End of Day Post

The markets closed flat today after a small move lower yesterday. Market volume is still well below average, but we did see a small increase in yesterday's move lower. Although all three majors moved lower yesterday (by less than 1%), we are still in a strong uptrend. We haven't come close to threatening any major support levels. With just one more day left in the trading year, we don't expect any sort of major confirmation in either direction.

The markets will be closed on Monday, January 2, in recognition of the holiday. Take your time in scanning and building a watch list. We don't expect to see much opportunity until later next week, depending on how the markets react to the New Year.

We will NOT have a Trading Room this Sunday due to the holiday. Instead, we will see you next Wednesday, January 4, for the Mid-Week Update.

Happy New Year, everyone!

Your Maverick Trading Team

End of Day Post

All three majors opened higher today as we came out of the first of two extended holiday weekends. We saw a small surge of buying come into the markets late on Friday's session, which could be the reason that we gapped higher today. However, all three of the majors failed to capitalize on last week's surge.

We still have three (3) more trading days left in the year. However, with another extended holiday weekend just around the corner, we shouldn't put much value in this week's move.

The INDU made another push towards the 20,000 level today and we could see a close above it this week. Without a substantial amount of volume behind a close at that level, we don't want to take the risk of buying in too early.

Be patient and enjoy the holiday season. There haven't been any substantial changes to market sentiment in the last 10 days. With just a few trading days left in the year, we don't expect anything different.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets closed in the red today, but not by much and with very light volume. We don't anticipate too much movement tomorrow as we head into the extended holiday weekend. The market's range should start to tighten up over the last couple weeks of the year. We would need some sort of catalyst to move very far from the current levels.

That being said, we could see some strange moves intra-day tomorrow. Keep in mind the overall volume and the fact that it will most likely be corrected later in the day or early next week. Don't get pulled into a trade based on intra-day movement. Keep an eye on the VIX since a low volume move can sometimes be mistaken for a spike in volatility.

We don't have a clear advantage in placing new trades here. So, it's a great time to spend with family, friends and eggnog.

We will NOT have a Trading Room this Sunday due to the holiday. Instead, we will see you next Wednesday, December 28, for the Mid-Week Update.

Happy Holidays and Merry Christmas!

Your Maverick Trading Team

End of Day Post

The markets continued to test their current highs, but couldn't get that final push. With the Fed out of the way for the rest of the year, we are only left with sentiment. The 20,000 level for INDU is a psychological number that will carry weight over these last two weeks in 2016.

Although INDU continued to surge higher, the other two majors appear to be establishing nice high bases here. Volatility continued to move lower, with the VIX looking to roll over and test lows. We just aren't seeing any selling pressure, so the markets could top out here for a little while. Look to some sideways strategies over the next couple of weeks.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

Yesterday, the FOMC increased interest rates by 25 basis points (0.25%), so we expected to see some sort of reaction by the markets. However, we have not seen much of an increase to volatility based on the results, so it is safe to say the Fed's decision was as expected.

While the markets managed to close today's session in the green, they did so after retracing half of their total range. Today's action didn't give us much in a directional bias at all. In fact, we haven't seen much direction at all over the past two days, which has kept a lot of our trades from triggering in both directions.

With only 2½ weeks left until the end of 2016 and tomorrow being December's options expiration, we would expect to see some sort of market direction. However, we might find ourselves sideways if investors are comfortable with their current positions through the end of the year. Make sure to make the necessary adjustments in your portfolio before tomorrow's close.

We will look at the markets this weekend to see if we can take advantage of some sideways opportunities over the next few weeks.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

All three majors continued higher as we move into tomorrow's FOMC statement. This is the last scheduled FOMC announcement for 2016. The market is expecting a raise of 25 basis points (0.25%).

Market sentiment has been primarily bullish for over a month now, as the charts continue to break through resistance levels. Any change to interest rates will have an impact on the markets. However, the economy remains strong and a higher interest rate increases the strength of the dollar moving forward.

The markets, along with the U.S. Dollar, have been moving higher for some time now. This action supports the idea that investors are expecting a rate hike tomorrow. Regardless of the Fed's action tomorrow, we will see a reaction. Be mindful of support and resistance levels, as it will definitely take more than one day for the markets to stabilize.

December's option expiration cycle is this Friday, which could make things difficult when entering new positions moving forward. Keep to the current market sentiment and follow your plan.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets continued to gain ground, as the current market surge extended itself even further. We only saw a slight hesitation last week – not even enough of a move lower to really call it a true correction. We are now pushing into over-extended levels in both the INDU and S&P, which could cause some difficulty in putting new bullish trades to work here.

Sentiment remains strong; however, with over-extended charts comes lower probability of bullish continuation in the short-term. This can easily be compensated for with well-placed diagonal spreads and/or being very patient in longer-term combos. Be patient with your portfolios here and don't be afraid to allow your bullish trades to run through December's expiration. Our outlook is for a slow move higher into next week's FOMC statement.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets moved higher for a second session in a row, as we look to put an end to last week's corrective move. It is too early in the week to comfortably say that the down move is indeed over, but this current market sentiment has remained bullish for some time now.

Last week's move lower has opened up some bullish opportunity. Staying in line with the current trend, we should look to take advantage of that. However, be mindful of how many bullish trades you add...you don't want to be too overexposed to the bullish side.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The INDU posted a modest gain as both the Nasdaq and S&P moved lower. All three of the majors have been showing signs of tops over the last week and a half, so corrections were expected sometime this week. However, the INDU continued to move forward, continuing to be the strongest of the three.

