Special Webinar with Guy Adami and Greg Jensen. They discuss the fed decision and how it might affect your portfolio.
Travis: All right. Good morning folks. Good afternoon wherever you might be. Here, I want to welcome you all to another educational webcast here with
Excited to get started today and exciting day it is. Whether good or bad. It’s this market has been just nothing short of incredible over the past couple
of weeks. Really since May 22 If you think about it when the first news started to come about a possible taper with the Federal Reserve.
What we wanted to do, Greg and I were sitting earlier this week just talking market and it probably make some sense to get in front of our community as
well as some of the other folks who are followers out there. Some of you folks have never had of OptionsANIMAL before.
Just to get in front of you and talk about the market in general and what all of these means as far as the Federal Reserve talk as of lately. We thought no
one better to bring in to discuss this with us than our own Guy Adami, who many of you know obvious from Fast Money on CNBC.
I think Guy, more than any other cast members and a lot of the talking heads that you see in a daily basis on CNBC is hyped into to the Federal Reserve
talk and the impact that that has on our portfolio.
I think it’s just a great individual to have comment and talk to us about that. Our goal today really more than anything obviously is to provide some
clarity moving forward. What this means to our trading. How we approach the market to our portfolio. Whether short term or long term.
Then, what are some of the opportunities right now that we can take advantage of. We’re going to talk about some individual stocks today and how we can
play those stocks. Both Greg Jensen, the founder of OptionsANIMAL here. For those folks who don’t know, we are a comprehensive stock market educator taking
you from the beginning to the most advanced option trading strategies for all levels.
He’s going to talk about he would play some of these individual ideas using the options market both from a conservative and even from an aggressive
Seems we got some folks still streaming in and that’s OK, but we do want to stay on track here as we’ve got a lot to talk about in the one hour timeframe.
Without further ado, Guy, I’m going to go ahead and bring you into the conversation to get us started here.
Guy: Hey, Trav. Hey Greg. Thanks everybody for spending some time with us. I appreciate you taking time out what I’m certain is a pretty busy day
especially if you’re full born to the markets. Clearly, the last couple of days have been rather interesting, but I think Travis made an interesting point
where you brought up May 22.
I’m sure Travis can pull some pie chart up for us. On My 22 what you saw in the S&P is we made a new all-time high in the S&P. I believe if I’m not
mistaken it was 1687 unchanged. Then, it actually winds up closing lower on the day. Not only did it close lower but it closed lower than the prior day’s
Technically, and I don’t want to make your eyes place over but you had technically what we call an outside day. It was an outside day of lower. It happened
on all-time high, which technicians would say it was a pretty powerful signal.
It’s something we talked about on the show and it’s something that we’ve talked about since. It’s been interesting since you’ve obviously seen the market
have fits and stats. We’ve had some pretty powerful rallies along the way, but we’ve never really threatened that 1687 level. Now here we are some 80
points or so lower in the S&P.
What does it all mean? Well, it could mean nothing. We could have a couple of days of this volatility and then we start this slow grind higher as we’ve
seen countless times since March 2009. Effectively every meaningful selloff in the marketplace has been … and you hear this term over and over again, a
buying opportunity. People will tell you that it’s no different this time and it’s going to be the same thing.
My fear is and since Travis led with the Fed, my fear is that maybe the gene is out of the bottle. It’s not that I think this taper is going way on the
market, although clearly that’s what on everybody mind. I’m more of in the camp that what’s going on in Japan is really one of the driving engines that
derailing not only the US market, but so to speak global markets.
I’ve been trying to figure out for quite some time now what the unintended consequence of our Fed’s action over the last three or four year was going to
be. I couldn’t figure out and it dawned on me that maybe the unintended consequences of the actions of our Fed is to empower other central banks to believe
that they can do the exact same thing without ramification.
I think what we’ve seen in Japan is they finally said 25 years of stagflation, deflation is enough and we’re going to do whatever we can to jump start this
economy. I think Japan saw what we were doing here. Viewed us as something that maybe working and maybe it would … something would work for them.
It seemed to work for a couple of weeks. Then you had a couple of missteps in terms of their communicate to the marketplace. Now, since then and its
coincides with that May 22 day. Since then, you’ve seen unprecedented volatility in their markets. Not only in their equity markets, but in their bond
market and in their currency market. It’s something that I don’t feel it’s particularly healthy. It’s something that I think is having far reaching effects
and I think it’s made its way to our shores.
In terms of the S&P and in terms of the Fed, I think if we can maintain in the close range 1598, which was a recent low but I think it’s even further
back than that. The double tops in the S&P of the levels we saw in July of 2000. Then again the levels we saw in the fall of 2007 coincided roughly if
memory serves; I think we topped out in the high 1500s. I think it was 1575 give or take on both times.
Obviously recently we made a pushup to that. Failed and then obviously blew through it on our way to 1687. In my world, 1598 is your first bogie. We
obviously tested that today. We’ve bounced a little bit, but I think the major support comes in at that 1575 level. If you’re playing this marketplace, I
think volatility can still rule the day. I think 1575 is your ultimate level of support. I’m in the camp that if we close below 1575, you have to give
serious consideration of the fact that this market finally after four years may have reversed course and maybe technically is broken down.
