Tony: Katie we're back.
Katie: Back to Cool.
Tony: Happy Monday.
Katie: Happy Monday to you.
Tony: Did you have a wonderful weekend?
Katie: I did. I saw
Tony: Good.
Katie: A movie. I slept really well last night.
Tony: Good. Good.
Katie: Yeah. It was a good time.
Tony: What movie did you see?
Katie: American Sniper.
Tony: Oh. Was it good?
Katie: Yes and no. I don't know. I'm not a movie critic. I don't want to upset anybody out there in the audience.
Tony: Okay.
Katie: I thought Bradley Cooper was a good actor, but there were parts that were a little bit too Hollywood for me. That's a movie, right? I mean…
Tony: I watched that one, the one about the codes where they decipher the code. Can't remember the name for the life of me for some reason.
Katie: Oh, where they cracked that code for World War II or whatever it was?
Tony: Exactly.
Katie: Yeah.
Tony: That was the best one I've seen of all the Oscar nominated ones.
Katie: I'm going to have to check that one out. I've heard that was a good one.
Tony: Yeah. By far the best, but Birdman that was just terrible. Whatever. I want to take a look at your account for a quick second.
Katie: Sure.
Tony: Enough with the chit chat.
Katie: I mean not that we don't have 15 minutes to look at my account, but okay.
Tony: You're up about $1100 in change on your yearly PNL. About $130 today. Got back that $300 or so around that $200 in change that we had given up on Wednesday. Wednesday we made about $300, and Thursday and Friday we slowly gave it back. Now today we gain it again. I think we get $1,130 around the high for your overall account for this year. Diamonds helping us out. Gold helping us out. We should be a little bit bearish on gold. We did a ration spread. Open up GLD for me. We did a ratio spread, which is a 1 by 2 by 1 of the 22 puts, selling 2 of the 19 puts and then selling a 29 call to give us a little bit more delta neutrality to it. Believe it or not, we put this trade on when GLD was right around here, a little bit higher than this. It's volatility contraction will make it about a $117 on this trade. [00:02:00]
Katie: Yeah.
Tony: You could certainly think about closing it. If using $2200 worth of buying power, making over $100 on a position on one contract, I know this is a combined position that puts spread plus the strangle.
Katie: Right.
Tony: That's about how much we typically make on that. A discussion for another day. I want to put on a new trade today. The most recent trade that we put down was Morgan Stanley, and that's we're done about $15 on that. We got filled at least at our price yesterday, and that got filled right at the close. Morgan Stanley got a little bit lower today. Hopefully their thinking is that if bonds go lower in Morgan Stanley, other banking and retail trading type of firms will go higher, because they benefit from-
Katie: Bonds going lower.
Tony: Bonds going lower or higher interest rates.
Katie: Right.
Tony: You have a small USO position still on there. We've done some nice strategic trade. You close some good [inaudible 00:02:51] trades that we've had on. You'll notice the only equity ETF that we have on there right now are diamonds, and IWM in queues. We don't have any SPY left on this, because volatility's been contracting in all of this, and we're looking to take them off.
Katie: Right.
Tony: The only one we have for 50 some of our days is
Katie: Diamonds.
Tony: The diamonds. It's basically our overall position. We still have a lot of money sitting on the sidelines. FXE, you decided to roll down the call.
Katie: I did.
Tony: On Friday. You can open that up for me. Does it use any more buying power by rolling down the call from
Katie: 117
Tony: 117 to 111? Probably the prudent thing to do even though the stock is up 68 cents today, and you would have been up $60 more in there today than you are now. No, I'm just kidding. You would've been, but I mean it's probably the prudent thing to do.
Katie: I know.
Tony: It was probably the prudent thing to do the first 3 times you said to me. Let's roll down the call, or go in vertical, or just get out. Goo compromise in my eyes by selling the 111 call. Let's just say you sell it for $1.40 or $1.45, whatever we sold it for. You actually getting out. The thought is you want to stock to go in between your two short strikes, which is basically 121 to 111.
Katie: Right.
Tony: And hopefully we'll be able to define some of the risks on the call side and then on the put side, and we'll use significantly less capital.
Katie: Okay.
Tony: All right. Let's look at Netflix quote NFLX for a moment. Been looking to get in to Netflix for the last couple of days.
Katie: Okay.
Tony: It's just been sitting on my shortlist, because the stock is just run so much over the last couple of days. It's up over $100.
Katie: It's wild.
Tony: Yeah, after earnings, everything like that. I don't know what other people look at. Charters will say, "Hey, it filled that gap from back in October, that's that last time I had earnings. You could do a circle on that."
Katie: Right.
Tony: And then it went above that gap. That $400 were kind of opened.
Katie: Yeah.