Keep an eye on support levels with both the S&P and Nasdaq. If their support levels can hold, then we should see some good buying opportunities moving forward.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets are showing some hesitation at their current levels, but haven't fully committed to a correction just yet. Any time that a chart breaks out of resistance, the probability of corrective action increases. We never want to make trades in anticipation of when this will happen or guess how much of a correction we will get, but we should always be prepared for when it happens. Continue to take advantage of the short-term by using weekly expirations and non-directional combos.

So far, we haven't seen a strong move lower, but we are early in the week and could see more of a definitive move later. The current market sentiment remains bullish. The next pullback will be a welcome indicator of bullish strength as we move into the end of the year. Keep an eye on support levels, especially the most recent levels broken by the markets.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

All three majors closed above upper resistance levels and into new highs. The INDU, S&P and Nasdaq closed above the major levels of 19,000, 2,200 and 5,300, respectively. This surge appears to be a continuation from the election results as we move towards this week's holiday.

The markets will be closed on Thursday, followed by a half day on Friday. This leaves the markets with just 1½ days left in trading this week. All three markets look a little overextended here and a pullback or correction should be expected from these levels. However, we might not see anything significant until after the holiday weekend.

Market volume typically dries up by mid-day on the Wednesday before Thanksgiving and then doesn't return until the following Monday. So, we will not be running a Mid-Week Update class tomorrow or writing an End of Day Post this Thursday.

Have a happy and safe Thanksgiving – we will see you on Sunday's Trading Room!

Have a great night,

Your Maverick Trading Team

End of Day Post

All three markets continued to look strong, with all three closing higher on today's session. However, the strongest of the three (INDU) appears to be topping out. INDU's surge into all-time highs appears to be looking for a top as it posted a third inside day. With the INDU up over 1,000 points in 10 days, we should expect some hesitation or a correction from these levels. The S&P and Nasdaq have a little more to go before they reach their upper resistance levels of 2,195 and 5,350, respectively.

Even with volatility dropping and the markets looking overextended here, there are still bullish opportunities out there. Look to use a combo with enough time to absorb any corrective action. You could also wait for a correction before entering bullish trades, taking advantage of shorter-term, sideways trades (credits) in the meantime.

November monthly options expiration is tomorrow. Be mindful of your portfolio exposure moving into December. With only one month left in the year, we might only see one or two directional changes in the markets. So, keep this in mind when moving into any new December positions.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets moved higher today as volatility continued to drop. Since Election Day, we have seen the markets steadily move higher. We don't want to associate the move with the election results, but more with the "knowing of the unknown" – i.e., allowing for money to come back in from the sidelines. This doesn't mean that we will continue higher; however, with the drop in volatility, we should expect to at least test previous highs.

The INDU has surged into new highs and the S&P is now testing the 2,180 level. The Nasdaq is the laggard of the three majors, but is now moving back into its higher range. There isn't much left this year as far as scheduled major events, save the FOMC statement in December. The expectations are for a rate increase, similar to last year. Regardless of the decision, the markets should react.

Keep balanced and don't be afraid to enter new positions here. We are seeing great opportunities in all three directions: bullish, bearish and sideways. Just be mindful of your timeframe.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets made another move higher today going into tonight's U.S. election results. We saw a very strong bounce on Monday; however, with the VIX still above 18.50, it should only be treated as a bounce at this point. We expect the market to be volatile tomorrow, regardless of the final result. Give yourself a little more time and flexibility when entering or exiting positions. If you don't have to make trades tomorrow, then it may be best to wait until Thursday or Friday before entering new trades.

All three majors moved back up to a more "neutral area" – back above major support levels. This is obviously in anticipation of the election. Keep in mind that tomorrow's move will be mainly reactionary. In fact, it may be a couple of days before things settle down. Once the emotion and speculation is out of the markets, we can then put the focus back on the fundamentals and technicals.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets broke down through support with a sharp move higher in the VIX. Although this is a bearish move in the markets, it is nice to finally see conviction in a direction. Multiple days with increasing volatility has extended the bearish sentiment and moved the markets into lower levels.

We aren't expecting the markets to "collapse" from these levels, but moving higher from here could prove difficult without a catalyst. Look for new bearish trade opportunities moving forward. Don't expect the markets to continue lower without a strong reaction by the bulls over the next few days. Keep in mind the shorter-term corrective action vs. the longer-term trend as we move closer to the end of 2016.

Keep an eye on the 200-day SMA of the S&P – it is a major support level for the 2016 uptrend.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets pushed below support levels, but closed at very different levels. All three majors made strong moves lower today, accompanied by a spike over 20 in the VIX. Even though we did close off the lows of the day, this bearish move was strong enough to potentially carry over tomorrow. We should always prepare for a counter move, but if the bulls don't post a strong day tomorrow, then we could be in for a little more selling.

We could see some weakness in the markets over the next couple of weeks. Keep in mind the overall state of the U.S. economy compared to other countries. We should expect some market volatility through the election, but take into consideration the longer-term trend (e.g., 1-year chart). A 5% correction in the markets could stimulate investors' longer-term, bringing money off the sidelines into the markets through the end of the year.