Store those numbers away and keep a keen but in the meantime, Greg can speak to this and Travis alluded to it, you have some pretty great trading markets
if just allow yourself to make money not only on the long side but on the short side. As Travis also mentioned, the great thing that OptionsANIMAL does is
it give you a strong foundation and education to be able to trade options in a profitable way.
I have said this all the time and I’m sure some of the folks have had me saying, I’ll repeat myself. If you go to a casino. If we got out of a plane and we
all met in Las Vegas tonight. If we hit a hot scraps table, we’re all going to make money. That will empower us to believe we actually know what we’re
doing but it was nothing other than the fact that we happen to hit a hot scraps table.
That’s like the marketplace. Bull markets make us all geniuses, but if you don’t know what you’re doing in markets like we’re seeing over the last couple
of weeks, you can give all that money back in spades. If you have a strong foundation and education. Something that Greg, his brother and Travis will
provide you with, you cannot only make money on the way up, but you can make money on the way down.
I would submit that the real money is the money to be made on the way down because things move down faster than they move higher and we’re seeing than
obviously not only in the bond market. Not only in the S&P but you’re also seeing in the commodity’s market as well.
Again, 1598; short term, 1575; you’re lying in the sand. I think our Fed has created I’m of the belief that history will show that the Fed chairman is
potentially one of the most dangerous people in the 21st century. I think he’s put on the biggest Prop trade of all time. I don’t think there’s
an elegant way out. I think they know that and I think that’s what has them concerned.
With that, I’ll pass the torch over to Greg with some of his macro views.
Greg: Is it convenient. Thanks guys, it always a pleasure to be with you. It isn’t it convenient that he’s going to be gone in a couple of months.
Guy: I don’t want to interrupt you. I hate doing that but it’s funny on the … what’s today? Thursday. On Tuesday nights show we had a gentleman on and said
this guy meeting this Fed chairman has earned the right to ride off into the sunset and enjoy his retirement.
I pushed back on that and said; I disagree with that whole heartedly. Here is a guy again, that’s put on what I believe is the biggest Prop trade in the
history of mankind. He shouldn’t be allowed to do anything. He should be forced to stay until this thing has run its course as long as that takes.
I think if and when he does leave. I think he’s getting off relatively scot-free. I don’t think that’s right because whoever inherits this thing is going
to have unenviable task of trying to figure out what the unwind is if in fact there is one. I apologize for interrupting you Greg.
Greg: No, you’re fine. I agree with you Guy. Travis, if you can bring up a 20-years chart of the S&P again. I want to point something out for those of
you who haven’t heard my story yet and are new to me.
I started trading on the far left hand side of that chart. Again, early ‘90s, I experienced an enormous bullish run when I first started trading for a
living. I thought I was genius as Guy alluded to. Bull markets make us all geniuses from time-to-time.
When the bubble burst in 2000 and then we had the big bearish market of 2001 and 2002, I learned a really expensive painful lesson on risk management. It
was a different way of viewing the market and one of the things if you’ve listened to me at all over the past year or so, is we’re in the midst of another
one of those bullish climbs and I don’t know how much further it’s going to go up.
We may still have some room and I’ll come back to some of those specific levels that Guy mentioned here in just a little bit. One thing I think you need to
be cautious about right here is although we’ve had a nice bullish run from 2009 up through where we are right now, one thing that I’ve learned over the 20
years or so that I’ve been investing is the market goes up and the market comes back down. As an long term investor, if you don’t want to give up all of
our profits that you’ve made over the last couple of years, you have to understand one of two things.
You have to understand either the ability to be fluid with the market and change your stance. In other words, we’ve been bullish. If the market gives me
signals and I want to stay in the market, then I need to be able to trade bearish.
I’ll tell you what. It’s actually really fun when you realize that it’s not un-American to trade the market bearishly. It’s a market and it’s completely
fine to make money when the market’s going down. I know it was hard for me to first feel like when I first started doing it.
The other thing on the other side if you don’t want to just be a flip flop guy and say; no, I believe in the long term market. I believe that this is a
bullish opportunity; you at least have to learn how to hedge your positions when times like this arise.
Again, if we go back now to the shorter term view of the S&P and see some of those specific levels that Guy was referring to, yeah, we’re breaking
support right now in my opinion. I think 1598 we touched today; we may break back through it.
The one that has me concerned is the fact that we’re today for the first time really triggering a break below the 50-day moving average. I know we dipped
below at a couple of times on the S&P. That’s what today may just turn out to be too. We may just dip below it.
I think tomorrow and the start of next … I shouldn’t say just tomorrow. We still have four hours of trading left to go today. We’ll see where the market
finishes out today specifically tomorrow; I think is one of the most important days as to whether we hold 1598.
I think Guy’s giving you a little cushion there saying 1598. I’m saying it’s going to be above here. At 1620, 1618 I believe is whether the 50-day is
If we finish below here, I think there’s a chance for a selloff. Now, I’m not in the big bear camp yet because in my opinion it’s just a selloff. Profit
taking amidst the big bullish market but there are some other things that could trigger a bigger bearish market.
