End Of Day Post

The markets made a big move lower on Monday with continued worries overseas. Greece kept its banks closed on Monday, as worries of a default becomes more of a reality, causing a large down move in the U.S. markets. This was definitely a reactionary move in the U.S. markets; however, it was enough to push us below support levels in all three majors.

Today, we didn't see any continuation of yesterday's move lower. Monday's volume was also average, leading us to believe that there could be a bullish answer to this move over the next couple of days. We do have a shortened holiday week, but jumping in bearish positions here doesn't give us any real advantage, even with continued weakness.

We will see how the U.S. markets deal with this news over the next couple of days. Even a small rally could be advantageous to new bearish positions here, while at the same time seeing if the bulls have an answer to Monday's move. Stay patient with entering new positions here and remember that high volatility can skew option prices. It is better to let the markets settle a bit before entering trades.

Have a great night,

The Maverick Trading Team

NSC: Highlighted Trade From One Of Our Traders

Here is another great trade from one of our Mavericks: A trade setup in Norfolk Southern Corp. (NSC), a railroad company. This stock's chart is in a very common bearish charting pattern (one of many covered in Maverick Trading's curriculum).

There are many different trading strategies available to take advantage of this type of setup in the options world. In this case, our trader's personal Trading Plan called for a Diagonal Put Spread.

Typically, for the strategy chosen, our traders aim for a 10-40% return of capital placed into the trade. At Maverick Trading, we pride ourselves on our community of traders. Every week in our live Trading Room, our traders share their favorite new trade setups (like the one above from last week) with all of their fellow Maverick traders.

Condors and Butterflies

Today, our Head Trader, Robb Reinhold, answers several questions from one of Maverick's traders about the differences between condors and butterflies.*


-----Original Message-----

From: Aaron J.
Subject: Butterflies and Iron Condors

I have a couple of questions after yesterday's Advanced Options class.

First, I understand the differences between the two strategies as far as mechanics of the trade. However, is there really any difference between employing a condor over a butterfly or vice versa? Is it personal preference or situation (i.e. pricing, risk/reward...)? Personally, if I am going for a neutral trade, then I like the condor. However, if I want to bias my trade to one side, then I like using a broken wing butterfly.

Next, it was mentioned in class that there are call, put and iron condors/butterflies. At what times would it be beneficial to do a call or put condor/butterfly, especially since iron trades allow for adjustments.

Finally, to finish up the year, I am looking to do a few condors/butterflies after December expiration – due to following a high volatility week as well as a lull in trading activity since it will be a holiday week (at least that is my reasoning). Just from your observations, has the week around Christmas and New Year's Day been a good week for these type of trades? Granted, I know that past performance does necessarily predict future market activity. So, as always, I will trade based on the market.

Sorry for the long email...I just thought of a couple questions as I reviewed yesterday's class.

Aaron J.


-----Reply Message-----

Hi Aaron,

Let me answer your questions one by one:

Is there really any difference between employing a condor over a butterfly or vice versa?
The biggest difference is how wide the break-even points are and the top or max gain of the trade. If you can really pin the price at expiration to a point, then the butterfly is a superior trade since it gives a better reward/risk. However, your break-evens will be much tighter in the case that you are wrong. On the other hand, the condor gives you a much wider range and you don't have to be spot on with the price action.

Is it personal preference or situation (i.e. pricing, risk/reward...)?
To me, it depends on the underlying stock and market conditions. It is extremely difficult to call a closing price on a highly volatile stock, whereas calling the closing price on a low volatility stock is much more likely. It comes down to whether I want to play a tight range (in which I play the butterfly for the better reward-to-risk) or a wider area (where the break-evens are further apart).

At what times would it be beneficial to do a call or put condor/butterfly?
I can't really think of a time when one would be beneficial over the other since options pricing should be the same across the board. However, in real life, there are fluctuations and temporary mispricing that may give you a better price for one over the others. You could always run the numbers for all three (call, put, iron) and see which one is the best. However, that doesn't always mean that you will get executed there. There have been times when I thought I spotted an opportunity, but in the end could never get a fill at that price.

