 Welcome to Access a Trader, the number one community for those who are committed to taking control of their trading in order to achieve success, profitability, and longevity. Thank you for joining us. Here's Dan Shapiro to help you find your edge, master your process, and own your future. How do you specifically hedge your overnight holds? It's a wonderful, wonderful question because so many of us, well, so many of you guys, we've been doing this for years, but so many of you guys have finally realized the importance of hedging. Hedging is one of the greatest things you can do with your account when you have overnight exposure. Obviously, if you have overnight exposure and you're holding something overnight, what's the most basic thing you want, right? If you're holding something overnight, you want the stock to gap up, right? You're not buying, you know, you're not buying Procter and Gamble and holding Procter and Gamble for a day trade, you know, a name like Procter and Gamble and Lowe's and, you know, General Electric and anything else is under the sun. Most stocks are not tradable, right? Think about it. They're not tradable stocks. They're investing vehicles. So Tesla is a lot different than GE. Amazon is a lot different than Procter and Gamble. You know, Apple is a whole lot different than, you know, anything under the sun. And this is why there's only 10 to 12 beta names that we concentrate on pretty much 90% of the time because when they do go and they go macro, okay, technically, there's a high probability they're going to gap up, right? They're going to test 7, 10, 12, $15, right? These are big, big, you know, these are big things in your arsenal when you get the green light from the daily chart. Unfortunately, most stocks not like that. They don't go up 18 cents, go down 20 cents, go up 30 cents, go up 40 cents, and they're that traditional swing trading vehicle. When you're trading a name, for example, like a name like Tesla and it finally breaks out, let's just pretend this is tomorrow is the first day and it closes above this channel. Obviously, you're going to want to be, you know, you're going to want to be, you're going to want to be along the stock because it's finally giving you a green light on the daily chart. However, right? And this is the however part. We also know that right now we are in a headline market, which basically means there's a lot of grenades pointed at you, right? There's a lot of rockets, a lot of landmines that you can stop. They could literally stand on. Number one, the debt ceiling on and off. We don't know what's going to happen, right? Obviously, I think it's going to get done. Does it make a really difference? Again, like I said in the video yesterday, does anybody really care at this day and age if the government is close for a week? I mean, what are you going to get? Not get your stamp? Who cares, right? So more important is you have a lot of headlines. You have China all over the place. And if you guys, I don't know if you guys saw this news over the weekend, you know, they started talking about, again, delisting, right? So there's a lot of volatility coming out of China. You got debt ceiling up in the air. You have your Fed. Do we taper? Do we not taper? A lot of people are turning around and say, well, how can you taper? How can you taper now? Again, most people have not recovered from this whole pandemic thing. How can you start raising rates? Doesn't make sense, right? So there's a lot of things on the table. You got the debt ceiling. You have China. You have tapering. You still got Afghanistan floating in the background. You have so many things that are headline driven right now that anything... And by the way, you have these surging yields that are always bad for tech, right? When you have surging yields, that's not a good thing for tech. If you guys remember a couple of days ago, we, you know, gapped down, whatever it was, 500 points for technology, right? That's a surging yield. So you don't want that. So there's a lot of dangers right now in the market. And the last thing you want to do is be the long overnight, okay? Long overnight in the market. Absolutely naked. Even if you are, even if you are trading on the option side, and let's just pretend you allocate X amount of dollars to your covered position. You're not going naked to a covered position. You at least, you know that your max pain is going to be if that option goes to zero. The point is when you have a headline driven market, and sometimes you could throw a curveball, you kind of want to sleep at night. Okay? And that's the most important thing. So what you guys saw, and I think a lot of you guys did incredibly well with the hedging aspect of kind of what we do is if you are long, for example, a Tesla overnight, and again, the only reason you should always belong anything overnight is if it finally confirms the macro range. So if it closes above this channel here, come Monday, and you say to yourself, wow, look at all the option flows coming in. I want to be long Tesla, right? And again, you should, right? But again, in the back of my mind, you're saying to yourself, well, man, the last thing I want to do, okay, is be long anything overnight and have, you know, and have, oh, Evergrande. We told you if we got about Evergrande. Evergrande