We may not be there yet. I agree with Guy that 1575 is a pretty important level. That was our lows that we bounced off or pretty close … that we’re at in
April when we really started this last push higher.
I think the important thing to note here folks that it’s important to know where the markets at. I know a lot of people have a tendency to want to say; if
the markets really bearish, maybe I should just go to cash. Guy mentioned there’s a lot of opportunity to make amidst chaos. You’ve heard a lot of times in
the past, the way to make a killing in the stock market is to be a buyer when everyone else is selling, and be a seller when everyone else is buying.
Right now, at least latterly everyone has been buying. It may have been the wrong thing to be going long recently. I think right now we’re in-between land
until we get a clear break to the downside which again, I think 1575 is a pretty good indicator that says that we could go significantly lower if we break
That doesn’t mean it’s the end of the world. There’s a way to trade it. There’s a way to hedge your bullish position. If you don’t want to sell your long
positions that you still believe in like the Google, the Boeings of the world and the Disneys’ of the world that are doing a lot of good things right now.
From a company’s standpoint, you don’t want to necessary just go cash. There’s a way to hedge it. I’m going to share you a specific strategy I use a little
bit later on the webinar today to hedge specifically against markets like this.
I’m cautious, I agree. Today is the last two days price action after the Fed’s comments about tapering. A tweet I saw yesterday is that the market is
infected with … everyone has got a taper worm right now. There’s some panic going on right now. The question is at what point does the panic stop and
cooler head step in and start buying this market?
In my opinion, that remains to be seen. I don’t know if Guy, you have a significantly different opinion than that, but I think for me the overall market is
about ready to tip over and the question is when does the buying step in again?
Guy: Right. I think Greg makes excellent points. If you watched our show. If you’ve watched it for any period of time, you’ll hear that some of the things
that I’ve said for a while now is listen; I’m somewhat apocalyptic in my view of what’s going on globally. I will continue to say that. I’ve also said
countless times that that doesn’t mean the market can’t go higher and clearly it has.
One of the things I’d like to tell people is you can’t … as much as you’d like to think broadly in terms of the market, you have to take these things in
steps. The steps that I’m looking at now are the levels that I gave you before and obviously Greg gave you some levels as well, so you have to trade the
market in terms of your levels.
What I will say is again that at close below 1575 or thereabout gets me to seriously start thinking that that May 22 reversal was in fact that. People say
they don’t ring bells on the bottom or the top but that May 22 day, the bells might have been ringing pretty loudly if in fact we do close below this 1575
level that I’ve talked about.
Just keep that in mind. Another thing you’re going to hear a lot and something that I’ve never uttered in my life on the show and you’ll never hear me say
it unless I’ve put some price levels on. It is buy the dips and sell the reaps.
If I asked you folks on this webinar what it meant, everybody could answer that question because it is self-explanatory but my push back would be OK, you
like the phrase so let me ask you this; when Apple was trading 700, what dip exactly were you buying in Apply? Were you buying the dip down to 650, the dip
down to 600, the dip down to 550, the dip down to … what dip were you buying exactly?
The point is unless somebody puts a price on this; buy the dip, sell the reap thing, it’s useless. It’s completely unproductive for the viewer at home or
for the people listening in on our webinar. It’s something you won’t hear me utter, but it’s something that you’re going to hear a lot of in the next
couple of days. I would say filter that out unless somebody puts a price levels on it. I think that’s something that Greg and I are trying to do for you
Again, people think panic’s a bad word. I don’t necessary think it’s a bad word. Sometimes the market dictates that; we have to make a move here and I
think we’re on the precipice of that. Again, this 1598 low, they are about to be made today and this thing starts to bounce. You have to take that in
consideration as well.
With that said and I think the first stock that I would like to look at, and you’re going to say that’s interesting pick because it a boring stock is
General Electric. Obviously everybody knows the symbol there. I won’t bore you. Travis will pull up a chart.
GE has been a floundering stock ever since those March ’09 lows. We’ve obviously traded sideways to grid it slightly higher and we find ourself now within
a whisper of a 52-week high. If not a four year high, which if you say yourself it’s a four year high, that’s pretty good. It’s a four year high until
recently on an S&P that’s trading at an all-time high.
What’s the problem with General Electric? The problem with GE when we hit the skids in ’07, ’08 into ’09, was the GE capital was such a huge portion of
that company. It’s Zenith GE capital was represented more than 50% of the revenues of General Electric, which was great when that portion of the business
was doing well, but clearly was not so great when the whole financial collapse happened and GE has been pushed for it ever since.
It’s pretty interesting and I’ve had the good fortune to meet Jeff emailed a couple of times. If the GE is trying to get back to being what GE was prior to
the whole GE capital thing, they’re really taking the focus away from GE capital. If GE capital becomes less and less effective for the company and getting
back to their industrial roots, all of a sudden the stock has picked up and it’s become interesting again.
Again, GE here at 23.50. Where are light years away from the all-time high the stock made in a probably ’99 or 2000 I think right around 60 bucks. You say,
what does that mean? Well, to me the closest comp that GE has is Honeywell. If you look at Honeywell over the same period of time, Honeywell right now is a
stock that’s within a whisper of its all-time high, whereas GE is probably about a third of its all-time high.
