Presented by Greg Jensen of OptionsANIMAL and The Streets Jill Malandrino from OptionsProfits.
Travis: For OptionsANIMAL. For those folks who don’t know, we are educators specializing not only on the Options Market but just in investment education in
general. We have the most comprehensive program out there as far as getting folks up to speed with managing their own investments. We’re going to talk a
little bit about that today, but more importantly we’re going to talk about the markets. Interesting markets that has been, we seen a little bit volatility
creep-back into the market this week.
You’re probably seeing my screen there. I’m using tradeMONSTER platform today. I’ve got a three-day chart up there. I just found the S&P 500. We saw a
nice day on Tuesday right after the holiday where both the S&P and Dow really jumped to the upside on some positive housing data and consumer
confidence. Then yesterday we saw the markets down again essentially raising those gates, and a lot of it in some of what we’ll talk about today there’s a
lot of forces at work here.
One important force obviously the Federal Reserve and when and if they… and I guess it’s not it. It’s a matter of when they end the quantitative of easy
programs. That really leaves us with the question, and I know it’s a question on a lot of investors’ minds today. It’s something that I think Greg Jensen,
our founder, as well as Jill Malandrino who we have with us today from The Street are going to address and that is okay.
So do we simply just cash-out and kind of watch this market either sell of here in the near term incorrect or continue to drive the upside? Or do we find
some other opportunities out there that we can start investing in and start to play as we enter the summer season?
With that being said, I think we’ve got a majority of everyone in the room now. So I am going to bring in our special guest for today. As I said, we had
Jill Malandrino with us from over at TheStreet.com. A good friend of ours and partner in the industry, and Jill runs the Options Profits Program over
there, subscription service. We’ll talk a little bit about it at the end of the webinar, but Jill, I’d be interested to see what your take is on this
Market. Get us started here.
Jill: Sure, thank you so much for having me back with you guys. It’s always a pleasure to work with you Travis, and of course Greg. For those of you who
have signed up for The Street MONSTER Conference that we’re hosting in conjuction with the OptionMONSTER next June 7th and 8th you’ll
have the opportunity to meet with all of us including Jim Cramer, Stephanie Link, Pete Najarian and OptionsANIMAL own, Guy Adami, lots of great stuff going
For those of you who’ve hadn’t, now is the opportunity to take a look at the conference at. Just go to TheStreetMONSTER.com. You can see the fabulous line
up that we have there, and it’s not just the people that are what’s exciting about this conference. The big question is like Travis mentioned, “What about
this rally? How is it sustainable? What are we looking to do to that with our portfolios?
Using fundamental and technical analysis and incorporating, what are we seeing in Options and futures market for our directional trades and also for our
overall hedges for our portfolios? So we’re going to be talking about all of that kind of stuff there. If you hadn’t had the chance to take a look, we have
a whole bunch of specials going on right now winding down. So I encourage everyone to check that out. In addition, whether you tend to conference or not,
five people will be selected to watch Jim Cramer Shoot That Money live.
You’ll get to take pictures, autographs, exclusive all-access backstage after the show, so lots of great stuff going on that site. Let’s just gear and talk
about why is this rally so hated? A lot of people that, you know, whether it’s my parents or friends or retail investors are like, “Jill, this market is up
so significantly your portfolio must look fabulous.
You guys must be loving it.” Well, all of us out there whether your high-frequency trader, momentum trader, money manager, even the more sophisticated
retail investor it’s great if we look at our low return, 401(k)s and IRAs so forth. But to find those great intrigue opportunities for the momentum guys or
even for low return value investors find a good spot to get in.
It’s been really hard. The webinars that Greg and I done in the past, some of our favorite trades: IBM, TD Ameritrade which nobody was looking, [inaudible
00:04:34]. Some of the emerging marketplace we looked at have shot more targets, and we have July, September, January 2014 trades on.
One of reasons why I think so many people don’t trust this rally is because all they losses that were established during the credit crisis when we stopped
for the 50% plus draw down on our retirement portfolios, they don’t trust what’s happening here because of the asset bubbles that are being created.
Whether it’s equities, funds, some of the commodities, even looking at some stock prices.
It’s not just the fact that some of the great blue chip names that we’ve picked had made such significant ones. It’s names that are either basically in
bankruptcy or have no cash, or they’re trading at a 100-250 times value. It makes no sense what’s happening here.
I think the biggest concern is everyone thinks it’s the essential bank that’s facilitated this. Like I said, small investors are also feeling the pinch
because it’s kind of hard to dictate what’s a good time to get in? That’s why we’re seeing any sort of tiny pullback being met with extreme buying because
we have so much cash on the sidelines, and there’s a lot of people tracing performance.
Let’s flash forward a bit. Most of the data I have is from data because we’ve tried to prepare for this [inaudible 00:05:58] as fast as we can, but The Dow
is up 17.7% and S&P is up 17% yearly date play. The S&P is up 150% since making it 666 low on March 6th 2009.
