Patient Day Trader Follow Up

The past 2 days I have analyzed some day trades for profit in my blog. I specifically looked at trading JP Morgan call and put options. I have used Charles Schwab for trading in the past couple of years, but am transitioning to E-Trade as they have more powerful tools to use. E-Trade allows you to actually view the charts on the specific options. Obviously you can not trade options based on stocks without having an idea of the stock movement and direction or you would not know if you should buy a call or a put option.

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Initial movement on Wednesday was to the upside. I did not like this trade because there was no retest before just shooting higher. If you timed it perfectly, you could have bought the 109 calls for .7 and you had better have sold them for just under 1.00 or this trade would have been an ugly loser quickly and would not have broken even.

If you were the patient investor, you could have waited for a great opportunity with better signs in the afternoon when JP Morgan peaked around 109.30 and you could have had a nicer chart of the option to base your trade.

Now when you look at the chart of the 109 put on JP Morgan, it was at it's lowest point at the morning peak. What was really interesting is the value was the same later that afternoon although the stock was lower than the morning peak.

As I mentioned in yesterday's blog, the Pivot Point on the graph designated 108.65 as the proper exit point. That was where the put was it's highest value in the afternoon of .70 which is a nice profit from .4.

Thursday was similar to Wednesday. There was morning move up followed by a sharp move downward. From the bottom, it moved up, but not to the level it was at in the morning spike. I gave much more detailed writing on this chart of the 109 put option on JP Morgan.

Friday was a little scary, but you could have made bigger money if you were working with options that expired that day as long as you stay at the money on purchase at time of purchase. 

• JP Morgan opened at 111 and spiked up to 12.56 approximately. At that time the 112 put options that expired 6/28/19 were worth .16 to .19. If you were to buy them there, you could have held them for it to come down to where it started at 110.97 and sold them for 1.05. 
• After bouncing from 111, JP Morgan ran back up and peaked at 112.22. At that point, those put options were trading for .18 again. I bought 13 just under .22. 
• JP Morgan moved down slowly, jig sawing from 111.90 to 111.75. At that time I received a call from Charles Schwab Derivative desk telling me that I better sell them or they will be forced to by 3:30PM. 
• I was thinking I should be able to sell them for at least .60 and triple my money. I got nervous and didn't want to sell for a loss. I placed my limit sell for .38 and .40. It just appeared that it would not go down further. I lowered my limit to .35 and it was still teetering between 111.72 and 111.88. I lowered my limit to .32 and it got sold pretty quickly. 
• After that JP Morgan dropped quicker. I saw those put options were worth .4, then .5, then .6 and finally .85 when JP Morgan reached 111.12. At this point, around 3:30pm, JP Morgan shot straight up for the rest of the afternoon. Those put options were worth .2 by the end of the day. 

That whole process was a little nerve racking, but I felt like I did fine. I might not

have felt as pressured if I didn't receive the call from Schwab telling me to sell the options before they do it for me. I could have made decent money if I were using options expiring next Friday, July 5, 2019 as shown in the chart to the right with 112 put options.

The next chart shows what the price movement would have been like if you were to buy 111 put options expiring July 5, 2019. The profit was not as big trading these that were just a little out of the money and were never in the money during Friday's trading session. This offers nice reference that buying out of the money options even with a week until expiration if not as profitable as at the money with this price movement. 

I hope you found this blog interesting and informative. This information is based on what I saw and I like to reflect in hope of perfecting my entry and exit points throughout the day for making profits buying and selling options. They key is that you can expect to buy at the same low price or lower, but you may not get a higher price to sell when it is exit time. 

I like to describe stock movement as a rubber band. If you stretched out a rubber band and plucked it from one end, the waves would be larger near the pluck, but in time smooth out to come back to a neutral position.

Patience Leads to Profit When Day Trading

Money can be made on the market going up and down daily especially with options. There were sharp movements today with Boeing, JP Morgan and Home Depot. I tend to stick with these few stocks because they have decent daily movement and you can profit nicely with as little as $500.

Boeing

Boeing had more news over night as the FAA found another problem that needed to be addressed with their max airplane before being allowed to fly again. The stock moved sharply down almost 10 points from Wednesday's close. It popped at open, went down, came up a little and retested that low before rising up for most of the day. It had a sharp move up around noon as shown in a 1 minute chart.

What I have noticed it that when it has a sharp move up, it make get another move higher, but will have a sharp move downward by the end of the day. That is exactly what happened at 3:45pm when it was announced that Southwest Airlines is canceling their order of the max jet. This is too late in the day to expect to happen, but it has shown to happen multiple times in the past month. You could look at Wednesday's chart when it was moving up and then sold off in the afternoon. If only you held those afternoon puts until Thursday. But we don't do that when day trading options because it could have easily had good news that moved it up to 390 similar to what happened with the banks today. I drew up some notes on a chart for you to study.