What does that mean? It means maybe GE as … again, if they paired down their exposure to GE capital has become more of an industrial company, maybe they
should be rewarded the same type of multiple that Honeywell has.
I would submit that if the S&P does find its footing once again. I’m not saying it will or it won’t. I’m just saying if the S&P finds its footing
here and can slide sideways just slightly higher, General Electric is the stock that all of a sudden becomes very interesting given the fact that again,
they’ve gotten back to what they do the best. That’s being an industrial company.
You look at GE at 12.2 times forward earnings. If you look at Honeywell at 15. I’m not saying still Honeywell will buy GE, but I’m saying to you folks that
on a decent tape to benign tape, GE is a company whose multiple should be higher and whose stock price could go higher as well.
If you look at today, GE down a percent today on this tape is not cataclysmic by any stretch of imagination. I think there’s been this quiet strength of GE
over the last few months. Again, I think it’s a strength that continued. You obviously can play it in the stock itself and you get paid a pretty healthy
dividend to do so. There’s probably an option strategy that can set you put to lever what could potentially be an interesting move in GE as well.
With that I’ll pass it over to Greg to discuss that.
Greg: I think there’s a couple different ways to play GE right now. I think one of them is maybe a little more aggressive way to use options in your favor.
The other one is a more conservative way. It really depends on I think your own personality. One of the things you’ll find as you learn from us at
OptionsANIMAL is that trading …
Let me put it this, I think there’s a lot of people out there that have a mistaken notion that I’m going to take a cookie cutter approach to the market,
meaning I’m going to just listen to what Guys says on Fast Money. I’m just going to follow exactly what he says and I’m going to make money or I’m going to
listen to what Greg says on a webinar where he’s talking about caller trades or I’m going exactly what Greg says and I’m going to end up making money.
It’s not like that folks and I’m not saying the Guy doesn’t make money or that I don’t money in the market. We both do but what you have to realize in
trading is it has to be unique to you. The mistaken notion and I think everyone has out there is that there … like I said is some guy with a cookie cutter
who can just spit you out of trade and say here you go. Go make money. That’s not going to happen.
You have to have the self-assessment of saying who I’m I? What are my risks? What are my goals? What are my preferences? What’s my personality like? Then,
explore all the different types of trading that can and does make sense to you in helping you accomplish those goals.
Let me address a couple of those specifically. Let’s say that you’re in the camp. You’re listening to Guy. You say; I like GE. I think the stock is … if
the market does selloff and give an opportunity to buy this dip. This is the stock I want to jump in and buy but I’m more aggressive. The way to do that
would be just by outright buying long calls or doing maybe a call spread in a bulling fashion.
Typically when I do this I want to go a minimum of 30 to 60 days out. Given the nature of the fact that we’re sitting right on support right now, I would
probably use an August option instead of a July option to give myself a week so of time decaying not becoming as big of an issue.
Once I get out to the August option, if I want to … again, if I expect the market, if I expect GE to bounce to the upside, I can go in and just outright
buy a call. Now, this is the simplest way to use option. This is the one that most people are familiar with. It’s essentially rolling the dice.
I’m betting GE is going to move higher. Again, if it does and Travis is highlighting the 23. That’s probably the one I would probably select. The August 23
strike call. You can see that’s bid $1.07, ask $1.09. If I got a bounce back up in GE up to the $24, $25 range in just a couple of days, this trade is
going to make me money.
Again, the stock may bounce a dollar, 50 cents even just back to the upside, but the option will allow me to take advantage of exponential move or a
leveraged move to the upside if that happens. This is again, it’s a very basic strategy, and I think one that probably most of you are already familiar
One way to hedge that risk if you don’t want to be straight directional is you could sell a call option against it at the same time creating a type of
spread. Again, the way to do that is maybe you still buy this August 23 … hang on Travis. Before you go away … I’m sorry, done a little slow on it. I guess
its still there. Go back to the analyzed tab.
I wanted to put out to people the power I guess of this leverage that options can give you. Let’s assume that this is just a dip that smart money jumps in
and starts buying the market again right now. I hate that term by the way smart money, but someone steps in and starts buying the market right now. Puts a
bottom in and GE bounces back the upside. Let’s say we get a bounce back up to $25 in the next week or so.
Let’s assume we get to the … let’s even go to what Travis says. Let’s go to the fourth of July although the market won’t be opened on the fourth, but will
be right around the fourth. That bounce back up to $25. Again, that’s not a huge move in the stock, right. $1.50 from where it’s currently sitting, but yet
it’s almost a double on your money.
This option trade is going to go from $1 to basically $2 in value in just a couple of weeks. That’s the power of leverage. The problem with leverage and I
know some of you are saying is it cuts both ways. You got to be careful … these directions. One of the ways to take some of that risk off is you do a
spread rather than just outright buying the call.