Take advantage of the corrective action, but keep in mind the state of the economy and the longer-term trend.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

Selling Naked Options Strategies

Hi Traders, As I discussed in the Trading Room last night, we have seen an increase in naked option selling strategies (short calls/puts, short straddles, short strangles) among our traders. We know of several popular trading websites that have been using (even encouraging) these short option strategies lately to their subscribers. In fact, a trader from Thinkorswim (TD Ameritrade) was dubbed “Karen the Supertrader” for making a large sum of money by selling OTM naked calls and puts.

After making a name for herself and attracting millions in investor funds, “Karen the Supertrader” allegedly lost $100 Million when volatility spiked in late 2014 and August 2015 and is currently under SEC investigation by attempting to hide/delay losses by rolling positions out to later months. These strategies work in a low volatility environment, but blow up spectacularly when volatility spikes.

I wanted to share this story to stress the amount of risk that naked option selling strategies take and how vulnerable a trader can be when volatility spikes. At Maverick, we always want to prepare for worst case scenarios and there is just no way to quantify “worst case” with a short call or put. If you trade for a long enough period without risk that can be measured, then something will happen that will eventually wipe you out.

The biggest problem with selling naked calls/puts is that a trader only brings in a small amount of premium, but takes on a huge amount of risk. For example, if I brought in $1 (max gain) in premium, but carried $30 in risk, then just one bad trade can wipe out months – even years – of gains. I have never understood why a trader would sell naked options when a spread trade is superior in almost every way.

Here is a side by side example of a naked option vs. a spread trade:

TRADE SCENARIO – Stock is currently trading at $95. Trader does not think that the stock will close or go above $100 within the next month (November).

NAKED OPTION: Sold 10 contracts of the Nov $100 Calls for $1.00

• Margin/Capital Required: $19,000 (typically 20% of the underlying position – premium received)
• Total Potential Profit: $1,000
• Max % Return: +5.2%
• Max Risk: I won’t put unlimited, but let’s say that an unexpected 30% pop/drop happens in the stock (which is very possible), then that would result in a -$12,500 projected loss (though it could be much worse – e.g., if a company gets bought out for a 50%+ stock price premium)

SPREAD TRADE: Sold 10 Contracts of the Nov 100/105 Bear Call Spread for 0.80 (since bought the $105 for 0.20 to hedge)

• Margin/Capital Required: $4,200 since received an $800 credit
• Total Potential Profit: $800
• Max % Return: +19.0%
• Max Risk: Let’s again say that an unexpected 30% pop/drop happens in the stock (which is very possible), then that would result in a -$4,200 loss (which is the max loss possible)

The spread trade is superior in every single way (except for one that I will discuss), which is why I don’t understand why people sell naked calls/puts. With a spread, the return on capital is much better, the margin impact is much lower, the overall risk profile is capped and quantifiable, and you have taken out that chance that something very quick and sharp happens and wipes you out.

Contrast a spread with naked options. I have seen many traders try these low reward/high risk naked strategies. They do well until the one day when the market goes haywire and they take a $50,000 loss. It’s almost impossible to recover from that kind of loss if their typical gains are $500-$1,500 per trade. A $50,000 loss could take years to get back to break-even.

So, the one difference that some traders like to point out to me is that the Bear Call Spread only delivers $800 in potential gains vs. the $1,000 in the Naked Call. However, I think that is a backwards way to look at things. Let’s say that a trader wanted a return of $1,000 on a short call strategy. In our example, that’s easy…simply do the spread for 12 contracts instead of 10 and the trade is still superior.

SUMMARY

I am sending this email out to give anyone trading low reward/high risk (short volatility) strategies a chance to reevaluate their risk parameters and to warn anyone thinking of employing these strategies of the risks. Just do yourself a favor and buy a cheap option for 0.05-0.25 to hedge any short option positions and quantify your max risk. Remember, smart traders want returns for a lifetime…not just until the floor drops. Being paranoid and prepared for worst case scenario is the best way to survive as a long-time trader.

There is a famous saying in the market, “There are old traders and bold traders. But, there are no old, bold traders.”

Thanks for reading my rant,

Robb Reinhold
CEO, Maverick Trading

End of Day Post

The markets posted another counter move to the previous day, looking to close out another range-bounded week. Even with today's move lower, we are not yet close enough to support levels to threaten a breakdown – even with another down move tomorrow. With the current market behavior and its inability to string together multiple days in the same direction, we must continue to play sideways moves.

Look to start taking advantage of earnings results. We could see some opportunities to play directional continuation post-announcement. Don't get too directionally aggressive, though. Instead, look to using shorter-term credit spreads (sideways to up/down), taking full advantage of support or resistance levels after a gap or strong directional move.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets turned lower today after a bump higher on Monday, continuing its choppy sideways action from last week. Earnings have been doing their part to keep these markets churning, but with mixed results so far. The Nasdaq continued to show the most resilience, both with earnings results and overall trend, but not enough to confirm bullish sentiment.

Nothing has really changed from last week. Sideways opportunities are still out there, along with some directional opportunities. Make sure to allow for larger swings as the market choppiness continues. Look to either use smaller position sizes or adjust levels to absorb the day-to-day volatility. Continue to keep an eye out for earnings dates.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets continued the same choppy pattern from last week, this time closing higher on the session. Each time the markets appear to be moving lower, we get a strong move from the bulls. This has been happening often into the closes, leaving long lower shadows and even closing positive for the day in some cases.

This week already appears to be more of the same. Monday's move lower looked to be a nice continuation of Friday's move lower and a test of support levels. Today, the markets opened higher and continued sideways through the close.

