The Warlock’s First 2022 Rule to Trade By
Hey there, VWAPians!
In the words of the immortal Britney Spears:
Oops, I did it again.
On Monday, I had one of the BEST trading days of my life, thanks to VWAP.
I profited from an earnings reversal, thanks to VWAP.
My day was over before the market even opened, thanks to VWAP.
Here’s the thing that’s been sticking in my craw after all of this: I want to TEACH you how to do this, too.
And while I start EVERY DAY on Money Morning LIVE from 8:30 to 9:30 a.m. ET RIGHT HERE, it just isn’t enough time to fully prep VWAPians for all the earnings goodness!
That’s why I CAN’T WAIT for the EXCLUSIVE earnings sessions for LIFETIME members of my Warlock’s World, which start THIS WEEK!
Earnings season kicks off with the big banks on Friday, so from 3:30 to 4:3.0 p.m. ET on Thursday, Jan. 13, I’ll be heading back behind the secret double curtains to the LIFETIME room, to prep LIFETIME members of my Warlock’s World on EXACTLY what to expect!
And I’m not coming alone.
I’ll be joined by Money Morning LIVE’s Garrett Baldwin for our first LIFETIME Warlock’s World earnings session!
We’ll dissect the charts, discuss possible outcomes and significant price levels to watch the next day, poke fun at Mark Sebastian, and make sure all the VWAPians are ready for when the banks report earnings on Friday morning.
Speaking of Friday morning, at 8 a.m. ET – BEFORE my Money Morning LIVE appearance – I’ll be hosting my FIRST EVER pre-market earnings session for LIFETIME Warlock’s World members!
That way I’ll be able to guide my traders after the stocks have reported earnings, giving them up-to-the minute levels to watch and IF/THEN statements for the opening bell.
So make sure you’re a LIFETIME member of Warlock’s World and put the coffee on. The kick-off to earnings season is gonna be a doozy!
In fact, one name on Monday demonstrated exactly why I’m so pumped for earnings season…
We’ll review some core lessons from that trade today, and I’ll also discuss some of my 2022 Rules to Trade By.
Why am I pumped for earnings season?
Because stocks reporting earnings provide some of the most consistent, most profitable opportunities for VWAP trades!
We recently slammed a 1-minute Multiday VWAP reversal on Bed Bath and Beyond (BBBY) after the company reported earnings.
Yesterday, we did it AGAIN – this time on weed stock Tilray (TLRY).
TLRY was trading above the 1-minute VWAP in pre-market trading, and at about 8 a.m. ET, appeared to chop around just below $7, after having previously broken this level.
When TLRY broke south of the consolidation area, I bought in around the $6.97 level — the lower red line on my chart.
I drew another red line at the then high of the day, just below $7.10. That was my first price target, with my next being $7.50 — you know, half numbers, whole numbers, and never exiting my entire position at one price…
Look what happened next.
TLRY reported earnings before the open on Jan. 10
I can’t make this stuff up.
VWAP is SO consistent.
You know what else is consistent? ME.
That’s why in addition my Knowledge Bombs™, I wanted to start giving YOU my 2022 Warlock’s Rules to Trade By.
For my first (of many) rules to trade by this year, I want to start with Market Order Options.
As a nimble day trader, I prefer to buy and short stocks outright. But that doesn’t mean that I don’t trade options.
For a smaller account, options trading can be a great way to get into higher-priced stocks that might be unaffordable to trade otherwise.
And while options can provide extra gusto to the upside, they can also give that same risk exposure to the downside.
There’s a lot of factors to consider when it comes to options trading, and I want to make sure all the VWApians understand what they’re getting into.
Outside of not wanting to pay for time value I don’t need, the reason I often choose stocks over options, is that generally, the stock has more play; there’s a tighter spread.
The bid/ask spread on options can be up to five times the spread for stock!
The “bid” refers to the highest price a buyer will pay to buy a specified number of shares of stock or options at any given time.
The “ask” is the lowest price someone is willing to sell a share or option.
The difference between these two numbers is called the “bid/ask spread.”
As VWAPians, we’re trading stocks that have high VOLUME. High volume tends to bring high LIQUIDITY, which makes it easier for quick, nimble trades.
When a stock has low liquidity, the bid/ask spread will be pretty wide.
However, even when stocks have volume, the bid/ask spread for options can still be pretty wide.
I’m not saying you shouldn’t trade options. I’m more concerned with HOW you’re trading options. Specifically, how you’re buying them.
There are two different types of buy orders for stocks and options: market and limit.
A market order is an order to buy or sell a stock or option IMMEDIATELY at the current price.
A limit order is an order to buy or sell a stock or option at or below a SPECIFIC price.
It helps to take a look at a real-world example. On Tuesday, I just so happened to be looking at TLRY option pricing.
TLRY option chain on Jan. 10
But, Kenny, it says FAZ in the top left corner. Does that mean this is the option chain for FAZ?
No, Blanche. I know it could be confusing, but this is the option chain for TLRY.
For this option chain, calls are listed on the left, puts are listed on the right, with the strike price in the middle.
Let’s take, for example, the $7 call option from the chain expiring Jan. 14. It had a “bid” of $0.53, an “ask” of $0.57, and under “last” it said $0.55.
That’s saying that the most someone is willing to pay to buy that TLRY $7 call was $0.53; the lowest price someone else was willing to sell that same option was $0.57; and the last option was traded at $0.55.
There’s a $0.04 difference between the bid and ask. That difference is the “bid/ask spread”.
Say I wanted to buy that option. If I put in a market order, it would get filled at ANY price. The last filled price was $0.55, so I might get filled at that price.
If my market order was filled at $0.55, I’ve already paid $0.02 more than the “bid”. That means I just overpaid for that option by $0.02.
That may not seem like a big deal, but over 10 contracts, that’s $0.20. Over 100 contracts, that’s $2.00, or $200 (since each option controls 100 shares of the underlying stock)!
Market orders for options are virtual permission slips for market makers to ROB YOU.
I don’t want to see VWAPians giving away their money on the spread created by option market orders.
So The Warlock’s FIRST 2022 Rule to Trade by is…
During this course, I’ll be answering YOUR questions to make sure you’re ready for VWAP trading success.
I’ll really be bringing things back to VWAP basics, covering such topics as: proper charting techniques, defining entry and exit points, order types and how to send them with your broker, and MUCH MORE.
Since it’s Saturday and the markets are closed, I won’t be distracted with what’s going on with the Qs or stalking VWAP trade opportunities.
It’ll be just ME and YOU.
So make sure you sign up for this FIRST EVER weekend training course with ME – be on the
lookout for more info soon!!
That’s all for now, VWAPians!
Kenny “The Warlock” Glick
January 11 2022
Leave a Reply