The way to do that is you still buy the $23 call, but maybe you sell the $25 call because again, maybe that’s where you expect it to go up to. Is up to
You sell the $25 call again in the same month essentially lowering your cost. Now, instead of spreading a $1.06 or $1.08. Whatever we were looking at
before. Now you’re only spending $0.87. Still potentially getting a bounce to the upside a nice profit, but now I don’t have as much risk in the trade
because I’m not having to outlay $1.08, I’m only having to outlay $0.87. That’s one way of looking at a difference in how to trade a bullish strategy on
Now, I would still categorize both of these as a relatively aggressive stance with GE. They’re both bullish trades. The expectations I have to have a
bullish movement or at least either that or a significant increase in the VIX. The volatility of the options to make money.
The other way to look at GE and say maybe I’m a little more conservative is actually buy the stock and sell a long term cover call against. This is
actually a strategy I do on GE every single year.
I almost always have GE in my portfolio for part of the year. What I’ll do is I’ll go buy the stock and I’ll actually sell in the money covered call. What
that simply means is term “in the money,” simply means I’m selling a call that’s not right at the money which will be about 23, 23.5, but rather I
go in the money. Maybe I would sell the 21 call.
Now, some people may look at this and say; that’s not a very sexy trade. You’re right. It’s not. This is not a very sexy trade. Again, my maximum and
Travis is walking you through how you would actually go through and structure this trade, but my maximum profit here is only about 46 bucks. It’s only at
2% return on investment and I’m risking a dollar to make two cents.
Not great. The other thing you got to remember when you’re GE is that also get a pretty nice dividend. That’s actually going to get enhanced somewhat. I’m
going to get paid a dividend alongside this. It’s still may not be a 2%, it may pump it up to a 5% return or a 6% return.
Again, some of you might say 6%. Are you serious? Yeah. Again, we’re talking conservative guys. There are some of you in the crowd right now that I’m sure
would say all I need every year is I need to get a 10% return on the market. If I can get a 10% return year in year out, then I’m fine. I’m there.
This is the type of trade that timing wise is not great looking at a six month trade here but in December that Jan 15 covered call is going to look pretty
good. I’m also going to getting a full year dividend payments.
This is a strategy that can make 10% to 12% a year and give me some comfort to the downside that I don’t have to have GE move to the upside. I’ve got
cushion cleared down to $21 in fact that GE can pull back to before I even get to the point where I’m not making my max profit.
Again, there’s two different ways to look at the same stock. Think again, what you have to do is not only take into account what do I think GE is going to
do, but what’s my personality? What types of trades do I like to do? There’s a lot of different ways to make money on a stock? You just have to understand
all the different types of trades that are available.
Guy: That’s a great Segway and I’ll Travis speak to this towards the end but understanding the different strategies. How do you understand the different
strategies? You have an education. You have a foundation and education. It’s like any structure you build. If don’t have a strong foundation, it’s not
going to last. It’s going to be unsustainable.
Options trading is no different folks. I think if you really want to be serious about this and clear the fact that you’re spending time with us now lends
itself for me to believe that you want to be serious about it. You really need to have some strong background and education.
I’m telling you because you spend a lifetime building up your reputation and you can lose it in 30 seconds. I would never associate nor would Greg, Travis;
Travis’ brother, father. We would not associate ourselves with people that we don’t feel are reputable or have solid … the best interest of their clients
The fact that I work with Greg, Travis and the rest of the Jensen family, I think it speaks volumes because again, I wouldn’t associate myself with
somebody unless I believed in those people. I truly believe in what Greg and the OptionsANIMAL folks are doing and will continue to do.
I’m sure a lot of you folks out there now are students. Some of you folks aren’t but if the students can speak to what goes on, you’ll see very quickly how
your trading will be enhanced by just having the education that OptionsANIMAL provides. Again, Travis can speak to what we want to offer you folks closer
towards the end of this.
Moving on to the next. This is going to be a little … there are going to be a lot of folks out there that are going to think I’m out of my mind when I say
this. There might be a good reason for that. The next thing we want to look at is the TLT. The TLT is basically the 20-year Treasury bond future, which has
gotten shemozzled now over the last few days and we find ourselves at levels that we last saw I believe in early 2012, right around this 110 level in the
As we speak it continues to make new intraday lows. What’s my point? I think a lot of people think it’s a no brainer that interest rates are going to go
higher. Again, I know most of you folks know this but just talk about it. As the TLT goes down, it means bond yields are going higher just so we can get
that out there.
As this TLT is going lower, bond yields have gone higher and we see bond yields at levels we haven’t seen since that early 2012 like I spoke about a few
It makes sense if you think about it. It’s that taper, this that and the other thing. It stands to reason that bond yields are going to go higher, but I’m
in a different camp here. I’m trying to connect the dots as to what I think is going go.
I believe what the Fed has been fighting all along has been deflation. You’ll never hear them speak to that but I think that’s been the real battleground.
This is this deflationary battleground.
I think that’s a fight they are going to continue to wedge. Whether it’s successful or not. If you play this thing through and if what I think is going is
going on, I think the flight to quality if global equity markets start to take a bath here. I think the flight to quality if global market starts to take a
bath here; I think the flight to quality will be in the form of US treasuries. It’s somewhat counterintuitive as that sounds.
I can make a case that although you could see a little more pain on the short side of things. In other words, rates can continue to climb higher from here,
I think what will inevitably happen is you’re going to see a flight to quality manifest itself in the treasury market, and I think you could yields push
back the to the lowest levels that we’ve seen recently.