All three major averages let their four streak weekly gain, and if you go and you take a look back over the five past months we’ve seen a handful of 1K
declines maybe a couple of two day declines, but we have had no three-day sell offs. We’ve seen Japan take a dramatic kick. Europe has been trading a
little bit higher so you can kind of see how the momentum is shifting a little bit?
The S&P feels like it’s having a harder time holding the rallies. When we had our webinar back in April Greg and I were both saying, “It’s doesn’t feel
like a selling May type of market.” And that’s exactly what we saw. We saw some impressive action to the upside the first three weeks of May, but now it
feels like I’m putting like field of quotes around it. Things are different.
We’re seeing volatility creep-back into the market. We saw it with last Tuesday’s sell off. We saw a nice great trading day for the [bull traders 0:07:13]
on Wednesday, and then we saw it again this Wednesday that just passed. Some nice little tradable events is what we’re looking for. I don’t think you’re
going to see anything major happen this week.
If anything, maybe today, maybe tomorrow a little bit some downside pressure because we’ve booked so many gains in May you’re going to see some people take
it off the table. I want everyone to be aware of what’s going on this weekend though. On June 2nd which is Sunday, Ben Bernanke is making a
keynote speech at Princeton University.
There’s some speculation there. He might announce some sort of retirement. Pay attention to what’s going on, on Sunday. For your future traders there might
be some nice opportunity there, but flash forward to Monday, June 3rd, it’s the beginning of a new month. You will see some in flaws there, but
I really think that you’re going to see, I wouldn’t say correctional. I’d like to call it the, “top”, I don’t like to call it the”bottom”, but I do think
that you’re going to see a quick draw to the downside in June. I could maybe whether it’s 500-2000 points, so I think you’re going to get an opportunity to
get in some better levels. I think we will sort of many correcting.
You’ll see some more of the upward momentum towards the end of June, but I really think the first two, three weeks in June we’re going to see that nice
volatility comeback into the market with lot of tradable events.
Greg: Well, I hope you’re right, Jill.
Jill: Thank you.
Greg: I hope we see some volatility comeback into this market. Not that the steady upward bullish climb hasn’t been nice for one particular type of
strategy. If you’ve been long to this market whether that’s long in the form of just straight stock positions or long in the form of long calls or maybe
debit spread you’ve done well.
One of the things that I have been talking about in some of webinars I’ve been doing for the last month or so, as we push through one of the time was a
long-term double top. I think we talked about it the last time we did the webinar, Jill. You and I talked about that long-term double top that the market
had been almost trying to push through, but we’ve have blown through it and pushed higher on the S&P.
One of the things that I’ve been pointing out is that me, this is very reminiscent of what happened in the market in the ‘90s. No, I’m not saying that
there’s an internet bubble burst coming soon because the ‘90s was a long bullish market. It started arguably in ’96 and went for four years before we
finally had that bubble burst. But, what I’m trying to teach my students right now and I know many of you are here in the class and you’ve heard me before
say this but I’ll say it again is that, “Don’t mistake a bull market for brains right now, folks.”
Everyone is making money if they’re along in the market, and don’t mistake the idea. Don’t get overly bullish because one of the key things that I see
that’s different with this market particularly in comparison to the bullish market of ’99. I know you’ve heard a lot of comparisons saying, “Oh, well, the
S&P earnings are about the same” which I agree with they are.
The one different so as you heard Jill mentioned is that this market has been primarily driven higher by the Federal Reserve and by the fact that there is
no yield anywhere else for investors to go find whether it’d be in the 10 year which you’re seeing some interest in action here in the last three to four
days. Or whether be in CDs…there is no yield anywhere except for an U.S. Equity is because of what the Federal Reserve has been doing and that’s been their
goal, they’ve stated that they’ve been trying to help accomplish that.
The downside of that folks is that you have to be cautious that when the Fed does stop and whether that’s a little fear that it comes into the market
because Bernanke stepped away and retires if that’s what he ends up doing on Sunday. Or if he hence that he’s going to turn down a nomination of President
Obama asked him to step in and be the Federal Reserve Chairman again this coming spring we don’t know.
We don’t know what’s going to happen when the Federal Reserve steps away other than we will see the people who have been buying those U.S. equities market
for yield, we’ll go somewhere else. We’re seeing a little bit of that right now the last couple of days. One thing I want to point out that I’m seeing is
that a lot of the dividend yield stocks that a lot of people have been pushing into.
The names like, Procter & Gamble, Coca-Cola, a lot of The Dow components that had been big dividend yield place are showing some weakness in the last
few days. Even though the S&P continues to hold in there and continue in the bullish trend, you might be seeing a little bit of change in the guard. I
would say I’m still okay looking forward and say, “I’m bullish on the market because the Fed is still there.”
But you’re starting to see a little bit more fear creep in, and I think that’s a good thing because it creates trading opportunity and maybe lets the
market slow down a little bit so that when the Fed does complete to step away or starts take brain off on their bond purchases. It won’t be such a shock to
the system in the market or have already priced some of that in.