JP Morgan

Today's movement with JP Morgan was similar to yesterday, but quite different in the pattern. To start the day, JP Morgan opened higher than yesterday's close. There might have been a moment near open when you could have bought calls, but I don't like it because there was no guarantee that it wasn't going lower as a retest. It ran straight up, topped and sharply moved downward. The move offered no retest of the peak and no retest of the lower areas as it moved sharply up from the bottom. I did not trade these movements because they did not show good entry points for day trades.

The afternoon high was not as high as the morning, but it did show that it was peaking around 109.30 as it moved downward before coming back to that area. When it was at 109.24 I bought 109 puts at an average cost of .43. I went to the bathroom while monitoring the stock on my phone and saw it went slightly higher for the second peak at 109.36. Unlike yesterday, I did not lose 10 cents an option this time. This was true mainly because I bought 109 puts that were closer to being in the money compared to yesterday when I bought 108 puts that were still 50 cents out of the money in the afternoon.

I was not worried because every time JP Morgan touched 109.36, it went down quickly and did not hold that price. After the second time, the stock started falling. I bought 3 more when it was at 109.31 at .41. I was hoping to be able to sell these options for .8 or .9, but realizing that they expire tomorrow, I knew the premium was going to decrease based on the less time to expiration. I decided to target my exit based on the morning drop and utilizing the Pivot Point of 108.65 from my trading software that displayed the Pivot Point.

Sure enough, JP Morgan made it to the Pivot Point of 108.65 which was slightly higher than the morning low. At this point my put options appeared to have topped out at .70. I placed my limit order for .75 and lowered to .72, but the stock appeared to make a reversal, so I finally got it sold for .69 which created a profit of $320 on my 13 contracts.

That might have been a good point to buy calls for the next day if I did not mind holding options over night. But that is not what I do. JP Morgan moved sharply to 108.90 before closing around 108.80 and those options would have been worth around .60. After the close, the Federal Reserve announce the results of their stress test and JP Morgan along with all of the other US banks moved upwards big time. JP Morgan moved almost 2 points higher. They also announce dividends and stock buy backs.

Friday Expectations

As we enter the weekend of the G20 summit and escalation of trade meetings, the market should open higher on optimism and on the back of the great bank news. It would be awesome if the market would close on the highs of the day, but given that it is also that last day of the quarter, we might see an afternoon sell off that drops us just above the flat line. We might not have a sell off, but just because Alphabet is near it's low point for the week doesn't mean it will automatically head higher and stay there. Buying expiring options is dangerous on Friday, but as long as you are making sure they are in the money, you can make money doing it. Buying options for next week is a safer bet and does not require you to buy so close to being in the money to make profit.

Make More Money Waiting

Making money with the stock market in the long term is a buy and hold strategy utilizing stocks with great dividends like Verizon. When you day trade, you must wait for the right buy signals. If you are not disciplined, you will be buying early and late and selling early and late. When you see certain patterns, you have the tendency to buy expecting that pattern based on the day of the week or just plain wishful expectations.

Not waiting does not only shorten your earning potential, it can cost you for your day profit and create a loss you can't dig yourself out of for the day. Let's break down expectations and timing utilizing JP Morgan activity for the day.

Initial Move for the day

The first movement of the day may not be more than a reaction in the opposite direction from the prior day's movement. If this is the case, the theme is likely to continue from the prior day. Alphabet (GOOGL) was a perfect example of this today.

On the other hand, some stocks like JP Morgan go up and come down in the same day which ultimately create net gains for the day. Today looked similar to yesterday for JP Morgan as it moved sharply up from market open. When that happens, you wait for the pull back to  a near open price to buy calls for the upside. On my chart drawing, I mark it with a yellow "A."

Now you are going to let this run until you get 2 consecutive red candles which designate resistance when looking at your daily chart with 5 minute intervals. This is not the time to sell as it must retest the top. When it does, it typically goes slightly higher. You can sell at this mark or place your trade when it retest that mark again. You will know it is a retest when it reaches the same spot, but the stochastic lines have peaked at a lower mark. The second way is based on peaking in the price chart with space between the top of the Bollinger Band (B).

Secondary Movement of the Day

When you have noticed the top has formed. You locate the first out of the money put option and buy at or near the lowest price of the day. Once you are in on the opposite direction, you must be patient and withstand upward movement as long as it doesn't move dramatically above the pre-established ceiling for the day.

Now to determine the exit of this 2nd position of the day, you should look at where the area was that you bought the call option on the first movement of the day. It is almost safe to aim for the point to take your profit and get out. There are many days the reversal is stronger than the upward movement. It is nice expecting it, but if you enter and exit at the right locations, you make profit and are not holding like I did today just to break even.

Further Notes

The strategy works with many stocks, but not every stock has 2 sharp movements in the same day. You can say that most stocks move in one direction and give part back towards the end of the day, but then there will be that one day that it doesn't give back towards the end of the day and you were expecting it. The key is do your research, know your favorite stock tendencies, get in and out to take your profit daily.

