Ep. 308 Here’s How To Use Credit Spreads In A Choppy Market
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I'm Micheline Sharp, Head of Insurance and Retirement at Janus Henderson Investors. We've worked to help clients achieve superior financial outcomes and to fulfill our purpose of investing in a brighter future together. To learn more, go to JanusHenderson.com.

Hello and welcome to another episode of the Investing with IBD podcast. It's your host, Justin Nielsen, and I am here in Las Vegas. We just wrapped up a money show, one of the first money shows I've been to in a while. And it's February 19th, 2025. So I actually got here on the holiday and spent my President's Day here. So it was really fun to see a lot of folks in person. It's been a while since I've gotten out there and met people. So really appreciated meeting a lot of you.

And, hey, someone who knows his way around a money show, we have on as our guest this week, Harold Morris. He is one of our senior product coaches. And, man, Harold, we've been working together for a while. 20 years? Yeah.

Yeah. So, yeah, you've been to some money shows and events in your day. Quite a few money shows. Quite a few, yes. Yeah. But one of the things that is great about Harold, for those of you that don't know him, he is one of our most patient and...

thorough coaches on our market surge team and a lot of the premium products. He does a lot of coaching sessions, teaching people how to use our products, whether it's market surge, leaderboard, swing trader, the paper, you name it. And of course, he is a panelist weekly on the IBD live show. And usually what we do is we count on Harold to give us some opportunities

option trades. He likes to do spreads a lot. And so I love having him on the show to kind of go through some of his spreads. And I, again, you're so patient and in the way you explain things, Harold, I think it really helps out a lot of our customers. And that's why I love having you on to kind of go through your spreads because at the end of it, a lot of times it seems,

hey, this is simple. This is doable. This is, you know, it's just numbers, right? You have your routine, and all you have to do is follow it. So awesome job with that. Just like anything else, the more you do it, the better you get at it. And now how long have you been trading options? Options, doing it consistently. I started back in 2013, but it's only been like the last six to seven years where I've just been trading options on a regular basis. And why did you make the switch?

I was just curious about options. I'd heard about them, about the leverage part of it, how you don't need as much capital, so it's a little bit more capital efficient. And I said, okay, well, let me look into it, and this might be something I want to add to my methodology as far as trading is concerned. And if I remember correctly, you did a lot of kind of educating of yourself with Tasty Trade videos and –

Yeah, that and my very first exposure was with John Carter. Oh, John Carter, right. Yeah, with Simpler Options and took a few of his courses and then, yeah, I do...

I've taken some from Tasty Trade. Tasty Trade. Different name, but Tasty Trade. Yeah, yeah. It's gone through some different versions. Tom Sosnoff, he is just a serial entrepreneur. So he, of course, came up with Thinkorswim. And we've had him on the show. We'll have to have him on back again. And maybe John Carter, too. Well, let's dive into it a little bit. So, of course...

options, two options that you have, calls and puts. And for each option, you have the ability to either buy or sell the option. So can you just walk us through? Sure. So yeah, Justin looks like Justin has frozen up. He is in a hotel room doing this webinar. So

he started to explain what is an option. And in particular, what is a spread trade or a credit spread? The type of trading I like to do, it's got several names. So it's called a credit spread. It's called, I actually wrote them down. So first off, it's a bullish position. So you're looking for price appreciation. And a credit spread can be known as a put credit spread, a short put spread,

a bull put spread, or sometimes I might just say I'm selling a bull put spread. So they're all the same trade. They just have different names. And basically what you're doing is you're selling a put and then you're buying a put at a lower strike for protection. So for example, maybe you're going to sell the 100 put

And then you're going to buy the 95 for your protection. So that's what's called a $5 wide spread. And then whatever you pay for that spread, that's going to be your risk. So you take the $5 wide. Let's say you paid $3 for this spread. So $5.