Jil: One great thing about trading options is particularly when we’re expecting some volatility to come back into the market, and I think that drop in June
maybe sudden. I think now is a really great time to apply the same principles and patients to shot for maybe some to put options with plenty of time left
until expiration keep on a relative basis. Because at the end of the day volatility is still relatively well.
You might have your spot or you can pick and choose for some nice sales, but to think overall you still have a little bit of a chance to buy some
production in there. I just recommend don’t try and guess the top, don’t try and guess the bottom. You’ve seen what happen when people try to do that in
April and May, and I feel like over the past week people finally stop fighting the tape, and now we see the tradable opportunities come back in.
But as much as you want to blend in with the trend options give you some nice flexibility and timing of your entry and your exit, so there really is no
reason to get fluffy. As we all know, options is going to increase your leverage and still allows you to have some control over the downside. That’s why I
think it’s great that everyone is taking their timeout particularly in the middle of the day to learn how to better manage their portfolios and always
Because even though it’s been a really tricky market to trade with this trend that we’ve been living with there are always some sort of opportunities in
there. That’s why also we want to identify even on the downside as well. Let’s get a little bit more sector-specific, and this is something that Greg and I
have spoken about with every webinars since we’ve been doing this together.
I think starting in January, we were a little bit early on the Tech Trade .What we’re seeing now is the pieces that we have been talking about time in time
again where you’re starting to see that location out of some names that have had significant ones particularly health care, utilities, some of your staples
names which are truly all valued at this point.
One of the best values in the market right now is still tech. It’s right behind the performance or the S&Ps. If you’re looking for some more relative
value there are some great areas to go there. The technology sector ETF, the XLK. We’ve traded multiple times in and out of that on Options Profits. Most
of it being time spreads which is we’ve done well with that it has been a more volatile, this particular ETF versus other sectors.
We’ve seen some really interesting options activity in the name as well. Just a couple of days ago we saw 20,000 worth of June 32 calls that were sold
matched up with June 33s. You’re seeing that there is still some room to the upside. 33 is a target that we’re looking at there and basically, technology
shares are defensive cyclical. Some names that you’re going to see some rotation in as we move out of health care, utilities, staples shopping for more
value. It’s going to be technology, even financials.
With the run that the banks have had, there still is a lot to go. We also saw some in the XLS. We saw similar trades go on forward. There was huge massive
decisions taken and some call spreads there. Some of my favorite names within at the tech group really had not changed. IBM will always be my favorite core
It’s 210 when…we took the webinar with a report. April 24ish, April 30th was our next webinar and Greg and I were both like, “Yes, it’s hold off
every earnings. This is your time to get in. It’s still cheap. It makes sense on the chart, and if you love it longer term, and you would just want to get
hold the stock, it’s not going anywhere. Collect some nice dividends. You’d just increased their share by that. This is a great place to be.”
Now we had on a July, September 210 time spread. Obviously, it’s hit our sweet spot today. It’s been had a monster run today, so if you guys were involved
in that I would look to probably get hold of that because it’s right at that target, and no one expected it. It was trading like 188 or 190 for exactly
what number it was when we did our last webinar, and I’m never getting questions after the fact like, “Are you crazy? That’s kind of a big move for stock
that market have and it’s relatively capital intensive.”
But it worked out. They’re taking up their guidance, they are firing in all cylinders when I look at tech names. I want to see people who are services and
analyst. IBM has cornered that market, and what I also think is interesting is that IBM is making a tremendous push to get into the cloud space. You’ve
heard of multiple CEOs and some of those bigger names like Oracle, BMW.
I’m saying our biggest competitor are some of the smaller names, our biggest fear out there right now is IBM because they’re aggressively working in the
cloud space. You know when IBM take on something they own that market. I will always love that name.
I realize it’s a bit rich to get in right now. It’s certainly hit our target though I still think you could see 215-220. Yes, if you own it, I would
absolutely not get rid of it. Those are one of those things if you want to get it now if you have the capital to do so, why not? It’s not going anywhere.
In my mind, other names that I’m looking at are data storage. I love Oracle, almost the same story that you heard of IBM.
It missed some sales target that didn’t close some deals on Q1 they’re pushing that forward to Q2. When they report next we’re going to those numbers
reflective in those quarters, and that’s why you’ve seen the run since their earning through the reports.
You could see the gap right there, and it’s certainly it’s about a buck and a half away from where it was, so I still think there’s room there, data
storage, EQ Access. Another one, you don’t hear much about it. Look in what this thing has done over the past two years.
Again, might be a little bit rich here. There you go, it slowed off a little bit but I love the story that’s here, too. They are consistently growing. I’ve
met with the CEO multiple times. Not only are these guys increasing dividends, to share by back deal, they are investing in growth, and that’s where you
really unlock shareholder value.
You just don’t go to companies that have a great yield or they’re increasing their dividends. It’s always a nice place to be but what you’ve really want to
see in the tech space is management that’s confident within the space that they operate in, and they’re looking to build and add to balance sheet.