Today's action (and any further action) will most likely be caused by earnings results. We are seeing strength in some of the tech companies, which contributed to today's gap. Earnings should continue to play a role in these markets over the next week or so.

Although choppy, the markets haven't gone anywhere. Keep an eye out for upcoming earnings dates and results. Continue with a range-bound outlook until a major level is broken.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets pushed hard to the downside this morning, only to recover the majority of their losses throughout the day and into the close. All three of the major markets pushed below support levels today (which looked like a repeat of Tuesday's move lower), but support held.

This has been the strongest attempt at breaking support in a while, as the VIX spiked to 18 at one point during the session. Even though support held today and we did get a substantial recovery, volatility has been climbing all week. The markets could be trying to put in a bottom here. However, until the VIX starts to decline, we can expect support to continue to be threatened.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The bears made pushes lower today, as all three majors closed right around support levels. The INDU was the strongest of the three, down -1.1% on the session and closing just above 18,100 support. The S&P finished just below its support of 2,140, down -1.2% on the day. The Nasdaq also closed lower (down over -1.5%), but managed to settle on its 50-day MA.

Although the markets didn't close on their lows, the VIX did manage to touch 16.50 and close above 15. This level isn't a panic level by any means, but it does show more conviction than we have seen with bearish moves over the last couple weeks.

The markets are parked on support levels here and it wouldn't take much to push them lower. If the volatility can stay where it is or even a little higher, then we could see a little more downside.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

No ground was gained or lost today as all three majors closed flat on the session. Volume remained steady, but volatility continued to drop as bearish moves continued to fail into the close. Although the markets refused to close on their lows, no ground was gained to the upside as well.

The current market range is definitely tightening. We are now starting to see the formation of a symmetrical triangle in both the S&P and INDU. The Nasdaq is showing more of a bullish pattern (i.e., an ascending triangle).

There really isn't enough out there technically or economically to sway our market outlook just yet. Stick to your current agenda through the end of this week. We can then look to the upcoming earnings season to maybe stir some things up.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets have started this week off with two consecutive down days, but neither closed on the lows of the session. We are seeing some bearishness out there, but no conviction to the downside just yet. The volatility has also been weak, staying below 15 and closing below 14 over the last two sessions.

The markets have yet to test support levels and are still showing more of a sideways pattern than a bearish pattern. If support is tested, then we will be able to look closer at directional setups. Remember, the markets can bounce off of support as easily as it can break below it. Where the markets go from there will depend on the sentiment of the markets once it is tested.

Keep an eye on the VIX – without volatility, we shouldn't expect a move lower to last. We could see more sideways movement, so don't be too quick to abandon sideways positions just yet.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

All three majors closed lower today, although this time with a catalyst. Reports came in today of a few hedge funds pulling out of Deutsche Bank (DB), creating some concerns of Deutsche Bank's liquidity and capital holdings. Couple this with the current Wells Fargo (WFC) situation and we could start to see some bearish market reaction.

This news could continue to have an impact on the markets over the next few sessions. We could see additional selling tomorrow, but we need to remain focused on overall support levels. Make sure that we are truly breaking down before making any major changes to your portfolio. For tomorrow, enter bearish trades and/or close bullish trades if they are triggered only if the criteria are met in your trading plan.

Once this week is finished, we can then evaluate the markets for any new changes, along with changes to our own sentiment and outlook.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets have been showing some indecision since last week's Fed announcement. Although the Fed agreed that it would not make a change to interest rates, the markets can't seem to agree on a direction. Initially, the markets moved higher on both Wednesday and Thursday after the Fed announcement last week. Then, over the last two trading days (Friday and Monday), the markets gave back all of those gains.

Today's action was bullish, although all three majors seemed to plateau into the close. Since the Fed announcement, no major levels have been broken. It appears that the markets are unclear as to what their next moves will be.

Wait for confirmation before changing your outlook too drastically. Remain cautious, but don't be afraid to take opportunities as they present themselves.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The Fed announced yesterday that it would keep rates unchanged, sending the markets higher into yesterday's close. Buying continued today as the S&P and INDU are moving back into their upper ranges. The Nasdaq broke above its higher resistance and is now in new territory, closing at its record close of 5,339.

With the rate hike decision being diverted to a later date (yet again), we should expect more of the same. The shorter-term market sentiment should stay slightly bullish and range-bound, as we have seen over the last couple months. We now look to December for the next possible Fed move.

Nothing concrete has changed in the current markets. Continue to stay on track with your current outlook and take opportunities – both bullish and bearish – as they develop.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

Volatility remained steady, as the VIX hovered around the 15 level, but daily ranges have started to tighten up over the last few sessions. Last week did its best to recover a strong surge lower made on the previous Friday (September 9th). Overall, we are moving away from major support levels, but the markets are not gaining any upward momentum.

It is far too early to make any decisions on the current market action. We are seeing some reluctance from the markets in holding any gains, but it appears that support has held for now.

Not a lot to go on here...we will need to see consecutive days higher or lower until we can get some clarity to market sentiment.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets moved higher off of major support levels today, but tomorrow's results could have a strong impact on the overall market's sentiment moving forward. As discussed in Wednesday's Mid-Week Update, the ability to regain the majority of last Friday's losses would be key in keeping a bullish outlook moving forward.

Although we have broken below the upper channel support levels, the overall uptrend is still in play. Focus on September's monthly option expiration tomorrow and any changes needed to your exposure moving into October. We haven't yet seen anything in the technicals to call us to major restructuring actions, so take your time and continue to approach the markets "one day at a time."

