 Hey, good morning everybody, Lee Lowell here, smartopsonseller.com. Today is Saturday, October 31st, 2020. Yes, it's Halloween. Happy Halloween to everybody. If you're going to be outside tonight, please be careful. Keep your distance, wear masks, and enjoy the evening. Enjoy your candy if you do get some. So, welcome to another edition of the Saturday Synopsis. We take a look at the charts, see what happened over the last week's worth of trading, and we take a look at what may come forward in next week's worth of trading. We also like to look at some free options information. I give you some good tips on how to become a better options trader. We got a lot of questions this week about people that are buying options. They're telling me, leave. The stock is moving in my direction that I think it's supposed to move, but yet the option price isn't really doing that much. It's not really moving that much for me, or it's just not moving at all. So, I've got a very important thing that I want to discuss with you all today, especially about option buying, and how it relates to how quickly the stock can move in or out of your favor, and why it's very, very important that if you have a profit built up, that you may want to look at taking profits early in the game, especially when the stock is moving in your favor, and I'll show you exactly what that means in just a few minutes. But first, let's take a look at the chart, see what happened over the last week, and what may happen moving forward. Let's open up the charts here, take a look at the SPY Exchange Traded Fund for the S&P 500 gives us the best overall view of the whole market. This last week, this week of trading was not great for the market, had a down week. Last Friday, okay, so each one of these bars is one day's worth of trading. Each bar is one day's worth of trading. So Friday, Thursday, Wednesday, Tuesday, Monday. Last Friday, we ended, here is our week, week and a half of last week, part of last week and the week prior. Ended above the 20 day and 50 day moving average, which was good, this little movement here, it was a down week, but we ended above the moving averages. That is something we like to see. On an upswing, we wanna see the markets stay above the uptrending moving averages. Well, this week, that didn't happen. Started the week on a down note and it just got worse from there. This whole week, right here, these five days worth of trading, fell underneath the 20 day and 50 day moving averages, it had a gap here, this was on Wednesday. Wednesday's trading from Tuesday's trading had a gap. And that just set the tone for Wednesday, Thursday, Friday. So we ended the week on a down note, this whole week, right here. So the market has had a week week, meaning it's sold off. And as I said at the end of last week, when I was doing the Saturday synopsis, I kept saying, we've had these three major news driven events here in the US that could either make or break the market. And that is, of course, the US presidential election that is happening. This coming Tuesday, November 3rd, we have coronavirus cases in the US and around the world spiking higher as well, which does not bode well for things, doesn't bode well for the economy. If people are getting sick, that means they may not be able to work or they're losing their jobs. That may mean they may not have enough money to spend and drive the economy. So the coronavirus cases are spiking up. And also in the US, we have the stimulus package to help individuals and businesses during this pandemic. And there's been no progress on those stimulus talks. So all these news events are creating a lot of fear, a lot of anxiety, a lot of stress. And when that happens, the market typically sells off. The market does not like uncertainty, right? The market doesn't like when they don't know what's happening. So the first order of business is typically, let's just sell, let's just sell things. Okay, so that's what happened here in the market this past week, down week, blasted down below the 20 day and 50 day moving averages. What we have below is the 200 day moving average sitting down here waiting to catch any further fall if the market happens to fall further. The 200 day moving average is the next line of support. Now us being more bullish traders, we obviously don't like to see the market coming off so strongly like this. We had the all-time high here drop down, had a nice balance. So some may see this as sort of a double top pattern, double top could be a bearish type of pattern. And so we may be seeing that. If we break below the 320 level, it's a very important number, 320 on the S&P 500. This is the last line of support right here. So let's draw a little line here and show you some things that I'm looking at. So this 320 level right here is sort of like a line in the sand at the moment. Very big support area. And we want to see this line hold. You can see it bounced here. We had a lot of activity right here and some activity here. So the 320 level is pretty important. If the S&P drops below 320 or the SPY drops below 320, it's gonna target the 200 day moving average which is currently a little over $312 right now, 312 level. So we want to see if the market comes off this week, we wanna see some sort of support try to hold here right at the 320 level. And the SPX itself, the SP500, that would be the 3200 level. The SPY is about 10 times smaller. Still doesn't matter. The levels are still the same. The 320 level needs to hold. If it breaks, the 312 level comes into play here at the 200 day moving