That’s where you unlock value. That’s where future growth comes from. This is what I’m really looking at, services and analytics, cloud and data storage in
Greg: Let me go back to XFK to start that with, and for those of you who are relatively new to investing because I know we’ve got a relatively mixed crowd
today. ETFs are one of the best ways in my opinion to get started in the equities world. You don’t have to do as much to do diligence to choose between
Equinox or IBM or Oracle although I like all three of those names as well.
We’ll talk about a couple of trades maybe surrounding each one of those, but if you want to just start off and say, “Well, I just I like technology because
I agree with it which you guys have said.”
I agree, we’re seeing this rotation out of dividend paying stocks that have been way over priced because everyone has been afraid so far and they’ve been
seeking the dividend yield. Now that the economy seems to be doing a little bit better, and we’re seeing growth in housing. We’re seeing earnings start to
continue to be strong or starting to see of the employment picture get better, I think we’re going to start seeing the shift of moving into technology.
This is a nice broad way to do it, is you just go buy an ETF. Now, again, I’ll get even a little more basic and I apologize for those of you who maybe a
little more advance and say, “I already what an ETF is.” Not everyone does. Real quickly an ETF stands for Exchange Traded Fund.
It’s simply a group of stocks that are a generic picture of the kind of like the mutual funds you’re used to own in on your 401(k)s. The difference with
this ETF is I can actually buy it and sell it. Even better, I can buy and sell often surrounding it to head risk and increase put into return if I use it
One of the key ways I’d look at doing a trade on the XLF right now and that continuing move higher is just in the form of a calendar spread. I think that
there is an opportunity long-term especially when we get out into the summer, latter part of the summer that you’re going to see better economic news
you’re going to see.
I don’t think the Federal Reserve is going to pull away anytime soon, that’s my personal opinion. Although, I think there may be some uncertainty on the
short-term in June, I think longer term I’m still expecting a bullish move by the end of the year.
I think the XL…I have been saying the XLF, the XLK, excuse me. I’m talking financials which is another place where I wouldn’t mind think a general ETF is a
place to move. But the XLK here…maybe we go by the December call option and sell the July.
Typically, when I’m structuring a trade on a calendar spread like this I want to go a little bit out of the money to give myself the ability to move for
the bullish movement to occur that I’m expecting if it happens on the short-term.
So, I’ll probably sell the 33 that you can see there’s bid 18 cents as 19 cents. Then I’ll go out buy the same strike out in December. Now, essentially
what I’m doing here is I’m creating this time spread, this calendar spread that allows me to take advantage of time indicated here in the short-term
potentially a little bit of a top in the market but still have a long-term bullish view that if I do get this bullish move my call options further out in
time should move quicker in the short-term than my shorter terms call wheel because of the difference in their deltas.
Now, I know I just threw a term out there to some of you are like, “What’s a delta?” Don’t worry you’ll get that if you’re new to Options. The key thing
for those of you who have Traded Options 4 and know what the term is I must speak a little bit of advance language here.
When you’re structuring a calendar trade make sure you’ve got a delta differential of about .2. That’s what I want to see when I’m structuring a good
calendar trade. Otherwise, if the bullish move does occur which it could, it could actually mess my trade up.
When I’m looking at delta differential…so I’m going to have you actually show that. If you can close the order the screen or just move it to the side, so I
can show the deltas there that are less.
You can see that the one I’m selling, there’s the column. The one I’m selling has a .25 delta. Now, if you go further out in time the December option as a
.41 delta. It’s pretty close to a .2, it’s not quite. I may actually try to play with this trade a little bit and maybe choose another strike. Maybe go in
the money a little bit like Travis had showed.
Maybe, I buy the 32 call instead of the 33 call so I can get a .5256 delta, and then the one I’m selling has a .2547 delta. That essentially what that does
to try to put it in the layman’s terms is that creates a difference, so that if I do get the bullish move up to 33 here in the short-term my calendar trade
doesn’t go haywire on me. I’m actually going to be profitable with that move even up to 33.
There you can see from a risk graph standpoint I can kind of move that risk graph to peak out right when the stock hits right at about 33. What I have
found is over time, it’s kind of optimal of the structure of that way.
That’s one of the ways I would play with the XLK right now to take advantage of the potential bullish move. As you can see what that does gives me a very
big potential return. I mean, my risk to reward down there. I’m looking at a potential 47% return if I nail this one kind of like we nailed IBM last time
when we talked.
That’s one of the ways you can play XLK. Obviously, it’s a little more advance trade for those of you who are relatively new to Options. Let me talk about
another moving to different stock, how I would maybe trade IBM?
Because I think IBM is another really good story and continues to be a good story even though we continue to talk about it. That’s fine, I like IBM. One of
the ways I would look at IBM is simply doing a bull put.
There has been some premium come back into the name because of the little bit of increase. The other reason why I like the bull put especially we’re going
a little bit out into July is you give yourself a little bit more of volatility, and give yourself the ability to maybe survive a little bit of a
correction in the front month of June if in fact it does happen.
