 Hey, good morning, everybody. Lee Lowell here, smartoptionseller.com. Today is Saturday, October 17, 2020. Welcome to another edition of the Saturday Synopsis. Hey, listen, I've got some great free options information today. I got a lot of people asking me to explain the option Greeks to them, the option Greeks for some of you in the know. Some of you may not know, option Greeks are byproducts of the option pricing formula. And there are four option Greeks that we will talk about today. And they are Delta, Theta, Vega and Gamma, two of which are more important than the others. So we will go on to that in the next few minutes and so stick around for that. But what are we going to do right now? We're going to talk about our Saturday Synopsis. I look at the charts, see what happened over the last week and give some predictions of what we may see ahead for next week. So let's dive right in. We always open up to the SPY Exchange Trader Fund for the S&P 500, gives us a good overview of the whole market. What has happened over the last week for the S&P 500? Well, here's where we ended last Friday, this little bar right here. We had a nice open to the upside on Monday. Spent the rest of the week though, moving to the downside, not a lot of action, pretty tight range. So ended the week on a down note, not so bad, but still finished above last Friday or right around the same value. So what I'm seeing here is that took a little pause. We've got some big things happening on the horizon. Earnings for two, three quarter, third quarter earnings just started coming out last week and over the next few weeks, we're going to get a lot of earnings. So that could make or break the market. But what we've seen is that expectations for earnings have been lowered way down, of course, because of the coronavirus. So analysts estimates for earnings have been lowered very strongly. But if a lot of the companies can produce earnings that beat those lowered expectations, then things will look good, especially if they come out with good forward guidance. The market always wants to look ahead. So if companies come out with good forward estimates, that's the most important thing. In addition, if they beat the lower guidance, that's good as well. So we have to see where earnings are. Of course, we have the US presidential election happening in the next few weeks. So we've got some big news items happening. But the market has support. Central banks around the world are still propping up the markets. A lot of money moving into the system, the financial system. The US is trying to pass another stimulus package due to the coronavirus. Want to give out some more money to businesses and individuals. So the governments are doing everything they can. So barring any other major news event, a bad news event, I should say, the market wants to go up. It wants to keep moving higher. And if these earnings are showing good future guidance, the market will continue to go up. The SPY still wants to take out its all-time new highs up here. So we may have this little pullback here, but I still think the path of least resistance is higher. Let's look at the NASDAQ. Let's see what the NASDAQ did. Kind of looks the same. Had a nice jump on money. Had this gap up move. See this gap right here. Had a gap up move. Spent the rest of the week kind of pulling back. Small range, not too much. You can kind of see it gaining its footing here. And probably will want to take out the all-time new highs relatively soon. Let's look at the Dow Jones. And we see roughly the same. Had to move up on money. The rest of the week pulled back. Although Friday had a little nice up move here. So this is good. Dow still needs to take out this high and then the all-time highs over here. Small ranges this week. Let's take a look at the VIX. I don't think we looked at the VIX last week. Volatility still come down from the all-time highs near the heart of the coronavirus. And just kind of treading water. When volatility kind of meanders like this or flat lines, that means things, people are pretty complacent. The market is moving up slowly and steadily. And that's when volatility either comes down or flat lines. So volatility's just kind of hanging around here. Still a little higher than our usual volatility levels down here. But of course, well below where it was. So volatility's come down. Option buyers, you're happy with volatility being cheaper. Because volatility is a determinant of option prices. But still a little higher than all-time lows or I should say our usual volatility levels down here. And the VIX of course moves inversely to the general market. So let's take a look at some individual stocks and see what they did over the past week. Apple. We looked at Apple. Apple was making this nice little congestion triangle pattern. And once it moves out of the pattern, it continues to move up in the same direction. So it blasted out to the upside. Consolidating here a little bit, I think Apple of course is going to keep moving up. Amazon, we'll look at. Amazon had this little downtrend channel. We had this move down, you know, maybe a month or so ago, six