Dan Passarelli, CEO - Market Taker Mentoring

Well, there's been a whole bunch of talk about recession being caused by rising interest rates and all that and you've heard nothing but that when you listen to the financial news and it's really, really important. But I think in a lot of ways the financial press is missing some really important data.

Take Delta Airlines for example, okay, Delta has earnings coming out tomorrow and we're going to get a lot of visibility on what's going on in the airline industry. See, today, the day before Delta has earnings coming out, the stock was up over 7% at one point today.

Now that's really, really uncommon. Why is that? Well, it's because love, Southwest Airlines got a boost from an analyst upgrade. American Airlines gave some really positive guidance and the airline industry, frankly, looks like it might be poised for a pretty good year going into the future because of all the pent up demand.

I did a Bloomberg Television interview today with Abigail Doolittle and we were talking about this. What I believe is that what we're seeing here is, since the beginning of the Pandemic, we've seen what I call a sector based economy. Okay? So when stocks fell, when the Pandemic first started, not all stocks fell. Some did, but some did really well. Amazon and DocuSign and Zoom. Right? It was very sector based. And then when the economy started recovering, some stocks recovered and some actually ended up selling off. That's when Amazon really stopped doing so well. Right?

When it comes to inflation, some stocks have been getting hurt by that and some haven't. And they've been able to weather the storm and even thrive. So the bottom line is: this earnings season, I believe, is probably one of the most important in the last 20 years, for sure, probably 30 years. So I'm going to be watching not just Delta Airlines earnings tomorrow, but all the earnings coming out this season, which I do every earnings season.

And if you're interested in learning more about how I think about earnings and trade them, I have a special complimentary webinar coming up that I would love to have you attend so that I can share all my thoughts with you on earnings and how they work and how I trade them. And you can join by going to the link that's going to pop up right after this video. (go to: markettaker.com/reg)

Dan Passarelli, CEO - Market Taker Mentoring

Today I was watching Twitter, and that's been a really great spectator sport for quite some time now and the game is not over. Elon Musk said that he is pulling out of the deal and he's not going to be buying Twitter because there's way more bots apparently than Twitter said there was. And whatever the reason, he's pulling out of the deal. That brings us to a really interesting situation here at this point.

If the deal ends up not going through, which we'll talk about the other side of that coin in just a moment. Let's just assume for a moment that the deal does not go through. That puts Twitter stock into an interesting and probably precarious position. Because if you look at this chart here, the stock is down to the lows that it was at in the end of February. But if we look at a lot of other stocks in its peer group, let's take Amazon for example here, that stock is way lower than it was back in late February.

If we take Apple, that stock is way lower than it was back in late February. Now those are tech stocks. They're not exactly the same. Let's look at Meta, right, the old Facebook. That stock is way lower than it was back in late February.

So what that says to me is that Twitter, if the deal doesn't go through, is still valued way too high compared to other stocks in a similar boat to them. The risk, arguably (I'm calling a risk because it's the less likely scenario and it would be risk if someone does play the downside) is that when Twitter sues to have the deal go through, that Musk is forced to go through with the deal, which, of course, would put the stock significantly higher. It's a little bit of a dangerous game to play the downside though, the most likely scenario is that it does continue its path lower.

It does have earnings coming out in just a couple of weeks. We've got earning season coming. And the implied volatility, while it's above historical, if we get some of the moves that I think are possible, the implied volatility is fair to maybe even undervalue. This is going to be a great one to watch. Whether it's playing the downside, playing a cheap lottery ticket to the upside, or maybe just playing a straddle, that again is probably about fairly too cheaply priced given the moves that have been happening and that are likely to continue, there is definitely some trade possibility here on Twitter. Hope that helps.

Dan Passarelli, CEO - Market Taker Mentoring

Happy Friday. And it looks like it might be a happy Friday. It's been an interesting one, for sure. Interesting in the fact that it was a little bit lackluster

The unemployment situation came out today, and there were 372,000 jobs added for the month of June, which is way higher than economists' estimate, for 250,000, which was just below Mays revised results of 384,000. You look at that and you'd be kind of surprised that the market hung in there, right?

I'm recording this video about a half hour before the market close, and we're up on the day at this point! We've lived in a paradigm for a while now where good news for the economy is bad news for the market. The old 'good news is bad news' sort of thing. But there's a reason for that.

What the market has been fearing is that as interest rates rise to cool the economy just a little bit. Because that is one of the things that can slow down inflation: but cool the economy much too much and earnings would suffer and that would lead to lower stock prices.

Here's the thing. When we look at pretty good economic news, a lot more jobs created than expected coming out, and the market hangs in there and is up for a good part of the day here, then could we be going in to a situation once again where good news is good news?

Well, we have to drill down just a little bit and look at a few more bits of information here. One of them is we have to look at rates itself. When we're talking about the Fed raising rates, they're talking about very specific interest rates. They're talking about a couple of rates. One that banks borrow money from the Fed at and one that banks lend to each other at.

Those are very different rates than when you go and apply for a mortgage. They're very very different rates than when a business goes and applies for business loans or issues bonds. Those rates: there's a lot more, higher interest rates factored in to those rates. They're factored in already to some degree, and we're seeing this higher market resulting from more jobs being created.

If we look at other information that came out today, we're looking at wages. Wages gained 5.1% year over year, which was slower than the 5.3% gained in May, so more jobs added, but a little bit of a slower increase in wages. That's one of the big fears, is that wages rise too much. Because that's one of the things where, when the prices of commodities and the prices of products and the prices of all these other things rise as wages rise with them, that just kind of snowballs and it perpetuates the cycle.

