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Watch and Learn from Sarah and TJ every week as they share their trade set ups, market analysis and most importantly, tips to help you trade better than ever. Each episode will share the realities of trading options and the markets. You will hear tips and tricks by retail traders, for retail traders. Yes, finally a show that delves in to trading for people just like you!

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What do you do when you have a few back to back winning trades? Most traders will increase their contract size and the riskyness of the trades they take? What is the best strategy, Sarah Potter of Shecantrade will review how she adjusts her options trading to make sure she doesn't give all of her profits back to the market.

The best strategy is sometimes the hardest, and that is to not get greedy as you have a few trades that end in your favor. Staying consistent with your probabilities and position sizing is a good way to be trading options for years to come.

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In this episode of the SCT Podcast Sarah Potter and TJ discuss the differences between fundamental analysis and technical analysis. Fundamental analysis is typically discussed in the media about trading options and stocks. Fundamental analysis attempts to assess the financial health of a company and determine if the current market price of the stock is under or over valued.

Technical analysis on the other hand looks at charts and chart patterns and looks at the supply and demand for the stocks and whether current price trends will continue or reverse.

Both technical and fundamental analysis have their place in investing, for the short term weekly options trades that we place in the shecantrade trading room, a combination of technical analysis and probability trading from the options chain are what we use to select our trades.

Fundamental analysis is best used for longer term trading when the financial growth prospects of the company can be fully realized over a few years.

Podcast Transcript

Sarah: Hi everybody, it's Sarah Potter from and this is the SCT podcast. We are on episode 38. I have TJ here.

TJ: Good afternoon.

Sarah: And today's discussion we're going to talk a little bit about technical analysis versus fundamental analysis and basically why we choose to look at what we do to gather evidence to place the best trades. What we're really proud of in the live trading room she can trade is that we are very consistent in our approach to trading and as a result that really comes from finding good evidence from the beginning, we really focus on getting it right from the beginning as opposed to just placing trades and then adjusting or rolling trades as we proceed in them. So kind of front-running the evidence I suppose and trying to gather pieces from all sorts of different areas to make sure we have a good perspective when we're placing trades. Now the basis of what we both trade both TJ and I is technical analysis, but you know I think even within the umbrella of technical analysis there's a lot of different areas, a lot of different systems that people use to place trades and I'm not really sure we do everything in technical analysis. So I don't know, what do you think you would you call yourself a technical trader or a Chartist like, how would you define yourself?

TJ: Well definitely for the weekly trades, the day trades, the swing it's definitely not fundamentals, so yeah, I consider myself a technical analyst.

Sarah: But I think when someone thinks about technical analyst I think sometimes you're thinking about somebody who spends a lot of time, very detailed amount of patterns in charts and when I've seen you trade, you do use how price moves but you're not getting that detail in terms of the patterns you're look for.

TJ: Yeah, that's true. I don't think what we do is we would I do anyways I think kind of the broad concept from technical analysis, you know in terms of support resistance, trend, reversals and really applied at a pretty high level kind of the 10,000 foot level instead of getting into it right you know right down to the nitty-gritty and counting the number of bars in a triangle and you know the exact shape of the triangle and you know going back and looking at every time it happened for the last ten years and will it happen again, I think definitely, I don't delve into it that deeply and there are a lot of people that that really do it and use it to quite a bit of success. I think anything that you use, you need to, whether it's technical or fundamental you can't use it in isolation on its own, you need to combine it with what you're seeing and the options chain, what you're seeing on the charts, what you're seeing on short-term, what you're seeing on some long-term charts, what you've seen that stock do in the past and put that all together and take a little bit from every piece of that and then and then evaluate your trade. So yeah, definitely I use definitely use all the principles and it's a mosaic you know you grab a little bit of a little nugget from here, a little something from there you know something that you've learned here over there that works and you kind of put it all together and wrap it all up and apply it and I think that's why every trader has a slightly different style and I think that's the same thing with the trading room as well is that you know none of our members, are going to trade exactly like us or are going to look at the market exactly like us, but as long as we can give them some nuggets and some good trades and you know discuss the pros and cons good and bad of each trade before we place it then everyone is educated and everyone can make that decision to trade on their own and I think that's the important thing is building the story yourself and just being confident in the trades.

Sarah: Yeah, I mean so I think when you're talking about it, it really does ring true to what I'm saying is that yes we're technical traders. I am as well, I do want to pay attention to how price is moving but I want to look at things like how it’s moved in the past as opposed to, oh today we've seen this many Bars in a consolidation so it must mean it's going to break out. I actually think that a lot of times we spend a lot of time there too much time in charts it's very good at looking back in history and identifying areas to enter our exit rates but because we're trading live and we're actually looking to get filled on our trades to make money on our trades then we need to be able to see things in the moment, recognize patterns certainly that have happened in the past, we can rely on those pieces of evidence but if you're only doing the charts I think you're missing another part of the picture and in options trading because we do have an options chain there's a lot of information there and that tells a story too. So what we both do in the trading room very successfully is take pieces of technical analysis and layer it in with the options chain but what I find interesting is that I've tried just looking for trades only through the auctions chain and I can't really find trades that way. So I definitely rely on technical analysis to find my trades, to choose the stocks that I'm going to spend more time and to decide whether or not a trade is actually setting up. So for me when I'm starting to look for trades I'm going to focus on the daily chart that's really where I'm filtering through all the different stocks, it comes from the daily and if something from the daily piques my interest then I'm going to go out to different timeframes and look to see how it's moving. So I want to look historically, looking on a weekly chart to see what is it done in the past are there any key areas of support and resistance, what does the trend look like, is it consolidating, those kinds of things and then from the weekly chart if things still look good and I'm still excited in the trade then that's where I'm going to move to the shorter term pieces like the 60 minute and the 5 minute to then get more precise about my entries. And then from there we're going to take all the evidence we've already gathered and then layer that into the options chain. Actually today in the trading room, I was looking at one stock at Walmart and the Walmart chart, so from a technical analysis point of view looked fantastic, it pretty well had everything, steep trend, no resistance, multiple timeframes everything looked like it was going to pop up it looked like an idea a great trade to place led to buy a call but when we moved into the options chain and started looking out to next week in terms of expiry which is where I was going to purchase the option, it didn't look as good anymore. The probability of success to me didn't look as as great as I would like it to and so I didn't place the trade so there's times where I'm going to gather all sorts of different evidence from the charts but if I can't get it to line up with what it looks like in the options chain, it's not worth placing the trade, it's probably worth putting it on a short list perhaps trading it next week once that expiry is moved on but it actually stopped me from getting into a trade. So layering what you see in charts with what you see in the options chain and what we know what's happening in the media too can also be helpful when we're actually putting together that trade. Now you use probability as well when you're placing trades especially sometimes with some day trading, how do you layer in different pieces of evidence? You're really well known TJ for your day trades, what kind of evidence to use there is it any different than when your swing trading?