Probably structure this one maybe 205. Maybe I’m short at the 205. I could even probably be go short at the 200. Can you go back to a chart Travis on IBM?
Yeah, if we look into the chart here again, it might go up to 215-220. I definitely like 200 and here is why.
Notice the 200 day moving average there. I know the big earnings move blasted through it but then it rallied right back up with the rest of the market. 200
day moving averages, investors like them. I know there’s no rational reason why they should. There’s a lot of argument up and down as to why that moving
average should matter.
I think it just comes down to a human nature or human behavior study in a fact that people do look at them and make trading decisions based off of them.
That’s that and makes them valid because it’s kind of like a self-fulfilling prophecy. We say it’s going to happen and because we say it’s going to happen
it actually ends up happening.
That’s kind of how these 200 day moving averages work in my opinion. It’s not just individual investors should base of. A lot of big investment houses look
at that big average there as well. I actually like that specific number like $200 as my price point for where I would look at doing a bull put.
Typically, what I would do is I’m going to sell the put at the $200 strike price, and then I’m going to buy my put at the strike below that. You can see it
doesn’t seem like a great trade as far as risking reward.
A lot of people want to look at bull puts and look at the risk to reward ratio, and that’s how they determine whether it’s a good bull put and they’ll say,
“I want to risk a dollar to make a dollar, or I want to risk a dollar to make two dollars”. That’s the type of return that they want to look for on trades.
I’m kind of the opposite. When I’m structuring a trade what I would rather do is air on the side of probability rather than profitability. If you can click
on the analyze tab there, Travis, so I can kind of explain it here. You can see that my risk to reward here down there in the bottom, I’m risking a dollar
to make 20 cents.
Some people might look at that bull put, like I said and say, “Wow, that is just terrible risk reward. Why don’t you go a little bit further or closer to
the money and get a better return?” Well, it has to do with the top line up there of probability.
I may only be making a 20% return investment here, but the probability of me hitting it is 85%, and I’m going to air on that side every time. It’s not just
the math there that makes it happen. It’s also that 200 day moving average that I really like.
That’s a couple of different trades that I would look at with a couple of these different names right now. I can keep going if you want me to, but I feel
like I’m hogging the mic here, Jill.
Jill: No, it’s all good. Actually, here’s another interesting that we have been looking at, and since I’ve been looking TD Ameritrade and doing some
homework on this one publicly-traded brokers, its two nearest competitors are Schwab and eTrade. What I like to do is take a look at the space and identify
We started recommending this one. It was actually on Black Friday of 2012. It’s trading 15-83 or somewhere around there, and it’s a name that I love for
multiple reasons, and I still think we could get another three to four bucks out of this one. Some options activity in it certainly expresses that
What I think is interesting here not just looking at the chart and it’s trading nicely above. It’s 15200 DMAs but let’s break it down to the most basic
fundamental levels like how to be like an MBA candidate so can get how this works.
You’re seeing more and more investors trying to derivative type of trading in an effort to edge their portfolios a little bit more effectively to lever up
a bit more and to just really embrace risk management. Derivative trading is really becoming a mainstream thing, and luckily for everyone on this types of
calls when first started in the business that we run a trading floor on the trading desk these tools, these resources let everyone online has the
opportunity to utilize.
We didn’t have that, and now it is accessible to anyone who wants to get in the game and take the time to learn. Options Trading isn’t something like
equity trading where, you know, “Here’s your high, here’s your low, here’s your [inaudible 00:31:25].” It’s way more than that.
It takes years and years of practice in getting used to the strategies and seeing how they play out because of all the mathematical factors that are
involved. But for the home gamer if you will, there are so many tools out there, and this is what brings me to my design on Ameritrade.
It’s outperformed 2013. It’s just 36.9% near the date. What’s interesting with Ameritrade, derivatives trading accounts for about 40% of all of their
customer trades last year. That’s more than double what it was five years ago. Most of these trades occurred on the Options market.
TD’s in [inaudible 00:32:03] grow earnings that’s just over 12% going forward. It’s trading for about 21 times so it’s really valuable relative to the
group, has a really nice dividend yield and its margins are the healthiest and most attractive relative to peer.
That’s why I really like to stand from a fundamental prospective. In early March we know these big buyers of August 23 calls on the stock, and what we saw,
these positions were being rolled out to January 2014 calls last week.
Now they are in January 2014, 26-1/2 calls they got in for about 65 cents. That was a massive, massive trade, almost 17,000 contracts traded, and if you
take a look at it now if you were involved in this trade you could get out at a dollar of ten. I still think it has room to run. I both have and let the
rest of it wide.
I really think we still have some more juice in Ameritrade. Even if you look at its peers like Schwab or in eTrade, they are sort of picking up some
momentum. So just remember, since so many retail investors are added to the market in 2011 even 2012 what these brokerage firms they comp month-to-month
just like retailers do like the retail [same store sales 00:33:17].