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

Another volatile day in the markets yesterday (Tuesday) as they continued to show instability at the current levels. We have broken below the upper channel support levels and the 50-day MA, signaling an end to the current up trend. However, the markets are not down trending here, but still in a corrective action.

Continue to stay patient and follow your trading plan. If a stop is triggered, then close your position. Remember to follow your rules and try not to react to any one day. Anything can happen over the next few days, keep in mind September's expiration is Friday this week. We want to allow for our positions to give us the most they can up until expiration.

See you on today's (Wednesday's) Mid-Week Trading Room Update class!

Have a great day,

Your Maverick Trading Team

End of Day Post

Nothing new in the markets to report, as they continue to churn sideways. Economic reports were light this week, with only the wholesale inventories number left (due out tomorrow morning). Friday should be relatively uneventful – barring an unexpected event – and leave us with more of the same.

The sideways combos continue to be rewarded here. With about a week left to September's options expiration, we are still seeing some good opportunities out there.

Continue to focus on the shorter-term and take advantage of these sideways markets for now.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

All three majors moved higher coming out of the holiday weekend. The markets put in a decent reversal signal last Thursday, along with some follow through on Friday and today. This moves all three majors back up to resistance levels, with only three full trading days left to go this week.

We shouldn't expect much more than a revisit to resistance levels, unless we can find a strong catalyst to move the markets higher. Continue to lean towards a "cautious" approach, while taking advantage of this ranging movement and continued sideways trading.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets made another strong recovery into the close. Support levels are still holding this week, even after the bears made a few strong attempts to break them. We still have one more day before entering into the long U.S. holiday weekend, so the markets are not quite in the clear just yet.

We still aren’t seeing any major news events or changes to the economy, which should keep us moving sideways. Keep your sideways outlook intact for now and don’t add any unnecessary directional exposure going into the holiday weekend. With this type of market, the reward to risk just isn’t there.

Reminder: This weekend’s Trading Room will be on Monday, September 5th @ 9pm EST (we are moving back to our regular hours, so make note).

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets continued to hold at their current "basing" levels. We have seen some decent fluctuations over the last few days, but major support is still intact across all three majors. We should expect more of the same as the bulls and bears continue to test each other here. The longer the markets consolidate, the easier it will be to identify the next major catalyst, as we won't see a directional conviction without one.

Continue following sector strength/weakness and make sure to add a sideways element to both directions. Don't over-expose yourself here...the markets are not going to reward any "one" direction just yet.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets have moved lower over the last two days as they were looking to test support levels. The S&P closed just above its higher support of 2,170, with major support still lower (around 2,150-2,160). The INDU is also pulling back, now about halfway between its last support level and previous resistance. The Nasdaq is still in a high base, but has also seen some decent selling the last few days.

There is no confirmation to the downside here. It is important to remember that the markets will move back and forth between support and resistance levels. It can become increasingly dangerous to watch a sideways market, as predictive impulses urge us to make trades that haven't triggered yet.

Be aware of your trading...are you entering with confirmation or are you trying to predict the next move? Continue to stay on the short-term, sideways path for now.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets are starting to tighten their ranges, especially over the last few sessions. The high base patterns in both the S&P and INDU haven't moved too far off the mark in the last few weeks. The S&P is consolidating just above its previous resistance levels, while the INDU is forming a base just below its resistance.

The markets could be building strength here, although finding a catalyst strong enough to move them outside of their ranges has proven difficult. There are plenty of things that "could" create a market move. However, we haven't seen anything to shake these markets yet. There is always the next interest rate policy...and the next...and the next.

It is probably best to keep a sideways and short-term outlook until we see some real movement.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets moved lower early on in today's session, but recovered nicely into the close. All three majors posted gains today following a strong turn-around yesterday. We have seen some decent intra-day selling all week, but the markets seem to recover each day.

No major market levels have been broken – or really even tested – in the last couple of weeks. The markets continue to be complacent and moving sideways. However, there are still some great trading opportunities out there sideways to slightly bullish.

Tomorrow is August monthly options expiration. Don't forget to make the necessary adjustments to your portfolio. Be sure to follow your trading plan and stick with your outlook.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets gave back a bit today after testing highs yesterday. All three majors came out of the gates strong on Monday morning, breaking and setting new highs, but none of them could closed on those highs. Today was a different story, as all three majors opened lower and closed on the lows of the session.

The Fed could have been a factor in today's move as officials made some hawkish comments on rising oil futures and a weakening dollar. We will hear more specifics tomorrow in the FOMC minutes scheduled for release at 2 pm ET.

We could see some more selling and the markets can absorb a few days lower here, so try not to make too many adjustments to your positions. We are closing in on another monthly option expiration date this Friday. The last few days before expiration can make or break many combo trades, so stick to your plan.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets posted another flat close as all three majors appear more than comfortable at these levels. Staying patient and taking advantage of sideways strategies (e.g., butterflies, etc.) has really paid off in the latter part of the summer. We shouldn't expect much more than the same until after the next FOMC announcement.

Earnings season should be winding down over the next week or so, but make sure that you double check with any new opportunities just in case. Making new trades based on earnings results (and any continuation in bias) can be advantageous over the next couple of weeks. Make note of the sectors and stocks that are either outperforming or underperforming – and look to take advantage, if possible.