TJ: I think so. I think if it's if we're day trading I'm looking for something is going to happen either the next day or later that day. So I think the evidence that we that shows up on the options chain is more timely because it's you know there's less time before that option expires so what I'm seeing is you know is probably going to be the most accurate information that I'm seeing. For example, you know let's talk about Delta. Delta changes very rapidly it can and it can go from you know you can go from a delta 20 to a Delta 80 on an option on a strike pretty quickly if the stock really gets you know really gets moving, you know if we you know let's take an example again with a delta and we go to expiry and we look at expiry that delta number is going to be the most accurate right before 4 o'clock on that Friday and that's just the nature of the market so if I'm taking a day trade you know I'm relying more on what I'm seeing on the options chain I'm trusting it a little bit more because there's less time between now and expiry for the market to move, for traders to change their mind, for new big positions to be initiated. So definitely for the day trading I'm looking at the options chain, I'm looking at the details from the options chain and I'm taking that at a more of face value, I'm looking for things like you know where's the volume today, you know where is volume coming in, is it close to the strikes I'm trading, is it far away, is there a skew to the put side or the call side, is there a lot more credit on the put side than on the call side? You know there's the market and we look at the credit is the market pricing and a bigger move to the put side or the call side and these are all things that I look at in that that I use from the options chain to form my day trading decision and then I'll go to the chart and I'll look at those support and resistance levels from the options chain, you know based on like I said on credit, on volume, on open interest and I'll compare those to the moving averages, you know more traditional support and resistance on the chart and I'll see if any of those levels line up. And again you know the more the more things that line up at a certain point you know typically this areas as more traders will be looking at that point as well. So it will you know if you know if there's a lot of traders looking at say 2400 to hold on the S&P, there's a good chance that it probably will. So yes I use a lot of evidence and I think a lot of it is just looking at subtleties and seeing if there's you know a little bit something different than last week or you know something's changed between the morning in the afternoon, you know nothing will really kind of showed out at you but by the time you put it put together 3, 4, 6, 8 pieces of information and you build your case you know at least you've got at least the evidence that you know is supporting the trade.

Sarah: Okay, so what we haven't talked about is fundamental analysis. And that is also very traditional, there's a lot of people in that group in camp that would say that that is an important piece to trading, but it's something that you and I both don't use and that might just be because of our outlook and how we setup our trades, because we are generally trading and looking to get out of the trade within a week or two. So do you think there's a role to play with fundamental analysis in the approach or the system of which we trade the market?

TJ: I honestly don't think so for short-term trades. I don't think the fundamental analysis, I don't think any of that has enough time to play out during the week. I think fundamental analysis takes a longer time to work its way into the system, to work its way you know we see that you know companies release they've got good, good fundamentals you look ok it's a growing company you know price should go up over the next six months to a year that's great but we're typically in well I'm typically in a trade two or three days. So the market knows that yes, fundamentals might be good or fundamentals might be changing but you know there's no real time for that to take hold in the market. No obviously, earnings which is a fundamental event obviously if you want to consider that do have a big impact and we obviously you know we've talked about that in previous podcast with earnings, but generally yeah you know it doesn't I don't really pay attention to it at all.

Sarah: Do you think what we have both been paying attention to though and what is relevant from very much for our style of trading though is what's happening in terms of in media and whatever you want to call that in terms of its analysis being very aware of what's happening on a global stage will impact the broad market especially which then will roll into the trades that we're in? So it is important to be paying attention to what's going on in the world because that will influence how price will move and so whether you're a technical or fundamental trader I do think that that's very important. We have geopolitical news that is influencing the market these days and I think as we move forward that will definitely be something we'll need to be very considerate of. The beautiful thing which is we're talking about the trading room today actually, the wonderful thing about the style of which we do trade is that it doesn't really matter what happens in the market two or three weeks down the road because we're probably out of those trades and we can easily-easily readjust to how the markets moving at the time. So whereas somebody who's maybe more long term is thinking, oh is this a dip this is my opportunity to buy and then we're going to see things move up and they're thinking about longer-term stances in the market, we don't have to be as concerned about that, we can be fluid and flexible with the market depending on how things are portraying themselves and we can take advantage of the trades that we're seeing and I think marrying the combination between some technical analysis linked with what we're seeing in the options chain and keeping in mind what's going on in the world is kind of the three core pieces to have really great trades. All right let's leave it there, that was a great discussion, certainly there's a lot of camps and a lot of points of view on technical and fundamental trading. As always we really do appreciate your review so anytime you can review she can trade or our podcast I would really appreciate it, those are very important and honest review is very helpful and come and check us out the live trading room at Happy trading everybody.

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In this episode of the SCT Podcast, listen to Shecantrade review your options for selecting the best expiry date for your options trades. Options traders have lots of choices when it comes to picking an expiration date for their trades. Many traders simply pick the date that looks best to them, but there are better ways. Listen to find out how to pick the optimal expiration for your long and short options trades.

Podcast Transcript

Sarah: Hi, everybody, this is Sarah Potter. This is the SCT podcast. Happy to have you all here today. I have TJ with me.

TJ: Good afternoon.

Sarah: And this is episode 37. And today we’re going to talk about how you pick expiries. I mean, in options, we have the lovely ability to pick how long we want to be involved in a trade. And so often, this is a question that we get asked a lot is how you make a decision about what week to trade when you can basically trade any week in a stock or any other trading instrument in options. So, how do you make that choice. I think this is a good discussion because TJ and I sometimes have a different points of view on this is to how many weeks to really hold trades. So, I think the first thing you want to think about is how much money are you actually interested in risking because the further you go out, the longer the time you’re giving the trade, the more expensive generally it’s going to be to be involved in that trade. And so, there has to be a balance with how much money you’re willing to put up versus actually figuring out, you know, I think this time frame is actually going to be quite soon so I think the stock is going to move, let’s say in a couple of weeks, so I only want to have a couple of week expiry versus you know, I think it’s going to go up and I don’t really know when so I’m going to go out a month or two and hope that it goes up in that time. So, TJ, what do you think, when are sometimes, or how do you make choices about expiry?

