Trading Strategies with Chuck Hughes

Jul 28, 2024

Lecture: Trading Strategies with Chuck Hughes

Introduction

  • Presenter: Tom Smith from Trade Monster
  • Guest Speaker: Chuck Hughes, experienced in trading options and stocks
  • Webinar Availability: Archived on myradmonster.com by tomorrow morning
  • Contact: Trade Monster for questions about brokerage services

Overview of Strategies

Low-Risk Strategies

  • Focus on a low-risk spread strategy for trading options and stocks
  • Spread Strategy: Provides more profit potential than stock investing, but with higher risk
    • Example: Home Depot call options
    • Example: Market neutral strategies
  • Q&A session will be held at the end

Detailed Analysis

Call Option Purchase Risk Analysis

  • Example: Home Depot stock at $77.73 with August call options
    • Buying a call option involves high risk (up to 100% loss potential)
    • Calculation: 10% increase in stock price results in a 92% loss if the stock is flat
  • Need to be correct about both the direction and timing of stock price movements

Market Neutral Strategy

  • Combines bullish and bearish positions to minimize risk
  • Example: Home Depot Market Neutral Spread
    • Strategy involves purchasing both call and put options for the same stock
    • Max loss capped at 8.6%; profit potential is not capped
  • Application: Effective even in volatile markets based on historical performance
  • Use of market neutral spread minimizes risk

Tools and Indicators

Keltner Channels

  • Tool to identify optimal entry and exit points
  • Use of Keltner Channels shows overbought/oversold conditions
    • Overbought: Price near the upper channel likely to correct
    • Oversold: Price near the lower channel likely to rise
  • Example: Home Depot price movement over the year using Keltner Channels

Trend Confirmation Indicators

  • Unbalanced Volume (OBV): Confirms price trends and volume flows
  • 52-Week High List: Identifies stocks in a strong uptrend
    • Examples of repetitive and predictive price patterns
  • Focus on stocks with clear trends and strong performance

Examples of Strategies

Health Sector ETF (XLV)

  • Shows strong uptrend confirmed by new 52-week highs and positive OBV
  • Low-risk market neutral strategy applied to healthcare sector
  • Shows both bullish and bearish positions for low risk
    • Max loss capped at 5.7%; profit potential not capped

Hershey Market Neutral Spread

  • Example: Hershey stock with bullish and bearish positions
  • Max risk 1%; profit potential not capped

Summary and Benefits

  • Market Neutral Spread Strategy: Provides high profit potential with low risk
  • Allows participation in stocks that have made large moves
  • Does not require shorting an option
  • Protects against bad earnings reports and big negative moves
  • Chuck Hughes' Advisory Service: Provides recommendations for market neutral spreads

Final Notes

  • Recommendations include various stock options and market neutral spreads
  • Low-risk strategy for investing in dividend-paying stocks
  • Married Put Strategy: Buying stocks and purchasing put options
    • Max loss is low (1.1% or less)
    • Protects against market sell-offs and bad timing

Q&A

  • Emphasis on using Keltner Channels over Greeks for better readability
  • Discussion on using mini options to allow smaller investors to trade diversification
  • Contact for More Information: myradmonster.com or Trade Monster

Note: Webinar archived on myradmonster.com, available by tomorrow morning