average. So being bullish, when we sell put options, the market in general, we like things to go up. So we need to see the 320 level hold. If not, we need to see the 312 level hold. If that doesn't hold, then the market's gonna be coming down. This is a very big week, presidential elections in the US on Tuesday. So Tuesday, Wednesday, Thursday, especially if we don't have the results of the election within the, by the end of the week, it could get a little dicey. That means there's more uncertainty around the market. So the market could sell off more. If there's a clear cut winner, then that takes the uncertainty out of the elections out of the way, then hopefully the market could keep going up. And the other thing that we have going on right now is third quarter earnings coming out. We had a big day Thursday after the market, big day for earnings. Major players will take a look at some of those charts and it didn't really go very well. That's why Friday had a pretty good down day as well. So let's take a look at the NASDAQ, see what's going on in the NASDAQ. Same thing. I had this line here from the other week, sort of a double top, just like I was saying with the S&P, double top is typically a bearish pattern. If the market could not bust above this resistance line here, it gets knocked back down. So the NASDAQ had a pretty good sell off. It's been a constant sell off for almost three weeks now, which is hard to take, right? When the market keeps selling off and selling off and selling off, people get stressed out. They're like, why isn't the market going up? Should I sell? What should I do? Should I hold? So it just makes things a little more tense with all this continual selling without any up moves to make you feel better. So you have to understand what's going on in the market and it's a lot of news driven headlines, like I said. We need to get this uncertainty out of the way. We need to get the coronavirus under control. We just need things to start to feel better. We need people to feel better so they more confident with their money. And so the market starts to sell off until it finds the bottom. And the only way to start figuring out, well, where can that bottom be? Is that you have to start looking at the moving averages because anyone who watches charts and there's millions and millions of people who watch charts, we all look at the same thing. So a lot of it becomes a self-fulfilling prophecy. So right now, the NASDAQ has gone down below the 20 day and 50 day moving averages, heading down towards the 200 day moving average. We can take a look back here for some guidance. The market was selling off pretty hard here, came down below the moving averages and all of a sudden it just turned around and went back up. So the same thing could happen here again. It could just bounce out of nowhere. And the reason that might happen is, A, we get a clear cut winner in the election. The other third quarter earnings start to come out really good or the forward guidance, I should say, should be really good. And maybe the coronavirus vaccines will get a real concrete answer that, okay, the vaccines are ready. That could help drive the market higher. It could just turn around on a dime. If none of those things pan out and everything's still uncertain, we don't know what's going on, there will be more selling. We probably come down to the 200 day moving average line as the next support. So let's take a look at the Dow industrials. We always look at all three major indexes. Now the Dow has been the weaker of the three, tagged the 200 day moving average right here. So the Dow has been pretty weak. And so it had just 200 day moving average bounced at the end of the day on Friday, which is good. It bounced off the 200 day moving average. Let's see if we can make this a little bit bigger so everyone could see. So we see it actually fell below it intraday. During the day it fell below the 200 day moving average, but it actually closed above it, which is a good thing. We don't want it falling below the 200 day moving average. So the Dow has a little work to do. Let's see if it could bounce next week, but we have to keep an eye on all the news items. Let's take a look at some individual charts. Thursday after the bell, we had Apple and Amazon and Google and Facebook and Twitter all came out with their earnings announcements. So let's see what happened. Apple disappointed, the market didn't like what they heard. I think the earnings numbers from the quarter were okay, but the guidance probably wasn't where it needed to be. And the market, Apple came off pretty good on Friday. So it's been selling off, now it's below all the moving, the 20 day and 50 day moving averages sell off these last few weeks. So Apple is looking a little weak here. Of course, the next stop could be the 200 day moving average, but let's hope that the bottom feeders come out and say, okay, Apple has gotten cheaper, let's start to buy this thing up. But, you know, we won't know until this next week occurs. You know, it was kind of weak. There's nothing really else to say. Earnings came out, people didn't like what they saw. Let's take a look at Google because Google did very well. Earnings were very good and had a pretty monster day on Friday. It was one of the only stocks that was in the green on Friday. So Google was looking good, earnings were good. It had bounced long ago off the 200 day moving average and has been steadily rising. So Google was good, Amazon, not so good. The results were not that good and we'll look at this big