weeks ago. Pulled back, scared a lot of people out, but found its footing and moving back up. So it's up in this uptrend channel and had a nice move this week. Blast it higher on Monday, but did spend the rest of the week coming back down. I have to believe this is just a pause in the uptrend. And of course, Amazon is going to look to take out its all-time highs here. Let's take a look at Google for a second because I wanted to show you some price patterns that's also shaping up on some other charts. Google we talked about a couple weeks ago bounced nicely off the 200-day moving average right here. 200-day moving average bounced nicely and has had this nice move up. What I'm starting to see here in Google, and let me draw this pattern out, I'm starting to see a little bit of a bullish flag pattern. We've got the flagpole here, and let me darken this up and widen it out so you can see what I'm seeing. We've got the flagpole there, and then we've got the pennant right here, the little bullish pennant part. And let me widen these out, darken these up so you can see. So technical analysis like this, there's a little bit of manual labor involved. Got to put these indicators on here so you can see them. Okay, so there is the little bullish flag pattern. Got the flagpole and a little bit of a down movement of the price. Once it finds its footing, eventually it should move blast out to the upside. So I'll keep this pattern on here. We'll take a look at it over the ensuing weeks and see if the pattern where Google wants to take out its all-time new highs here. Let's take a look at Twitter because Twitter, we got into a trade this week in our newsletters. Looking very bullish, Twitter had been hugging the 20-day moving average of the blue line right here. So it usually bounced right on the 20-day moving average. If not, the 50-day moving average was there to catch it. Had a nice little pullback here, bouncing right off the 20-day moving average. We decided to get into a put-sell trade. I can't give you the specifics because it would be fair to our paid news letter readers. So we're looking bullish for Twitter short-term trade. We sold some put options on Twitter. What else we have? Let's take a look at Tesla because obviously everyone seems to love Tesla. I had drawn this triangle pattern, this very wide triangle pattern, congesting, getting tighter, tighter, tighter, and eventually it has to release that energy to either the downside or the upside. Tesla wants to break out to the upside. It did break out to the upside. Had to pull back this week just like everything else. I think once it gets its footing, Tesla is on its way back up to $500 a share. Some other stocks that we looked at, price patterns, Procter and Gamble, looked at the triangular flat top, blasted up through the resistance, and meandered a little, and then yesterday, Friday, October 17th, 2020, October 16th, I should say, made all-time new highs. So Procter and Gamble busting out lows. We looked at this. This is the lowest company. Same thing, triangular flat top. Once it gets through the resistance, it's on its way up. Blasted out the little sideways action. And now yesterday, October 16th, 2020, all-time new highs. We've looked at Oracle too before. Had the pattern, triangular pattern, mostly bull triangle pattern. And once it blasted out, started move to the upside just like we thought. Pulled back this week, but it is sitting right on the 20-day moving hour time. I have to believe it's going to move back higher. Try to take out the highs here from the other week. So that's it. I'm always looking for price patterns, always looking for support and resistance. That's what we do as we look at the charts. So that's it. Let's take one more look at the SPY, trying to get a gauge of what may happen next week. Once again, this could be a little bit of a bull flag pattern as well. Pulled back this week. As long as there's no bad news, I have to believe the path of least resistance is higher. So I think the SP500 still wants to go up. So earnings is the big thing. Presidential election is a big thing. This is all coming up in the next few weeks. So keep an eye on those. All right. So that's it for the market assessment. Let's talk about our free options information today. We're going to be talking about the option Greeks. People have been asking me, help explain the option Greeks. What are they? So let's go to our cheat sheet and talk about the option Greeks. There's four option Greeks that come out of the option pricing formula. And the option Greeks are there to tell you how your option contract will perform over a period of time based on the change in the stock price, based on the change in time to expiration. So all these Greeks can help you become a more knowledgeable trader. Now, two of them, like I said, are more important. And that's delta and theta. We spent a lot of time on delta over the past. I made videos about delta. Delta is very important, but it has three different definitions. The first of the definitions is the most important, in my opinion, is that it tells you, delta will tell you how much your option