Continue to use the power of sideways strategies and make sure to incorporate it into any directional trades as well.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets managed to regain some of Tuesday's losses yesterday, but today's move didn't give any upward follow-through. We still have one day left in the week, along with the Nonfarm Payrolls report, which could send the markets in either direction. The market is expecting a drop from the previous number, down to 185k.

Volatility continues to low base here, along with the S&P. We aren't seeing these levels tested just yet, but tomorrow's Nonfarm Payrolls numbers could be a good catalyst to the upside. If the numbers come "in line" with expectations, then we could see movement to the downside, with uncertainty to the Fed's reaction of the numbers come September. Regardless of result, we will need to see how the market reacts and what is triggered.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

All three majors closed down today. While INDU recovered from earlier losses in the day, it couldn't break its six-day losing streak and closed lower for the seventh day in a row, losing another -0.5% today. The S&P broke the 2,160 support level to close at 2,157, with over a -0.6% loss for the day and is now sitting right on its 20-day SMA. The Nasdaq was biggest loser on the day, giving up -0.9%, thus ending a multi-day uptrend.

Volatility picked up a bit as the VIX poked its head above near- and long-term resistance levels, closing at the highest level it has been in over two weeks. While we are seeing a controlled pullback in the markets, many eyes are on this Friday’s employment report (i.e., nonfarm payrolls).

Earnings season continues this week. Roughly two-thirds of the companies in the S&P 500 have reported as of last Friday. So far, 57% have reported Q2 2016 sales above the mean estimate and 71% have reported Q2 2016 earnings above the mean estimate.

See you on tomorrow’s Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

Interest rates remained the same after the FOMC announcement yesterday. The Fed referred to a possible rate hike in September if near-term risk continues to diminish. There was little to no reaction to this announcement since no change to policy was expected by the markets.

We continued to build a high base pattern in both the INDU and S&P. The Nasdaq has been enjoying a good round of earnings results – with AAPL, FB and AMZN all moving higher, to name a few.

Stay patient here...the markets will move when they are ready. Continue to take advantage of short-term, sideways price action.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The S&P and INDU closed flat on the session, regaining the majority of today's earlier losses. The Nasdaq posted a small gain today, which was enough to let it close above 5,100. Overall, we are still seeing a base form in the markets as directional opportunities are becoming scarce.

Technically, all three major markets are showing signs of basing, but in three very different ways. The S&P is creating a high base, but the INDU is forming more of a small pullback. The Nasdaq looks to still have a little bullish momentum (most likely driven by earnings) and continues to float higher.

Earnings have been mixed so far. We will see some of the bigger companies over the next week or so, starting with AAPL tonight. So far, the markets have absorbed both good and bad news, but that could change as more and more companies report. The FOMC announcement on Wednesday could shake things up; however, the markets are expecting no change in policy to be made.

Shorter-term sideways to bullish is still the play here. The more the markets base, the stronger the move out should be. Keep an eye on earnings results.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

Trading vs. Investing

Trading vs. Investing

From Our July 2016 E-mail Archives: Our Head Trader, Robb, replied to an e-mail from one of Maverick's traders who asked Robb for his thoughts on a trade idea.*

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

From: Brian R.
Subject: Re: Market Foundations - Check

Hello Robb,

I just wanted to check in and get your thoughts on a trade idea. My wife and I went to Cabo for 10 days the week y'all went to Vegas for the annual Maverick Summit, then ended up moving mid-June. Our new home required some renovations, which has distracted me from my training a bit, but I am back progressing through my simulator trades and am about halfway through Maverick's training on range-bound patterns.

At work, we are looking at converting some of our platforms to SAP. Not sure if you're familiar with them, but I thought I would check out their stock as I know they have systems globally. Turns out they may be a decent candidate for some range-bound strategies.

Obviously, I'm not through the options training yet, so I have not looked that deep into them, but the chart pattern looks interesting to me. Volume might be a bit light for your taste from what I am learning from your videos, but thought I would send it your way to get your thoughts. Is this the kind of pattern I am looking for?

Thanks for all you guys are doing at Maverick, Robb. I wish I'd found you about 3 years ago.

No rush, my friend.
Brian

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

Hi Brian,

Thanks for the extra time. We just got back from Cabo as well and had a great time down there. Now, back to business...Haha.

I think SAP looks great on a chart as you have a nice break-out last week (off what I assume was an earnings report) with nice, bullish volume.

Whenever I see a break-out where the stock spent a lot of energy to break out (about a 13-14% move over the last 2 weeks), I typically see some consolidation above the break-out point ($82) to give the stock a chance to catch its breath and build energy for another move.

So, my stock outlook for the next few weeks would be a 0 (neutral) and my outlook for the next few months would be a +1 to +2 (mildly to moderately bullish). This is the setup that I like to use a Diagonal Call Spread on since I get to sell an August 85.00 short-term call for $1.30 and buy either the September 80.00 or 82.50 (I would probably choose the 82.50, which is trading for $3.60). Overall, the total net debit (and risk) of the trade would be $2.30.

Here are few of the possible outcomes:

• If the stock takes off and goes higher over the next few weeks, then you would probably have about a $0.90-$1.00 profit – or a 30% return for 4 weeks.

•  If the trade goes sideways on the August expiration, then the 85.00 will expire, you will keep the $1.30 and you will get to make a decision on the September 82.50 whether to hold or sell. My rule is that if I still like the trade and would enter it on that option expiration, then I keep the long call. If not, then I close the entire position for a small gain/break-even.