So it's a $5 wide spread. You pay $3 for it. So your risk in the trade is $2 even. In option terms, we always multiply by 100. So it's $200. That's what I really like about spread trading is your risk is defined.

and your potential profit is also defined. So these spread trades are considered risk-defined trades because before you get into the trade, before you start putting money to work, you know what your risk is and you know what your potential profit is. Well, I just explained first off what a credit spread is, and it's got different names, you know, the bull put spread, selling a credit spread. So the same trade has got multiple names, and sometimes there can be some confusion about that.

that. I also mentioned that it is a risk-defined trade. So before you get into the trade, you know what your profit is, you know what your losses are. So it's risk-defined. So you know what you're looking at before you get into the trade. And then that's when you came back and that's where we are. So we just pick up from there. And do we need to kind of step back a little bit? So

Did you explain what a call is exactly? No, I did not.

at a certain strike price with a certain expiration date. So we're going to talk a little bit about how you choose those strike prices and expiration dates. And then the put side is just the opposite. It gives you the option to sell, but not the obligation to sell a stock at a certain price by a certain time. So those are the two ways in which you can, you know, the two options you have in terms of what you use in terms of contracts. But then, of course, you can either buy or sell them. So when you're dealing with credit spreads,

you're basically net, you know, you're coming up with two different ways in which you're doing it. But one is giving you more premium, one is giving you less, and then at the end of the trade, you're actually coming up with a net premium, right, for the credit spreads. Right, right. And how is that better sometimes to have that credit as opposed to being a buyer? Well,

When I first got exposed, Options started talking to people. I talked to two people. Both of them were traders on the CBOE. And I met these two gentlemen at two different times, and they both said, you want to be a seller of Options. Don't be a buyer. You want to be a seller. So I said, okay, I'm going to listen to these people. They're very successful, had decades of experience. So that's what I do. So I'm selling premium. Okay.

And so I don't do much buying of options. When people think of options, that's the first thing they think of is, okay, well, I'm going to buy a call on this stock here. And I'm going to buy a call and see what happens. Me personally, I like the put side where I like to sell a put. The put has got some advantages that the call doesn't.

One of those advantages is time. One thing options have that individual stocks don't have, option does have an expiration, whereas if you buy a stock, you can hold it indefinitely. It'll work eventually, I hope. Yeah, you hope. But yeah, if it doesn't work in your expiration date.

There's nothing you can do. It just expires worthless. And that's one of the things you have to consider when you're putting together an option trade. There's time involved. And what time you choose, that's something that you have to make a decision. Now, me personally, when I'm considering time in an option, whether it be a naked option, which I rarely do, or a spread, I like to go 45 to 60 days out. So I like to give myself time. It's time for that trade to work.

So that 45 to 60 days, that's kind of my sweet spot. Yeah. And it should be mentioned that time becomes really important as you get closer and closer to that expiration date. For those that are familiar with the Greek terms and options, you lose theta, right? Time decay. Right. And it really accelerates when you're in those last 30 days. So is there a time in which you're like, okay –

I mean, if you're a seller, time decay is working in your favor, right? As time goes on, you're doing better because the option is less valuable. And for you as a seller, that's in your benefit, right? You want the option to deteriorate. In fact, the ideal situation is that it expires worthless because that means you keep all of the premium. Right. Yeah. And that's one of the...

One of the differences between a put and a call is the time for an option is called theta decay, and that time works in your favor as a seller of premium. Right. And look, you're going to have that time decay on both the call and the put, but it depends on how you're using it, right? When you're the seller, it works in your favor. When you're the buyer, it works against you. Right.

Let's talk a little bit about implied volatility because that's another thing that is a big element in the premium for an option. So sometimes you will have a very high implied volatility ahead of earnings events, things like that, where there's a little bit more uncertainty. It could go either direction and by a large amount, and you don't know how much or what direction, but...

Do you take implied volatility into consideration? Because, again, if you've got a high implied volatility and you expect it to go lower, that's also another way in which you would benefit as a seller of premium. All right. So if I'm looking at an option chain, you can see it, that implied volatility, the numbers increase. And it might be a large increase that's telling you that there is some type of binary event that's coming up. Usually it's earnings. Right.

And that's when I'll look and say, okay, what does earnings do for the stock here? And in most cases, I stay away from it because I don't want to be in the stock during earnings. And I'm that way whether it's an option or I'm buying the shares. So I tend to avoid earnings.

And during earnings season, like we're still in the latter end of earnings season, I tend to do a little bit more ETFs because earnings is not an issue with an ETF. That's a very good point. Again, ETFs give you a little bit more diversification and, again, not so much the single stock risk. Let's go into an example here.

you know, we'll kind of shift gears here and go into a few examples so you can walk us through this with some real live trades. So maybe we start out with five below. The ticker symbol here is F I V E. And I'm going to have Harold share his charts just because I don't want to tax my system anymore. And yeah,

I'm already kind of at a disadvantage. I'm using like towels in order to kind of prop my laptop up to get the right, you know, the right level. So, Harold, go ahead and share your screen and you can walk us through this five below trade. All right. Let me share my screen. Give me a second here. And then screen.