When I see that wages have grown less than they grew the previous month and more jobs are being created, that could potentially be some pretty big news that could lead to good news being good news and how the market digests it. The key thing to watch is going to be CPI which comes out five days from today. It's going to be July 13 and IF: (I make no prediction on this but IF) CPI ends up being lower than expected, that could to be some pretty darn good news for the market.

So next week's a really important week. Hang in there. Have a great weekend.

Dan Passarelli, CEO - Market Taker Mentoring

Imagine this scenario. Imagine that you're making a trade. Maybe the market is moving kind of fast and maybe have say, a 45 bid and it looks like it traded 40, but you didn't get filled and you wonder why did you miss see it? Did it actually trade there?

If it did, you might be able to fill. How do you find out what traded and at what time? Well, that's called time and sales. You can get that on most options friendly platforms.

Here on Think or Swim if we go to the analyze tab and we just scroll down all the way past the options, we have options statistics, then we have options time and sales, we just click on that. So we can go to filter over here and look for certain things.

We can look for just calls or both or puts or both. We can look for certain series like expirations. We can look for certain strike price ranges, what exchange it traded on, how big of a quantity, the price and condition. For example, is it a spread or is it not a spread or what; those kind of conditions. And so then we go through here and it's time stamped with the hour of the day. Of course in military time, right, 14 is 2pm and the minutes and then the seconds.

And so it's very, very accurate information. List out the option, the quantity traded, the price traded, what exchange, what the market was at the time did it trade on the bid or the offer in between. Delta implied volatility and even where the underlying was trading at that time. So this can be a really useful thing to say: Hey, am I owed to fill? And you can call your broker and you can show them time and sales and they can call the exchange and get your trade filled for you if you're owed one.

Now, if your platform doesn't have time and sales, you can just call your broker and ask them to take a look at it and they should be able to do that for you. There are some other uses for time and sales that'll be in some future videos. Hope that helped.

Dan Passarelli, CEO - Market Taker Mentoring

I tend to talk about the Greeks a lot because I, well, wrote the book on the Greeks, as they say. I talk about Delta, I talk about Theta, I talk about Vega. And guess what? Now it's time for me to talk about Rho.

And it's time for you to start paying attention to Rho. So what Rho is: it's the option Greek that measures in option prices sensitivity to interest. The easiest way to understand this is: if I were to buy 100 shares of Apple and hold it for a year, it would cost me, well, let's see, it's $129 a share around it, right? So times 100, that would be $12,900, right? Or I could buy a call option instead and hold that for a year, like these 365 day options right here.

But I could buy those for $19.85. That's $1,985, like two grand. So I would be putting up significantly less money and I would have a position that profits either way. Now, don't get me wrong, there's a lot of caveats and a lot of nuances there to talk about like Delta and Theta and all that, but I would own the rights to buy 100 shares.

But here's the thing. If I buy the call, I'm paying so much less money that I could take the money that I would have spent on the stock and I could put it in the bank and earn interest on it. In many years before now, interest didn't really matter because interest rates were close to zero. But as interest rates rise, it kind of becomes a big deal and it affects longer term options more because interest takes more of a toll or gives you more of an advantage the more time the asset is held. So the Rho on this 365 day at the money option is 52 cents because calls have an advantage when it comes to interest. Because again, I can put the money I didn't spend on the stock in the bank and make interest.

When interest rates go up, the value of calls go up. If the interest rates went up one full point, the theoretical value of the call option would go up by $0.52. That means we'd see the bid go up by fifty two cents and the offer goes up by fifty two cents. Now that of course is if interest rates rose a whole point. If they only rose half a point, they go up by twenty five cents and so on and so on.

As interest rates continue to rise, this will have an effect on your call positions and your put positions. Those are just the opposite. As interest rates rise, that hurts put positions for just a different reason. But I want you to start paying attention to that. I want you to get good with it. Especially when you're trading long term options. I hope that helps. 

(Dan's book: Trading Option Greeks is listed as one of the Best Options Trading Books by New Trader U. It is available on Amazon - here.)

Dan Passarelli, CEO - Market Taker Mentoring

Risk management is one of the most important things for all traders. There are certain tools that you can use in order to help you make that risk management easier and easier to understand. What we're going to talk about in this video is what Think or Swim calls price slices. I want to show you how it works.

Let's imagine that in this stock right here, we're looking at say, a bull call spread. Maybe buy these calls and sell these calls. I always like to model them in the analyze tab. Come over to Risk Profile. It draws out the PNL diagram. We can talk about that in different videos, but I want to skip down here to price slices. Now with Apple stock at 130.65 and as you can see, the price just changes dynamically real time. As long as we're unlocked, it gives me my Delta, my Gamma, Theta, Vega PNL from the open and on the day. We're just modeling this trade at this point. We didn't put it on just yet. We can do this with trades we have on as well. But I want to add some slices here.

So I'm going to add one and I'm going to add a second one. Right now these are all identical. We can change this from a dollar amount and we can offset it by a dollar or two or whatever or we can change this to a percentage standard deviation or whatever. I like to change it to a percentage difference. And I like to start with down 10%. Then I also like to look at it up 10%. So what this does is this says, hey, look, here's the current at the money price for Apple where the stock is trading. But here's the price if it's down 10%. Here's the price if it's up 10%. And here's how our Delta changes. Here's how our Gamma changes. Look, it actually turns negative at some point, right? Here's how our Theta changes, our Vega. Here's what happens with our PNL from the opening of the position or on the day.

So this becomes an extremely useful tool for you because, look, you can see what happens at certain stock prices and really come to understand deeply what your potential profit is or what your potential losses. And that's one of the keys to being successful at trading. Hope that helps.