Hello there, VWAPians!
Welcome to FRIDAY!
How about that selloff yesterday?
This is why I DON’T own stocks.
The market is falling, buy-and-holders are going NUTS, dogs and cats living together.
And here we are as VWAPians – LIQUID AND LOVING IT.
Liquid and loving it.
THIS is why you need to join my Warlock’s World.
The weekend is almost here, and you know what that means…OPTIONS.
I know a LOT of VWAPians are interested in options…especially when I talk about the kind of option trades I’ve made on stocks like Robinhood Markets (HOOD).
I’ll get to that in a moment, but first I wanted to go over our bananas schedule for today.
Of course, as usual, you’ll be able to catch me in my Warlock’s World from 9:15 to 11 a.m. ET.
Then, making a special appearance in the BIG ROOM is my mellow, my man, 8-Baller!
The myth, the legend known as the Fractal Assassin or Algo8, 8-Baller will be bringing the Daily Decode to the main stage to show folks EXACTLY what they’re missing by not joining the Warlock’s World community.
And then, because YOU’VE asked for it and I DELIVER for my people, my coder SOLIDJELLO will be stepping into Warlock’s World with another unique session!
Solid is the man responsible for the mega useful mutliday VWAP code, and on Wednesday, he guided Warlock’s World members through setting up their own unique watchlists and scanners.
Solid will be going LIVE from 12 to 1 p.m. ET, and I can’t WAIT to see what other goodies he’ll deliver.
These are the types of perks and benefits you can ONLY get as Warlock’s World members.
So what are you waiting for, Blanche! Come join the party!
If you haven’t YET, that’s alright. I won’t hold it against you…MAYBE.
But you’re missing out!
If you know me, you know that I prefer to trade stocks over options.
Stocks tend to be more liquid and a smaller bid/ask spread that options do.
For a nimble daytrader such as myself, liquidity is everything.
That’s why I’m always looking for stocks with VOLUME. Liquidity tends to be high and I can enter and exit trades quickly.
Now with that being said, that doesn’t mean that I don’t trade options.
There’s a lot of factors that go into option pricing.
The price of the stock, the time left until expiration, volatility…there’s too much to go over here.
Might be a good topic for a Saturday class in the near future….HINT HINT.
So when I do trade options, I go with at or in-the-money options with the nearest expiration date.
As a day trader, I’m not planning to hold these options for more than a few hours AT MOST.
That’s why I prefer to trade options with the closest expiration – I don’t need to pay for the extra time value.
I like to trade at- or in-the-money options because these options tend to move in price like the stock itself.
For example, yesterday, before the market TANKED, we traded Invesco QQQ Trust (QQQ).
QQQ broked VWAP on February 9.
On this chart, QQQ broke VWAP at $361.15.
If I’m trading stock, I can just buy shares on the VWAP break, and sell into the move on the way up.
But if I’m trading options, I have my choice of strike prices.
The way that I personally trade options, I would have bought the $361 call with the closest expiration. QQQ options expire Monday, Wednesday, and Friday, so since this was on Thursday, I would have been trading the Friday options.
Chart of the QQQ $361 call.
The chart is a little bit different than the QQQ chart because option prices adjust to aftermarket and premarket price action once the market opens.
Let’s say I bought these options shortly after the market opened and I was able to get them at $3 per contract, or $300 each.
Considering that I sell into the move, I probably would have sold out of these options at $4, $5, and $6 per contract. That’s a nice trade.
Now let’s say that I wanted to save a little bit of money, so I bought the $363 calls, because they didn’t cost as much.
Chart of the QQQ $363 call.
Let’s say I bought these options shortly after the market opened and I was able to get them at $2 per contract, or $200 each.
I probably would have taken some off at $3, $3.50, and $4 per contract. Obviously not as much as the $361 call because they aren’t as deep in the money.
These options still had a nice move because QQQ had moved well past the $363 strike price by this time.
But here’s the thing – let’s say I bought the $365 or $366 calls and QQQ only rose to $362 before fizzling out.
Those options, while cheaper because they are further out of the money, wouldn’t have had a similar increase in value like the $361 or even the $363 calls in this scenario.
That’s why I buy at- or in-the-money options. Because they move in price MOST like the stock.
Now, as to WHY I like to trade options on Friday’s.
Since I don’t like paying extra for time value of options and Friday is the weekly option expiration date, the time value of options on Friday is largely nonexistent.
That means options can be had for the CHEAP. This can lead to MONSTER returns if a stock reverses.
With these options, I’m NOT just buying them and hoping and praying for the stock to reverse.
All the principles of VWAP trading still apply. Right side of VWAP, right side of life.
And late on Friday is when I like to shoot for the moon with lotto plays.
Lotto plays are exactly like buying a lottery ticket – all or nothing.
These trades have the potential to pay 5 to 10 times your money, but also you could lose it all.
I usually take a few of these trades for fun after I’ve locked in profits by trading VWAP earlier in the day.
I know that that might not be EVERYTHING that you VWAPians are eager to learn about options and option trading.
So keep your eye on your email and your butts in the seats because I’m SURE that there is going to be an opportunity for some extended options trading REALLY, REALLY soon.
That’s all for now, VWAPians!
Kenny “The Warlock” Glick
February 11 2022