Jeff Bishop Ultimate Beginner’s Guide to Options Trading

While we focused on the stock collapse in March, banks feared a freeze in credit markets.

That’s when the Fed stepped in to purchase everything from treasuries to junk bond ETFs.

Now the Fed is cutting purchases, and MARKETS AREN’T PREPARED!

But you will be when I explain what’s going on and which ETFs are in danger.

You see, normally investors hide money in bonds and ETFs when stocks are falling, thinking it’s a ‘safe’ place to park cash.

When the Fed said they’d buy bonds, it caused ETFs like the TLT to spike – which allowed me to cash in with some strategic option plays.

I wouldn’t be so quick to take this trade again.

But now, the Fed is stepping back from the table, and bonds could be in for a rough ride.

It’s not just TLT, but junk bond ETFs like HYG and JNK are in the crosshairs, and here’s why.

Why the Fed was the only buyer in town?

Imagine you were a banker deciding who and when to loan. Sitting in your office, you flip on CNBC and watch markets start to crash in early March. Companies from Boeing to Six Flags are shutting down operations for months, and who knows what they’ll look like when they reopen.

Suddenly, your phone rings. It’s a call from the CEO of one of a local business that does event planning. They’re desperate for a loan to keep them afloat, even though they don’t know when they’ll be up and running nor what it will look like.

Ask yourself, would you lend to this company?


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Even if they had been a customer of yours for 30 years?

That’s the dilemma banks faced in March. Delta airlines has been around longer than most of the bank executives have had jobs. Yet, how do you lend a company money when they aren’t doing…well anything?

Insert the Fed. Jerome Powel and central bankers took their unlimited buying power purse and bought up these corporate bonds to keep lending moving.

Now bankers weren’t as afraid to buy the debt, knowing the Fed had their backs.

This led to a massive increase in the Fed’s balance sheet as seen below.

Back during the Great Recession, the Fed took two years to double its balance sheet. This time they did it in a matter of months.

The big change was they began to buy corporate debt including junk bonds. And in a special twist, they stepped in to buy some of the ETFs in the sector.

So now that we’ve got a handle on what’s happened, let’s discuss what’s going on and how to trade it.

Cutting back on purchases

While the Fed took unprecedented steps, they claim they aren’t in the business of picking winners and losers – which they effectively did anyways.

Even though they said they would do what’s necessary to prop up the market, the Fed began scaling back their purchases.

Here’s their schedule from the end of last year until now.

Fed purchase plans

In March, the Fed ramped up purchases from $37 billion to $75 billion. Then, they soared to $300 billion. By mid-April, they were still buying $150 billion.

Now, you can see they’ve curtailed the purchases down to the same levels that they had back before the crisis. That leaves the debt markets at the mercy of supply and demand.

Remember, the U.S. Treasury is flooding the market with debt to cover the recent stimulus package, let alone a second one.

All this raises the interesting question – can the debt market support itself?


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Jeff Bishop Ultimate Beginner’s Guide to Options Trading

No…it cannot.

In fact, this could be a catalyst to send stocks lower. And when you have stocks and bonds heading south at the same time, that’s a problem.

As traders, we need to know what to avoid and where money can be made.

Here are some of my thoughts on some major ETFs.

  • TLT – This ETF tracks long-term bond prices. If we get a selloff in bonds, this will be one of the biggest ETFs hit. Fortunately, traders can play the TBT, which is the inverse ETF.
  • JNK & HYG – Both of these ETFs track junk bonds, which benefited heavily from the Fed involvement. Both of these are pretty liquid for stocks and options.
  • AGG – This aggregate bond ETF is one of the most liquid and recovered solidly off the lows. However, its trading range isn’t large but could be a good place to sell call credit spreads.
  • LQD – Coprorpate debt got a boost from the Fed’s actions, ramping back to its recent highs. Like AGG, it doesn’t have a wide range but may suffer when the Fed pulls back.
  • BNDX – Many international bonds are priced or tied to the U.S. dollar in some way. If U.S. bonds start to tank, an international bond ETF like BNDX won’t hold up.

Whatever trade I take in this sector, I plan to deploy a wide arsenal of option strategies.

Some of these exact strategies can be found in my Ultimate Beginner’s Guide to Options Trading.

Even if you’re a seasoned trader, THIS is the market you want to refresh your knowledge and skills.

Click here to watch my Ultimate Beginner’s Guide to Options Trading.