Tony: Now you went above that gap and it should go. It's blue sky. It should go even higher. Then you've got some other technician that will say something like-
Katie: That will say it will revert.
Tony: It will revert back because we're in that congestion area of of 440 to 460. I don't know any of that. All I know is IV rank is typically low around 25%. Now it's a little bit higher that it normally would be if you go back to August. You'll see that IV rank was pinned down near 100, pinned down near 0. I don't know if it's any higher or any lower. All I know is that we have price extreme.
Katie: Right.
Tony: We have price extreme and low volatility. I've got to look at pricing. Let's go to TOS for a quick second just to save time. And then we'll go to…
Katie: Gotta look at pricing. What do you mean by that?
Tony: Okay. Let's go to February. Open up February. Thank you. Change that to tastylive High Probability. Yeah, thank you. Okay. All I have here is return on capital and capability being in the money.
Katie: Sure.
Tony: I just keep it that way for myself. It's what I look at. When I say pricing, you know that if you're doing an at-the-money spread that there should be very little extrinsic value over premium. Let's just for argument's sake right click on the 40 calls and buy the 40, 45 calls. I know that I'm bearish. We're going to do a bearish play. I'm just going to show you pricing. You know when you clicked on this, or you should know when you clicked on this, where the stacks are right in between these two strikes
Katie: Right.
Tony: This being right at the money. This spread should trade for around half the width of the strike.
Katie: Right.
Tony: This to me seems like it's a little bit rich at 250, because the price of the stock is 42.11. This spread for me, if I was making a market on this, I would say it should be something like maybe a 2.15, 2.25. This should only be around 10 cents worth of premium, not 50 cents over extrinsic value.
Katie: Okay.
Tony: Let's widen out the strikes and do something like the 35, 45 and see what that pricing is. So the 35, 45 is more… Click on Confirm and Send one time, so people could do the math for themselves. You'll see the break even on this is 440.35, where the stock is trading 441.97. Let's say it's 442. The stock can go down about $1.65.
Katie: Right.
Tony: Before you lose any money on here.
Katie: Okay.
Tony: Okay. I look at those prices just to get an idea on if the spreads are trading a little bit rich or a little bit cheap to what I expect. Remember, they're priced perfectly. I'm just giving you my own… Probably what I'm trying to do here, you were looking. I was trying to give you what a charters would look at. They would look at this in different ways.
Katie: Right.
Tony: And I'm trying to look at it the way a premium seller or a volatility trader looks at things. Because remember, the pricing is perfect. I'm just looking at advantages to my own outlook, to my own assumptions.
Katie: Okay.
Tony: Un-click that for a moment. Go down to Delete. And let's look at that same, with one-third the width of the strikes. If we were to sell something like the 455, 460 call spread, or the 455, 470 call spreads. We can expect a certain price. Meaning if it has a 25% probability of success, 25% chance of getting there, that spread should trade for around 25% of the width of the strike.
Katie: Okay.
Tony: Do you understand what I'm trying to get here?
Katie: Sure.
Tony: All right. Let's look at something like the 430. We'll do it $10 wide. Let's look at the 4. Excuse me, not 430. 460, which is the 30% call.
Katie: 470?
Tony: Let's go to the 460, 470 call spread. Right click.
Katie: Okay.
Tony: Go up to Sell, go over to Vertical. Make it 460, 470. I'm just doing a $10 wide because it's just easier to do the math than a $5 wide for everybody at home.
Katie: Okay. And that's 2.60. I mean 2.50 would be one-forth a quarter?
Tony: That's correct.
Katie: Okay.
Tony: And if you look at the 2.65 call there's about a 25% chance that we get up to 2.65.
Katie: To 4.65
Tony: Sorry 4.65. So I'm thinking that this spread at 2.60, 2.62 might be a little cheap. Does that make sense? Again, I'm just going to my own pricing here.
Katie: Okay.
Tony: I've got to at-the-money call that I trading a little bit rich. I've got the out-of-the-money call that's trading maybe a little bit cheap in my own eyes. If I'm looking to do a spread I might be a little bit more aggressive with my spread, and go a little closer to add the money because I'm going to sell something.
Katie: Got it.
Tony: Does that make sense? I don't know. I don't know how else, because all of the trades are perfectly priced, I'm just trying to show. We did something in the diamonds a few days ago where we went. We had a straddle on, because we thought that the IV rank, we could see the IV rank was high.
Katie: Right.
Tony: Pinned near a hundred. So we went more aggressive. That was an easier look. And then we still want to keep something on in the diamonds, but we changed our strategy and we went much wider. And then we went further out, hoping for a contraction.
Katie: Right.
