounds or short sellers. They announced an agreement with Starbucks and here we are
25% later trading 75.
I said, “Well what do you know? There’s a time to pile in Green Mountain. I said it on the show last night if you’re buying Green Mountain now after
earnings, you’re trading wrong. I mean you want to be ahead of this moves not behind. Candidly, with an Option strategy earlier this week, Green Mountain
risk reward would’ve set up incredibly wrong. I bet you would’ve been unbelievably cheap. This is obviously Monday morning quarterback stop which I
generally don’t like to do.
I just wanted to point that out because of the magnitude of the move, because of the size of the short interests and because I’m certain that people piling
into the stock now on the long side. Now, it’s almost 12:30 or it’s a little after 12:30 on the east coast which means we have about 3-1/2 hours left in
the day. I guarantee you there are people piling in this on the long side and the volume suggest that to be the case.
We’ve already traded 16.5 million shares on a stock that typically trades 3 million shares. What I would submit to you is on big volume days, on extreme of
moves which clearly we’re seeing now, it’s not the time to get into something. It’s the time to get out of something. I’m not suggesting you should short
Green Mountain here but just as that risk reward set up on the long side four or five days ago. The risk-reward, vis a vis Option strategy on the down side
might setup as interesting as Monday to the downside now.
As a trader, that’s how you have to sort of look at the world. I’ll be the first to tell you. I can’t tell you we’re one about the business model of Green
Mountain nor do I really care to get in to it but what I did know was a heavily shorted stock on a tape that’s been impervious to any bad news. Heavily
shorted stocks have only gone one way as far as I can tell directionally over the last few months and that’s been up and that we saw again in GMCR. Now
that the move is over, now it’s not the time to be piling in. Now is the time, A, are they taking profits or B, say, hey you know what maybe there’s an
opportunity with an Option strategy to play for downside move in the next month, month and half.
I don’t know if Greg wants to dovetail that at all. If he’s got nothing to add, we can talk about another name but I just thought it was interesting in
terms of the magnitude of the move and the fact that we actually talked about it earlier this week.
Greg: No, I like challenges, let’s try something. Yes, I’m with you Guy. I can’t tell you a lot about the fundamentals of Green Mountain or their business
model but I can tell you the specifics of the stock, the behavior of the stock I should say make it a very tradable type of equity. That’s one thing I like
about it. If I had to go short this thing or play … I wouldn’t short the stock, that’s not my style. My style is if I’m bearish on the company, I’m going
to buy Puts. I can get much bigger leverage.
Here’s the reason why folks, bearish trends when they happen have a tendency to be very fast and very violent. Shorting stock can make you money, yes but
you can leverage your return much better with Puts. If I’m bearish I’m just going to go by Puts. I’m going to short a stock. The hard part about buying
Puts on a big update like this is there’s a lot of irrational buyers right now. I probably wait until the end. I’d wait until the close today because it’s
probably going to go a little bit higher. That’s what I have seen on big earnings days. There’s sometimes a little buying right into the clothes as all
those people who as you mentioned, Guy, are chasing the stock higher, may chase it a little bit higher. We may see 77 by the end of the day.
If we do, I agree. I think the way to play this is just go buy Puts. Now, still I’m probably going to want to go out and give myself enough time. You know
what let’s go a little shorter term list, let’s not Julys because this is going to be a short term trade. I mean I think this pop up is going to give may
be some shorts who covered a few days ago, a chance to re-initiate their short position. It’s going to give the ability to take advantage maybe some longs
who haven’t sold yet. Who maybe after the big bullish move, they haven’t seen it yet necessarily. They’re not going to sell the day but they may sell the
next couple of days.
I might go June. I might even say let’s go May with the Options and really see what we can get in a downward pullback. I’m probably going to go just right
at the money. You know, maybe a little out of the money. I’d go the 72.50s. I’m just going to buy Puts outright. I’m not even going to do a spread here.
This is a gamble trade folks. I quantify these as Vegas trade. This is like going to the craps table to use Guy’s analogy. You’re sitting there watching
the dice. You’re watching and you’re watching and you’re watching. Guy’s throwing 6 and his throwing 7 and his throwing 8. His throwing 9 and his throwing
11. He hasn’t thrown a 12 in a really, really long time.
You know statistically, there’s going to be a 12 coming up and you throw 12 out on the table hoping that he hits it. If you do, it’s a huge pay out. This
is a similar type of bet. It’s not going to be a high probability type of bet, other than knowing that the behavior of the stock, I could see a little bit
of a pullback so it could happen. I also have to realize this type of trade is a gamble. If I hit it right and if I get a $3 or $4.00 pullback, I don’t
have to have a big pullback.