TJ: Well, I guess first I have to, I want to look at the type of trade that I’m trading, whether it’s a spread or if it’s a directional buying long puts or long calls. I typically look for, I look first, I guess, let’s kind of talk about this maybe as a checklist. So, first, I look at the market. Is the market really trending? Is it moving sideways? Are we getting lots of different news? Political, economic. It’s just a lot coming out all the time. It’s maybe that causing the market to move back and forth. And then, I’ll look and I’ll say, okay, “These are the market conditions.” Is this a time that I want to spend a lot of time in the market with my trades? Or is it a time where things are happening so quickly that maybe I only want to be in the trade two or three days. And I don’t want to sit for weeks on ending a trade because we don’t know what’s going to happen if there’s going to be another government announcement or economic announcement. So that’s kind of the next step. And then I’ll tell her to, “Am I buying a put or call or am I selling a credit spread?” Generally, credit, I will only do week of so it’s a decision, “Do I get it on Monday, Tuesday? Or do I get it on Wednesday, Thursday for the Friday expiry?” But then for long puts and calls, I like to give the trade enough time to work but I also don’t want to get into a situation where the expiry is so far out on the put or call. That price is moving, may move over the next two or three days but the option doesn’t really respond because there’s so much time to expiry. So, I like to weigh those. So, I think for me, usually two or three days for credits, for spreads and I’m probably three weeks out for long puts and calls?

Sarah: Okay, but that three weeks out on a market that’s moving, would you suggest that once a market is sideways, are you still picking that same three-week window or are you adjusting if the market is consolidating?

TJ: I think the market is really slowly consolidating. I’m probably not trading the long puts and calls anyway, so it wouldn’t really be, it wouldn’t be something that I’d really look at.

Sarah: So, I will basically make my choice about what week to trade especially for directional trades for buying calls and puts. Also, based on volume and where there are other people. So, sometimes, I might want to give it three weeks or four weeks to place the trade, to have the time. And I generally like to have a few extra week, so if I think that a stock is going to move let’s say this week, I will not trade with this week’s expiry. And that’s just because your faded decay is going to be too influential in the same week of expiry. So, if the option is going to expire in the same week, even if I think the move is going to happen, because you’ve got so much time decay value coming out of that option because it’s an option that’s going to expire that week, generally, those trades won’t be as favorable as if you went out at least one more week. So, I kind of think about it like, “Okay, do I think the move is happening this week?” Then I want to give myself an extra week just in case I’m wrong. And then I want to give a week for time value so that generally, I’m not in trades in the last week of expiry. So, that’s kind of my rule of thumb, so, I would suggest that I would meet a three-week window is the first place I’m going to look. So, if I want to buy a call, I’m always going to start at three weeks out. But there are also times when three weeks out, there’s no volume so it doesn’t make sense with the trade that week either. And that’s what I’m going to go out further or go in a week and start to consider whether or not it’s worth taking those trades instead. So, I’ll stick with the same strike but I’m going to start looking at various weeks just to see if there’s a nice place where there’s other people that are already trading so, looking at open interest in volume and looking for other positions to already be there. I don’t want to be the only person trading at a strike. I find that that’s just, those trades don’t work out as well versus when I’m in trades where there’s other people as well. I mean, that’s a whole other podcast too we could do down the road. So, there will be times that I will go out. But yeah, I mean, we’re both very similar in terms of our style for calls and puts, but there are times do you ever take trades that are out further? Like going out more than three or four weeks?

TJ: Not typically an option, no. If I’m going to trade a moderately expensive stock and I’m buying an option that say three or four, six months out in the future and I want to buy that in the money with a high delta. I mean, at some point, the benefits of buying the option are kind of reduced ‘coz I might as well go buy the stock ‘coz that option is going to be a big chunk of the cost of the stock price if I’m going that far. And it expires so I’d rather spend, instead of spending 30 or 40 dollars on an option that expires, I’d rather spend maybe a hundred dollars share on a stock. At least I know that stock will still be around typically. I may be able to hold it out a little bit longer if something happens whereas the option it’s, you’re committing a lot of capital and it could just expire worthless.

Sarah: Yeah, and you know, from coaching a lot of people to, when we talk about trading options, sometimes, people get really focused on the expiry like what week should I pick for their trade to end. And I also suggest, a really good tip, is to think about the trade from the beginning. So, if you identify that you think a stock is going to move, let’s say this week, but you look at it, and let’s say in a shorter term time frame like a 60-minute chart, there’s a bit of resistance. So, what sometimes traders will say is, “Well, there’s resistance here so, I have to go out a week.” Where I would say, “There’s resistance here so, I’m not going to trade it this week.” And so, you and I, that person and myself, we might end up with the same expiry but I’m going to get into the trade a week later. So, I’m not going to pay for that risk to be in that first week while there still is resistance where somebody else would. Perhaps, their perspective, what I can hear sometimes is, well, it’s cheaper then so I’d rather get into that option where it’s cheaper when there’s still resistance. And I guess, from my point of view, yeah, it could be less but if there’s resistance there, the market hasn’t proven that it’s actually going to move in a direction you want yet, so it would be better to sit and wait to see how that moves first rather than going out and spending more on an extra week. Just because we have the flexibility of trading options with more weeks, it doesn’t always necessarily mean that that’s something you should do. And I think, when we’re trading, I mean that’s the downfall of options because you have so many choices. Sometimes, instead of making a good trading decision from the beginning people say, “Well, I have a choice so I’m just going to mitigate some of these by these other choices that I have and that’s why I’m going to place a trade.” I don’t know, have you ever encountered something like that?

