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Episode 21 Overtime: Revisiting the Long Call Spread for PowerShares QQQ Trust (NASDAQ: QQQ) - YouTube
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- Welcome to the Stock Play
of the Day Overtime edition
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this week on Monday Stock Play of the Day,
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we talked about the QQQ,
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that is the ETF that tracks the NASDAQ
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today we'll discuss, did
we score or did we tumble?
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(upbeat music)
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Hello, my name is Brian Overby,
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I am the Senior Options
Analyst at Ally Invest,
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this week in the Stock Play of the Day
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we talked about a long call spread,
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a very simple momentum trade
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that we were trying to capture,
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that was what was going on in the NASDAQ.
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So our vehicle of choice was the QQQ,
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we looked at buying a little bit
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in the money option contract
and selling a little bit
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out of the money option contract
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and what you're looking at right now,
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is a summary of what a long call spread is
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inside the Ally Invest Option Playbook,
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so strike A the more
expensive strike we're buying
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strike B the less expensive
strike we're selling
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and we focused a lot on time premium,
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how much time premium
we were buying last week
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versus how much time
premium we were selling.
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Well, overall if we look at the chart
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of what happened this week
in the QQQ we discussed that,
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as far as technical analysis is concerned,
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one of the standard thinking behind it is
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that if you have a resistance
level that gets broke,
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a lot of times that provides support.
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So we mentioned on the call,
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this little candle right here,
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this green candle was on Monday
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the underlying stock came down
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and actually touched
the old high in the QQQ
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and we focused on that we said,
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well, we did have a channel
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that was a very bullish training channel
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ever since the March lows
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all of a sudden we've got the market
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just being very nice if you
will and trending to the upside,
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we broke through the new high,
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we came we struggled a little bit
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we still stayed within the
channel but then the other day,
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we actually had a break
out of the channel,
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but the old high did exactly
what it was supposed to do
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and it provided some support
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so now I haven't touched
this chart since Monday,
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and you see that the
market has actually ran up,
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we got the bounce off
of the support level,
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and now we're heading towards
the upper end of the channel.
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So today's call or I should say video
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is gonna be short and sweet
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in that the market did
what we'd like it to do,
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so when that happens it's
a very simple summary
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of the play that we did on Monday.
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So right now we have the stock at 252.83,
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it's up two dollars
and 32 cents on the day
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and this is an ETF, we went out
to the July 17th expiration,
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so we gave ourselves a
little bit of time on this
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it's still has 15 days remaining,
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and this is the call side of our chain.
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The strike that we bought
was the 240 strike,
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the underlying stock was
at that point in time
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let me check here,
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it was at 241.81, okay 241.81
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so with that said this option contract was
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a little bit in the money
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and then we went up and
we sold the 245 strike,
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and that option contract
was out of the money,
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now we see by just looking
at the blue shading,
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that both of these option
contracts are in the money
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and they're both in the money quite a bit.
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So if we scroll down and
look at the price of,
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our long call spread right now,
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currently the midpoint is at
four dollars and 20 cents,
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now the maximum you
could make on this trade
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is the width between the
strikes of $5, 245 minus 240
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minus then what we paid for this trade
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and overall we paid two dollars
and 80 cents for this trade,
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so we had 2 dollars and
20 cents worth of upside,
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we've captured a lot of that
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there's still 80 cents left in the trade
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and the underlying market is up,
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but we're going into a holiday weekend,
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we're gonna have a few days
off, some news could break
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overall I would just look to
try to close out this trade,
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so how would we do that?
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if we had this position
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and tomorrow the markets
are gonna be closed
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so we gotta three day weekend coming in,
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how could you close it out?
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All you do is take the Sell To Open
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and you'd make that a Buy To Close,
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and you would take the Buy To Open
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and you would make that a Sell To Close.
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And then that would get you the midpoint
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you'd click on that, you'd try to trade it
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somewhere close to that 4
dollars and 22 cent level,
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and you'd hit the preview order
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and you would send that order
down to the trading floor.
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Now let's just look at
the profit and loss graph
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real quickly here to finish
up our overtime edition,
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we see this based on today's numbers,
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this is what the profit
and loss graph looks like,
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this is at expiration, this is currently
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so when you see that there's
still a little bit of room here
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and as the market continues on up,
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this line is going to continue
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towards the expiration
graph, the dotted line.
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But right now here's where our risk is at
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because there's a lot of time premium left
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we still have basically a flat line,
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not a lot of curve in that line,
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now, if you wanted to wait
let's say you waited seven days,
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we'll cut it down to eight days,
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notice I'm changing the days to go here,
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now all of a sudden this
line comes a little closer
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we go down let's do it
to two days remaining
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and now we're basically at
the maximum on this trade,
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if the underlying stock would stay here,
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but if you don't close out the trade,
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you still have all the
risks to the downside.
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So very simple straightforward,
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the market did what we wanted it to do
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so the long call spread is looking good,
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think about closing it before
you go into the weekend
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and that's it for this edition
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of the Stock Play of the Day Overtime.
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Please make sure you click
subscribe and ring the bell,
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so you get all the alerts
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for the next Stock Play of the day
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and I wanna make you
aware that this Monday
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we will not have a Stock Play of the Day,
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we'll be taken a little
bit of vacation time
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for the next week so there will not be
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a Stock Play of the Day on Monday,
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but we'll be back the following week
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same time, same place
on Ally YouTube channel,
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thanks for coming.
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