Hope this helps,
Robb


* NOTE: Some original wording has been slightly modified for legibility.

End Of Day Post

The markets retraced for a second day in a row, but a move like this is to be expected at these levels. Last week’s bullish surge carried over into the first part of this week. With Tuesday’s doji candlestick pattern, along with markets finding themselves back into their respective ranges, a pullback was imminent.

Even with today’s close and continued weakness, all three majors would need a substantial move lower to retest support levels. Nothing has really changed to the overall trend of the major markets, but bullish and bearish opportunities continue to present themselves.

Continue to use weekly expiration cycles when available. If you are looking longer term, then make sure that you allow room for your positions to absorb price corrections.

Earnings season is coming up in the next week or so, so make sure to start checking for earnings dates on potential candidates.

Mid-Week Outlook

Bullish: 8%
Sideways: 57%
Bearish: 35%

Have a great night,

The Maverick Trading Team

HACK: Highlighted Trade From One Of Our Traders

Here is a great trade made in an ETF: PureFunds ISE Cyber Security (HACK). This can prove to be a very strong bullish charting pattern, one of many covered in Maverick's curriculum.

There are many different trading strategies available to take advantage of this type of setup in the options world. In this case, our trader’s personal Trading Plan directed him to buy a call option.

Typically, for the strategy chosen, the risk is the premium paid and our traders aim for a 50%+ return. At Maverick Trading, we pride ourselves on our community of traders. Every week in our live Trading Room, our traders share their favorite new trade setups (like the one above from last week) with all of their fellow Maverick traders.


NOTE: Chart(s) courtesy of FINVIZ.com.

End Of Day Post

The markets look a lot less volatile this week as they appear to be content at these levels. It is only Tuesday and we do have the majority of the week ahead of us, but we might be in for some market consolidation. Both INDU and the S&P find themselves back in the middle of their respective ranges, while the Nasdaq holds above its highs.

Some of the stronger stocks are a little overextended, including some of our setups, but we could see a correction sometime this week. Consolidation could also create new opportunities to the upside as well. There isn't much out there currently, so we will need to see another couple of days for trades to develop. We shouldn't expect too much net directional movement this week, so continue to exploit sideways and diagonal trades when they present themselves.

Have a great night,

The Maverick Trading Team

Hope and Fear

Today, our Senior Risk Manager, Corey, discusses what he often tells traders who cut winners too soon and let losers run.*

In my own trading, I have seen that there are two great emotions constantly at work in the markets: Hope and Fear.

Too many people become fearful when a trade starts to perform well. They have fear that if they don't take profits quickly, then the gain could quickly disappear.

Surprisingly, most people feel more comfortable with losing positions. This is likely because they feel that losing trades are only a "paper loss" and will often recover. In other words, they are hopeful for a miracle in a bad position and fearful of losing profit in a good position.

If you can flip these two emotions (fear and hope) around, then great success generally follows:

• Instead of being fearful that your gain will go away, how about being hopeful it will get even better?
• Instead of being hopeful that a loser will go away, how about being fearful that it can get even worse?

Happy Trading,
Corey


* NOTE: Some original wording has been slightly modified for legibility.

End Of Day Post

The markets paused yesterday after the FOMC announcement. Today, it was the bulls who controlled the majority of today’s action. The Fed statement was pretty much more of the same and did not include anything unexpected. The markets finished flat on today's (Thursday’s) session.

Today’s move has pushed both the S&P and INDU above previous swing highs. This doesn’t mean that we are back to bullish trends, but both charts did move higher from a slightly higher low. Currently, these two indexes look like they are making a move back into consolidation for now. The Nasdaq, on the other hand, has just broken out above a high base into new highs.

Tomorrow, traders will need to close out their June options positions since they will expire with Friday’s close. We will also be looking to see – as we have seen so many times before – if the bears have an answer to today’s move.

