Presents

Simplify Your Life with the SPY With

Bill Corcoran

I am not a registered broker-dealer or investment adviser. I will mention that I consider certain securitiesor positions to be good candidates for the types of strategies we are discussing or illustrating. Because Iconsider the securities or positions appropriate to the discussion or for illustration purposes does notmean that I am telling you to trade the strategies or securities. Keep in mind that we are not providingyou with recommendations or personalized advice about your trading activities. The information we areproviding is not tailored to any particular individual. Any mention of a particular security is not arecommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for anyspecific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation,regardless of whether we are discussing strategies that are intended to limit risk.

I am not subject to trading restrictions. Myself and other instructors could have a position in a security orinitiate a position in a security at any time.

Let’s Talk

• Is your trading life complicated?

• Are you struggling with the current market?

• Do you want to have more free time?

• Are you tired of looking for trades instead of trading?

One Source

• What if you decided to focus on one stock?

• What if it was a stock you were already watching?

• What if that one stock could be used for:– Day trades– Swing Trades– Trend Trades– Long Term capital investment– Passive cash flow

Let Me Introduce You

• The ETF that tracks the S&P at about 1/10 the price is called the SPY

• It is an “Exchange Traded Fund” that can be bought and sold in individual shares.

• It is the first and oldest ETF, founded in Jan 1993

• It is the most heavily traded ETF with over 110 Million shares ADV

Let Me Introduce You

• Between 1994 and 2013 was positive 16 of 20 years

• Volatility is relatively low, moving less than 1% per day over 70% of the time.

• It represents over 10% of the total ETF universe.

• About 11% of the float trades hands every day.

Why the SPY?

• The SPY duplicates S&P performance.– Average annual return around 10%.

• The SPY can be bought as individual shares at a low cost.– Management fee of .09%

• The SPY pays a dividend– Currently $4.90, that’s 1.81% yield

• The SPY has a highly liquid options market.– Huge options volume– Tight Spreads– 3 expirations per week

SPY Holdings

• Top 5 Sectors– Financial 16.35%– Energy 12.76%– Industrials Materials 12.02%– Consumer Goods 10.52%– Healthcare 10.52%

• Top 10 Holdings– AAPL– MSFT– BRKB– FB– JPM– JNJ– XOM– GOOG– GOOGL

TRADING THE SPY

Trade Time Frames• Day Trade

– Minutes to hours– Large positions– Small moves– Relies on win:loss ratios

• Swing Trade– 2 to 5 days– Smaller positions– Isolates swings within a trend or consolidation– Relies on reward:risk ratios

• Trend Trade– Weeks to months– Growing position size– Capitalizes on longer term trends– Relies on risk maintenance

Why Day Trade?

• Most Day Traders like avoiding overnight “Headline Risk”

• Money is at risk for a short period of time.

• Profit (and loss) can be generated very quickly.

• There are almost always opportunities somewhere in Day Trades.

Day Trade vs. Swing Trade

• Day Trade

– Shorter time frame

– Smaller moves in price

– Bigger position size

– Lower Reward to Risk

– Higher win to loss

– Focus on 5 and 1 min. chart

– Daily chart as a reference

• Swing Trade

– Longer time frame

– Bigger moves in price

– Smaller position size

– Higher reward to risk

– Focus on Daily Chart

– 5 min. chart to refine entry and exit

Day Trade Entry

Day Trade Exit

247.56

247.06

16 minutes

Why Day Trade The SPY?

• The SPY and it’s options trade until 4:15 PM EST, 15 minutes past the rest of the market.

• SPY weekly options expire three days a week, Monday, Wednesday and Friday.

• The proximity to expiration means a higher delta at a lower price.

• The bid x ask spreads on the SPY options are typically $.01 and rarely more than $.05.

• The daily volume on SPY options is HUUUUGE.

Multiple Weekly Expirations

Volume and OI

Day Trading the SPY

• What follows are descriptions strategies specific to day trading the SPY weekly options.