price will change in conjunction to a change in the stock price. So if you buy or sell an option, you want to know how that option price is going to change in conjunction with how the stock moves. Very important. Now I talked about buying deep in the money call options. You want a high delta. Delta's range from zero to 100%. The higher the delta, the more that option price is going to move when the stock moves. If you buy a very low delta option, it's not going to move so much. It's not going to do much for you. So that's the first definition. The second definition of delta tells you the chances of the option contract being in the money at expiration and being in the money means it has intrinsic real value. So if you bought a 50% delta, which is an at the money option or if you sold a 50% delta option, it's telling you there's a 50% chance that that option will be in the money at expiration. But it is not a guarantee that you're going to make money on that option. So don't get confused by that. Being in the money doesn't mean that it's profitable. Here's what I mean by that. If the stock's at 100 and you bought the $100 call option, let's say for $5 a contract, your break even is $105 a share. Let's say at expiration, the stock closes at $102 at expiration. Well, your $100 call is still in the money. It's in the money by $2, but it's only worth $2. You've paid $5 for it, so you've actually lost $3 on that trade. Even though the option contract is still in the money, it's not a profitable trade for you. You've actually lost $3. So don't confuse being in the money with being profitable. The third definition of delta is mainly used by floor traders, Wall Street professionals, hedge fund managers. And it tells you how many shares of stock or futures contract you have to buy or sell to offset any option position that you currently have. Now, when I was a floor trader on the NIMEX, if I bought some call option contracts, I would immediately have to sell oil futures contracts to offset the delta position I had, because I didn't want to have a directional position. So if I bought call options, that meant I had a positive delta position. So I had to offset that by selling futures contracts. So in this case, the delta would tell me how many futures contracts I would need to sell for any option position that I purchased or sold, either way. So that's not really necessary for individual traders like us. We're not trading like that. For us as individual traders, the most important definition of delta is how your option contract will respond to any movement in the stock price. So that's delta. Let's talk about theta. Theta is very important as well, as both an option bar and an option seller. Now, theta will tell you how much that option contract will decay or lose value just because of the passage of time. Even though the stock may fluctuate, even though volatility may change, just because time marches on, the option contract loses value no matter what. Now, I've used this example before. Think about the ice cube. You put an ice cube on the counter. Now, at first, you won't see it melting a lot. It will melt very slowly. You might even not be able to see it melt. But over time, it starts to melt faster and faster. As it gets near to the end of its life, it turns into water very quickly. Same thing with options contracts. If you bought a, let's say, a six month, if you bought a six month option contract, you're not going to see a lot of decay early on. But as it moves towards expiration, you're going to see a lot more decay. Now, what do I mean by that? Well, let's take a look at, let's go to eyeball utility. And we're going to look at their option calculator. I'm going to show you how theta works and how much money is lost on a day to day basis just because of the passage of time. Now, you can use any option calculator you like. I use this one from eyeball utility.com. On the left-hand side are the inputs and the right-hand side are the outputs, meaning it's going to show you the call input prices. So we've defaulted to Microsoft, and we're going to look at how the at-the-money option with six days left before expiration will perform on a theta basis. So we've got $219.66. That's where Microsoft closed yesterday on October 16th. We're going to look at the at-the-money 220 strike. And we're going to concentrate on the call option. It's worth $2.82 per contract. Now there's six days left. I want to show you what happens. I'm going to change this from six days down to five days. Just one day time. You'll see how much the option loses value. And you can know ahead of time how much it will lose because all you have to do is look at the theta number right here. This is telling us that this option will lose roughly $0.25 per contract. $0.25, that's a big deal. That's $25 per contract that this option will lose overnight poof gone just because of the passage of time. So this option is worth $2.82 today. I'm going to change this. The only thing I'm going to change is I'm going to move this down to five days. And you're going to see now the interest rate changed just slightly, but it has no