Mid-Week Outlook

• Bullish: 16%
• Sideways: 42%
• Bearish: 42%

Have a great night,

The Maverick Trading Team

FMC: Highlighted Trade From One Of Our Traders

Here is another great trade from one of our Mavericks: A trade setup in FMC Corp. (FMC), a diversified chemical company. This is a very common bearish charting pattern and one of many covered in Maverick's curriculum.

There are many different trading strategies available to take advantage of this type of setup in the options world. In this case, our trader's personal Trading Plan called for a Bear Call Spread.

Typically, for the strategy chosen, our traders aim for a 10-40% return of capital placed into the trade. At Maverick Trading, we pride ourselves on our community of traders. Every week in our live Trading Room, our traders share their favorite new trade setups (like the one above from last week) with all of their fellow Maverick traders.

End Of Day Post

All three markets put in a decent bullish move today, following the formation of a hammer candle yesterday – support looks to hold once again! The markets looked to be breaking down midway through Monday's session, but then climbed back to close above support levels.

This action isn't anything new for these markets, and we have seen it many times before, as we now look to the FOMC announcement tomorrow (Wednesday).

Even with today's move, we are still in the lower part of the range in both the INDU and S&P. We could see continued weakness with an unfavorable report tomorrow. Our outlook hasn't changed, as we have seen tests of support before but have yet to see any conviction through it. Until we get the confirmation that we need, we will continue to take the shorter-term opportunities as they present themselves.

Continue to focus on relative strength and weakness, exploiting the weekly options when available. Make a note of options expiration this week, and follow your plans accordingly.

See you tomorrow,

Maverick Trading

Revenge Trading

Today, our Head Trader, Robb Reinhold, answers a question from one of Maverick's traders about jumping back into a trade after being stopped out.*


-----Original Message-----

From: Stephen K.
Subject: Today's trade

I see that [on June 1, 2015] you shorted the GBP/USD @ 1.5227. Then, I assume it didn't follow through on the downside. Stopped out at break-even.

Do you ever consider re-shorting coming back through 1.5227, provided it didn't hit the original stop?

I see its @ 1.5202 now. You would be profitable right now. I'm guessing the risk/reward ratio changed due to the original lack of follow through. Just trying to see your thought process.

Thanks,
Steve


-----Reply Message-----

Hi Steve,

This is a great question and really gets to the heart of trading and a trading plan. When you get knocked out of a position due to some volatility, it is very human to want to get back into the position when/if it starts going the way that you originally thought – or to even enter the opposite trade! You already put in the effort to analyze it, you watched and spent some of your valuable time during the trade and now it's looking like it is working just like you analyzed.

So, why not just jump back in? Let me give you a couple reasons…

As you have heard us say time and time again, trading is 10% technical and 90% mental. The hardest part of this business is learning how to eliminate your mistakes, control your emotions and follow a trading plan consistently every single time.

Over my career, I feel like I have fallen into most of the pitfalls of trading and I feel compelled to tell my stories to our traders so they hopefully won't have to fall into as many as I have. One of my favorite things to make fun of is what I call "Revenge Trading."

Revenge Trading is when you take a bullish position and the trade works against you for some reason. You watch the price action and it becomes clear to you that got your analysis wrong and the position is going against you, causing you losses. So, you get knocked out of the position or exit the position for a loss. Then – sometimes within minutes! – you decide that you will now take a bearish position and make all your money back! It's so clear to you now that the position is moving lower.

The problem is that in moments of a blow-off top or capitulation bottom, the price action is so strong that it looks like a sure thing. However, we know that this is when bottoms/tops are typically created – where the last of the longs panic and sell or the stubborn shorts finally capitulate and cover.

Here is the problem with this trade: It all comes down to capital allocation. Capital allocation in trading is the concept where you are constantly analyzing and deciding where the best place/trade to put your capital at work will be. It comes down to which situation has the best reward for the least amount of risk.