If go buy this 72.50 Put and the stock pulls back to $70.00 in the next couple of days. Let’s just say, yes. Let’s go not even that far Travis, let’s just
go to May … yes let’s go to 13, that’s fine. Let’s go to May 13. If I get a pullback to $70.00, look at my percentage gain, I just doubled my money with
a $4.00 or $5.00 pullback. Now, is that very probable of happening. Well, maybe, maybe not but again, it’s a gamble. What’s important with a trade like
this, if you’re trying to trade movements back down and using true leverage of options here. Make sure you put it into context into correct portfolio
management.
Don’t go dump your whole portfolio into trade like this. When I’m doing trades likes I maybe put a percent of my portfolio, maybe at maximum 2% of my
portfolio what I put into a trade like this but hey, sometimes you can really hit some big home runs and just trade a one or two-day trend that’s nothing
more than just a short term pullback and then you’re right back out with your profit. I like the challenge, that’s how I trade. If I had to trade Green
Mountain bearish, that’s how I’d do it Guy.
Guy: That what makes it so much fun because the cool thing I find about trading, everyday there’s something out there to sort of harvest your mind or
figure out. There truly is opportunity everyday not to say that you’re going to make money every day but there’s clearly opportunity every day. I think the
market gives you … I’m off to believe that the market constantly gives you signals, it gives you signs. It’s just a question whether or not we want to
listen to him or take or sort of look pass them. I mean that’s really what it comes down to.
With that said, let’s take a look at the stock that I think has been giving you a message. Again, I think we’ll continue to give you a message. I
apologize. I know we’ve been talking about some high fliers today and I hope that it hasn’t turned anybody off. The next stock we want to talk about is a
name that as long as I’ve been doing Fast Money which is the beginning of Fast Money is the name that just on a secular basis, just in terms of the
business that I’ve said for a while now.
I always try to [inaudible0:38:42] is that it had been investment not a trade. Again, it’s worked out and the name of that stock is Precision Castparts.
The symbol is PCP. In the business, we used to call it angel dust for obvious reasons. It’s been anything but a hallucinogenic. I got to tell you the stock
has been teflon now for quite some time. They reported earnings today. Now, why is that interesting?
Well, not really that interesting because to be honest the earnings were somewhat benign. I took a look at it when they reported. I said, not bad, they
beat on the APF side. They missed on the revenue side. They didn’t really say anything. Nothing was excellent in this report. If I were bullish or bearish,
I could probably find reasons to both own and sell the stock. When I say let price be your guide. What’s been a pretty benign tape today pretty much by and
large, here’s the stock that was making all time highs this week up another 8% today on what I just pointed out in my opinion was a pretty benign report.
What does that mean? While again, this market gives you clues. There’s not a big short interest in Precision Castparts. it’s not like short raising to
cover it. Although the volume is heavy today, it’s not extraordinary today. This is one of those slow and steady pull backs along the way, a lot of people
shot against this name because they’re exposure to defense sector into the airline sector. They did so obviously in retrospect and correctly.
This is a great company, great business model. It flies, no pun intended, but it continues to fly under the radar screen. Now, I don’t know if Greg even
wants to go down this road. I’m not suggesting that any of you too but this is a stock to me that we used to do things back in the day called a knock-ins
and knockouts. It was sort of a casino model options. The premise being … here’s Precision Cast parts at 208, let’s just say.
I don’t necessarily want to buy it just an upside call here because there’s a chance for a pullback. Maybe I’d buy a 200 Put and if that gives extra size
that knocks in at 225 call. Again, I’m not suggesting that anybody do that. It’s more of a casino model stuff. I don’t even know if you can do it vis a vis
the options world that we live in. In my head, I look at PCP and said, “All right. Look, if I haven’t done anything yet, I probably miss the short term
move.
There’s going to be a pullback but yet I still want to take advantage of what I believe to be further upside down the road. That’s what this knock-in and
knockouts do for you. Again, I’m not saying any of you folks should do that but in terms of where your head should be at, this is a name that should be on
your radar screen. You should be saying to yourself, all right if I get lucky enough to see this thing trade back below 200, I’m going to incorporate some
upside option strategy that’s going to give me the leverage to what I think it’s going to be the next wave higher.
Now, I don’t want else to say but that but again, this is a stock that again more investment than trade but yet with that said, I think it provides if you
have it on your radar screen and you have the right entry point, I think the Option strategy to the upside in this could really prove to be worthwhile and
something to take a look at. With that I’ll throw it back to Greg.
Greg: Once again, the mute button. Sorry. Yes, the knock-in, knockout strategy is pretty interesting. It’s primarily back in the day, they used it in the
… actually, [inaudible0:42:23] back in the day, they still use it but it’s primarily focused on commodities. You could do a similar thing here really
with a debits credit. Same type of trade we are talking about with both Netflix and Amazon is you go take advantage of the bullish move.
If that’s what you wanted to do. You’re reading the chart. You’re saying, I think the stocks going to keep moving higher after this good earnings report.