come out and say, hey, by the way, we missed our payment. We're not going to be able to do it. Now is a good possibility default. I don't care what you're long overnight. Okay? Your stock is smoked the next day. You know, futures down 500. I don't care how good the Tesla setup is. Your Tesla position, your Tesla's down 1520. Okay? I don't care how good it looks. So the most important part is when you're driving, when you're, excuse me, when you're trading, especially an overnight market, what you want to do is be hedged, right? So you're along your underlining equity. And now you're asking yourself, well, what's the most, what's the most, where's the biggest bang for my buck, the biggest safety instrument that I can be short against my underlining equity. So in case the market implodes overnight, all possible, right, I will be protected. I don't have to wake up four o'clock in the morning, sweat overnight, you know, can't sleep overnight because I'm in a position and I'm worried about it. So the best way to hedge technology, right, whether you're along Amazon, Tesla, Apple, Facebook, any name in the Nasdaq 100 is being short the queues. Okay? And what that does is you are now putting the overnight, right, the overnight risk element you're starting to shrink. And what happens is if you are, and we saw this, right, that was the coolest part about your question, James, because we saw it three times this week. You guys remember Monday and Tuesday, right, long Tesla overnight, and Monday and Tuesday, guess what happened? The market gapped down every single day. The market, matter of fact, gapped down the first two days of the week, right? And what happened was the underlying security, one day Tesla was down 12, the other day, excuse me, one day Tesla was down 7, and the next day Tesla was down 12. But the whole point of hedging, you are taking the queues and you're shorting them overnight. So in case the market decides to gap down, what you're doing is you are covering your short hedge, right, your short hedge on the queues. And if the stock is strong, we all know how aggressive and how really meaningful these daily charts are, especially in cult names like a Tesla, that you can make money on both sides. So if you have a gap down in the market, you cover your queues, right, you cover your queues. And obviously if you are taking Tesla overnight, that means you confirm the night before that there's a high probability that the stock will go green at least once for the day. And what we saw this week, that's exactly what happened, right guys? First day, long Tesla overnight, short queues, the market gap lowered. Remember that really aggressive move down? Queues were down 7. You very rarely see the queues down that much, but that's the whole point of throwing a curveball. So your underlying security actually outperformed your hedge. And if you guys remember Monday, right, Monday, you cover your queues, and Tesla went up $12, $13 that day, right, so you made money on both sides. So what you're basically doing is any Nasdaq name that you like, that you love, that technically is a go, the option flow market is dictating higher prices. The one thing that you do want is kind of protection in a really aggressive, right, a pretty aggressive headline driven market. And the last thing you want to do is go home overnight naked, okay, and have this really big multiple hit the headline and you're down 20 points in your position. So it's a really good way, it's a really good way to kind of make yourself sleep at night, decrease your risk. And as you guys saw, and not only did we see this on Tesla from the long side, we saw this, we saw the Amazon, right? The Amazon short from yesterday, right, from Thursday night into Friday. Amazon closed below, right, we saw this on Amazon as well. Amazon closed below $32.90, right, $32.90. So Amazon was a short overnight, and that was the opposite, right, you were long queues overnight, short Amazon, and guess what happened on Friday, right? Market actually gapped up again, queues were up $1 and changed, almost $2, okay, and what happened after? Amazon rolled over because again, there was a technical sell signal on the close on Thursday, and Amazon went down at some point, you know, $25. So you made money on both sides. That's obviously the best case scenario. But in a weird way, if you're a long Tesla overnight, you want to lose money on the hedge. Think about that, right guys, because if the NASDAQ 100, right James, if the NASDAQ is up $100, Tesla's up $25. You know, Tesla's up $15, Tesla's up $20. So you'll lose $2, $3 on you queues, but you're going to make $15, $20 on Tesla. So in a weird freakish way, you kind of want to lose money on the hedge. You know, it's going to decrease your profit, but it's going to let you sleep at night, give you a possibility that you could actually make money on both sides of the market. If indeed you have a lower open, and just because these are cold stocks, right, these are cold names. The best way to do it, the best way to do it is just kind of having a hedge overnight and kind of a follow up question. Matthew just asked what should be the ratio between the position and the hedge. We kind of went over this a little bit on Friday in the webinar. I don't know if you were there. There's a couple of ways you