In the situation above, the trader is ignoring all other possible trades and they are locked into this one (1) position. If they just waited for an hour or so, my guess is they would find a trade that offered an even better risk/reward than the one they just exited. However, because of the time they already invested in analyzing and watching it, they will be emotionally drawn back to the trade.

In your example, the trade was stopped out at break-even and is now starting to move the way we originally thought. My rule (and I think ALL traders should adopt the same rule) is that once a trade is closed, then treat it as if it never happened. It's the main reason why I do NOT have a "watchlist" of positions that I look at on a periodic basis.

I start at the beginning of every week/trade with a total clean slate with no preconceived notions of what is going up or down (or at least I try to as much as possible). If there was a good potential trade that I found last week that did not trigger, then it should show up again next week as a good trade when I do my new analysis. In this manner, I am trying to look at the market fresh and not have any of my biases from last week that could cause me to get "tunnel vision" (where I only focus on a small number of trades).

So, in this trade that we entered short, moved our stop to break-even and ultimately got stopped out, I would forget that it ever happened. Go back to the beginning and go through your analysis of the markets, relative strength/weakness and chart analysis. If it is still truly the best trade to allocate capital, then it will show up again in your analysis. However, my guess is that you will more often find a better trade that offers better potential reward with less risk.

To sum it up: The more you can completely forget about a closed trade, the better you will be as a trader.

Thanks,
Robb


* NOTE: Some original wording has been slightly modified for legibility.

End of Day Post

The markets managed to close higher, but well off the highs of the session. We did see a very strong move to the upside yesterday; however, the bulls seemed to run out of steam early this morning. While the S&P and INDU are both back above previous support levels of 2,100 and 18,000, respectively, today’s candlestick does raise some concern.

Both the INDU and S&P charts ended the day with a shooting star candle – very similar to the candles that we saw on Wednesday of last week. If this is indeed a lower high pivot point, then we could see another run back down to support levels. This will have to be confirmed with tomorrow’s action, but it could be the start of a descending triangle pattern developing.

Regardless of a move up or down tomorrow, especially with the markets at their current levels, we won’t be left with much to go on as far as sentiment. This will take multiple days in either direction before we test and/or break support or resistance levels. Continue to stay balanced and patient, taking advantage of relative strength and weakness in the shorter term.

Mid-Week Outlook

Bullish: 30%
Sideways: 55%
Bearish: 15%

Have a great night,

The Maverick Trading Team

End Of Day Post

Although the markets did hesitate today, the bulls have yet to produce the response that we have seen in the past. We have grown accustomed to seeing bullish responses to bearish action (and vice versa), but today’s move wasn’t very convincing. We have seen two (2) strong moves by the bears over the last three (3) sessions, in which a minor support level was broken, moving us into the lower range of the markets.

All three major indexes have been moving lower, but are giving different trend signals. The Nasdaq appears to be in a bull pullback, as the S&P 500 finds itself on lower support of 2,080. The INDU looks to be the weakest, slipping just below its support level of 17,800.

There are plenty of data points and arguments to justify market action in both directions from this point. So far, the bear side looks to be in control as we reach the midpoint of this week. Continue to take advantage of both directions, along with adding a little sideways to both, as we enter into the last two weeks of June expiration.

Have a great night,

The Maverick Trading Team

DPS: Highlighted Trade From One Of Our Traders

Last week, one of our traders found a great trade setup in Dr. Pepper Snapple Group (DPS). This is a very common bearish charting pattern and one of many covered in Maverick's curriculum.

There are many different trading strategies available to take advantage of this type of setup in the options world. In this case, our trader’s personal Trading Plan called for a Diagonal Put Spread.

Typically, for the strategy chosen, our traders aim for a 10-40% return of capital placed into the trade. At Maverick Trading, we pride ourselves on our community of traders. Every week in our live Trading Room, our traders share their favorite new trade setups (like the one above from last week) with all of their fellow Maverick traders.

