Tutorials

This lesson continues my emphasis on trading with puts and calls, expanding our tool set with some closely reasoned bets on a day when stocks were volatile. I am pushing strategies that have been working for me personally. They are all very risk-averse, most employing spreads that give us effective odds of 8-to-1 or better on outcomes that are much more likely than that to occur. Linking our entries to well-defined swing points in the underlying stocks gives us a level of control that can add “edge” to every trade.

Toward the end of the session we considered an opportunity to get long in Microsoft using call options. The trade triggered shortly after the class ended, whereupon the options rose from 0.55 to 0.90 in 30 minutes. Although we missed out because I’d suggested placing a bid for the calls at 0.50, a tick beneath what turned out to be the low, my rationale for bidding exactly 0.50 was tightly reasoned and instructive. Check it out if you want to add another tool to your trading arsenal.

The Dow was down nearly 300 points when this session began, on its way considerably lower, so there was plenty to do. Mostly, we looked at puts and calls: directional bets, vertical spreads and even butterflies. That last tactic was considered with the goal of leveraging a further, potential drop of a thousand points in the Dow over a two-week period. The option strategies on view are relatively sophisticated, but they are explained in a way that most subscribers will be able to follow as long as they understand the basics. You may be surprised at how accurate the intraday forecasts proffered during the class worked out.

Our bid for AAPL put options turned out to have been a couple of cents too low, but the attempt to get short at a minor rally target illuminates a tactic you will want to incorporate in your own arsenal. The surprise here was how liquid the options in this stock are – liquid enough that you could scalp in and out of hundreds of them with relatively little slippage. As you will surmise, the same opportunity exists in many popular day-trading vehicles, including the ultra-liquid SPY.

Once again, the emphasis was on finding actual trades in real time come hell or high water. In practice, this often implies trading with the trend in some pricey stocks where just a little slippage can play havoc with the edge we seek. Entries will usually be via buy-stops that make fills unpredictable and riskier than we should prefer. Regardles, the reasons we found to trade are applicable to all stocks in all time frames, and therein lies the value of this lesson.

This session introduces a new format that makes finding trades in real time our first priority. Rather than take an analytical look at various stocks, commodities and index futures, we will seek out real-time trades even if they have to be forced. This will produce more losers, of course, but that won’t hurt the learning process, since every trade will be closely rationalized to enhance the learning experience. During this session there were no trades that leaped out at us, but at least two ‘teaching examples’ that should help further your practical knowledge of the Hidden Pivot Method.

Once again, we scoured the charts looking for opportunities to force trades on a day when the markets were brain-dead. A ‘momentous’ Fed announcement was due out, and stocks were even more turgid than usual. Even so, we were able to position ourselves to get short in VXX using put options. The trade did not trigger, but the set-up we used is repeatable and explicitly detailed. It required only a smattering of options know-how, and no knowledge whatsoever about the concept of “fair value.” (Please note: Due to a technical glitch, the video portion of this recording was lost for about the first ten minutes.)

We pulled out all the stops during our hour together, looking for day-trades to force in real time. Alas, most stocks were taking mid-day siestas, many after having run up sharply earlier in the morning. Despite the limitations these circumstances posed, we still came away with some timely possibilities for later in the day. Assuming real-time trades are what PIvoteers who attend these sessions want, I will continue to emphasize them.

We spent more time than usual on the lesser charts during this session, since price movement on the major exchanges was hard to see on the larger charts. The result was an excursion into ‘camouflage’ ephemera, and a couple of opportunities to force trades whether we liked them or not. A counterintuitive set-up in AMZN would up being one of the more interesting possibilities, since it entailed a buy-stop entry. This tactic carries considerable risk in an $1800 stock that can leap $2-$3 between ticks, but as you will see, where there’s a will there’s a way.