could hedge, right? You could do it dollar for dollar. Okay, so for example, and I'm just throwing an example just to make it easier. If you have a $10,000 position, right? If you have a $10,000 position on the long side, you could have a $10,000 position on the short side as a hedge, right? But the problem with beta, okay, and this is the biggest difference between hedging your portfolio dollar to dollar versus hedging your data name dollar for dollar. It's not going to play out, okay? Every stock is a little bit different, Matthew. So for example, Amazon can have a $50 range throughout the day. Obviously, you're not going to buy $10,000 worth of Amazon and $10,000 worth of Qs because your Q position is going to be much bigger than your Amazon position, right? And I'm just using, you could be sticking with three shares, you know, three shares of Amazon versus, obviously, rambling different numbers versus, you know, 100 shares of Qs. Obviously, you don't want that. The Qs go down six. You're down six points on Qs and you're up $18 on your Amazon position. You don't want that. I think the best way, we've kind of gone individually. I think depending on which stock we want to be long overnight, right? You kind of want to go individually. So for example, Apple, right? Apple, you have to look at Apple's chart and you say to yourself, well, what's Apple been doing for the last three, four days on these gap downs? If you guys notice, Apple has been, you know, probably within, what would you guys say? About a dollar and a half, what would you guys say? About a dollar and a half, $2 every single time the stock gapped? So you kind of want to use that as, you know, you kind of want to use that as a barometer. So you say to yourself, well, if I want to be, I'm just using Apple as along in this case. If I want to be long Apple, and I already know it's been gapping lower, you know, a dollar and a half, $2. What should I, what should I, how many Qs should I take to kind of, you know, to kind of offset that? Okay. But at the same time, I still want to be long. For example, on the Qs to Apple, you probably want to, because basically on a gap of the Qs $2, you're probably going to have a gap of Apple, about a dollar and a half. So you probably on Apple, you would want to use one and a half to one ratio. So for every, let's just say 150 shares of Apple, you're going to want to be short 100 shares of Qs. But at the same time, when you're talking about Tesla, right, that's a whole different thing. Tesla, for example, you might want to be short, you know, for every 30 shares, I'm just using the easy number, for every 30 shares of Tesla long, you kind of want to be short 100 shares of Apple. So you kind of want to, you know, you want to kind of track what's been the gap up and gap down ratio, okay, for the last week or so for the stock based on current market conditions. And at that juncture, okay, at that juncture, you can make a definitive adjustment of how many shares you want to be long versus how many shares you want to hedge your bet because every stock is different. It's a lot easier, guys, it's a lot easier if you have a $100,000 portfolio, right, of stocks like, I don't know, McDonald's, McDonald's, Procter & Gamble and GE and you say to yourself, okay, you know, I'm not really in love with this market. Let me short $100,000 worth of spies. That's different, right, you have a portfolio that's not aggressive, that's not volatile, but you want to, you know, you're a proactive investor, right, you're a proactive investor and you're just trying to, you're just trying to curb your risk as the volatility increases versus taking a specific position and like Tesla, right, everybody knows is a little bit different. Tesla could be up 30, Tesla could be down 30. It's a little bit different than turning around and say, well, I have $50,000 worth of McDonald's, I don't like the market. It's a little bit scary. Let me short $50,000 worth of spies just to kind of hedge my position until the coast is clear. So it's a little bit different. And Matthew, the greatest part about it is I think every position kind of going forward. Let's just talk about that position around two o'clock in the webinar, right. So we kind of know, you know, instead of guessing, we kind of know what we are. But yeah, everything is a little bit different. Beta is a little bit different. They all have a little bit bigger average shoe range channels. Okay. And the most part of that average shoe range channel is its ability to kind of increase and expand. So everything's a little bit different. But yeah, I would definitely, I would definitely, or you could just ask me, I think that's the easiest way to do it. You can ask me, but I would definitely advise go through a week worth of what the stock has done, especially on gap downs. And then you'll have a scenario and then you'll have a scenario at least in front of you. It won't be perfect, right? That's the one thing. It won't be perfect. But at least you'll have a scenario right in front of you that that you can have at least, you can have at least a course of action and have data in front of you how you can position position the right way. Okay. So I think that's the best way to kind of describe how you'd hedge, especially, especially beta, okay, especially beta.