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And so you'll go to share. Yeah, there we go. You got it. Okay. So you can see five below. Yes. Perfect. Okay. So this is five below. Now this is a trade because of the market. It was a bearish trade. And because of the market, I haven't been doing too many bearish trades on any stock because, you know, the trend is your friend and we are trend traders, trend followers here. So the trend has been up, but

Back in December, I was looking at 5 below, and you can see the moving averages here. This black line is a 200-day moving average. So I'm on a daily chart. This black line is a 200-day. So this is back in December, actually December 31st, when I was looking at this trade here. So that's right over here on this bar here. This is December 31st. Mm-hmm.

It was already a little bit below. It already touched that 112.60 area and pulled back. But you can see it done it one time here, one time there. And I was expecting it to do a third time, which it did right over there. So I was looking at the – where is it? Lost my date there. So December 31st. Now –

What I did with this stock is I looked at the delta. So first thing I'm looking at, okay, my short put. I like to look at at least the 30 delta as far as my short put. And if you're familiar with delta, well, the definition of delta is for every $1 move, the option is going to move in that direction.

Right. So every $1 move in the stock, if it's a Delta 30, that the option is going to move 30 cents. That's the mathematical definition of Delta. But I tend to use Delta as two ways. I use it as, as my share equivalent or the,

The probabilities. So with the Delta 30, that means it has 30% chance of expiring in the money. Well, as an option seller, you don't want it to expire in the money. We want this. We want to sell expire out of the money. So that means it has a 70% chance of expiring or probability of success at 70%.

So that's what I was looking at back on December 30th, December 31st.

you kind of want the stock to go up. If you're, you know, if you are looking at a put, you want the stock to go down and vice versa. If you are selling a call,

you kind of want the stock to go down. And if you're selling a put, you would like the stock to go up. So in this case, you've got a bearish trade. So you're looking at you want the stock to go down. So in this case, you chose to start with selling a call. Is that right? Yes, selling a call. And I was looking at my notes. So I sold. It was a 115 call. And it was a delta 34 at the time of the trade.

And, again, you want to be your deltas around – it's going to be approximate. You're not going to get exactly delta 30, but I like to be in the delta 30, delta 40, in that range. I even go down to 20 occasionally, but I like to stick to around the delta 30. So back in December, it was a delta 34. I sold the 115 call, and I bought my 120 for protection.

And then I'm going to stop you real quick. So you chose the 115 based on the delta, but it just so happened that that was kind of at a level that you wouldn't expect the stock to go above, right? You know, I mean, it just so happened. I mean, 112.60 is your previous high. That's where it got, you know, turned away at the 200 day. So it's kind of,

That's kind of nice. It kind of matched a level in which you would be looking at anyway, right? Yeah. Yeah. So you see my, I've got my cursor. You can see the one 15 is, you know, a little bit above where that, that one 1260 is. You can see on the right side of the chart, the green, that's the one 15 area. So,

this stock could have actually gone up to that level and it'd still be profitable. So I sold the 115, I bought the 120. And you said the 120 for protection, right? For protection, yeah. So let's talk about that a little bit because if you just had sold the call, then what is your risk? Your risk is to the upside there. Which is unlimited, right? Right, it's unlimited. So if it started to go up,

then you didn't do anything, then that trade is working against you. But if you put your protection on, so you're buying a call, so you're selling a call, and you're buying a call at a higher strike price, correct? Yeah. So that's where your protection comes into play. And so you chose the 120. And was that just because it was five points or was it because of the delta?

It was because of the five points. I like to do $5 wide spreads. So I looked at, okay, 115 was the strike I was looking at to sell the put. Excuse me. I'm not selling the put, but sell the call. And I like to go $5. So I went to the 120. And then I look at what my credit is.