down move in Amazon yesterday, Friday, October 30th. So not so great with Amazon, but we know Amazon is like the biggest seller of everything in the world, right? So it won't be held down for long because people are going to keep buying stuff. So I say this is a temporary short-term blip down, probably a good buying opportunity for some people. But if it keeps selling off, you've got the 200 day moving average line down here's support. We don't want it to come to that because that's a lot of selling. We don't wanna see that. What else happened? Twitter did not do so good yesterday. Look at this big move down in Twitter, not good. Here's a huge gap. Here's where it closed on Thursday. Here's where it traded on Friday. So you've got this huge gap right here that now needs to be filled at some time in the future. Twitter closed below the 50 day moving average as well. You can see on the chart, this bar, this little dash on the right-hand side of the bar is that's where Twitter closed for the day. And it closed below the 50 day moving average. Had some pretty good selling in Twitter. So I will have to see, will the selling continue? If it does, always look to the 200 day moving average as the next line of support, but it could just bounce out of nowhere. Stocks tend to do that at times, just bounce out of nowhere. So we'll see what happens. Last one, Facebook, I think, came out. Earnings also had a pretty big down day on Friday. Closed below the moving averages. Still in the uptrend, okay? You have to look at the long picture too. You have to look at the broader view. Still in an uptrend, we could see this as maybe a temporary pullback. I mean, we want the stocks to go up over time and so does the market. And I think people will see value and we know things are going to get better in the future. The market is an optimistic place. So even though things sell off, the market continues to go up over time. Let's take a look at the SPY one more time and take a long view. Let's move out here to a monthly view, okay? Here's the long view. Market goes up over time. Yeah, we have some pretty nasty dips sometimes. Got the dip, dip. But over the long run, market goes up. So you have to take the good with the bad. Are you able to stomach some of these moves? If so, you hold on for the long haul, the market goes up. If you're playing in the market to pay your bills, to pay the mortgage, to pay the electricity, it can be pretty treacherous because on a day-to-day basis, week-to-week basis, the market can be very erratic and it can scare you out of your positions. You hold on for the long haul, the market will reward you but it does take some patience at times. So it can be a little treacherous. Let's just hope the S&P 500 can hold at this 320 level or the 3200 level on the S&P 500 itself. This week could be a very big week. It's make or break right here at 320. So keep an eye on that. All right, so that's it for the market assessment. Let's hope we have a good week next week. Let's move on to our options information for today. This is a very important concept I wanna talk about because it has to do with how and when you can take profits if you have a profitable position built up in an options trade. Lots of people, they like to hold until expiration because they wanna get as much time as possible out of their trade, right? If you bought a three-month option, you typically would wanna hold it all through the three months to get as much out of it as possible. But sometimes that's not always the best thing to do because options can decay over time. We've talked about this before. It's called time decay. And each day that an option is in existence, it will lose a little bit of its value every single day because of the passage of time. Doesn't matter if the stock's going up or down, the option will still decay a little bit every single day. It'll lose value a little bit every single day because of time decay. Time is slipping away towards expiration. So if you have profit built up after a week or two and it's a decent profit, consider taking your gains. And I'm going to show you exactly why I say that. Let's go to our option calculator here. This is from iBallatility.com. Talked about iBallatility many times before. This is their option calculator. And an option calculator is used to figure out the call and put option values at various prices of the stock or various strike prices. You can change the expiration date. You can change the volatility numbers. You can change the price of the stock. You can do what if scenarios. And what if scenarios are, what if the stock moves up 10%? What will my option contract be worth? Well, what if volatility falls 2%? What happens to the option contract? So you can run through these scenarios. But I'm going to show you something that's very important and why you should consider taking profits very quickly if the market moves in your favor right off the bat. This option calculator has defaulted to Microsoft as of the closing prices yesterday, October 30th. And Microsoft closed at $202.47 right here. And the calculator defaults to the at the money strike and the most current expiration. But I want to show you something here. Let's consider that yesterday you bought an out of the money call option on Microsoft. You think Microsoft's going up so you want to buy a call option and you ended up buying out of the money call option. And what does that mean? Well, the strike price, we're going to choose a 230 strike price. While Microsoft said $202.47, you bought a $230 call, let's say, 