They report average daily trading volume each month and we’re seeing an optic in that. Ameritrade has the highest amount of assets on record than it ever
has in this company, and you’re seeing the retail investor comeback. Even for people that are actively trading with them now that are not on the sidelines.
It’s six lane as we traded accounts. I do these monthly metrics with them each month.
You can find all that in Options processed on The Street where customers are taking out of the market even though they book healthy gates. They’re simply
rotating sectors. You have that going you see no one taking money out of the market.
They have all these other money that’s going to come back on the sidelines. Naturally, these online brokers are going to crump well because they were so
horrible in 2012 you have more assets unlock than ever before. You’re seeing optic and trading volume because the home gamer wants to really get involved
with options traded.
That’s sort of how the business plays out in my mind, and I’m still looking that space. Greg and I had spoken about this in just about every single
webinar. We really like to [Mosaic 00:34:27] who is my top pick for 2012. I still like it for 2013 Monsanto and there’s plenty of room to run here.
And what I love about trading that adds in Q2 and Q3 you have that giant weather variable as people jockey around speculation in terms of how planking
seasons were going, and they were speculating about what kind of yield we’re going to get and so forth.
What I also like about Monsanto that cargo lock had just came off. It’s not diluted because the shares already exist and they free up some nice cash there.
It makes the company way more attractive.
I’m still looking at the added names whether or not we go up or down particularly in Q2, Q3. I’m not as concerned about that. I’ve really like the
volatility opportunities that you have to trade around these names. Some of our most successful trades has been particularly in Q2 and Q3 of last year.
We’re trading the straddle around it just to capture the volatility on it.
We are not necessarily as concerned about the direction of the stock. You just want to capture that volatility movement whether it’s to the upper downside,
and Greg if you want to give a little bit more education behind this whole straddle theory.
Greg: Yeah, absolutely. One of the things that I do when I’m looking at straddle is there’s really a couple of different ways to trade them. A straddle for
those of you who are new to options trading is ultimately a non-directional trade.
You’re looking at something saying, “Okay, I think it’s going to move. I don’t know which way it’s going to move, but I think it’s going to move and I
think it’s going to move big.” Often times the place for that straddle is implemented is in anticipation of a new product, in anticipation of an earnings
event then the whole business of course, if their stock blows up either it’s the upside or the downside and you get a big enough movement to make profits
on the trade.
I will say straddles have changed somewhat from when I started trading them. I think back in the mid-‘90s and the late ‘90s when I don’t think they have
quite the exposure that they’ve got now. Why I should even said, “I think?”
They didn’t have the exposure that they’ve got now. They didn’t have all of the volume that they have now, and I think because of that the market is doing
a better job of pricing in these uncertain moves around a certain event. What I mean by that is earnings. I think earnings are harder and harder to find a
straddle that hasn’t already priced in the move that the stock is going to have after the earnings event.
I hope that make sense to you. For those who maybe I lost a little bit, essentially what will happen let’s say I’m looking at Monsanto and I’m looking in
an upcoming earnings event and I think well, I see a resistance level up at about 110. Based on the chart that’s former high, I see a pretty good support
level there at about 102.
I can go back and look at their last earnings report back in January and say, “All right, well, they had a nice gap up move then from about 96 up to about
102.” They had about 6%-8% jump up. If I put that into today’s prices at 105 my guess is if you go look at an options trading right now a 6% move to the
upside is going to be about a 110 and a 6% move to the downside will be about down to about 96.
It’s probably already priced into the options. That type of movement is right there. It’s not always the case. Sometimes you’ll find options that haven’t
priced it in yet. Or sometimes the earnings event will be so good or sometimes so bad that we’ll still have a movement.
But I will say this trade can be tough to trade with an earnings event. I’ll tell you the way I actually like to trade better, and I’m going to go a little
bit deep into options theory a little bit. I apologize for those of you who are relatively new, but one of the concepts in options trading that we teach
you at OptionsANIMAL as how to recognize changes and implied volatility.
Implied volatility is essentially this change in price that I’m just talking about. I like to call it fluff. Bear with me, I’m going to share an analogy
that I like to share with. When I was growing up my favorite time of the year was Thanksgiving not because I like the food, but because every Thanksgiving
growing up I got up and I grew up on Idaho. I’m on the West Coast, this was like 6 a.m. my time.
I get up on Thanksgiving morning because I wanted to watch the Macy’s Thanksgiving Day Parade on T.V. and watch because I care about bands. I mean, the
balloons were kind of cool. As a little kid I like those. What I really cared about was the guy at the end of the parade, Santa Clause. That was exciting
That kicked-off Christmas season and Christmas just got exciting and the closer it got we start putting our list together, watching out the window to see
if we could see elves and all of that. My mom was big into this, and she’d get us excited.