Source: TotalAlphaTrading.com | Original Link

Jeff Bishop Total Alpha Trading Lesson: Trading Options during Earnings

A long time ago, on a trading platform far far away, I thought it would be a great idea to buy options right before earnings. Let’s just say I learned my lesson the hard way.  It’s one of the rookie mistakes traders make, and today I want to help you avoid it.


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Trading Options during Earnings

I get a lot of new traders in Total Alpha that don’t understand how options trade around earnings.

But that is all about to change after I explain to you the ins and outs of trading options during earnings.

After we’re finished you’ll realize that the juice is not worth the squeeze.

Options & Earnings

If you get nothing else from this article, it should be this – option premiums rise into earnings and fall immediately thereafter in the vast majority of instances.

Now, let’s understand why this happens.

Option prices come from three components – time until expiration, the distance of the strike to the current price, and implied volatility.

The first two of these are pretty easy to understand. The longer you have until expiration, the costlier the option. As you get closer to expiration, the time decay component speeds up at an exponential rate.

Distance to the strike changes as the stock moves around over time.

The third component is the one I want to focus on – implied volatility.

Implied volatility is the annualized percentage change expectation in share price. I say annualized because they may expect only a 1% move in the upcoming week, but annualized it might be 12%. As traders, we tend to discuss both.

What most people don’t realize is implied volatility is actually demand of options. The greater the demand, the higher the implied volatility, and the costlier options become.

Once you think about it, it intuitively makes sense why implied volatility rises into earnings and falls immediately afterward. Earnings typically provide information for investors to make their decisions. Otherwise, they don’t get much during the quarter.

However, traders really don’t know whether the stock will move higher or lower. So, we tend to see both calls and puts get more expensive.

Using Earnings To Your Advantage Part 1

There are two great ways to take advantage of this earnings nuance. The first is straightforward, the second not as simple.

Consider for a moment the facts we know – option prices rise into earnings and fall afterward, all things being equal.

So, if I want to go long puts or calls on any stock near earnings, I can use this to give me an edge.

Here’s how it works using Wayfair (W) as an example.

First, I start with an hourly chart setup.

W Hourly Chart

For any trade I take, there has to be a setup underpinning the entire play. I won’t take a run into earnings by itself.

Now, this is a play on Wayfair (W), who has earnings coming up shortly. You can see how I identified my stop, with my target as either a symmetrical move higher, or roughly $100.

On May 5th, Wayfair will report it’s quarterly results. So, I want to pick an options contract that expires beyond May 5th.

Remember, I want to be out of the trade before earnings. However, I just want to use the increase in implied volatility to give me an edge.

So, as long as I pick options that expire after that date and exit the trade prior to earnings, I’ll be fine.

That way, as we get closer to earnings, implied volatility increases and so does the price of the option.

Using Earnings To Your Advantage Part 2

The second way to use earnings for options is a bit trickier and not something I typically do. However, it’s an interesting play worth talking about.

Before every earnings, you can determine what the implied move is based on the at-the-money options contracts. It’s a pretty simple formula.

  • Take the closest at-the-money put and call option
  • Add the two together
  • Multiply by 85%

Now that you have this information, here comes the fun part (though it takes some work). You can look back and find the average move for the stock after earnings going back however many years you choose.

For example, let’s say that Apple moves 10% on average after earnings. However, the implied volatility expects a 20% move.

From there, you can create an options strategy that takes advantage of the likely overstatement of implied volatility versus what we’re likely to see. Normally, this involves selling out of the money options such as credit spreads or iron condors.

The Options Masterclass

One of the best ways to learn all the tricks with options is through my upcoming options Masterclass. You’ll get all my best tricks and tips I’ve accumulated through the years.

Click here to learn more about my options Masterclass.

Jeff Bishop Total Alpha Trading: How You Can Use The Money Pattern To Cash In Right Now

Every successful trader has their one go-to strategy.

My favorite setup – the money pattern.

Just the other day I was able to put its full force behind some trades that delivered some humongous profits during the face-melting rally.

Nothing to see here, just one trade paying for a year’s worth of Total Alpha and then some!

Yes, despite all the uncertainty and headline risk we have in stocks.

The money pattern still comes out to play.

Today I’m going to show you how it works, and most importantly, how you can start applying it for bigger and better trading results.

This is a lesson you can’t afford to miss.