So my credit at that time was $1.30. So I said, okay, I like that. $1.30 is the credit, credit received. So that's when I put the trade on. And then I actually sold it on January 2nd. So right around, it was...

just a few days later, later that week. Because December 31st, if I remember correctly, that was a Tuesday. And then January 2nd, a couple of days after the new year. So I just sold it a few days later. And that was a 27% profit. Now, one of the rules I have is if the trade is up,

30% or more, I like to take profits in the trade. This is up around 27%. We were coming into the new year, and I just didn't want to – because during that New Year's week, it's light trading. And then when we get to the new year, the first trading day of the year –

Nobody knows what's going to happen. So I just said, okay, let me just lock in this trade, lock in that 27%. Just a few days in the trade, that's some good money. So I took the money and basically took the money and ran. Yeah. And look, I mean, 27% and –

Two trading days, right? I mean, you got it on the 31st, closed on the 1st, 2nd, you know, so three trading days maybe that you held it if you got it off on the 3rd. Now, another option, another thing here is, okay, you got a $1.30 credit. That means for every contract that

you have the potential of getting $130. That's if you held it through expiration and it was below 115. So when you're taking profit at 27, 30%, you're just taking a fraction of that. Right. And so some people might argue, well, gosh, that's like, that's like hardly any money at all. So what, what makes it worth it? Well,

Well, it's a high probability trade. So that's another great thing about spread trading is the probabilities are high. Yeah, you might – if you look at some of the numbers, this is something I get asked where, okay, well, you're putting up – you're risking –

X amount, but you're only making this amount. And is it worth it? Well, the reason why I do that is because it is a high probability trade. And these trades tend to work very well. And that's the attraction. You just have to do a lot of them to really make it really pay off. And nothing says that you only have to do one contract. You know, if you, based on what your risk tolerance is, you might say, oh, hey, I can risk...

$3,000 on this trade. And that means, oh, okay, I can do close to 10 contracts. And that means you're looking at a profit potential of a lot more. Instead of $130, you're looking at $1,300.

So, you know, nothing says you have to do one contract. We often talk in terms of one contract, but you do multiple contracts. Now, do you ever get into a situation where you've got a liquidity problem because you want to do, you know, maybe five, 10 contracts and, you know, it's hard to get your order filled?

I have run into that, but the way to avoid that is to make sure the stock has got liquidity. So you can start by just looking at the average daily volume, which is here. Yeah. Okay. So that's a good place just to start. But then once it's got some good liquidity, then that's where you've got to look at the option chain. Look at the calls, I mean, excuse me, the bid and the ask. I like to see no more than a 10% difference between the bid and

in the ass. So if I got that 10% or less between those two numbers and it's a liquid stock, you

Usually it's not a problem getting in and out of the trade. But even though there have been times where I did have something liquid and the bid-ask was pretty tight and I just couldn't get out. And I just had to close out the trade. I was at a loss. What I remember, this was TLT some months ago. And I just couldn't get out. Even though it's a very liquid product,

I just couldn't get out in time and came close to being assigned the shares, but I got out. You know, the broker will allow you to sell those shares. Yeah. So, again, just to kind of wrap up this trade, five below, you had 130 profit potential. The risk was maximized at 370, $370, because you take the five, you know, five strike difference.

five-point strike difference, subtract the premium received, and that gets you your risk. Your risk in the trade. And this is something we do, that I do at least every once a week on IBD Live. If you don't have IBD Live, here's a good place where you can get a free option trade. Investors.com slash IBD Live. And also I should mention that we do have options content on Investors.com. Gavin McMaster, today it was a...

long-term covered call on Shopify. He does a lot of spread trades as well. Harold, let's flip this up. That article is a very good article. Those of you who are looking for education, that is a real good place. If you're just getting started,

or even if you're experienced. That's a real good article. It's short and to the point. That's what I really like about it. And it's a good educational article on investors.com. So let's go ahead and flip this the other way. So this is an example, which again, you said you don't, especially in this market environment, you haven't been doing very many bearish trades, but it does show you the flexibility of, hey, whatever direction you think it's going to go, you can play that direction. And I should also say that, yeah,

In this case, what was it, $112? The price of the stock was around $112 or a little bit less than that. The reality is if the stock went down, you would win. If the stock went sideways, you would win. The stock could actually have gone up three points and you would still win. There were just a lot of ways to win with this trade, right? And that's what you said, high probability of success.

Yeah, and that's the beauty of these spread trades. You got what I call some wiggle room. You don't have to be exactly right. The stock can go nowhere, and you still make some money on the stock. Yeah. Let's flip it the other way. What about when you're bullish? How do you handle that? And I think you have an example to show us. Okay.