TJ: Yeah, I think that’s I would agree, I think that’s pretty common. I’d also suggest to that if we think that the market is pretty accurate and fairly priced on the options chain, the market has a pretty good idea where price will go, and the options, if you look where the market thinks it’s going, those options will end up expiring worthless. It’s just the reason why a lot of times, straddles don’t work because the market is priced in that move and the market is generally right which is why we like to do spreads, credit spreads. We want to take the other side of that market. So, if we think that we want to trade high probability trades, we want to look at the options chain for evidence, I would tend to suggest that the market is more accurate the closer you are to now. The market expiry this week is probably pretty well-priced if I go out a year or eight months or nine months, that accuracy I think diminishes so there’s a lesser probability. So, I think if you go out and you want to rely on the probabilities from the options chain from the market, and you want to go out eight or nine months and you want to buy these long date options, I think the market isn’t as accurate out there. So, you’re relying on information, you’re paying for example, a premium maybe, for an option that the market isn’t really accurately priced. There may be a lot of discrepancy where prices are at that point which is where a lot of these longer term trades, they’re pretty binary. I mean, they either work or they don’t. And I think we also have to think too that if you do believe that in the distance that the options chain that it is fairly priced, then you have think about how is that options chain becoming fairly priced? Well, the market makers, the market in general, not just the market makers, each trader, the supply and demand is out there is there is going to be a lot of will room priced into those options, they are going to be expensive to cover that unpredictability. And, you can look at it and direct something that’s very easily noticeable implied volatility, that’s one input of market volatility. And if we look at that and we put all that together, then we really have to say why are we trying to outguess the market, if we think we can, that’s great, so say we do outguess the market, but we’ve potentially paid so much for that put or call, that by the time we get to where we need to go, we really haven’t made all that much profit because we’ve spent so much on it from the get go. And I hope that makes sense but what I’m trying to say is that it goes back to the whole no free launch. We think that’s there’s potential for a lot of profit eight or nine months and we see it but how many times does that really come, does that really play out? And I think we have to remember that that we need to look at that in the future as well.

Sarah: Yeah, I think that’s actually really good advice. Don’t get caught up in thinking that we can outsmart the market. You might as well work with the market because there’s a lot of trades to be had that are there right in front of you. So, I just want to thank everybody, we’ve had a lot of really great feedback lately on the podcast, everyone’s really liking this new format, and I do, too. I think somebody kind of summed it up as it sounds like the two of us are just kind of having a coffee and a chat about options and I don’t know, I think that’s a really nice way to think about it. We do appreciate your reviews, though. The reviews are very important especially in iTunes, so if you could take a couple of minutes and post an honest review of the podcast up there in iTunes, we’d really appreciate it. And of course, we’d always love to see you guys at Happy trading, everybody.

Thanks for listening to a Shecantrade Review of the Markets

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Two very popular options to trade are in the SPX S&P500 cash settled index and the SPY S&P500 ETF. Each offers unique benefits for options traders. Listen to this week's podcast to hear about the key differences between the SPX and SPY and some strategies for trading each.

Podcast Transcript

Sarah: Hi everybody, this is Sarah Potter welcome to the SCT podcast. We are in episode 36 and while I completely understand that when we do podcasts everybody is listening to podcasts at different times. TJ and I definitely wanted to highlight and have a discussion about something that's very relevant for this week. Now certainly our topic is going to be good for any of the weeks that are trading but it's especially important this week. So this week if you look at the market there's a lot going on. We have a lot of news, a lot of earnings, we have FOMC does a lot. So if you are even if you're not even an options trader, if you just trade stock, if you're just investing in the market this is a big week and we want to expect or anticipate that we will have relative moves to that. So what that means then is we're going to have many perhaps many of the stocks or trading instruments that you look at might look a little different. So what we decided to do is talk about some different opportunities to trade or different instruments to look at. So we're going to talk today about the differences between a cash-settled index versus ETFs. Now you guys know that we both like to trade those and certainly those are different instruments and they have different characteristics so we thought let's get into that so that people understand what they are like to trade and perhaps those are things you might want to go look at when you have a week on deck that has a lot of different news. So hi TJ.

TJ: Good afternoon.

Sarah: You like to trade the SPX a lot and I know that that's something that you do in the trading room and I would definitely say that you're really good at that. So could you start us off by explaining a little bit about what is a cash settle index and its characteristics?

TJ: Okay, sure. I guess let's compare how to trade indexes. So the two basic ways our cash settle index like the SPX and any TF like the SPY so the major difference between the two is the SPX is cash settled. So that means you will never be assigned shares of the SPX, there are no shares to be assign. The SPX you can only trade options on the index. So at settlement if you are in the money, you either have money put in your cash, put in your account or cash taken out of your trading account instead of a typical option where you would have shares assigned to you. The SPY is an ETF so you can buy shares in the SPY so if an expiration day you are assigned you actually get the shares so that is the main difference between the two. The other differences is just the size of the contract the SPX is about ten times the value of the SPY so that comes into position sizing as well and we can talk a little bit more about that maybe later in the podcast. And the other major difference is how they expire and we'll about that a little bit I guess later or we can get into that right now, what do you think Sarah?

Sarah: Sure, I mean I think expiry is a really important piece because that's something that when we get questions about when we're trading these instruments people don't sometimes realize that things can expire at different times especially in the SPX. So let's get to that. So this is a week that has a lot of earnings and new so especially Wednesday's FOMC and then SPX has expired on Wednesday. So in particular you like to trade SPX. Would you ever trade an SPX trade and have it expire on the same day that you have an FOMC announcement?

TJ: You could, that would be a lot like an earnings trade you know the market has expectations and obviously you're expecting a big move so you can definitely set it up. Is that my strategy? No, that's typically not my strategy. The two strategies I really like are overnight trade in the SPX so basically holding it, buying at the day before expiration, setting up the trade holding it overnight and letting it expire the next day. The other trade that I really like is also today trade. So to look for you know potential credit spreads on a Friday. However we do have to look at and we can talk about this as well that those two trades primarily work best when there's higher implied volatility in the market and right now if anyone's paying attention to the SPX, I mean we know that I mean IV was you know a couple weeks ago even if the last week was 8, 9 which is extremely-extremely low. So the credit is just not necessarily there for those types of trades but definitely those are the two setups that I prefer when I do trade it.

Sarah: But when the implied volatility be going up this week like perhaps this is a week that you want to pay attention to SPX because of all the news?

