[00:02] Trade. Happy Friday to you guys. Happy morning to you guys, man. I hope you know in the chat what's going on in your neck of the woods. And let me know what to pump that algo. I know it's a little bit early for the From Theory to
[00:15] Practice fan, but we got to pump the algo the same as we always do. So, Ben, bring us into the market. Uh yeah, E-mini S&P's are down a few points. You about a honey on the day. You got the boomers struggling.
[00:30] You got the Russell 3000 struggling heading back down to 2000. It's only 900 got the notes down. You got a a whole bunch of other stuff. But what I want to bunch of other stuff. But what I want to talk about today, we got to go inside
[00:43] earnings trades last night. We did Amazon. We missed it. We did Apple. We about here in a second. We did Reddit. We could not have missed it more badly. their entirety on From Theory to Practice later today to give you a
[00:59] reason to watch that show. But I will say one thing quickly before I get to the new trade that I want to do for you guys here. It is in Meta. You can see homework before the show. I was like, I think there's a little something we
[01:12] could do in Meta post earnings to kind of take advantage of the volatility collapse. And well, not only the volatility collapse, the continued somewhat subtly elevated volatility. I guess you would I guess
[01:26] butterflies last night, here's something that's interesting. So, Amazon, we we missed it. I mean, we could not have possibly been more wrong on this trade. The Fade Dr. Jim strategy again,
[01:41] it gets you closer to whatever financial goal you might have. You might want to retire early. It can help with that. You might want to get a tiny house as a You may want to send your kids to college. Man, that is the best thing
[01:56] that it can do for you today. And so, Amazon, we missed it. So, it's not going money. That's not really going to be a problem. Reddit, we missed it. So, Reddit, again, I'm as surprised as you guys, right? We know that the source of
[02:09] truth in the world, in the market, anywhere you might be looking is found anywhere you might be looking is found only in the subreddits. And so, the fact as you are. But, we'll talk more about that here later today. It's Apple that's
[02:23] we can learn a little something from this trade. And then we'll go inside the theory to practice, we'll probably learn this very same thing again because the content is not going to create itself. But, if you look at a butterfly,
[02:37] It's a great way to take a shot. It's all the things that we talk about all around binary events, FOMC, earnings, whatever, right? That's true. But, one butterfly because this was a downside butterfly.
[02:50] Right? Like, if you look at Apple, I mean, it's down 31. I mean, you don't get more downside than what Apple is doing this morning. That's about as downside as it comes with the stock now down about 9 or 10%.
[03:02] And so, with a butterfly, this is a really good reminder and a really good thing to understand if maybe you've not done a butterfly before. It's not just a single dimension trade. It's not just one dimensional. It's
[03:15] actually multi-dimensional. So, you need to get the direction right. That's obviously step number one. But, you also need to get the magnitude of the direction right. Like, if you overshoot your mark by too much like we did on
[03:28] Apple this morning, then you're going to be in a max loss scenario there, too. than what happened with Amazon. That's Reddit. And so, just understand, again, what you're signing up for with a
[03:41] You are in a situation where you got to get the direction right, but you got to get the magnitude of that direction. So, that's why I do like using the expected move to kind of anchor my strikes because it gives me somewhat of an
[03:54] you know, range or some objective boundary points to kind of think through what is likely going to happen with the magnitude of the move. But again, holy grail. Right? The expected move is not foolproof. It's just telling you
[04:08] based on the volatility metrics today, what is likely to happen if the stock that's only going to happen, you know, 68 67% of the time based on a standard normal distribution. So, I just want to bring this up because it's it's quite a
[04:23] valuable teachable moment for us here now because as you can see, we're very very close to maximum loss. And so again, right? I mean, you can fill in the blank with whatever reason might be relevant in that moment, but
[04:36] the fade after Jim strategy is about to go is about to go uh for three. And so, all right. So, let's go ahead And so, all right. So, let's go ahead and let's now go to the new trade uh
[04:51] I see you guys in the chat by the way. Man, you guys are doing it. You are putting in some work. Look at point B in the house. Look at Wolf Wolf in the house. Clown Baby is here. Sam L is here.