Trading Stock Splits

Today, our Head Trader and man who can do the splits like Chuck Norris between moving semis, Robb Reinhold, answers a question from one of Maverick's traders about trading options around stock splits.*

-----Original Message-----

From: Brett V.
Subject: Splits question

I was just wondering what your stance was on trading options on a stock that has an upcoming split that occurs before expiry [option expiration]?

Thanks,
Brett


-----Reply Message-----

Hi Brett,

If it's just a stock split, then there really isn't anything to worry about as nothing will be different. All that will happen is that the options will split as well.

For example, if you had 2 contracts of the 80 call before the split, then you will have 4 contracts of the 80 call after the split (if they did a common 2:1 split). Thus, nothing is really different about the position or the stock after the split.

However, there can definitely be an effect of buying/selling activity due to a stock split. Typically, what I have seen is the stock rises into the stock split date and then struggles a bit after the split is done. This is typically because the "dumb money" wanted to buy before a split…then people wake up and say, "I don't want to own 1,000 shares of this stock now" when they owned 500 before. These effects aren't as great today as they were back in the late 90's, but it still happens to some degree.

The last thing that I think is noteworthy about stocks that split is that they split because the stock has typically performed well over the past months/years and the price has gone much higher. So, basically the stocks have been in strong uptrends since their businesses are likely improving and the economy is also improving as well.

To sum it up, when people ask me if it is a good strategy to buy stocks that split, I have to answer, "Yes" – not because of the split, but because this is likely a strong stock in a strong sector in a bull market.

Hope this helps,
Robb


* NOTE: Some original wording has been slightly modified for legibility.

End of Day Post

The markets made a move lower today, ahead of tomorrow's Jobs report. All three majors gave back about 1% today, which included a break down through some minor support levels on both the S&P and INDU. The overall up trends in the markets are still in place; however, today's market action and volatility does warrant a cautious outlook.

Tomorrow's nonfarm payrolls and unemployment reports are only as big as the markets decide to make them. We have seen many different reactions to these numbers, including no action at all. The only real move to take action on would be more selling, as a good reaction will just carry us back to where we started.

Regardless of what happens, be sure to double and triple check before jumping into anything and be aware of dangerous impulses. Options combos can become very unfairly priced – and difficult to execute – in volatile situations. Make sure to use your limit order and be patient if you are going to make trades.

Mid-Week Outlook

• Bullish: 16%
• Sideways: 68%
• Bearish: 16%

Have a great weekend,

The Maverick Trading Team

WYNN: Highlighted Trade From One Of Our Traders

Last week, one of our traders found a great trade setup in Wynn Resorts (WYNN). This is a very common bearish charting pattern and one of many covered in Maverick's curriculum.

There are many different trading strategies available to take advantage of this type of setup in the options world. In this case, our trader’s personal Trading Plan called for a Bear Call Spread.

Typically, for the strategy chosen, our traders aim for a 10-40% return of capital placed into the trade. At Maverick Trading, we pride ourselves on our community of traders. Every week in our live Trading Room, our traders share their favorite new trade setups (like the one above from last week) with all of their fellow Maverick traders.


NOTE: Chart(s) courtesy of FINVIZ.com.

End of Day Post

The markets are hovering around support this week, as the overall uptrend continues to hold. We did see all three majors climb off their lows into the close, but nothing overly bullish.

We didn’t have too much to move on today, in regards to economic reports, but we did see some unusual strength in the euro dollar. This move could have been caused by a few things, the largest of which is rumored to be a deal reached with Greece. Either way, the U.S. markets closed flat on the session.

We find ourselves at a higher support level of 2,100 in the S&P. The first few months have come with much volatility and very little net movement. We are starting to see some things move according to relative strength and weakness, but the markets can still be very reactionary and volatile from day to day.

Shorter-term traders could take advantage of aggressive corrections and/or bounces; however, longer-term trading (2-3 weeks), sideways to slightly bullish, continue to make the most sense. If these markets aren't conducive to your style of trading (or trading plan), then taking small or less positions is advisable.

Have a great night,
The Maverick Trading Team