Tony: I'm just trying to do the same thing here with Netflix. If I was looking to sell a call spread in Netflix here I would do something a little bit closer. Let's see where we can get one-third the width of the strike. Let's see if we can do the 465, 470 call spread, which I'm sure we're not going to. Let's take a look. 465, 470 is trading for $1.17. Way to cheap for us to sell. Let's change this to the 450, 455. Just to save some time. Because I want to do one other thing on Dell. All right. The 450, 455, $5 wide we'd be looking to get $1.65. Between $1.50 and $1.70. Let's go one strike up. Let's make it to 455, 460. We're staying in February because the stack has had a large move up in a short period of time.
Katie: Right. You think it'll just move quicker?
Tony: Otherwise. That's my thinking.
Katie: Okay.
Tony: All right. The 455, 460 call spread right around that 30% probability of success, one-third the width of the strikes, to me that looks perfectly priced. Does that make sense?
Katie: Before, I mean I just want to kind of put all the pieces together. Whereas before we've traded we've sorted naked puts and we've had to go wider out because maybe the implied volatility wasn't so high. Or we've gone tighter because it was such a price extreme or implied volatility was high. This time implied volatility is
Tony: Looks low.
Katie: I mean, right. Relatively low, but because the strikes are
Tony: I don't want to buy the at-the-money put spread.
Katie: Right. Okay.
Tony: That's really what it all comes down to.
Katie: Okay.
Tony: Does that make sense?
Katie: Yeah. No. I'm just trying to make sure that
Tony: We should have. Listen, the pricing is absolutely perfect. You certainly could make an argument here for buying at the at-the-money put spread. 25% IV rank looks a little bit high. I'm going with that holding. It's a little bit high. I try to prove my case by looking at the different width of the strikes, how they trade. I don't really know if I made my case. But I do know this. Stock traded up to almost 4.45. If I'm looking to sell this, I'm looking to sell this at my price. Instead of going in at 1.72, I'm going to go in at $1.80. Let's click up $1.80 and see
Katie: Okay.
Tony: What happens. Okay. Now it's showing a price of 4.47. Let's go change the price of the returning capital to the high price. Just go to ROC and click on High. Now let's take a look at this. The 155 call trade on to 10.55.
Katie: 455 call.
Tony: I'm sorry, the 455 call traded up to 10.55.
Katie: Yes.
Tony: And the 460s traded up to 870. I'm trying to get if they traded at that range what would be the highest price? It doesn't really make money. It doesn't really make my case. You'll probably going to have to go a little bit lower.
Katie: Okay.
Tony: Let's go down a 1.75. Okay. 1.75 we make a new high and possibly we get filled.
Katie: Okay. And more importantly, I mean this, like you said, besides implied volatility this is a pretty significant price extreme.
Tony: In the overall stock.
Katie: Right. Okay.
Tony: Can you do me one more favor? Before you do a Confirm and Send one time. Change that cell to a buy. Here's a little trick that I do at TOS. You'll notice that the mid-price for the buy is 1.73, 1.95. Since the markets are so wide in there. See now that makes me change my price back to 1.80. Let's go back in a 1.80. Change that to cell first. Do you understand why I did it?
Katie: Yeah.
Tony: You see 1.55, 1.72. It seems like it's so far away going in at 1.75 and you're never going to get filled.
Katie: But it's not as impossible
Tony: It's not as far away as you think.
Katie: Yeah. Okay.
Tony: Let's go in $1.80 hit Confirm and Send them. Sent. Watch this gets filled immediately. Just kidding. Go to DOW for a second. I want to show you something on what is it? X-O?
Katie: XLE
Tony: XLE. Yes, click on the Journal. This is the order chain from XLE and it shows you if you look on the realized gain, unrealized gain, it says that your up $85.50. There's a nice feature for what people are looking at when they're looking at how to see, how a position has done. We closed one position in here, we've opened another. All the open positions are unrealized gains, right?
Katie: Unrealized gains yeah. Since I have closed it that unrealized gain is obviously just not locked up. $86.50.
Tony: Go to TOS platform for a moment to show me, to show the, if you look at… It's $80 because it's moving around a little bit. That's the, and we've only made one trade on there. I could say, circle the date $80 or $79.50. That's basically that's showing you is all the trades that we've put on. Even though there's only one strangle left on in XLE that's taken into consideration
Katie: Right.
Tony: The part that we closed.
Katie: Yes, of course, and then when we close the whole thing it will show us the realized gain.
Tony: Perfect.
Katie: Fully.
Tony: All right. Awesome. You're up around $144, $1143 and you've got one working order
Katie: In Netflix.
Tony: To go. Yes.
Katie: Awesome.
Tony: All right. Good job by you day. Think we'd be close or open with the snow in New York tomorrow.
Katie: I'm hoping open.
Tony: I am too. I think we'll be open though. What do I normally say?
Katie: Peace.
Tony: Who comes up next?
Katie: Liz and Jenny.
Tony: Peace.
Katie: Bye.