effect on the option price. When I hit Calculate, you're going to see this option value declined by about $0.25 per contract. And that will put it at maybe $0.257 per contract. Hit the Calculate button. And there you go. It actually lost $0.26 of value. It went down to $2.56. So overnight, just because of the passage of time, stock price didn't change. The option lost $0.26 of value. That's a big deal. If you're an option buyer, you want to give up $0.26 of value overnight. If you're an option seller, we like that. Decay is good for us. Now let's go back and change this back up to six days and you'll see how that works. Change that back. And volatility stayed the same. Hit Calculate. So now we're back up to $2.82 per contract. Now this is a big deal. Now let's move out to about 180 days before expiration. That's about six months in time. And let's get a starting value. So $19.86. That's what this call option is worth. 180 days left. Still got the same price for Microsoft 220 strike. Now you can see the Theta is only $0.05. It will lose overnight. Compared to what we just looked at of $0.26. When you have more time to expiration, think of the Ice Cube. When you first put the Ice Cube on the counter, it's not going to lose a lot of its shape. It will melt very slowly. It's the same thing with options. That's six months left. You're only going to lose about $0.06 per contract over the change of one day's time. So let's move this down to 179 days. Now remember, we want to make sure everything else stays the same. 179. Change that. Okay, we'll change the volatility back to $0.3327. And you're going to see this option lose about $0.06. Hit calculate. And there you go. It dropped down to about $19.80 a contract. It lost about $0.06 overnight. So that's a big deal with Theta. So the longer the option has until expiration, the less it's going to decay on a day-to-day basis. But if there's only a little bit of time left, let's move this back down to $0.06. Six days, I should say. You can see that the option now Theta is back to its $0.25 loss per day. So you can see as time marches on, the Theta gets bigger and bigger and bigger. That means the option is going to lose its value at a much faster and higher rate. So Theta is a big deal. Okay, so don't make sure you take Theta into consideration. Let's look back at our other two Greeks. We've got Vega and Gavit. Now, these two aren't so much important to the individual trader like us. They're really geared towards floor traders and Wall Street professionals. Vega will tell you how much the option price will change with a 1% move in volatility. So if the stock's at a 30% volatility, what will happen to the option price if you move it up to 31% or 29% volatility? Volatility is not changing that much on a day-to-day basis. So Vega doesn't really come into play so much for us as individual traders. But if you want to know, Vega tells you how much the option will gain or lose per day based on a change in volatility. Gamma, the last of the Greeks also geared towards Wall Street professionals, floor traders. Gamma is the speed of movement of the Delta. We all know Delta changes, higher or lower based on where the stock moves and based on how much time is left towards expiration. Those things affect Delta as well. Gamma will tell you how fast that Delta is going to change when the stock price changes or time to expiration changes. So it's not such a big deal for us as individual traders. Floor traders who need to know up to the second, up to the minute information, Vega and Gamma is a little bit more helpful for us, not such a big deal. So there you go. There is your little lesson today on the options Greeks. I wanted to give you that information. Once again, Delta and Theta are the two biggies that you want to concentrate on. Those really can help you become a smarter and better option trader. So that's it. Let's go back to our smart option seller website. I want to just mention a couple of things. Go to our website, click on the put selling basics. This is our free guide on how to sell put options. Selling put options is our bread and butter. That's what we do here at the smart option seller. Get your free guide and it will help you become a better trader. You can always click on our services tab. We have two newsletters, smart option seller. We sell naked put options, vertical spread trader. We sell put option credit spreads. And of course, our one-on-one coaching. Getting a lot of students here, this is great. Do you need a little hand holding? Need a little more information on how to take your options trading to the next level? Consider our one-on-one coaching. Now here in this YouTube video, please, if you haven't subscribed yet in the bottom right-hand corner, hit that red button, subscribe. Give me a thumbs up if you liked this video. If it's helpful to you, give me a comment below. Ask me a question. I will always answer. Tell me what else you want to see in these videos. I'm always up for new ideas. So that's it. That's all for me today. I wish everyone a great weekend and have a great trading week ahead. This is Lee Lowell signing off.