• The perfect scenario would be to close just below $85 on August expiration and then take off to $90+ after that, giving us both a profit on the Short Call (August 85.00) and the Long Call (September 82.50).

• The worst case scenario would be a loss of $2.30.

Now, that was my trading answer, but many of the points you made were investment questions. In Maverick Trading’s “Market Foundations” course, we talk about trading vs. investing and how people try to blend the two together and get some negative results.
I say that if you are trading, then everything is simply a ticker symbol and a price. What the company does – earnings, management, etc. – doesn’t matter AT ALL. In trading, the only thing that matters is trend and price.

Investing has everything to do about those things – earnings, management, etc. – and, in the end, has not as much to do about price, although you do want to use some measures to make sure you aren’t overpaying for assets. If you are looking at SAP as an investment, then you need to look out in the future to economic cycles, technology cycles and earnings/revenue growth. SAP has grown its revenues nicely over the past five years. However, as you can see, the earnings have been flat for the most part.

This tells me that the company is growing, but is investing much of the profits back into the business, which is quite bullish overall. I did make sure that there wasn’t an unusually high dividend since sometimes when you see this revenue growth with no earnings growth, it’s because they are either paying it all out to shareholders or buying back company stock. In this case, SAP has a 1.5% dividend and share count has been steady. So, overall, the fundamentals of the company are quite bullish and SAP saw revenue growth of +15%, which is generally very bullish.

The last thing in fundamentals is to make sure that you aren’t paying too much as far as price-to-earnings (P/E). SAP’s Trailing P/E is 25 and Forward P/E is 17, which are both likely in the normal ranges for a technology company growing at +10%. Thus, you could make the case fundamentally that the stock is “cheap” compared to historical valuations. However, as we teach in Market Foundations, what SAP does over the next 1-10 years is going to be determined by what the markets overall do over that period. If we have a bear market or two in the next five years, then we would expect that SAP will either go lower or flat. If we have a bullish economy, then SAP is looking like a stock that will do well in that environment.

Sorry for the long response, but you hit a sensitive spot since we at Maverick Trading don’t like to blend trading and investing like they do on CNBC, Fast Money, etc. “Trading” is trying to make money off a stock’s movement only. “Investing” is making money by buying a piece of the pie (shares) and having the entire pie get bigger (thus, making some money on it). Treat "Trading" and "Investing" as entirely different animals and you will do better in your trading and also better in your investments.

Thanks,
Robb


* NOTE: Some original wording may have been modified for legibility and/or clarification.

End of Day Post

The markets closed lower today, retracing all of yesterday's gains, but still remain positive for the week. We could see some more corrective action tomorrow, which would be welcome since it would open up more directional opportunity in the short term.

Don't be afraid to stick with sideways plays. Allow for enough room for small corrective action if you are going further out in time. Directional opportunities will come once we see a corrective action, so continue to stay patient and follow sentiment.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets appear to be stalling out at their current levels, but we have yet to see any selling. It is still early in the week, so we could see bearish momentum pick up. However, without a move lower, we probably won't see an increase in selling.

The VIX has dropped into lows not seen since August of last year, making it difficult to confirm a top. We are extended in the market charts, but sentiment remains bullish. There is not much to go on yet as we wait to see what tomorrow brings.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The bullish march continued today with yet another close to the upside. This bullish surge appears to be a little overextended on a technical level, but trying to guess a top can get a trader into some trouble. Yesterday's doji candle could have been a possible turning point for a corrective move, but it appears that the bulls had a little left in them.

We are moving into July's monthly option expiration tomorrow, so we should expect a little volatility in the morning. There is little to do with the markets at these current levels, so spend the majority of tomorrow addressing any of your open July positions.

Once this week comes to a close, we will need to take a good look at the overall market pattern. If a correction starts, then we will look to identify opportunities once a support level is found – basically, look for bullish setups during a market pull back. If the markets continue higher, then we can still take advantage of some short-term, sideways strategies.

Keep an eye out for earnings dates with any new trade setups and existing trades as we enter into this quarter's earnings season.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets continued to move higher today, displaying some bullish confidence. All three majors pushed above resistance levels and into new highs for the year. The Brexit looked to do little except fuel a bullish surge in the U.S. markets.

Volatility is back down to levels not seen since August of last year. Complacency and bullish sentiment is indeed in control here. The next question is, "When will the markets take some profits?" Even a healthy bullish move needs a pullback. However, the worst thing that you can do is to guess when it will happen.

We are coming into earnings season and July monthly options expiration is this week, so we do have some things that could slow this move down here. Keep these events in mind, but don't take action until it needs to be taken. Don't get too aggressive to the bear side if we see a bull pullback over the next week or so.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

It appears the markets are not quite sure what to do at their current levels, showing hesitation once again today. This is a shortened holiday week, and maybe the markets are still a little tired from last week's rally, but we aren't seeing much conviction in either direction.

This is a stable area for the markets, in reference to the technicals, as long as they can hold above current support levels. During the Mid-Week Update class, we discussed the possibility of increasing sideways movement as we move deeper into the summer. There are great opportunities out there and they don't always have to be directional. Keep this in mind over the next couple of weeks...who knows how long the markets could consolidate for?

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets gave back a little today as they come out of the extended holiday weekend. Today's move wasn't as volatile as we had seen last week, but volume was still decent. It is too early to tell where we go from here, although we should expect some hesitation or even a small correction after last week's huge up move.