• Due to the compressed time frame of these options, we will trade the nearest expiration.

• As we are trading in compressed time frames we will seek options delta of at least .65 or higher.

• The profit target on these SPY day trades is .10/share.

• This will require significantly higher leverage to create acceptable net realized profit.

General Considerations

• Day trading is fast! This style of day trading is faster.

• Be aware of the Pattern Day Trader (PDT) rule and how it can help you.

• You are not going to learn or see enough in this workshop alone to be successful, you MUST practice.

Risk Considerations

• Stop management, risk management and awareness of win/loss ratios are critical.

• A higher win/loss ratio changes the risk dynamic and allows for higher risk metrics.

• A smaller reward to risk ratio is a factor in this type of trading and also affects risk metrics.

Position Size

• Position size should be considered in relation to total account value.

• Exploiting relatively small moves using high probability technical setups can potentially create higher win/loss ratios.

• This means we can afford to set up near 1:1 reward to risk ratio trades.

• The profit target on these SPY day trades is .10/share, therefore the net realized loss can approach .10/share, including the spread.

• Even with the potential for higher win/loss ratios, potential net realized loss on a single trade should not exceed 7.5%-10% of total account value.

Multi Time Frame Confirmation

• We are day trading in very compressed time frames.

• The daily chart is a reference.

• The five minute chart is our primary tool for observing price activity.

• The one minute chart is used to confirm price activity observation on the five minute chart to confirm good entry and aggressive exits.

Multi Time Frame Template

12:57

12:55

The “Blitz” Trade

• The Blitz is a quick all in/all out trade seeking a .10 move in the option price.

• This trade can be taken when a more significant move is unlikely or a reversal after a short move is likely.

• This strategy can work well for the “Bollinger Band Channel.”

• Upon confirming a technical entry, a large position in a high delta option is taken, keeping risk management rules in mind.

• A sell limit order for .10 above the purchase price is entered.

• A sell stop order for between .05 and .08 is entered as an OCO order.

The “Blitz” Entry

In with 100 cts.85 delta, .06 stop

The “Blitz” Exit

Out with 100 cts at .10 profit = $1000 less commisions

The “80/20” Trade

• This trade can be taken when a more significant move is likely and when the SPY appears to be in a momentum move.

• This strategy can work well for the “Day Trend” when the SPY is trending between the outer Bollinger Band and the 10 EMA.

• Upon confirming a technical entry, a large position in a high delta option is taken, keeping risk management rules in mind.

• A sell limit order for .10 above the purchase price is entered on 80% of the position.

• A sell stop order for between .05 and .08 is initially entered as an OCO order on the full position.

• Once the sell order for .10 is triggered, the stop on the remaining 20% of the position size is moved to the 10 SMA.

80/20 Entry

In with 100 contracts, .73 delta, .08 stop, .10 sell limit

80/20 Exit 80

Out of 80 contracts, remaining 20 have .82 delta, .02 stop

80/20 Exit 20

Exit 20 cts on the break of the 10 EMA with .60 profit

Early exit on BB topfor .80 profit

SPY Swing and Trend Trades?

• You should be looking at the chart of the S&P every day.

• We tend to Day Trade “inside” of and in the direction of, Swing Trades.

• Likewise we tend to Swing Trade “inside” of and in the direction of, Trend Trades.

• Trends in the SPY can last for months.

• The SPY is less affected by individual earnings.

• This makes the SPY an ideal Swing and Trend trading candidate.

SPY Swing Trade

• This trade can be taken when a significant 2 to 5 day move is likely and when the SPY appears to be in either a defined trend or a clearly defined channel.

• Entry can be taken on retracements to trending support such as the 10 EMA.• In the case of a clearly defined channel bounces from horizontal support or

resistance such as the Bollinger Bands may trigger an entry.

• Upon confirming a technical entry, an option can be selected based on the projected move.

• Typically option selection should be a 60 delta or higher.

• Expiration can be the near expiry if it offers sufficient time for the trade.

• A stop order should be considered below the support or above the resistance.

