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.