The levels that we saw a few months ago. Let’s call it early to mid-2012 when I think was the zenith for the TLT, the trough in terms of bond yield rates.
I know that’s somewhat counterintuitive and I know a lot of you folks out there are thinking he’s nuts. Yields are going higher. Maybe in the very short
term they will, but if this whole thing plays out the way I think it’s going to play out, I think you could actually see yields back up to lowest levels
that we’ve seen.
They might stay there for a while. As much as people want to say there’s a bond bubble and that may in fact be the case a few years from now, I still think
there’s a chance that these bond yields go lower. I believe that if you listen to Bill Gross and Jeff Gunlock, who spoken on CNBC recently, I think they
actually believe the same thing.
As painful as it might be now, I think it actually might wind up paying dividends. The great thing about options is you don’t have to catch it cold.
Options give you staying power that being in the actual equity or security might end up lend itself too.
I think if you believe what I believe and there are probably only a handful of you folks out there that do. You could probably put on a pretty interesting
options position to play the back up in the yields. In other words, yields going back down to levels we saw a few months ago especially given what we’ve
seen in the last couple of days in a relatively inexpensive way. A way that if you’re right, we’ll provide you with tremendous leverage in terms of the
actual option itself.
Again, with that I’ll pass it onto to Greg. I understand there’s a lot of you folks aren’t going to adhere to what I’m saying, but I think you’ll
understand it in terms of how successful you going to be vis-à-vis options. I’ll pass it on to Greg.
Greg: I got to give my two senses where I thought it was interesting you brought up Jeff Gunlock. I watched him yesterday on CNBC talking about that exact
thing that he feels people are opening up their bond fund statements right now and seeing that they’ve gotten crushed over the last six months.
There may still be a little bit of downside but by the end of the year, the flight to safety as you said Guy is probably going to push yields back down
again, because people are going to be fleeing to what they view right now as safety.
I’ve got another view on it that let’s be honest folks. The people on Capitol hill I think for the most part, I’m not they’re all completely ignorant of
what and how the financial markets work, but many of them are. Many of them have no idea the enormity of the debt that the US is carrying right now and
what just a 1% or a 2% increase in yield or interest rate would do to the amount of interest alone we would pay and what that could do to the solvency of
There is no doubt in my mind that the Federal Reserve is financing our national debt by what they’ve been doing with printing money and driving rates
lower. The Federal Reserve is not going to at least with any power they have let rates jump to the upside.
I think that they’re going to continue to try to keep rates low. Although we have seen a little short term blip to the upside that’s given bond yield a
bounce. I agree with you Guy. I think this is a short term thing and it’s probably creating again from a trading opportunity. Again how do you trade the
Fed’s action? That’s really what we’re talking about right now, right? I don’t think any of us can really sit and discuss with 100% clarity what the Fed’s
actions are going to do to the market tomorrow.
What we can do is structure trades around it. Guy, exactly what you said is if you understand how to trade it with options, it gives you I guess a little
bit of cushion on being wrong in the short term.
Again, that’s what I like about options is they give me the ability to go in and structure a trade that if I’m wrong in the short term. I don’t put myself
at enormous risk, but if I’m right, and I can really hit a homerun.
I would say one of the ways to trade this would be probably from a standpoint … this is going to be … that’s not a really advanced strategy. Some of you
might listen to the name of it and go out what is he talking about.
I would say a calendar’s triangle is an interesting way to trade this. Again, like I said a calendar’s triangle … don’t be steered away by the way. It’s
actually a relatively simple strategy. What you’re essentially doing is you’re making a longer term bet that TLT is going to move back up.
I’m going to go out in time like Travis has got up here maybe a Jan 14; about six months out in time and I’m going to buy a call option. Now, I usually buy
these right ay money, maybe slightly out of the money to keep my cost a little bit lower.
Maybe I buy the 111 for $4. That’s make my math easy too. Now, this of course is my longer term bet that I think eventually we’re going to see some fear in
global markets. Some fear that as we get closer towards the end of the year that the Fed’s going to start unwinding. We see equity markets decline. People
run back into bonds and rates come back down.
This is my long term bullish bet that, that happens. In the short term however, obviously you guys all saw that chart before we pulled the trade up. It’s
hard to sometimes jump into a chart and look at something that’s sitting pretty close to a 52-week low if not right on a 52-week low if I’m not mistaken.
Jump in and take a bullish position on it because it may go lower.
The way to hedge against that is you buy a put in the short term because again, I don’t think this is going to be a long term bearish trend we’re talking
about. I think eventually TLT is going to bounce and start to move back higher, but I can in the shorter term maybe in the next 30 days like Travis pulled
up there, I go buy a July put that now let’s me hedge that just in case we do get a little more excitement to the downside and TLT does continue to drop,
there’s a potential that the downward move can make me enough money with the put. That I can sometimes pay for the entire trade just with the profits on a
In fact, that’s one of my favorite ways to do this type of trade is going and enter it with that longer term perspective in mind. Going and find stocks or
in this case an ETF that just get absolutely pummeled to the downside but you think it’s got to stop. It’s going to bounce eventually.