TJ: Yeah, you would you would think that that FOMC would actually you know really make a difference in it, but it's actually it's not, it's not changing implied volatility, we're just even if we look at the VIX it's just pegged it right at the lows I mean we were talking about it in the trading room a couple weeks ago how you know we were down in the low 9s on the VIX and you know we had to look back 11 years, we had to look back you know almost 11 years back to 2007 before we really saw levels below 9 and I think it was a VIX with eight and a half, 8.5 I think was approximately the number that we saw and that was back in 2007 and we know what happened. You know I have you know six months to a year later we had the big crash of 2008 and no I'm not saying that what we're seeing now is it all the same, I'm just trying to say that you know we're at really-really low levels and you know the VIX doesn't really want to go lower but it doesn't want to go higher either because the market does keep going up. So you know it's kind of stuck in a range and Daphne you know events that we would typically see an increase in volatility a little bit but not enough to really make a difference in trading.

Sarah: Okay. So those kind of change gears and start talking about ETF. So I know that in the trading room I get asked about SPY a lot it seems to be very popular instrument to trade and I want to specifically talk about it, obviously you guys all know that we both look at the ES which is the futures contract but they all represent the same thing, right? So this is the SNP and SPY in particular it is ETF so it's cheaper. So I think a lot of people really like to trade it because it doesn't cost as much to trade but I don't know about you but sometimes I find if I place trades or if I even look for trades and SPY it can be actually difficult to be able to actually get filled on a tray that you really like the charts can look really nice but when we move into the options chain sometimes to just things don't really line up. So a lot of times I'm not actually going to follow through on that trade because we can't see stuff except for weeks like this when you now have more news, more events that might potentially move the market if you are fearful of placing a trade, a futures trade in the ES or the SPX business setting up SPY can actually be a really good instrument right now.

TJ: Yeah, I mean absolutely. I think that we have to keep in mind too what you brought up is absolutely right. So I mean we think about if we're getting say we're doing a credit spread in SPX and we're getting 30 cents you know we're potentially looking at 3 cents of credit in the SPY so it really doesn't make sense to almost trade for that 3 cents. So I think you know we may differ in that opinion is, I really rarely look at the SPY and I don't I don't really see the advantage to it.

Sarah: Really? I can buy a call and SPY and have so much less risk because I don't have to put up as much in the trade and still be able to take advantage of the moves that can happen in the broader markets obviously the ETF is a representation of that. So I don't know, I like that, so to me looking out it this week and seeing, oh yeah, I expect the market to move quite a bit I think SPY is actually a really great trading instrument that I do want to be involved in because I don't have to put the risk up. Now you're probably talking about spreads, right? And trying to place a spread trade in SPYs almost impossible sometimes.

TJ: Exactly and I think too that. Yeah, I guess if you're looking to buy puts and calls I do agree that we’re, yeah so it's a little bit cost prohibitive in the SPX. I mean you can be 20 points out on a put or a call you know risking two thousand dollars on per contract whereas you could do that risk two hundred dollars per contract in the SPX which is probably more in alignment. So I guess if you think about it that way, yeah I guess they're useful for different reasons.

Sarah: Yeah, so a piece about SPY that I definitely want to mention is that, just because those are cheaper calls and puts to buy again they don't necessarily mean that they're going to turn into crazy profits, right? So if you're buying something and you see risked a dollar and you make thirty to fifty dollars on that trade that is a huge return on investment and so I think where people get wrong, go down the wrong way there with SPY is they start saying well I'm not risking that much but I still want to make a huge amount so I'm just going to let that run, run and run and you need to keep that all relative to how that instrument likes to move. So remember that SPY is cheaper than the other ones for a reason and that also is going to mean at that range that you're looking for needs to all be aligned with what is realistic. So realistic set realistic profit targets in SPY and I think that can be a really great trading instrument especially for just buying straight calls and puts. But you don't ever do SPY you do SPX so if we were to ask you like of the ES the SPX and SPY, which one is your favorite and why?

TJ: That’s a really good question. I think I'm tied between the S&P, the ES contract, the options on futures, and the SPX depending on how I feel in terms of position sizing on that day, the ES contract is about half the size of the SPX give or take. So you can kind of fine-tune position sizing that way as well. So I'm kind of tied between the kind of between the two of them. One thing I do want to mention as well is that the cash settle index is like the SPX you have to remember that on monthly expiration, you have to trade a different contract. So every third week is a month if you want the contract that expires on Friday, you do need to trade the SPX p.m. contract because the SPX contract expires Thursday at the close but the pricing is based on Friday's open. So there's been quite a few traders who have been locked in, stuck in positions on you know overnight Thursday as the market gaps up Friday morning and a max profit goes into a loss and because the option stops trading on Thursday at the close but is still pricing Friday so you still see it in your account, the price is changing but you can't trade it. So it's really an odd situation if anyone's ever traded the SPX the third week and not realized that it expired the Thursday. Well that it stops trading the Thursday but again it's still pricing based on Friday's open and it's not even the open, it's the open of all 500 stocks in the S&P 500. So that doesn't even give you satisfaction when the market opens, it could be 5 or 10 minutes before they or 15 minutes before they figure out an actual settlement price. So just a little wrinkle there.

Sarah: A little wrinkle. I think that's why a lot of people are afraid to trade SPX because of the expire reason and all the rules and trying to keep that in mind. So I mean if it was what you just heard TJ described was too stressful for you just to keep that in mind I mean remember you can still trade SPY or you can do the ES and sometimes even though with the size of the ES if you're doing a futures contract you might think, oh gosh, remember it's still an auction too, right? You're still doing an option on the futures contract, it does the same thing as the options and everything else it's just a different underlying a different trading instrument. So you know if SPX and understanding all of its different expiries is not something you're interested in then don't forget that you can also do options on futures on the ES. However I also want to mention with the SPX because it does have the different expiry, there's times during the week where the Friday expiry doesn't look good on the options chain but the Wednesdays do. So it really just depends of that week, what actually looks to be setting up and don't forget that I went like, it’s almost like double the trade opportunities there so you can be pickier about the ones that you really want and when they do setup definitely pick the one that's tailored for you.