It all peaked on Christmas Eve when we go to grandma’s house, we’d all have this nice dinner. We’d all get to open one present which almost turned out to
be pajamas for some reason. We’d put our pajamas on. We’d get in the car, we’d ride home looking for all the reindeers looking for Rudolph as it snow
We’d get home, we’d rush to bed. The excitement was its peak. We’d run downstairs. There were presents and then we rip open, and all of a sudden, okay it’s
over. Now what?
Did you feel the buildup in that excitement, that pinnacle? That’s what implied volatility is like every single earning season. As we approach an earnings
event with a stock it gets excited, you start getting premium pumped into the options. The options get excited, excited, excited, excited. Then once your
event occurs, boom! It drop right back out.
There’s actually a way to trade that if you think about it, and the best way to trade it in my opinion is to actually trade the excitement itself. Trade
the move up in implied vol and get out before the earnings then even occurs. Don’t mess with earnings. Well, you can. If you feel like the company, the
market hasn’t priced in appropriately what you’re expecting the move in the stock to be, well then, you can go do that.
But I actually think the market is getting pretty efficient at pricing in where the stock is going to move with their earning. But the movement that you
can’t play is the anticipation of that earnings event because you’re in almost every situation…so I actually to do straddle about a month in front of
earning. Maybe two weeks in front of earnings and actually let the market get excited, let that stock get excited and anticipation with the earnings and
then sell it on Christmas Eve.
Jill: You know what? I think it’s a great example because we do have a lot and there were people on here, how many times have you heard the story and I
know everyone talks about Apple ad nauseum, but this is the best way to exemplify what Greg is talking about. So many people have asked me, “You know what,
Jill, every time Apple reports are historically.” This is how it’s been and they’re not talking over the past quarter or two.
Every time the company prints its number, the stock tanks. So, would that the natural inclination be? Well, that’s five put because we are taught that
buying puts equals bearish. Which isn’t always the case but from a very simplistic expectation, if you buy the put going into earnings and stop tanks you
should like, “Wow, my put have made a ton of money.”
Well, no. They don’t because the way the options model works is like Greg was saying once the event occurs and the big surprise comes out of it the puts
lose their value because you implied vol tanks. That’s what we call vol crush.
That’s the best way to describe how volatility works for those of you that have traded puts around Apple earnings with the expectation the stock is going
to tank, my puts become worth nothing or close to nothing because all the vol premium comes out. Like what Greg was saying I like doing straddles around
earnings is a great way. Another thing is two, when we talked about where is the stock going to pin going to options expiration on Friday if you want to
start some more weekly strategies or so forth.
That’s another way that you can use the straddle. There are plenty of opportunities there just besides a directional bet. When you’re buying or selling
calendar spreads or looking in vertical spreads, yes, it has a bullish or bearish. But straddles and strangles are really a great way to express your
thesis on volatility that you’re expecting an up or downside sort of movement.
We’re just not quite sure which way it’s going to go. Part it upon but you have more options than just stock directional play when you look at the
Greg: Let me talk specifically. I know we went in theory about straddle there for a little bit. Let me go back and step on a trade that Jill mentioned. I
want to put my two cents on this well and that’s on Ameritrade. I think this can really be applied, I think Ameritrade is probably the best in class as far
as the online individual brokers. That’s a publicly-traded brokerage firm.
Obviously, you have some others out there that are comfortable brokers. The eTrades and Schwab to the world and are still the individual investor, but I
want to throw in my two cents that I completely agree with what you said, Jill. I think there is a trend of seeing the individual home gamer as I know, Jim
Cramer loves to call them.
The home gamer is getting back in the game. That’s another thing that reminds me a lot of the 90s. It’s that there was this huge push and that’s when a lot
of these brokerage firms like Ameritrade and eTrade really launched. You saw a lot of the other traditional brokerage firms either do a good job of getting
into the individual retail space.
Some of them struggled and honestly still haven’t quite figured it out how to get into the retail space effectively. But I agree with that higher activity
and higher confidence in the market comes higher profits and that’s the bullish trend. I think you’re going to see companies like TD Ameritrade continue to
I think one of the best ways to trade a company like TD Ameritrade is to actually buy the stock. Actually, own the equity and let it go on its bullish move
and then use options around it when it has times of uncertainty to hedge against risk.
Whether that uncertainty is to buy protective puts in front of earnings to get you through the earnings event or to put it in to a caller trade the time
just the market starts to get relatively bearish. You can do that as well.
As Travis has illustrated how to potentially caller the stock you can do that there. What a caller create does is that limit your downside. It limits your
upside as well but it limit your downside, so in a time of uncertainty it’s a pretty good trade to put on that allows you to still be in a name that you
like that you think because of you due diligence you think it’s going to move higher. You’re not sure because of the uncertainty.
This type of trade allows you to go and play it, and if you’re right and the stock does move up, hey, you made a little money. You may not make as much
money as you would. You just would been outright long the stock position.
Jill: You know…
Greg: But that’s one of the things won’t give up is the potential of not making as much money but being hedge on the downside if I’m wrong.