I’m thinking of research in motion last year. Blackberry, whatever they’re called now. I think BestBuy last year as a type of strateger or an equity that
crushed. You go in and rather than just buying the shares and hoping you buy into the bottom, you go throw on a strategy like this that allows you to still
take that long term bet to the upside, but if I get more short term weakness, I could potentially make enough profit in the short term just off the put to
pay for the call entirely.
If I can do that, I’ve essentially now got a free shot back in the other direction. Then if I’m right in the long term, and I do get that rally back into
TLT and ETF starts climbing the ladder again, I can sometimes not only make money on the short term put that I bought, but I can also then turn around and
end up making money on that longer term call. That is again the longer term trade.
It’s one way to trade this. Again, thinking strategy wise it that’s your thoughts is short term uncertainly, yeah, maybe to the downside, but longer term
if I’m right and this thing does rally back to the upside; I can make money off both ends and yeah, notice the maximum profit there. Really it’s infinite.
I can make a lot of money on a trade like this.
Now, I would still recommend to all of you that even though your profit target says infinite, you still be disciplined about how much money you’re trying
to make. Whether you’re trying to make a 50% return. Whether you’re trying to make a double or a triple. Whatever that number is, or maybe it’s smaller.
Maybe only you’re trying to make a 20% return that’s fine but when you hit that target, pull the trigger and execute your trade.
Again, painful lesson learnt on my end as well that I won’t go into the details of sharing now. It’s sometimes it’s more painful to watch profits disappear
than it is to actually watch a losing trade lose money for you, than when you were profitable and then you watch those profits disappear because you
weren’t disciplined enough to take the money when you had it.
That’d be an interesting way to trade TLT right now. I agree with Guy. I think this is a longer term opportunity. May still get a little momentum to the
downside but long term, I think this is an opportunity to the upside.
Guy: Yeah. I think short term clearly there’s some pain to be had but as Greg point out, the leverage that options provides you with is pretty tremendous.
I think what he said there towards the end really should resonate with a lot of folks.
Have a plan in place. If you have a plan in place in terms of if I’m wrong, I’m getting out here. If I’m right I’m taking off a third of this level. Some
sort of plan in place, but if you go on without an objective as to where you’re getting out. If you’re wrong, you’re right. There’s a good chance you’re
going to screw the trade up.
Trust me when I tell you because I’ve done it enough times myself to now. Unless you have a definitive plan in place, a lot of time you’ll just let these
things move up and down until they wind up being a no-profit to a loser, whereas you could have locked in profits if you had just had a very defined plan
in place to take off a portion if you’re right or to take off the entire trade if you’re wrong but at certain hard and fast levels.
You hear this all the time as well. If you fail the plan, you plan to fail. That is true especially in trading.
The last thing we wanted to look at in the last few minutes we had a bank trade. I want Travis if he could to pull up a Bank of America chart, but if he
could do so … if he could pull up a longer term chart because I think a longer term chart is actually pretty interesting when you think of it.
Here’s Bank of America which probably ’06, ’07 was close to a $60 stock. Here you’re trading around 13 bucks or so. Granted, the last year or so on the
stock, it’s seen a nice little run. Here’s a stock that’s really rallied nicely. We’ve pushed towards $14 rather late recently now.
Now, obviously we’re trading south of 13. If you think of it in the context of the life of the stock, this is basically a stock that’s done nothing since
2009. I know what’s does that mean? Nothing.
You think it in the context of where it’s been and where it is now. It’s effectively done nothing. You have to ask yourself, are there skeletons in the
Bank of America closet?
I can make the argument beyond reason bank of America has done as well as it’s done over the last couple of years is because A, the broader market’s been a
monster and B, people look at it and say; on a price to book, this thing is cheap as it can be, which in a numbers game, yeah, it is except that I have no
idea what the book is, and I don’t think a lot of folks out there do as well.
Although Bank of America has been a really interesting stock. It’s been a great bet or trade stock to the upside. I don’t think it’s without its own
problems and without its own issues. If the tape does back up here, I think you can all of sudden see the “whats” that have been masked vis-à-vis
a healthy market.
Again, if you want to be in the banks. If you have to be in the banks with an S&P right now that’s stays on 24 handles. It’s interesting it’s actually
one bank right now that’s actually green believe it or not. That’s US Bancorp. It’s only up three cents, but it’s up on a down day. It’s a bank that is
within a whisper of not only a 52-week high, but you’re talking about a bank that’s within a whisper of its all-time high.
Think about that again. This is not a bank that’s trading around a 52-week high. This is a bank that’s trading around its all-time high when most banks are
multiple percentages off its all-time high. US ban corps trading $35.20 up small on the day.
Again, sometimes stocks tell you things. It’s just a question whether or not you listen. With USB up on a day that the overall markets is getting
shemozzled, maybe it’s trying to tell you something.
Now, I know and I’m not hear to tell you, I know in terms of data the other banks have provide you with much better data. In other words, banks are going
to trade a lot more interestingly than USB, but in terms of being able to sleep at night, I don’t think there’s a better stock out there.
They’ve just increased their dividend by about 18%. Again, it’s not the greatest dividend out there in the bank stocks but they pay one. I think the
management is stable. They never got themselves into things that they shouldn’t have been in. I think they are as conservative as anybody out there and the
stock price suggests that it’s probably one of the best run banks out there.