TJ: Exactly and one other thing too is I think that you know if we draw a line and we've got premium on one end and no premium on the other, you've got a stock like PCLN where there's ton of premium, there's a ton of people with different ideas, the index is like the SPX used by a lot of institutions for various reasons and they're priced pretty fairly in the market, there's not a lot of arbitrage, there's not a lot of you know a lot of profits, you know the sneaky profits if you want to call that to be had, it's pretty well traded, there's a lot of volume, a lot of institutions, a lot of big trading in the SPX, so if you see a lot of premium at a strike that you think is way out of the money and it'll never ever get there by Friday you know chances are there may be a good chance that it does, you know you don't get a lot of those opportunities to get that bonus premium like you might in a in a PCLN

Sarah: Yeah, I mean I think that's good. Remember, they all have different characteristics but there's always going to be times when each of those are good to trade. So if you're afraid of the market swinging too much then adjust to the contract size that you like but make sure you remember that within each of those contracts that your profit targets need to be relative to how those individual stocks move. I think that's a good discussion this week. Don't be afraid this week if the market don't be afraid of news just make sure you're tailoring your trades to make to remember that we do have news and that volatility will change things. So happy trading everybody.

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Sarah: Hi everybody, this is Sarah Potter from “She Can Trade” and this is the SCT podcast, we are at episode 35, I have TJ here

TJ: Good Morning

Sarah: And today we are going to talk a little bit about how the market shapes in the summer and what to do through the summer months particularly in the market, so we are really in the middle of the summer now, we are moving into mid end of July and then especially as we roll into August, sometimes we can get questions about whether it’s worthwhile to actually trade in the summer or whether we should just avoid it and move back in the fall. And obviously since TJ and I are both trading, we would obviously suggest that yes, there are still great trades to be had in the market, it’s just about being aware of what’s happening in the market and adjusting your trade strategies according to what you are seeing as opposed to may be being too determined and focused in only looking for the same set up over and over again in the summer, so I will suggest the biggest thing that you need to think about summer is you need to be flexible, flexible with your mindset of what you see in the market and then what strategies can work accordingly as opposed to saying, I don’t have a trade calls, I do really well in calls, so you only look for is calls. So I don’t know how is your summer been so far TJ?

TJ: So far it’s been great, trading has been still really great, I don’t know when to really step away from trading in this summer, I think there’s still lots of opportunity obviously, I think I agree with what you say, you do have to match your strategies and market conditions but I think that’s any time of the year, we really have to pay attention to what the markets are doing. I think it was two years ago, memory service we woke up two or three mornings in a row in August and I remember distinctly one morning, the S&P was down over a hundred points premarket and that was in August, that was supposed to be a slow summer time to trade and we were still seeing lots of volatility. Governments don’t shut down, countries don’t stop bickering over the summer, you know there is definitely presidential issues that will continue in September, they are not taking a back seat or a vacation, so I think there’s tons of events that can move the market and that we can trade, we are in earning season right now and it’s the summer that’s creating the volatility for a lot of stocks, so you know, I do agree that, we do need to pick some time to kind of step away and recharge and if that’s the slow week in the summer to recharge your batteries and come back and focus, then absolutely, but I think just a step away from the market because it’s summer, I don’t know, I think things have changed lately, I think with the retail trading and more and more online trading, the more retail traders that are out there trading the market, trading all it around, there is no real season now to it, what do you think?

Sarah: yeah, especially, It’s to know that retail trading and we should mention that, right, we are professional retail traders, you are all retail traders by being involved in the market with someone who is not managing other people’s millions of dollars, you are basically trading for yourself, so that makes you retail trader. Remember, you are basically most likely trading with other retail traders as well and in fact, lot of people might be on vacation so they actually might be bumping up their trading more than ever because a lot of retail traders might have more time through December to actually focus on this, perhaps things are lighter for you at work and so you have more time to really focus on finding stocks or getting better at trading, finding more trades, all of those things can happen in the summer. They can actually be a really great time to test strategies too and I don’t know if it’s just about, depending on where you guys live, just having more sunshine, generally more people are happy through summer, may be if they are getting more because they are on vacation, I don’t know. But I think that means that, there’s lot more people interested in looking at the market and paying attention to it and sometimes when you are not as busy, you can still find trading opportunities as well. So certainly there’s a lots that we have in summer and just because the weather is warm outside, it doesn’t mean you can’t take your laptop outside and trading too right.

TJ: Yeah, that’s absolutely right, I think you make a good point there, how many people have taken some vacation in the summer up at their cottage or the way they pull up their laptop at the dark right on the deck and actually spend time trading or in the markets where, they normally have that 9 to 5 job where they don’t have that time. So, definitely some advantages there, I do think that we need to discuss kind of few pointers and a few things that we kind of should look for in summer trading because, yes, we will have those weeks where, it is just, the volume is just so low and the markets really don’t move. So I think that’s the key point, it’s we need to look for volume, look for those low days, look for those sideways weeks and when we get into those weeks or those days of trading then absolutely those are days to maybe go and improve your golf game. I think we do need to pick and choose when we trade but there is still with 3000 stocks in the NYSE, there is still ample opportunity every week to find your four, five, six trades.

Sarah: so on top of that, my tip would also be in terms of summer is, if you normally trade, let’s say six or eight trades every week, don’t go out to the market and say, I need to find my six or eight trades this week, it has to be six or eight and that’s what I mean by flexibility, this week you might find three because things are slow but next week you might have 14 on, so just be flexible with the numbers, don’t get too caught up in looking for a certain amounts of trades every week, you want to look for good quality trades. Another tip I think I would suggest is being flexible with the industries you are trading as well. Just because, say, you can’t find something in one industry and you love to let’s say only trade technology stocks but things are a little slow in that or they are just not as accountable as they usually are, then look through different industries. Summer can be a great time to try different areas and to try different stocks as well. Certainly the evidence you are looking for still looks the same, so I am still going to look for stocks that have a history to them, I am going to look for something that has a long term trend that I could take advantage of and I am going to mirror that with some other shorter terms charts to find nice entries and exits, I am going to look for a mixture of trades that have momentum as well as the mixture of trades that are pretty well standing still but I might do that in some new stocks that may be I don’t normally look at other times of the year.

TJ: Yeah, absolutely, that makes sense and I think that’s the way I look at it as well, maybe I have been trading Amazon every week through the spring, may be Amazon is a stock that starts to slow down in the summer and July or August, may be it doesn’t, but if it does, I will just move to something else. I think it’s more about, we need to pay attention to and I think be aware of when, which stocks are slowing down and when they are slowing down and just having that flexibility to trade and not be stuck in one strategy or one stock and just keep doing the same trade over and over again for six weeks and when or why it stop working or why price isn’t moving as much as it did three weeks ago.