[05:03] Gapper X is here. DMZ is here. Man, you guys are here early. Absolutely early. And so, all right. Let's go ahead. And you see MSFT down 20 on the day. Let's So, here's what I want to do. So, for Meta,
[05:18] interesting about earnings is you have these stocks that get bid up into getting bid up necessarily, although that can certainly happen. I mean the volatility expansions going into earnings that almost happen like
[05:32] clockwork, very reliable. It's kind of what we would what we would expect, you know, kind of you know, on any given earnings day, we're going to expect guys. Okay. When the number comes out though, cuz
[05:45] Wednesday, right? It just 2 days ago. A lot of times you get a really big volatility crush right out of the gate, but then the volatility still remains elevated for maybe a day or two or three. So, you can put yourself in a
[05:59] position where it's like, all right, I can actually step in after the event. just kind of, you know, sift through the rubble that was the earnings event and find an opportunity. Like let me see if I can't find a little
[06:14] something that might be of value. And so, for Meta here, you've got the IV rank at 45 and 1/2. This is still very, very doable for a new short premium position, in my opinion. I mean, the team has looked at this for so many
[06:28] years. I mean, anything over 30 is usually a pretty good entry point for a short premium position. Of course, 40 is better than 30. 50 is better than 40. And 75 is better than 50, and so on and so forth. But when you get to a certain
[06:41] I going to go going to go ahead and kind of release the capital and get this new trade on? It can be difficult if you always wait for the perfect possible time. If you always wait for kind of all the stars to align, and you know, every
[06:55] exactly where you want it before you lay out a new trade, and so I kind of think personally, I think 20 can work. man, I think you can make 12. I think you can make a strong case for 12. Like
[07:10] if you really are just got you have a strong hankering for short premium, and working for me. Like I really want to Like I just it's been a minute since I've stewed in the bathtub of filth, and
[07:23] I miss it. Like if you find yourself in that position, then you can sell an IVR of 12. You can sell an IVR of 13. You can sell an IVR of 15. Like I don't really see a huge problem with that. Now, is it going to be as effective as
[07:37] keep in mind, I mean, for people that have been trading for a while, like y'all remember 2017, right? Not 18.
[07:49] The VIX was eight. Like you think 16, 17, 15 is bad, trust me, it could be much, much worse. And so sometimes, depending on the context, because the markets aren't moving around so much and volatility has been
[08:04] You get into a slow season where it's like, man, the VIX has been, you know, 10, 11, 12, 13. Like it's coming. It's coming again, for sure. You see an IVR going on? Like what came out with the company? Because this is crazy stuff."
[08:17] And so when that happens, I wouldn't completely dismiss it from the old radar for a short premium opportunity. You may have to piece out 33. me know in the chat, what is going on out there? What is happening in the
[08:31] world? I mean, that's almost a half percent move to the downside. That's crazy. But let's go to Meta. So here's what I want to do. I want to go ahead and uh let's see, let's see, let's see.
[08:43] uh let's see, let's see, let's see. So Meta got bamboozled from earnings, this a daily chart? Wow, that's a crazy-looking daily chart. That is a crazy This looks like a silver daily chart or like a gold daily chart
[08:57] or like a lean hogs daily chart, like a block cheese daily Practice fam is watching the morning show, which I'm pretty sure that's the morning show, so I appreciate y'all. Do you guys remember? I haven't brought
[09:11] this up on Inside the Trade, but on From Theory to Practice, I told you guys that um one of my boys here in St. Pete, good guy, my man Clinton, he works for Sargento Cheese. So this is the craziest thing ever. If you've not heard the
[09:24] story before, uh this this might actually be somewhat valuable to you. I be right around that C+ to B- level of value. company, right? Like it's in the grocery stores, it's whatever. Like he does the
[09:37] analysis for a Sargent for Sargento. Like he's in like the pricing department chatting with him. This was like years ago now, but so it still comes up when we see each other. He actually monitors the price of cheese
[09:51] Like did you guys even know that you could trade cheese futures? Now, it's super thinly traded. Like nobody trades it. Like you can't go trade it today. know that you can trade it on really any
[10:04] Wisconsin. Like you need to be physically in Wisconsin to trade cheese futures. But somehow, Clinton gets like a live feed to like the fields and stuff like, you know, the milk and the cows and whatever. So, he can see the price
[10:20] of cheese futures. He's actually monitoring the price of cheese futures to determine the pricing strategy of what they're doing at Sargento. Like is today? And by the coolest, I mean it might be in the top five. But that's
[10:34] that he's monitoring. She's like, "There's all kinds of cheese. There's like block cheese and like young cheese." And he's like, "Sometimes you before you flip on over to mozzarella." I'm like, "Dude, this is crazy, man."