Stay focused on price action remaining above support levels and MA's. If the markets can absorb a small pullback or stay above these levels, then we could see another move toward the highs.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets are seeming to say, "Brexit? What Brexit?" this week. All three majors have recovered most of their losses since last week's surprise Brexit "Leave" announcement.

For the third day in a row, all three majors were positive, each closing up over +1.3% today. The S&P 500 and Dow both broke through their 50-day SMAs, while the Nasdaq just inched above both its 50- and 200-day SMAs. Interestingly, the last three days' gains have all come on decreasing volume.

The second quarter of 2016 ended at the close of market today. While the both the Dow and the S&P 500 are up slightly in 2016 (around +2.7%), the Nasdaq is down over -3% year-to-date.

With only one day left before the U.S. holiday weekend, we do not expect much volume in the markets tomorrow but we could see some volatility. Attend to any weekly options positions that expire tomorrow and keep an eye on where we close out the week.

Don't forget, we are skipping the Trading Room this weekend due to the holiday.

Have a great holiday, everyone!

Your Maverick Trading Team

End of Day Post

The markets made a strong move higher today, as all three majors closed on the highs of the session. Bounces are usually expected after moves like we have seen over the last couple of days. However, when it's associated with good volume and a drop in the VIX, it could be something more.

Today left us with a marubozu candle formation. Today's candle formation also includes a small gap to the upside, about 1/4 the way up yesterday's candlesticks on both the S&P and INDU. We should see some continuation from this pattern at least part of the day tomorrow, as the markets will now test previous support as resistance.

Outside of the Brexit's impact on the U.S. markets, the U.S. economy continues to stay stable. We don't want to guess a bottom in these markets, but if they can get back above major support levels, then we could see some buying opportunity later this week.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets moved higher today, as early polls out of the U.K. are leaning towards remaining part of the European Union. The Brexit decision is on deck and it looks like it was the main driver of the U.S. session today. These are not final numbers and the polls are still open, but optimism was definitely in full force today. All three majors advanced more than +1.25% today, with the Nasdaq posting the largest gain (+1.59%).

Once the Brexit polls are closed and the votes tallied, we should see an announcement. The problem is that the announcement will be released while the U.S. markets are closed. Regardless of today's optimism, nothing is for certain. We should see some decent volatility tomorrow regardless of the outcome, especially in the first couple hours of U.S. trading.

Keep an eye on option spreads, specifically the ones that you own or are looking to enter. These spreads are a good indicator of how much volatility is currently active in the markets. Wait for things to calm down – and the spreads to tighten back up – before trying to make trades in these markets.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets hesitated today, but did manage to squeak out a small gain, after giving up the majority of Monday's bull move. We saw the formation of a bullish hammer candle late last week, but yesterday's move couldn't sustain its gains, as it closed well below the highs of the session.

The S&P is currently sitting between its last support and resistance levels, and we could see another day of this. The market could be waiting on the results of the Brexit vote (scheduled for this Thursday) before it makes its next move. Waiting for the final tally before entering trades could prove useful...it never hurts to wait another day.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

Butterflies, Brexit and Basketball

From Our June 2016 E-mail Archives: Our Head Trader, Robb, replied to an e-mail from one of Maverick's traders who had a question about a possible Butterfly trade in Silver Wheaton (SLW).*


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

From: Christie H.
Subject: Regarding Possible Trade in SLW
Date: June 20, 2016

Good Morning Robb and Corey:

I was wondering...what do you think about SLW...a Call Butterfly, strikes either 20.5/21.5/22.5 or 20/21/22 that expires THIS FRIDAY??

I am questioning it a little because it gapped down just a little bit and it had a gap up on June 8, so it kind of looks like a small island gap, but not sure?

Thank you,
Christie


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

Hi Christie,

A Butterfly (and Condor) are not necessarily sideways trades, but are really long/short volatility plays.

The best way that I can illustrate this is to use a sports betting analogy. In sports, there is an over/under points bet that is very popular. For example, for last night’s NBA Finals game, the over/under bet was 208 points total for the two teams. Of course, everyone knows that both teams are going to score points. The question that the bid/ask bet asks is, "How many points are they going to score together?"

In trading, everyone knows that Silver Wheaton (SLW) is going to move around, but the important question is, "How much is SLW going to move?"

• When you go long a straddle or strangle, you are essentially betting the over that volatility (the "score") will be higher than expected – since volatility expectations (i.e., Implied Volatility) are built into option prices.
• When you chose a butterfly, condor or short straddle, you are basically betting the under that volatility (the "score") will be lower than market expectations.

 As you can see, SLW option prices already have a built-in expectation of volatility this week. If the volatility (price movement from today’s price) is less than expected, then your proposed Butterfly will be profitable. If volatility is greater than expected, then the Butterfly will not be profitable.

With your proposed SLW Butterfly (basically, a play on precious metals), the question is, "Will the movement of SLW be lower than market expectations this week?"

If you were to compare last week’s options against this week’s options, then you would see a big difference in values – since the Brexit vote this Thursday is expected to create huge volatility in all asset classes, including precious metals. So, the play that you are making (the SLW Butterfly) is a bet on the markets not moving as much as expected this week with the Brexit vote.

The Butterfly that you are looking at is a very reasonable trade to make since there is a defined amount of small risk and a good reward/risk potential outcome. As long as you are position-sized correctly, then the trade is fine. Of course, the choice of whether to take the trade or not is, as always, yours alone to make.

Thanks,
Robb

* NOTE: Some original wording may have been modified for legibility and/or clarification

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