Sarah: One thing though, I definitely want to mention in the summertime is, for people that look for trade set ups where you are looking for the whole of the market to change directions completely, sometimes because the volume is lower, those kinds of trades at the time is going to eat out a little bit, so what I mean by that is over the last few weeks, we have had a lot of stocks that have started to trend lower, so there’s a lot of people out there who I think are looking for everything to reverse and to start moving up higher again and what they are spending time is buying calls on dips and suggesting, ok, well this has to go up, this has to go up and I would just throw it out there in the summer because we are going to have some weeks that are going to move sideways, if that stock price has a lot of resistance specially on a weekly chart as a result of the last couple of weeks that are sold off, I would suggest it’s actually better to wait for those positions to get through that resistance first and then by the calls, so that traditional philosophy of buying on dips, it still good but I would suggest you really need to look at something like a weekly chart and just make sure that when the stock did sell off that there isn’t some established resistance there, because there is nothing worse than sitting in something like a call, so the assumption that’s going to move higher, but price just moves sideways through the summer because there is not enough volume to get that through that resistance. So may be waiting an extra week before you place trades like that, you could put them down on your short list but don’t buy, don’t get into calls and expect things to pop up right away when it’s moving into resistance through the summer especially.

TJ: Right and I would like to ask you questions well, and we can discuss, this is about expiration and I think that we do, that’s another point that we have to, that trader should look for in the summer is expiration Fridays because it is a Friday, people are leaving work early, they are stopping trading, they have got other things to do on Fridays, that we will see, there is a tendency for a little bit of kind of a slow Friday where we are not getting the moves on Friday that we would see on a normal expiration day, but we can also see what happens is, we get a move and then it kind of just drifts sideways on low volume and then we will see at the end of the day where there is a counter trend move to that, so I think we do have to pay attention to on low volume Fridays to expiration and just keeping an eye on how things are moving and with low volume may be support and resistance that would have held, had there been a lot of traders trading at that levels, you may not hold as well, so depending that we see on a high volume day during the year might not happen in that low volume just because there is nobody trading, not enough people trading those levels to keep price above or below those key areas of support or resistance.

Sarah: Yeah, that’s a good point, expiration can act a little differently in the summer, especially with long weekends too, that’s something to be aware of, but I think most people know that anyways those Fridays can be tricky days in particular, so if you are looking at trades and was thinking about now, we move into August and even into the end of August, and September, when you are setting up your trades also keep in mind of when that long weekend is, may be you want to take the week before or the week after as well and not even deal with that Friday because those don’t characteristically work as well as they would any other Friday throughout the year just because of volume things will now, that can be good or bad but if you want to increase the probability of what generally happens, then I would suggest taking the trade out to expire not on the long weekend, the Friday of the long weekend but take it out another week.

TJ: yeah, that makes sense, absolutely that makes sense, so I guess leave that with one or two trade take aways that our listeners can use over the next few months, so for me, I think it would be watch volume, watch the ATR as well, how much is the stock per moving, is it in a quiet period, is it not in a quiet period and just make that you are trading according to what the stock’s dealing, not what the stock has done three or four months ago, what it’s actually doing right now this week, today.

Sarah: Well, on that and I might may be just agree a little bit, is that I want to definitely be trading only stocks that have lots of history, so that is also very helpful because I do want to know what it has done in the past, I do want to use the but I also need to be setting up my trades to be realistic about what’s going on and you are right, like if it hasn’t happened, may be things to happen the fall, you see things move more than you do in the summer, you don’t expect that the price is going to move like it does in the fall, but we can still expect that it will move as it normally does through the summer time, so you can go back in history and see that stocks do still move in the summer and we still can trade those ones, but I would definitely stay away from newer stocks, I want to take stocks that are trending nicely and then I think my biggest step is looking for trades that are already moving in that direction as opposed to looking for trades that are going to switch directions, you are going to have much more probability of success in the summer because we don’t really know which week or day is going to be slow, we can’t anticipate but that will happen though because it is summer time, so generally trading in the same direction that it’s already moving in is helpful without having to do with any resistance, save the trades for pops and momentums into the fall and into the winter. Alright, another great podcast, I look forward to see you all, remember you can see us trading live in the live trading room at and all of your reviews are really helpful up on iTunes and anywhere you can post them. Happy trading everybody.

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Sarah: Hi everybody this is Sarah Potter from she can trade. And this is SCT podcast. We are at episode 34. Today's discussion is going to be focused around earnings and specifically how do you adjust and trade sorry how do you adjust and focus on your trades through that earning season. Obviously we'll talk a little bit about actually placing trades for earnings as a result of those. But also what do you do with all your other trades what to expect in the market when we have to go through an earnings season. So I have T.J. here.

T.J: Hello!

Sarah: And we're going to discuss this together. I think it'll be interesting also to hear our various perspectives on these kinds of things. So let's start off with a little kind of a definition of a basically an idea of what is earnings and how do you basically think the market moves through earnings season versus when we're not in earnings.

T.J: All right. So earnings we're talking about corporate earnings so every quarter financials companies release their financials and there's a lot of anticipation and a lot of excitement around the numbers or are sales up or sales down. Our earnings up earnings down how’s the company doing and obviously how does that link the stock price. Well, if you're a fundamental investor obviously the more the company's earnings and the better their financial ratios the higher the stock price. So people look for those numbers they look. They read through them they look for a lot of details to see whether the stock price is accurate. If it's a fair representation of where the stock should be trading and if not obviously do they think the stock price should be higher or lower? And the reason we need to watch for earnings is because it's a high volatility event. It's a pretty binary event. So the day before the earnings are announced or the day of there's excitement earnings are announced and as soon as the numbers come out you generally see a decent a big move in the in the stock's price either up or down. So what we need to do is options traders are we need to look for two things coming into earnings. One is we need to look for increased volatility. So we will see on our options chain that the week of earnings and especially coming into the day of earnings the implied volatility of that stock will increase. The other thing we need to watch out for is obviously if we're holding options positions through earnings so if we have put or a call or a spread or any trade that expires after the earnings date that that earnings date can significantly influence the price of the stock. And we just need to be aware of of those potential kind of potential influences when we go through earnings. So Sarah are there any websites or how do you find out, what do you look for where do you look to see when companies are going to have earnings.