Well, we want to do the SMH trade earlier today. Let's do Amazon because this is one that didn't work out, right? And you had to sell it for a loss. So let's do that one. So let's pull an Amazon, AMZN. So this was Amazon, and it was on the 12th, so February 12th, which was –

Right there. So I was playing the bounce off the 50-day. So you see the 50-day, that's right there. You can see the alert that I've got there, and that alert got triggered. And I thought, okay, I'm going to take that trade into Amazon, hoping that it was going to bounce off that. So with Amazon, I sold the 220 put.

Put, this was a bull put spread. So this is a, I'm looking for price appreciation. So I sold the 220 put, and then I bought the 215 for my protection. Now, I use the technicals when I'm looking to get out of the trade. And if you see Amazon, so on the 12th, which is right there, that's when I put the trade on.

It was only up one day. And then once we got below the 50-day, that's the red line here, that's when I say, okay, this trade is not working. So I ended up selling it today. It was at a 17% loss there. So I'm out of Amazon, and this trade is over with. But this is one that doesn't work. But you have to have sell rules, okay, no matter how you're trading, whether it be you're trading the option or the shares, you know,

you must have shell cell rules. Yeah. So wait a minute. So you said two 20 was the, the strike you chose, right. To sell the play. So this is, this is still at two 26. How'd you take a loss? What happened? Uh, yeah, I sold the two 20 and I bought the two 15 and, um,

Yeah, that's interesting. Well, you know, what happens sometimes is, look, you know, the implied volatility can change. You've got a little bit of theta decay. You've got a little bit of price change. You know, so what was the price change from where you initially bought it?

You know, I didn't look at that. So if you look on this day here, so it closed at $228.93. And then it was actually this morning when I – it was sometime later today that the stock closed – or that I sold – actually sold it. Because I was looking at my P&L. That's what I was going by, what my P&L was telling me. And it was telling me before the open it was down like 13%. And then today –

it started going down even further. So I said, let me just get out now. I want to keep my losses small. It doesn't matter. Again, if you're trading the shares or an option, you got to keep your losses small. So I just said, let me just get out of it. And then,

Then I move on. So I'm done with this trade. I'm down with it. I'm down on it. So I'm done with it. I move on and look for something else. And it's worth reminding people that with options, you're not using necessarily a 7%, 8% stop loss, right? Right. Why is that? Right.

Well, options just are much more volatile than individual stocks. You can go seven, especially a stock like Amazon, that can go seven or 8% in minutes. And even if you own the shares, it can easily do that in a day.

So this is, but to answer your question, options are a lot more, there's a lot more swings in an option trade. So your stop loss is going to be wider. So 17% is not that bad. I'll let it go down to 30%. But position size is always extremely important. Yeah. And it's worth mentioning that, okay, the 220 level, you know, if it,

if it was, you know, that, that was the level that you were looking at for it to stay above that's at expiration, you know? So that's another thing that people need to know is, okay, it's a two 26 now. And how did you take a loss? Well, you know, you weren't at expiration yet, right? There's a lot that can happen in between that time. So that's, that's worth, worth remembering. And also this is where the spread between that bid and ask can matter because, Hey, you can be down 7%, 8%. If you've got a widespread, you know,

You can be down 10% just as soon as you buy the option or sell the option if there's a widespread. So, you know, do keep that in mind. I want to cover a little bit. Did you have anything more on this trade that you wanted to kind of share?

No, it didn't work out. So sell it and move on. Yeah. And again, these are short trades a lot of times that you're doing and you can do a lot of them. You can again, you might say, oh, well, it's not that much money. But if you're doing, you know, a few hundred dollars here, a few hundred dollars there, and it's over three days, five days, you know, that that can start adding up to, you know, some decent compounding of returns. Again, as long as you keep those losses small.

And that's what's been happening in this market because we have been going back and forth. It's been a lot of volatility. So these trades are either working out right away, almost right away, or they're not working out almost right away. So I haven't been in a trade for a very long time because of the volatility that we've seen in the market. Yeah. Well, let's shift to the market real quick. Think about a bicycle.

It takes balance to get where you want to go. Now think about business. Whatever your business or organization, you ride the line between numbers and people. Just like the bike, it takes balance. CLA, CPAs, Consultants, and Wealth Advisors.