Now, the fact that we’re pushing up against the all-time high, then I think we made if I’m not mistaken some time in I think the fall of probably ’04 of
’08. Scare me because there’s a change that maybe we put in the double top in this thing. Maybe want to play with a little tapedation, but I believe that
if we can get … if this thing. If the tape holds in there and if we can get North of 36.5, 37, there’s a really good chance for this thing to run to the
Again, let the price be your guide. On a day where the S&P is now 24 handles. This stock is up marginally on the day. That should be telling you
something. Again, I understand that USB is not the sexiest thing. It might not be the best bet or trade out there, but I also think it’s a stock that if
you need to be in the banks is going to allow you to sleep at night.
With that, maybe Greg can do a quick option straight onto this as well.
Greg: I’ve got a perfect option straight for it. In fact, one of our instructors here … I actually see him here in class. I’m going to point you out. There
is this specific type of trade. He loves to refers to it as the big chicken trade because in his words, he likes to be a chicken.
Now, he trades. He doesn’t like to take a position. He doesn’t mind trading stocks that aren’t high beta names. It’s essentially a call calendar with a
different twist on it.
For those of you who are students with us and want to come to our Summit in Washington DC. Ken’s going to be doing a presentation on that. I know you can
take it online as well if you want to. Some of you have already seen it, but really what it is, is a version of a calendar trade. What you’re going to do
is you’re going to be selling a short term option against the stock and you’re going to be buying a longer term option against the stocks.
You might sell the July. There’s not going to be a ton premium in a name like US bank, but maybe you sell the 36 strike call in July. Then you are going
out and buy maybe a September, maybe a December. One of those two to offset the trade or to essentially hedge your risk in a trade so that you’re not just
open a short call.
What this allows you to do and there are more details. I wish I had time. We have an entire one hour class that teaches you how to structure a calendar
trade and how you look for specific things like Delta differential, strike prices, and price movements on the chart.
What’s your exist plans would be if what Guy mentioned actually comes true. If it ends up being a double top and the stock rolls over to the downside. What
do you do? If the stock breaks through your upper strike and goes through 36, what do you do? Those are the types of things that we teach at OptionsANIMAL
on planning your trade and following your exit plans that allow you to then adjust accordingly to make money regardless of where the outcomes of US banks
going to end up being.
I agree with the fundamentals. The sentiments that Guy pointed about US banks. I think it’s a stable company. I don’t think this is a stock that’s going to
have any of those skeletons at the closet or at least as many skeletons in closet as the Bank of America or even at JP Morgan. This is a way to trade it
and get some very powerful return as you can see Travis is pointing out here.
My maximum return on a trade like this in a 30 day trade is 85% if I nail it. That’s a pretty healthy return if you get the type of move that you’re
With that, I wish I had more time to go into it. In fact, Travis maybe would … I’ll do is turn the time over to you and you can talk about how it is we do
Travis: Thanks Greg. Absolutely before I start here. Are you there? Before I start I did want to thank both you and Guy for taking time out of your day to
be with us. It’s always great getting together as a community. Again, thank you to our students as well who joined in today for this webinar. It’s great
just getting together as a community and talking about issues that are before us both with the market as well as our trading plans.
We got together again for this special webinar. I wanted to throw out our Bernanke special. I don’t know before we go into the special. I don’t know if any
of you folks caught Rick Santelli on CNBC yesterday with his rant yesterday morning. If you’re looking for some entertainment go YouTube that. That was
Our Bernanke special for today … again, as a thank you for joining us particular for a non-OA students, we’d love to offer you 25% off any educational
package. Again, we don’t have a one size fits all approach here at OA. We have a number of different packages that are very flexible and meant to cater to
go school level and where you are in your trading.
You could talk to anyone of our professionals here and we can find something that works for you as well as six months free access to our weekly trades.
Folks, our weekly trades are a little different than anything you see out on the market today with trade services.
We’re putting together our trades with our coaches and from the help of Guy and Greg and everyone. We’re taking a trade from beginning to end. We’re not
just saying John go out and buy this stock or go out and put on this option trade at this price and then just let it run.
We’re letting you look over our shoulder where we’re getting into the trade. How we’re adjusting the trade along the way and then where we’re finally
exiting the trade with commentary along the way, so do you understand where we’re coming from. It’s a great service there of six months free access our
Seeing we do have a lot of OA students on, I didn’t want to leave you out here. Again, we’d love to offer you folks 25% off any one year access to our
premium products, you folks what those are: mentoring, trader workshop, weekly trades or if you haven’t upgraded to a lifetime package yet, which is
originally $3,000, we’ll throw in a lifetime upgrade for $2,000.
Again, to take advantage of this you need to call in today. The number’s right there in blue. We’ve got a number of folks here to help you out and get you
along your way,
More than anything, from Guy, from myself, from Greg we just wanted to say thank you for joining us today. Happy trading and hopefully we can all navigate
this market successfully as I think is going to an interesting six months wrapping up the year here.
Thanks again from everyone here and happy trading folks.
Guy: Thanks everyone. Good luck.