230 strike price call option because that is a both strategy and you think the stock's going to go up over time. And you want to take advantage of that. Now let's move out to 90 days. That's a typical timeframe that some people would like to play with to give themselves 90 days to be right. They think Microsoft's going to go up over the next 90 days. And if so, typically a call option should gain value over time if the stock moves up in your favor. But I want to show you what happens over time that that's not always the case. So in this situation with Microsoft at $202.47, we're looking at the 230 strike price with 90 days out. What's the value of this call option? So right here we can see this call option is worth $4.17. Let's just say you paid $4.17 for this call option yesterday. And let's say Microsoft quickly jumps up to $225 in the next 10 days. So we'll change the price to 225 and we'll change the expiration down 10 days. We're going to give up 10 days and see what happens. When we click Calculate, before I click this, you see the options worth $4.17. Now Microsoft just jumped about $12.5 per share and or was it $20 something a share, right? So hit Calculate and you're going to see the call option value gain pretty good. All right, that's what happened. So Microsoft jumped a great deal in 10 days worth of time and the option has now risen to $11.14 a contract. You can sell that out if you wanted to. You'd make almost about $7 a contract. That's $700 that you can make on that contract. Now that's because Microsoft jumped from its original price in just 10 days time. Now that was a pretty big move, okay? So let's reset the numbers here. So Microsoft was at $202.47, it jumped up to $2.25, so it just gained $22.5 or so, $23 or so. And obviously the price of the call option went up. So let's see what happens if the, let's move this back to the 230 strike with 90 days to expiration, make sure we're on the same page again. Okay, so the starting value is $4.17. Now let's just say Microsoft does jump back up to $225, so it's gained $22.5 per share, but let's say that move took 70 days to occur. What happens to that option value now that it took 70 days for that jump to happen instead of 10 days? And when I hit calculate, you're gonna see something very interesting. Click calculate and there you can see what happened. The option price barely budged at all. Even though Microsoft still went up $22.5 a share, it took it a very long time to make that move. And you can see that option value barely budged at all. So there's a very important point here is that people will say, Lee, you know, the stock moved in my favor, but my option price didn't really go up so much. Well, that's because it took the stock 70 days in this case to make that move, that $22.5 up move, which is a great up move. If you own the stock, you're pretty happy. You just made $22.5 per share, but if you own this out of the money call option, the stock still made that same $22.5 jump, but it took it so long, it took 70 days to make that move that the options not going to respond as much. As you can see, it only went up about 70, 65 cents a contract, not a lot, but if it makes the move in 10 days, let's just jump to 10 days, you can see that the option contract value goes up over $11 per contract. So how quickly the stock moves in your favor is very important when you're an option buyer. You need the stock to move very, very quickly if you're an option buyer and it has to move quickly in your favor. If the stock doesn't move at all, you're toast, okay? So just think about this. If the stock moves in your favor quickly, think about taking some profits. You got a lot of money here. If you just sit there and let it do nothing over time, let's move down to say $60 a contract, 60 days left before expiration, now the option's starting to give up value. Even though the stock's the same price, time is ticking away. That means that option value is eroding as well. So be very cautious when you're an option buyer and the stock moves quickly in your favor, take some money off the table, take some of those profits because you know over time, you may end up giving away. So that's it. That's my little lesson for today. I wanna make sure everyone's aware that just know time decay is a real thing and it sets in. The longer that it takes for that stock to move in your favor, the less that option's going to move for you. So just remember that. Okay, lastly, let's go quickly to our website, smartoptionseller.com. Don't forget our put selling basics guide. This is how you sell put options. Free guide right here, click on put selling basics or you can just go to our homepage and put in your name and email address here. You will get a free copy. We love selling put options. That is our bread and butter. So let's learn about that. We have our services. Two newsletter, smart options seller newsletter, vertical spread trader newsletter. We always sell put options. One is put options and one is put option spreads. You can also contact us about our one-on-one coaching if you need some personal help. Okay, that's it for me today. If you like this YouTube video, please don't forget to subscribe in the bottom right-hand corner of that YouTube video. It's the red subscribe button. Give me a thumbs up if you like the content. You know, give me a comment below, give me a question, send me a question. Email me, I love hearing from you and I will always answer. Okay, that's it for me today. This is Lee Lowell signing off. Have a great week everybody. Happy Halloween.