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What is the money-pattern

Years ago, I found out that I preferred swing trading over day trading. Part of that came from my discovery of the money-pattern.

The money-pattern uses an hourly chart and two moving averages: 13-period simple moving average and the 30-period simple moving average.

What I’m looking for is where the two crossover. However, it can’t just be any old crossover. I want to see the crossover happen after the two haven’t touched in at least a couple of weeks. The longer they’ve been apart, the better.

Here’s an example with the SPY chart.

SPY Hourly Chart

I highlighted three different areas where the two crossed paths. The first one is right before markets took their faceplant. The second is when they did a little fakeout in early March. The third is the true money-pattern crossover that signaled a direction change in the market.

You’re probably wondering why it didn’t work in the second circle. It did, in fact, work for a day or so. However, it hadn’t been that long since the averages last touched. Compare that to the last crossover that was over three weeks later.

What does it tell us

The money-pattern isn’t some magic formula that I have a patent on. It’s a combination of a slow-moving average and a fast-moving average. There are dozens of combinations that work just as well.

For example, Nathan Bear’s Weekly Money Multiplier uses an 8-period exponential moving average and a 21-period exponential moving average.

All of this rests on a simple premise; the slower average shows the larger trend, while the quicker one indicates recent price action. When they move in different directions, it tends to mean that enough pressure has come in to stop the longer-term trend.

Note: This doesn’t apply in sideways markets.

How I applied It to my trades

Earlier I brought up my FireEye (FEYE) trade. I want to show you how I used the money-pattern to create a trade for my Bullseye Trade of the week and Total Alpha.

Let’s take a look at the hourly chart pattern.

In this chart that I sent out, I noted the crossover setup that I saw. Notice how this occurred long before the market actually found its bottom.

That’s what makes this so powerful – the pattern becomes more important than a plunging market!

In order to get into the trade, I waited for the stock to pull back into the moving averages. That’s a common way I’ll get into the trade with stops below the recent consolidation area (which is noted by the blue line on the chart).

Stocks that show promise right now

Let’s take a look at a few stocks that give the money-pattern crossover and look to be good pickups.

We’ll start by taking a look at the makers of cake snacks, Hostess (TWNK).

TWNK Hourly Chart

I like this play for a few reasons. First, the crossover just occurred, so it hasn’t had a chance to play out. Second, it’s making a nice consolidation pattern here right on top of the 13-period moving average. Lastly, it’s a consumer staple product. With everyone stuck at home, they’re either drinking or eating snacks.

Here’s one I’m watching as a potential bearish play. Check out the chart for Lululemon (LULU).

LULU Hourly Chart

LULU is about to have a bearish crossover. Although this hasn’t had as much time as I would typically want, the stock has a lot going against it. Retailers are taking it on the chin in this environment plus it’s right up near the 200-period moving average that also acts as resistance.

Add to all of that it closed multiple hours and then the day below both moving averages!

Learn through practice

Look for these patterns and study them. See how they work in different market environments and contexts. Make repetition your friend.

One of the best ways to cut the learning curve is to watch a mentor trade through these markets. That’s where Total Alpha comes in.

You can get a live feed of my portfolio streamed right to your desktop along with tons of education and training.

Click here to learn more.

Source: TotalAlphaTrading.com | Original Link

Jeff Bishop’s Bullseye Weekly Trades: Watch This To Signal A Market Recovery

The Coronavirus stands at center stage, holding everyone’s attention. There are two questions we want answered:

  1. When will this end?
  2. What will be the total damage?

There is one single metric you should be watching – number of daily new cases in the United States.

Once that peaks and starts to decline, we will likely find a bottom in the market.

But how do we begin to answer the second question?

What the market craves is certainty. That’s why this week’s jump focuses on the areas to watch for answers to our second query.

Plus, I want to offer some tips on timing the market I’ve used these past two weeks in my Bullseye Weekly trades to hit some big winners.

It could work for you too.

There is plenty to cover, but first I want to talk about junk bonds and its utter collapse.


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Millionaire Trader Reveals Top Trade Idea Each Week

RagingBull.com CEO, Jeff Bishop, shares his top pick for the week each Monday, straight to your inbox.

“My strategy aims to help you pull one winner out of the market each week, regardless of market conditions!” – Jeff Bishop

Click Here!


Junk Bond Collapse

If you look at the high yield debt market selloff, investors are saying they expect a lot of companies to go out of business. That’s a real possibility.