Sarah: Yes, so I'm going to SCT up my trades differently through the earnings season than I will other times. And I do think that it's very important to always be paying attention to looking for when those earnings announcements are going to be because it's really going to change the flavor of how that stock is moving. So you guys know when we're trading in the trading room you'll often see us looking at the history of price how it's moving in relation to the broad market and those are really ways that we can identify opportunities to trade. But when we have earnings and earnings season that that announcement is going to change things. It's gonna do it also leading up to it. So you'll notice that I will still trade stocks a couple weeks before their earnings but we're gonna have to deal with higher implied volatility and if I'm buying a collar put I'm gonna have to deal with paying more than what I usually would in anticipation of that. And now a lot of times I can trade really well earnings actually before their earnings announcements so there's some good trades there when we look at how that stock has been behaving moving up to his announcement. We might have an expiry after the earnings but we can definitely take an opportunity to take advantage of a move prior to earnings. So generally stocks especially the more and more there in the media will have a nice move prior to its earnings announcement so we could definitely capitalize on that. So I mean it's tough to find them though right it's not about just okay well it's the next quarter. So all the stocks are gonna be moving because they have earnings announcements, there's going to be times when those stocks actually don't move they're gonna have less of a reaction than what market makers had anticipated would be in that option. And so that's also something to be paying attention to but when we're first looking for trades you can look at something like Yahoo Finance or a market watch or I think actually even some trading brokerage platforms have earnings announcements in them if I am correct on that. Did that do they have earnings announcements right in the platform?

T.J: A lot of platforms do. Definitely they do have the earnings dates. Obviously the other one too is They list the earnings dates you do have to generally current earnings date. If I'm going to be trading the earnings and I really need to make sure that it is that exact date whether it's before the market or after the close. I generally check two different sources because you'll find out as well if you look comb through earnings dates that different websites list may have a day earlier a couple days later. It may not always be that accurate. So I do like to double check there the one thing I do like about earnings I guess we can real really get into some strategies is what happens at earnings? There's two things there's the actual result of what happens and there's a move based on the result of what happens but there's also a move based on the expectations and that's how most stocks move. So if Nike moves up say they've got 75 cents per share of earnings and Nike so if the expectation was only 50 then that look great stocks gonna move up. If expectations were say 85 or 90 cents then the stock could move down as well so we can't look at just the absolute number. It has to be we have to look at expectations we have to look at was it sales was it revenue how do those compare?

And I think that's really what makes kind of earnings such an exciting time because there's so many variables involved. So with so many variables, so many inputs, so many unknowns what are some strategies that we can look at to give us kind of a shot at the best outcome because obviously saying hey I think let me guess I think the stocks gonna go up after earnings that's really a 50-50 trade at best guessing in the direction and we'll probably most likely guess in the wrong direction. So what can we do obviously out of the money credit spreads those are that's a great way to trade earnings you can limit your downside on that by keeping this spread nice and tight so maybe you don't want to do a five or ten dollar spread maybe you want to do a dollar or 250 wide spread. Keep your risk reasonable look for something out of the money as standard and a hat 1.5 standard deviation away staying wait far away from where the expected move is on that earnings announcement. Same thing with iron condors those work really well as well you can also just I mean you can also sell straddles. You can sell a strangle they work out really well again you're playing to the fact that the market thinks there's gonna be a bigger move and then really what's priced in and that's usually what happens. The trouble is they're unlimited loss. So we do have to be careful with that and if we are trading strategies where there is no stop-loss on them or where there is no limitation on what you can lose, we do need to be very careful because nine times out of 10 you're fine but those one or two trades where the earnings is two or three times the expected move. You might see yourself in a loss situation but I do think that there is a lot of opportunity out there to trade earnings. We just have to come at it with kind of a from a standpoint of this is these are some fun extra trades that we're doing. This isn't bread and butter meat and potatoes this isn't how I generate my reliable weekly income.

Sarah: Yeah, I wanted to mention that so when you're trading earnings I think the biggest tip is that you don't want to expect that all of your earnings trades are going to work and I think you need to kind of account for that. So when you're SCTting up trade strategies through earnings let's say you're placing one earnings trade a week through the earnings season that if you look at the collective of all of those at the end you can't have a goal of making eighty percent of those work. Because they won't because those trades at the end of the day are really more 50-50 trades. So as long as you're realistic about that and if you test the strategy over different quarters through the year and let's say you're coming out ahead sixty-five percent of your trades are right through earnings then that is a time that that you want to be adding all more contracts but you certainly want to test that through more than one quarter. So trading earnings is fun because yes it's pretty hyped up everyone talks about it. There's all this great opportunity, absolutely but remember many people don't talk they're losing trades. They only talk about their winning trades and it's with earnings you're gonna have winners and losers to betting regardless of what strategy you pick. But you can still make it work as long as you're very aware of what your percentage is as you move through each earning season. And so perhaps a goal closer to about 65% so you're getting more winners than losers so that overall you're still coming out with profit is important you don't want to just put trades on. And just pay commissions or come out at zero no your opportunity cost is important as well you've spent time looking for those trades and that's really relevant as well.

T.J: Yeah, exactly and I think that is I think that's the key to trading is everybody tries to do the same thing. And I think if you have to find something that works for how you feel comfortable trading and if earnings is a strategy that you can make money at that's fantastic I mean that that's great that's what you need to be focusing on. For somebody else doing the exact same trades they might not look at it the same way or be able to enter or exit at the same time and they may not, they may do the same trades but not but end up losing money on that series of trades. So it's really something that's very personalized and if you can make it work fantastic you just need to realize that with earnings there is a ton of anticipated and unanticipated things that are happening. And it makes it really exciting and there's that potential to make to make some really quick money. As you make that money you place the trade five minutes before earnings are released at five minutes after four and it's usually either max loss or max profit. There's usually not a lot of difference in between and if that's how you like to trade. Then yeah, what earnings is something that you can dip your toe into.

Sarah: Yeah, I think that's a good point let's end on that so we're moving into earnings season now so there's lots of opportunity and I think TJ's got some good examples here on how to kind of keep that risk a little tighter and I do like the idea of still trading but trading out of the money. And keeping that spread a little tighter so that if you some of those trades work great, if they don't that's fine. You're not blowing up any accounts. So look forward to you guys remember we do have our live trading room which is the opportunity for you to see both of us trade live all the time showing our real accounts real, trades, real money. Look forward to seeing you there and happy trading everybody.

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