We'll get you there. CLA, Clifton, Larson, Allen, LLP is an independent network member of CLA Global. Investing involves risk, including risk of loss. Investment advisory services are offered through Clifton, Larson, Allen, Wealth Advisors, LLC, and SEC Registered Investment Advisor. Because I think it's worth kind of remembering the type of market we've been in and why you may have been favoring credit spreads a little bit more. If we pull up the NASDAQ, of course, we've been talking about how on December 18th, we really had that kind of trend.

Pretty sharp drop. We had another sharp drop in the NASDAQ, at least, with the deep seek tariffs. There's just been a lot of stuff hitting the markets. But it's been interesting because sometimes like on deep, you know, the day of deep seek, January 27th, as ugly as that was on the NASDAQ, down 3%.

You know, if you looked at the S&P 500, it was down less. If you looked at the equal weighted S&P 500, it was up that day. So what's what's been kind of your take on the difference between your your your market weighted averages when you're looking at the indexes and kind of your average stock right now?

Yeah, I mean, I look at those things, but I'm not making any trading decisions based on what's performing well. So RSP, as you mentioned a moment ago, on that deep seek, I can't say it, but on that day, that was January 27th, how it outperformed. So I don't look and see, okay, well, what can I find that works?

that's outperforming on that day. So I'm looking at almost, I'm looking at almost, looking at everything trying to find a particular trade. So I don't look to see, okay, well, if RSP is doing well,

That may mean that maybe there's some NYSE stocks that are setting up. Because many of those stocks are, you know, they're not necessarily that when RSP is doing well, then there's a lot of participation in the other sectors. So maybe the tech stocks got hit because of the deep seek. But

There's other stocks and other industries that are doing well. Software did happen to do well on that particular day. Was it IGV? IGV is a software ETF. So you did mention how sometimes you like to do the ETF as opposed to individual stocks with some of these trades. And so, yeah, IGV was doing great. Yeah.

Yeah, so it was down on that particular day, but you can see the notch where it closed. So it had a very positive close. What was it? Right at the 50%. So anything higher than 40%, we consider that a bullish sign for a stock on a particular day or week. And so how much is the market kind of coming into play when you're making some of these decisions on individual trades? Is it...

Is it a lot more important to kind of see what's happening with the individual stock and choose your option strikes from that?

And your trade? Yeah. So I will take into consideration the market because that's what growth stock investing, the William O'Neill type of investing is all about. We know that stocks follow the trend of the market. So it's very important to know what that trend is. So I start there and then I start looking for trades. And as I mentioned a moment ago, if you look at the S&P,

you know, we, and then look at a, a weekly chart, you know, we up until today really haven't gone much anywhere since the 1st of December. We had this, this level of resistance here and we've this week so far we're breaking out, but I don't look at this year and I say, okay, I'm going to change my strategy. Uh, only thing I'm going to change is what's working. So if, uh,

If the AI stocks aren't working, then I'm not going to be looking at those stocks. IGV, as we mentioned a moment ago, software, that is working. So what's the software enterprise? That industry stocks we're doing pretty good in that particular space. So it's just all about market awareness and being engaged.

in the market and looking for setups. So yeah, the market does take, you know, you have to take it in consideration and you do have to see, you do have to recognize, okay, when is their rotation in the market? We saw that clearly on January 27th. Yeah. Um,

So because you're a market surge product coach and because you're using options, I want to have you kind of share maybe a screen of yours because, again, market surge is a very powerful screening tool. What's kind of one of your go-to screens to get ideas for your option trades? Well, the first one I do like to use is the Growth 250. So I can go to Open Stock Ideas.

weekly review and we have this list here called the growth 250 so that's what I go through on my weekends we call it a weekend routine because as you can see it is 300 stocks now I tend to let me get one of my columns here this is my column layout so I'll sort it by the composite rating and I want to get the 99s at the top and

And then I'll just start with the first stock and then hit my space bar just looking for potential stock ideas. And so basically are you looking for basically breakouts on the bullish side and resistance at moving average lines on the bearish side? Yes.

Right. So I'm looking to see how bearish ones on the growth to 50, though. Exactly. Right. So it's still the growth. So as far as the stocks, it's still you. I'm still using the O'Neill, you know, growth stock strategy, strong fundamentals, strong sales, earnings, profit margins.

institutional sponsorship. So those things don't change even though I'm trading options here. And I'm not all options. The majority of my portfolio is individual stocks. But the approach is the same, whether you're trading options or looking to buy the shares.