HYG Monthly Chart

We’ve had companies propped up by easy money and large quantities of debt for years now. Yes, the Fed can certainly keep this going.

However, I’m going to say this is a good thing. Clearing the deck of unprofitable companies leaves the ones left in a much better position to grow. They don’t have to fight for market share with players that have no business existing in the first place.

Pricing risk is an essential component of equity and debt markets. Finally getting back to a point where money isn’t thrown at every startup should increase both the quality and viability of the survivors.

Watch Jobs Like A Hawk

Weekly jobless claims come out every Thursday at 8:30 Eastern Standard Time. I’ll be keeping a close eye for this to peak and decline in the coming months.

Right now, estimates are a potential loss of several million jobs. The first look at that will show up in the unemployment claims. Granted, this may be stalled from shelter-in-place and curfew restrictions, so we may not see things show up for a month or two.

Along with the jobs numbers, keep an eye on service sector health reports. We all know that they are getting hit the hardest. What I want to see is the numbers bottom out and start to recover.

Earnings Puke

During the Great Recession, companies took the opportunity to throw up every bad thing on their balance sheets. Expect the same thing to happen in the coming months.

Corporate earnings will be effectively useless. Anything a company made will be historical and none of them can forecast what’s to come for the same reasons none of us know when we get to leave the house.

Heck, Delta’s burning $50M in cash a day!

My advice – only listen to what they have to say about how long they can survive. The ones with strong balance sheets will make it through.


Here’s How You Can Still Make Money

There’s a whole lot of money to be made out there if you know where to look.

Typically, I deliver my Bullseye Trade of the Week Monday morning with all the info needed to take the trade…

Except this market is anything but typical.

Instead, I’ve held back until we get our regular Monday selloff. ONLY THEN, do I dip my toes in and start delivering the my entries and price targets.

Not everyone is taking the ride. But some members absolutely killed it last week.

This was definitely one of the best Bullseye weeks so far!

The increased volatility makes it possible to hit these whoppers. Timing becomes critical.

Do yourself a favor. Look at the past few weeks of trading day by day. See if you notice any patterns as to how the market is moving both between days and intraday. You might be surprised what you find.

If you’re having trouble, try picking up some tips from my free masterclass. It’s a great way to learn some new techniques for looking at charts and trading the markets.

Click here to learn register.

Stocks I want to bet against…

TLT (none), ZM (Mar 4), COST (Mar 5)

Stocks I want to buy…

MJ (none), UNG (none), XLE (none), WDAY (May 26), TWLO (May 3), OLED (May 7), V (Apr 22), IRBT (Apr 28), DPZ (May 20), GOOGL (May 4), CVNA (May 13), CMG (Apr 22), NFLX (April 21), AMZN (Apr 23), UBER (Jun 4), GDX (none), ROKU (May 13), MTCH (May 5), TDOC (May 5), ZS, AYX, RH, WORK, CRWD, IWM


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This Week’s Calendar

Monday, March 23rd 

  • Major Earnings:  None of note


Tuesday, March 24
th

  • 7:45 AM EST – ICSC Weekly Retail Sales
  • 9:45 AM EST – Markit US Manufacturing & Services PMI March
  • 10:00 AM EST – New Home Sales February
  • 10:00 AM EST – Richmond Fed Index for March
  • 4:30 PM EST – API Weekly Inventory Data
  • Major earnings:  Grocery Outlet Holding Corp (GO), At Home Grp Inc (HOME), Nike Inc Cl B (NKE), ProPetro Hldg Corp (PUMP), Steelcase Inc’A’ (SCS)


Wednesday, March 25
th

  • 7:00 AM EST – MBA Mortgage Applications Data
  • 10:30 AM EST – Weekly DOE Inventory Data
  • Major earnings: Paychex Inc (PAYX), Winnebago Indus (WGO), Micron Tech (MU), Paysign Inc (PAYS)


Thursday, March 26
th

  • 8:30 AM EST – Weekly Jobless & Continuing Claims
  • 10:30 AM EST – EIA Natural Gas Inventory Data
  • 11:00 AM EST – Kansas City Fed Manufacturing Activity March
  • Major earnings: Signet Jewelers Ltd (SIG), Gamestop Corp (GME), KB Home (KBH), Sportsman’s Warehouse Hldg (SPWH)


Friday, March 27
th

  • 10:00 AM EST – University of Michigan Sentiment March
  • 1:00 PM EST – Baker Hughes Rig Count
  • Major earnings: None of note

Source: TotalAlphaTrading.com | Original Link

Total Alpha Trading – How Far Can The Market Run?