Why I Broke Even and Didn't Profit Today

I bought my 8 initials calls at the right moment today. I freaked out with the 2nd large red candle instead of waiting for the retest as I have seen almost every day. Although the stock was higher than where I bought the calls, because the calls were out of the money, I ended up selling at a break even minus commission. I would have been up over $120 if I were patient and sold at the 2 peak.

On the secondary movement, I bought my puts before waiting for the top to form. I have made this mistake before, so you would think I would have learned, but this is why I am writing this blog. No matter if anyone else reads it, I expect it to create a more powerful memory to act appropriately in order to profit off small movements rather than break even or lose money.

So I bought these 108 strike puts in a market order at .48. If I had waited, I could have placed my order to buy them at .36 and would have bought a third more contracts. I did buy more at a lower amount, .44 which is still not .36. I did not panic although I did have 15 contracts with an average cost of .48 that were worth .36. My account was negative $200 at the worst part.

As I mentioned, I did not panic and knew the downward movement was due with all of the red candle following the peak of the day of 109.30. It moved in my direction, but unfortunately the highest these puts were worth today was .54. I did not sell there because I thought it might fall move sharply towards the end of the day. I was greedy and disappointed based on not buying at the right time. If I had bought at .36, I could have sold at .50 with a different of .14 times 20 contracts for a profit of 280 minus commission. Instead I sold at close for .48 to end the day break even minus $20 in commission.

Day Trading with Options Fresh Start Rule

Part of day trading with options is closing out your position by the end of the day. Each day goes by, the options are worth less if the price of the stock opens tomorrow where it closes today. The only time the option is worth more is when it move substantially at open the next day. Most of the time, even if it opens in your direction, you can buy those options for the same price you sold them the prior day. Therefore the odds say, you are more likely to lose money holding options over night. Like anything, holding options over night could work one time, but more times than not it will not work in your favor.

Tomorrow is a new day and as long as you did not buy options based on hope instead of indicators, you can make tomorrow twice as good as today.

Target, Walmart or Amazon?

Watching one of my favorite shows this afternoon on CNBC, they played a game, Would you Rather with Target, Walmart or Amazon. I found their discussion interesting as many of them picked Amazon, or Target over Walmart. Since they didn't ask me, I thought I would write my 2 cents.

I feel there is one winner as the other 2 are trying to catch up. The analyst on the show stated that Amazon will try to squeeze profits from Walmart and Target. I don't think they account for the high over head cost Amazon has between delivery, warehouses and employees to run those locations. Amazon clearly doesn't have the overhead of running a retail location, but that is nominal when you consider a couple other factors that retail locations allow.

Retail locations allow people to feel, touch and try. You can't get that experience online. Retail locations also have the ability to take cash and food stamps that you can not do on Amazon's website. When people use other forms of payments including food stamps, many times they buy other things in addition to food. This ultimately leads to the realization that Amazon does not cater to low income families with make up a large percentage of households in the United States.

Amazon might be a better play if you consider their business web services and video services. However, Amazon has increased the price of their Prime membership to increase profits while shrinking delivery times by a day. While Amazon collects a monthly fee for their services, Walmart provides the same delivery service with no membership.

Each company has spent money in the past couple of years to improve. Amazon bought Whole Foods for a retail food presence that also expands their Prime Membership reach for great synergy as Whole Foods caters to a more affluent customer. Target spent money to improve their stores in the past year, but I didn't really see a difference. Walmart on the other hand spent money to acquire Flipkart which is the leading online retailer in India, the 2nd largest country by population in the world. So each company has spent money to expand their businesses rather than wasting on share buybacks.

From the investments the companies made, I believe Walmart's purchase of Flipcart was the most aggressive that will benefit them the most in the long run. Walmart already has a great online presence so adding Flipkart jumped them in front of Amazon in India. Flipkart's synergy is great as Walmart's website is a marketplace where a variety of sellers also sell products like Amazon.

In addition, Walmart also has it's own brand of products they sell for a higher profit margin to comparable name brands on the shelf. And Walmart even sells low cost value based items in that are similar to what you could get at a Family Dollar, Dollar Tree or Five Below. I do realize that Target does similar things to Walmart, but ultimately Target appears to be a different version of K-Mart which eventually disappeared.

To avoid the fate of K-Mart, Target needs to improve their online presence to the point someone wants to use their app to search for things first like Amazon and Walmart. Target must create a marketplace for other sellers so their may profit from seller fees. Target must also improve their value based presence. To me, there are too many things that Walmart already does well that Target isn't in the same league as Amazon and Walmart

All factors considered, I believe Walmart is the best bargain for your investment dollars of the 3 with Amazon in a close 2nd due to their server business. Amazon could get in front of Walmart if they were to take advantage of a major retailer going out of business like Sears or JC Penny's who have locations and their own brands.