Still need to see strong sales, strong earnings, profit margins, sponsorship, et cetera. So growth 250 is what I like to look through. And then I can hit my space bar on my keyboard and just go from stock to stock. So that's one screen. It's a built-in screen. Well, let me just go back to it real quick.

And then there's a little description as to what the growth 250 is. So if you've got some ideas as to what this screen is all about. And it is a screen of the market. And each one of these lists have that same little description here. While we're here, I like looking at this weekly report of stocks approaching or at new highs. It's a good list to look at. I also like to look at the number of stocks that are on the list. So you can see as of last Friday's close. So this list gets updated on Fridays.

So as of last Friday's close, there were 272 stocks on the list. At the beginning of the year, it was like at around 145, somewhere around there. So this list has been growing. Yeah. So this is telling you that you look at the description, this is stocks that are within 5%, but at 52-week highs or trading within 5% of a 52-week high. So that's telling you that stocks...

Stocks are doing well when this list is growing. So I use this as a secondary gauge as to what the market is doing. And there are some good potential stocks here. And it's worth mentioning that there are also some other general market indicators pages that you can pull up on Market Surge. A few of my favorites are GMIAA, GMIAB.

b and then the n-a-s-d-q and n-y-n-y-s what no n-y-e-x-g um oh you see what i did here i cut in the symbol but i'm on weekly yeah you gotta be on daily we get calls like that you gotta be on daily yeah and and i i get i get tripped up on that every time too i'm on a weekly chart i'm like what what do you mean it's not working and it takes me a minute yeah

So, yeah. So some of those again, here's an advanced decline line on the NYC to your point, you know, looking looking a little bit stronger on the NYC as opposed to if you look at GMI AB. It's been a little bit more problematic, a little bit more of a downtrend on the NASDAQ. But also, I like looking at that NASDQ trend.

to your point, you know, kind of gauging how many new highs there are versus new lows. I like that the, you know, I like that this shows kind of where it's at. And there's been a lot of, on the NASDAQ at least, it's been,

It really has been kind of a while since the new highs have trended nicely above the new lows. So, again, that does give you information. But it seems like it's getting better, as you noted, by that screen going from, what was it, 145 to 272 or something like that. So to kind of wrap this up also, I want to get to one more example, and it's an ETF, SMH.

How do you go about finding ETFs? Because the Growth250 doesn't show that. So what do you do in terms of screening to find ETFs that you might want to do a trade on? Well, here in the market search, I do have a list of ETFs that I like to trade. And SMH is one of my favorites here. So it hasn't been, as you look at the chart here, it has been after that January 27th. This is January 27th. Where is it?

Well, anyway, you can see that gap down right there. So it doesn't matter what date. That gap down was not good. So SMH was not something I was looking at. That was January 27th, I can tell you right now. That's NVIDIA getting hammered. Oh, yeah, here we go. Yeah, right there. Yeah. Yeah.

Yeah, so that's that deep sea news over the weekend. So I wasn't looking at SMH. I was looking at other things because this wasn't working here. But technology is something that I always gravitate to. At one time, I did work in the high-tech industry when I lived up in Silicon Valley. So it's something I always gravitate to. So I'm always looking to see, is there –

a possibility with this ETF. So as I was looking at the last couple of days, I was saying, okay, yeah, look, look, you know, the RS line is improving. It's above the moving average for the RS line. And then this was, you know, a couple of days ago. So now we're up above the moving averages. So you got the 10 day and the 21 day, we're already above the 200 day and the, you know,

the 50 days. So you have that convergence of the major moving averages. So we're above that. So this is what attracted me to this trade today. So here's where I go into my option train option chain. And again, I look at a 45 to 60 days out. I like to use the monthlies because the monthlies have a lot more liquidity. Right. As you asked me earlier that, okay, well, how do we, I forgot your exact question, but you know,

liquidity, you know, you want to have a liquid ETF or stock. And then the bid-ask, you want to make sure that's tight. I like to see less than 10%. And then what was the other thing? I lost my train of thought. But anyway, the

This is a very liquid ETF, something I've traded many times over the years here. So once we got above the convergence of the moving averages, and then first thing I did, I went to my option chain. I wanted to see where is the delta there, so the delta 30. And I didn't write that down. This is a trade that was placed earlier today on IBD Live. I ended up selling the 245 and buying the 240.

And then I took in a credit of $1.55, so that was earlier today, and had a pretty good move. So the stock is up.