You can take advantage similar with a call spread that we structure both on Amazon or Netflix. One thing rather than jump into another trade because we’re
running out of time that I wanted to talk in general with people about … I know we’ve thrown a lot of different types of strategies out there today and a
lot of different stocks at you.
One of the things that’s important. I like to use the analogy of golf. I’m not a great golfer, I enjoyed going on the course from time to time. Golf
requires, I like to use the analogy of me golfing against Tiger Woods and I have a full set of clubs and Tiger only has his putter. Who’s going to win the
round of golf? Most people jokingly make fun of me and say that Tiger would be me and I call them rude and not …
Hopefully, you can appreciate the analogy that there are situation on the golf course that requires specific clubs. The sand trap requires a sand wedge,
the rough requires a wedge to get it out of … all I have is a putter and I’ve got in the US open style rough, 2 feet long grass. I’m not going to get it
out of there with a putter. It’s going to be difficult. I’m not saying the putter’s not important and it’s not needed on the putting green.
The stock market’s no different but so many people approach the stock market with just one strategy whether that’s they’re going to buy stock and sell
stock and that’s all they do. There are situations in the market that you need to be able to take advantage of stocks when they’re going sideways or stocks
when they’re going up or stocks when they’re going down or maybe stocks in a really volatile market or stocks in a very non-volatile market that are
trending. There are specific trades that do take advantage of each of one of those situations and just like golfing with a full bag of clubs, the best way
to approach the market is with a full bag of trades so to speak.
There are situations or specific types of credit spreads of debit spreads or collar trades or diagonals or knock trades, knock-in, knockout options. Those
are types of trades that allow you to take advantage of specific situations that the market will give you. I’m going to steal this before Guy says it
because he’s very good at saying is that I think one of the mistakes that a lot people make in the market is they’re very dogmatic in their approach. Not
just in trading what the trend is giving you and what where the market’s out on the a day to day basis and trading that but also in their methodology of
how they trade the market.
I think it’s really important for you to be flexible and to be able to maneuver, not only with the market but also by which strategies you’re using to take
advantage of it. That’s really the specialty of what we do here at OptionsANIMAL is teaching people how to learn all of those different strategies that
need to be employed to take advantage of the situation at hand. With that, Guy, I’ll turn it back to you.
Guy: Greg, makes excellent points and hopefully we provided some ideas going forward. All actionable stuff I do believe and we’ve done it in less than an
hour. Again, folks we’re not trying to pitch anything here but I would not attach myself to anybody unless I believe in them. As Travis said earlier, I
think Greg, his dad, his brother along with Travis and their stuff, I think they’re the best educators out there. If you’re serious about this, this is
something that you should seriously take a look at in terms of providing yourselves with a foundation of education.
Because without it, I think you’re just throwing darts. Travis is going to tell you folks about an offer we have. I want to thank you all you folks for
being with us for the last hour. Thanks Greg, obviously for his time and expertise. With that I’m going to pass it over to my buddy, Travis.
Travis: All right, thank you Guy and thank you Greg. I really appreciate you guys taking time out of your busy schedules to be with us today. Quite frankly
for all of these webinars that we host for our community and for those folks who are new, this is something we do quite often. We like to get together as a
community, talk about the market, talk about ideas and then talk about how to trade those ideas. Greg, Guy and I did something a little bit different today
with our offer both for our current OA students who are in the webinar today as well as our non-OA students.
For those non-OA students, again, it means a lot to us for you to be with us today to take time out to be with us on these webinars. We want to give back
to you and really want you to be a part of our community. For those folks who called in, again the number’s right there at the bottom of the screen. We’re
willing to give 25% off on educational package if you’re choosing here at OA. Again, it’s not one size fits all. We have a lot of different packages that
we can fit to your needs. As well as 6 months free access to our weekly traits. This is very similar to what we do today albeit on paper.
We’re going to provide you with trade ideas and then show you how we are actually trading those ideas from beginning to end. Not just entering the trade
and saying, Joe, I want you to go out and buy this stock right now at this price and then leave it alone. We’re talking you through the entire process,
buying the trade, adjusting the trade, exiting the trade, everything that’s going through our minds. This is 6 months free access to the weekly trades
there for the non-OA students to call in.
For our current students, again, thank you for being with us as well. We’d like to offer you 25% off when you access to any of our premium products, you
folks know what those are whether it’s our mentoring or trade or workshops or the weekly trades. Again, we’ll knock 25% off that price or you can upgrade
to a lifetime for $2,000.00 which is originally as you know a $3,000.00 price ended up great. One time offer there.
Again, you need to call in today to secure these offers. If nothing else especially non-OA students and even you OA students, just call in to chat. Let us
know how you’re trading is going. Talk to us about some of the new things we got going on here at OptionsANIMAL and where we can fit in to your trading
plans. Thanks again, Greg. Thanks again Guy. Thanks again everyone else. It’s been a pleasure today, we look forward to seeing you next month on our next
webinar and I wish everyone happy trading. Take care.