Everybody and their brother wants to know when the market will make the next major turn.

Pick tops and bottoms is the holy grail of trading that no one seems to know ahead of time, but everyone claims they knew in hindsight.

I found a few techniques over the years that identify possible tops in both stocks and indexes.

When you combine them with other indicators and analysis, they do a darn good job of highlighting resistance levels.

In fact, one of them came up with the exact level that the SPY stopped at!

Look, trying to pick off-market tops is a fool’s errand.

Yes, when you time it correctly, there is a windfall of cash to be made quickly. But, you’re more likely to get swallowed up in the perpetual grind then walk away from a winner.

However, every piece of information that supplements your trading increases profitability.

Today I’m going to teach how to apply key support and resistance levels to improve your entries and exits.


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Market Symmetry

One of the most popular methods to find resistance in stocks and indexes is through market symmetry. While everyone uses this technique slightly differently, I’m going to explain how I use them.

Market symmetry uses pattern movements to project where the final stop would be on a current move. At its core, you’re taking a previous move and adding it on to a current move.

Let me draw it out for you. Assume for a moment you have a stock that pushes higher, then makes a pullback.

The first, long line is the expansion move. After that, the short line is the pullback. Symmetry would say that when you take that first line and then add it onto the end of the second leg, you find where the stock’s price would end.

Here’s an example using the SPY.

SPY Weekly Chart

Let’s break down the price movements here. The first move went from $233.76 – $294.95. That’s a distance of $61.19. SPY then pulled back to $273.09. If you add on $61.19 to $273.09, you get $334.28.

The top for the market came in right around $334. Pretty crazy, right?

I draw these several different ways to see which ones make sense. When you get several of them that all point to the same area, you know you’ve found something.

Now, let’s consider the next step to this analysis.

Fibonacci Extensions

Fibonacci extensions use common Fibonacci percentages to find additional levels beyond symmetry.

Essentially, symmetry is a 100% extension of the Fibonacci. However, you can add in other common percentages such as the 23.6%, 38.2%, 50%, 61.8%, and 78.6% levels. You can also add these beyond the 100% level to get levels as well such as 161.8% level.

Here’s how you might use it on the TLT bond ETF chart.

TLT Daily Chart

What’s neat is that these tools work on any type of chart and any product. Sometimes these levels only act as resistance intraday. Other times they work for weeks. Unfortunately, you don’t really know which it will be without considering other pieces of your analysis.

Bollinger Bands

One of the coolest tools out there has to be Bollinger Bands. They provide a range that says, ‘based on historical closes, there is a 95% statistical chance that the stock closes within this range.’

It’s a great indicator to look for charts that are overbought or oversold. This indicator works based on the timeframe you’re looking at. So, if you use an hourly chart, you’ll find hourly resistance.

Here’s a great example with the QQQs.

QQQ Weekly Chart

Check out how the upper Bollinger Band (pink line) really kept a cap on the QQQs. It takes a lot for an entire index to push up past that level.

Now, it’s worth noting that when a stock starts closing regularly above or below a Bollinger Band on any timeframe, it’s usually best to wait for it to move back inside the bands.

Think about what it means for a moment when a stock starts trading consistently outside the bands. That means it’s getting bought or sold more than the closing price would dictate 95% of the time. In layman’s terms, there’s a lot of pressure being applied.


— RECOMMENDED —

Millionaire Trader Reveals Top Trade Idea Each Week

RagingBull.com CEO, Jeff Bishop, shares his top pick for the week each Monday, straight to your inbox.

“My strategy aims to help you pull one winner out of the market each week, regardless of market conditions!” – Jeff Bishop

Click Here!


Put these together to make a powerful trading strategy

When you add all of these together, you get  a well-rounded trading strategy that gives you an idea of when and where stocks should find support and resistance. That tells you ahead of time where there’s potential entries and exits.

I use these techniques to help me identify key spots that work well for option credit spreads. It’s a strategy I love employing because it has such an exceptionally high win-rate. That’s why I set my 2020 Total Alpha goal of consistent income.

Source: TotalAlphaTrading.com | Original Link