14.52% so far. The option is up that much. Yeah. I mean, yeah, excuse me. Yeah. The option is. Yeah. If the ETF was up that much, yeah, you'd be, uh, yeah. Yeah, absolutely. Absolutely. Um, yeah. So again, um, you know, you, you've shown two ways to do that directional. So again, I'm assuming that here in this case, this was the, the bull put spread again, because you were going bullish on this. Um,

Selling the put, getting a lower strike price for protection. And, you know, you mentioned 45, you know, because Susan was asking in the YouTube, how far out do you sell those spreads? You know, you're looking 45 to 60 days. And then, you know, another question that came in was how do you handle spreads at or near the money in less than five days till expiration? My understanding is you don't play in that game.

No, no. I look at 21 days expiration and I'm making decisions. Sometimes I'll let it go a little further. Maybe I'm down on a trade a little bit. I may say, well, let me get it to go. But 21 days, that's my line in the sand. So if I'm down on a trade and...

Maybe I started out 50 days of expiration. Now I'm at 21 days of expiration. The trade hasn't worked. It's had plenty of time to work, so I'm just going to get out, maybe take the loss, and move on and look for something else. Yeah, makes sense. Now,

Just one final question because, again, the 21 days, especially when time is working against you and you're buying premium and doing the opposite if you were doing a bull call spread, I could see that time would really be working against you. But since time is working for you, why do you do that 21 days? Doesn't it get even better for you as you get closer to the expiration? Sure.

It can, but the old expression, bulls and bears make money, but pigs get slaughtered. So if I'm in a trade and I'm making money on it, I just found that 21 days expiration, that works. So I just...

You know, good or bad, right or wrong, that's my decision. That's my rule that I use. And I like to stick with that. It's something that's worked. And Mike mentioned it earlier on IBD Live this morning. Having a rule is better than no rules at all. So that is my rule, 21 days expiration. And I will give it a little bit more wiggle room, but...

I'm pretty strict when following that 21 days expiration. I'm not going to try to, especially if it's profitable, you try to squeeze a little bit more out. And as we talked about earlier, how options are a lot more volatile and there's nothing worse feeling where maybe you're up 20%.

It's 20 days expiration. You just said, okay, this stock looks good. And then a day or two later, you know, yeah, you might just still be up on the trade, but maybe you're up only 14% or 15% where you're once at 20%. And as you said, options can move fast. And so sometimes you might find with that much of the time decay left, you're, you're holding out for an extra 20 cents, you know, 25 cents and you can lose it all, you know,

kind of very quickly holding out for that last 25 cents. And then before you know it, you're down two bucks and it's like, Oh, what, you know, why, you know, for, for what, you know? So, yeah, you do have to keep that in mind, especially when you're doing the selling a premium that, um, you know, as you, as you get closer to that full potential profit, um, you know,

It's okay to just take it before you get the full amount. Harold, I'm going to have you stop your screen share, and I want to just thank you again for coming on and, again, walking folks through your process. Again, everyone has to kind of find their own process and what works for them. But at the start of all of your trades, you pick the stock first or the ETF first.

And, you know, your level's there, and then you kind of build the option around it. So you're using that same system. You're just using it with a different methodology of how you're going to profit from it. So, yeah, thank you so much for sharing your thoughts on that, Harold. Appreciate it. Sure, sure. Thanks for having me. Absolutely. That's going to wrap it up for us this week. Thank you for...

Thank you for hanging in with us as I was dealing with some technical issues. You know, the Internet just dropped. So I'm going to be at home next week. So looking forward to, you know, being in my home office and doing it from there and in the stable conditions. And also, it's going to be great to be welcoming a new guest onto the show. She's someone that we've had on IBD Live before, but I'm really excited to introduce her to our audience. Her name is Viva Jha, and she has been on the show

the leaderboard in the top 10 on the U S investing championship. A number of times, uh, she's walked through on IBD live, how she uses leveraged ETFs. Uh, you know, we just had will rind on and from granite shares and she, she's going to talk about how she uses leveraged ETFs. Um,

to, you know, really kind of take advantage of market moves. And it's going to be great to kind of get her thoughts on that. And again, a new guest for everyone to learn from. So I'm excited about that. Hope you join us for that. It's going to be Wednesday, live at 5 p.m. Eastern, as it is every week. Thank you so much for joining us this week. And we will be getting this show up for the archives, as we always do. Thanks for watching. See you next week.

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