Jill: At this point it if anyone wants to ask a couple of questions we’ll compile…and I know Greg and I took up a bunch of time. But I want everyone to be
aware of whether you’re watching CNBC or Bloomberg or Fox News or whatever, all those people out there yacking away, “Oh, when a retail investor comes in
that’s when the market is going to tank.”
That’s complete nonsense. That’s not the way that it works anymore. It might have been applicable back on just more of like just a straight equity kind of
market, but with retail investors having access to all of the tools out there like you get on options and [inaudible 00:47:52] options profits like with
trademarks or which is the platform that both Greg and I using our products in addition to some other ones.
The playing field is really being leveled. So when they’re talking about the retail investor coming in, ignore that. That’s a load of crap because now we
have the ability to only get involved, but we’re more proactively managing our positions embracing risk and really understanding what we’re doing besides
to just going in and buying and selling at the top or at the bottom.
I want everyone to really be aware of that and ignore a lot of that rhetoric that you hear because the retail trader is on more even playing field than
they have ever been which is why you’re saying the metrics really increase at the online brokers. Even we see it with our subscription services.
The thirst for options education is unquestionable. Everyone wants to be a part of this. They want to be smarter. They want to get in the best penny trade
or like what your neighbors investing in. They’ve really want to be better and more smart and more confident trader.
I think, yes, some work had a ridiculous run but there is always ways to make money in positioning your portfolio regardless of the direction of the
market. Don’t be discouraged about trying pick the top or the bottom. That’s the worst thing that you want to do.
Greg: I agree with you, Jill and other thing I’ll throw out to Travis before I give the reins back over here in a little bit is I noticed several of the
questions that you guys have answered that have been asked, and I’d love to take the time to answer all. But unfortunately, we don’t have the time in
today’s webinar to answer them all.
But one of the ones I specifically wanted to address has to do with learning. Learning options, it’s a new language, it is. It is in some cases it takes
some time. You have to commit to it just like learning anything. What I will say about the learning process with options is a lot of it is going to depend
on your experience with the market, and you’re familiarity with terms like long and short and equities and options.
Some of it is going to come pretty natural to you who’ve been in the market for a while. Some of you may take a little bit longer. I will say this that
every single student that I have ever educated has come back to me. Every single person who’s graduated a program in options now has come back to me and
say, “Absolutely, this has been the best thing I’ve thing I’ve ever done to learn how to trade options.”
Because it’s not just because trading options to make money, it’s about protecting my retirement. That’s one of the key things that you need to learn how
to do and have to realize that if I have money in the market at all even if I’m just in a 401(k) with mutual funds, I’m in the market and I’m exposed to
the potential bubble popping again.
Is it going to pop this year? I don’t know probably not because I don’t think that, that’s going to pull away. Is it going to pop next year? I don’t know.
I hope the economy recovers by then and it doesn’t. What I have learned is that markets go up and markets go down and to make money consistently over the
long-term you have to understand a different way of trading the market than just buying and selling stock.
Options, yes, can be used to get phenomenal leverage, but I think the best way to use options is to understand how to use them in coordination with your
stock portfolio to actually head risk. I just wanted to throw that out there before I turn back out to you Travis.
I applaud all of you for taking the time out of your day and spending the day with us learning about options and some of the strategies that are available
to you. Thank you and Travis, I’ll turn back over to you.
Travis: Greg, I want to thank you and I want to thank Jill as well. Obviously, you two are super busy with what you’re doing on a daily basis providing the
content that we saw today as well as providing education for folks to learn a little more about applying options strategies to their investing.
I also applaud all of you folks for taking time out to be with us today. It’s good to see a lot of OptionsANIMAL students, folks from the community here
with us. Again, these are webinars that we try to do every single month. It’s for nothing more just to give people an idea what’s going on in the market
because we all know that the market can be a little crazy at time. It certainly has been so far this year.
Thank you for attending today especially for you folks who are new to the community. We would love nothing more than to prove ourselves to you. You got a
little bit of a taste of what we do and some of the folks that we work within the industry today. I know that it can be overwhelming at times for you newer
folks, the education especially option theory.
That’s what we’re here for. That’s what we’re good at and we’ll help you get over that obstacle, so that you can start applying these strategies to your
own trading. If you do call in today, you see the number right there in blue, you will receive a $500 good towards any OptionsANIMAL educational program.
Again, we have the registration list today, so we can link you up with the list to make sure that you get that voucher as well as a 14 day trial
OptionsProfits which again is the subscription product that Jill is managing over at The Street.
We can get you all setup, and again, if nothing more folks, just call in and talk to us a little bit. Let us know where you’re at, you’re trading, and see
if there’s something that we can assist you with, with what it is that we provide the industry.
Just don’t hesitate. Give us a call. We’d love nothing more to chat with you, and again I thank all of you for attending today. Greg, thank you again.
Jill, thank you as well and we all look forward to doing this again. Happy trading, folks.
Jill: Okay, great. Thank you so much, guys.
Travis: Thank you.
Jill: Okay, take care.
Travis: Yeah. Bye-bye.