[10:47] crazy? No, man. You get that Swiss monster pair straight on. That is some crazy crazy stuff. But anyway, a lot of times when you look at like these future charts, you see a
[11:00] bunch of gaps in the chart because, you know, the regular trading hours are catching up to the uh you know, the futures prices that the clock, whatever. You don't typically see this many gaps on an individual
[11:13] stock. But uh but alas, that is what we see here with with Meta. And so, let's go ahead and uh uh I see you guys in the chat, too, talking about uh sounds cheesy. Uh
[11:27] better be a Gouda trader and a cheese speculator. That's good stuff, man. actually saw him a couple days ago and we were talking about it and he was markets are so thin." I'm like, "Yeah, because nobody knows about it, man. You
[11:39] get more traders." Like, "I got a bunch of traders. Like, just tell us the got to be in Wisconsin, we'll be in Wisconsin. Just tell us where to be, before you know it." And so, we can thicken up that market, no problem.
[11:54] But, uh but anyway, I digress most certainly off of a Meta. Let's go into the September cycle with And I kind of think I want to take advantage of the huge down move in Meta
[12:07] Let's step in with a bullish trade in Meta. Let's get in here. Let's do straightforward. I'm just thinking we sell a put spread. I'm just thinking we sell, I mean, maybe a 535 530 put spread?
[12:21] blow your hair back. This isn't going to change your life, but it can be another occurrence. It can be another data point. And again, it's defined risk, and always muted with defined risk, at least in my opinion and from my vantage point.
[12:34] trading is with undefined risk, and the consistency and everything you want to achieve as a trader is can be more I don't want to say more disingenuous. But, in all the conversations I've had, thousands, tens
[12:48] and all the live events and whatever, like, the one common denominator across all the successful traders that I've connected with has been a heavy emphasis on undefined risk. Now, there may have been a couple of defined risk magicians
[13:01] had conversations with them, but they're so few and far between, I just round up to 100% for my mental records. And so, undefined risk is the ticket, but from something defined risk. I think that's obviously totally fine. And if you're
[13:15] you should only be doing defined risk, just to be very clear. You need the reps, you need the experience. You're not ready for short straddles in gold uh just yet, but it'll come. It'll come. Let's uh, let's try 260.
[13:29] at 219. There you go. A little short puts spread in, uh, in meta. Okay, so you guys are at. I see you guys in the chat, man. Look at you guys are putting Putting in work. And by that I mean you guys look a little lackadaisical today.
[13:45] appreciate the eyeballs. I appreciate the heartbeats. And, uh, yeah, let's do it. And so, let's see. I see point B is here. tested. Here's a great question. For the trades that are being tested, can you
[13:58] talk about assignment risk? Again, it all comes down to extrinsic value. It know Mike is coming back on the show in a couple of minutes and he can back me extrinsic value. It always comes down to extrinsic value. And so, when it comes
[14:11] to assignment, as long as there is some extrinsic value in the option, the very, very low. It's extremely low. And so, just keep that in mind as you're assignment on whatever strategy you might have on.
[14:23] And also, remember if you do happen to have a defined risk strategy on, whether it's a vertical spread or really any defined risk strategy, and one of the the other leg on, understand
[14:36] as long as you don't break the strategy apart where you're kind of like breaking up the package and you're legging out and it becomes something that it was never intended to be, your risk parameters on the trade are unchanged.
[14:49] They are the same as they were before you took assignment. And so, understand change and all that kind of stuff that of course is going to come with the territory of assignment. But, understand that your risk parameters don't change
[15:02] when you, uh, when you take assignment on a single leg. guys just because it's such a quick show. It's just, it's such a a quick here. Now I want some cheese. I see,
[15:15] is here, obviously. Man, I appreciate you. else we got? Cuz we got to go. We got like a couple seconds to go. Blue Whack-a-doo, I'm fed up with this market. That's some pretty good stuff.
[15:28] says cottage cheese tuna fish, no applesauce needed. So, I've actually combination cuz I tried it all, man, before I settled on the Nash equilibrium point of tuna fish and applesauce. I tried cottage cheese and tuna fish. Let
[15:43] me tell you something. That is way worse. Like >> If you hear tuna fish and applesauce and you think it can't get worse, it can. If you hear the VIX was 8 in 2017 and you think it can't get worse, it can. And
[15:55] might be the bottom of the of the barrel.