• Exits are based on technical observations such as the “day count”.

Swing Trade Entry

Swing Trade Exit

190.34

199.10

5 Days

SPY Trend Trade

• This trade can be taken when a multi week move is likely and when the SPY appears to be in a clear trend with clearly defined trending indicators.

• Entry can be taken on retracements to trending support such as the 10 EMA.

• Position size should be based on the probable loss incurred if the stop is triggered, that loss should generally not exceed 2.5% of total account value.

• Upon confirming a technical entry, an option can be selected based on the projected move.

• Typically option selection should be a 50 delta or higher but lower delta’s can be considered depending on the timeframe.

• Expiration should offer sufficient time for the trade, typically at least one month.

SPY Trend Trade Management

• Position can be scaled up once the stock has moved through a swing rotation.

• New positions do not have to be identical strike positions.

• Stops should be moved up on the entire position (old and new) to maintain the 2.5% max risk.

• Once position size is sufficiently large, stops should be maintained at less than 2.5% of the total account value, (this does not include unrealized profit on the trending position.

• Exits are based on technical observations of trend deterioration such as lower highs or divergence in technical indicators.

SPY Trend Trade Augmentation

• A long call on the SPY can be used as the basis for a calendar spread.

• The SPY is ideal for selling call premium as the options are never more than 1 trading day from expiration.

• Short calls can be considered when the chart patterns indicate a potential retracement.

• Put calendar spreads can also be considered if a consistent downtrend is observed. Downtrends tend to be more volatile.

• Exits on short option positions are based on acceptable premium decay or technical observations indicating an unanticipated move.

SPY Trend

Investing in the SPY

WHAT IS “RETIREMENT”

• Their definition:

– Go to college and create debt

– Get a job, pay off the debt

– Sacrifice and save a little every month

– Grow it at 5%-7%

– Once you reach $1 million and you can retire at 62-70 years of age

– Live off of 4% of the $1 million ($40K) per year

WHAT IS “RETIREMENT”

• My definition:

– Create enough PASSIVE INCOME to meet my monthly cash flow needs.

– AT ANY AGE!

WORK HARD FOR YOUR MONEY

• Active Income

– Trading “hours for dollars”

• Build something

• Fix something

• Teach something

DON’T WORK HARD FOR YOUR MONEY

• Passive Income– “Mailbox Money”

• Royalties

• Licensing Fees

• Leases

• Contracts

• Dividends

“Normal” THINKING• Conventional Thinking

– Work hard for 40 years (Active Income)

– Save up at least $1 Million

– Retire and live off of 4% of $1 Million

• $40,000

• Passive Income

DIFFERENT THINKING• Unconventional Thinking

– Money works hard for you (passive income)

– Use Passive Income for cash flow

– Redeploy excess cash to create greater Passive income streams

– Always be living off of passive income (no job)

SOURCES OF PASSIVE INCOME

• Investments in Real Estate– Rental Income (commercial and residential)

• Licensing– Patents, Copyrights and Trademarks

• Investments in Stock Market– Dividends

– Contracts

STOCK MARKET INCOME• When you buy a stock, you have the right to sell it

whenever you choose to.

• You could wait and sell it at a higher price or….

• You can get the market to PAY YOU cash to wait for the stock to go higher and sell it there.

• If it doesn’t go higher, you keep the money the market paid you.

Why Buy The SPY?

• The SPY mimics the S&P, you are investing in the biggest economy in the world.

• The S&P average annual return on investment is slightly over 10%.

• The SPY pays a 1.81% dividend. You are buying an income stream.

• Market volatility will increase options premium allowing you to sell inflated puts to acquire the stock at a significant potential discount to current pricing.

• You can execute these entries on your own without the need for a financial manager or firm, potentially resulting in hundreds of thousands of dollars in savings over your working life.

TECHNICAL ANALYSIS

Bonus Material

Technical Analysis

• If you suck at chart reading you will suck at trading.

• The chart tells us all we need to know.

• Patterns tend to repeat.

• Charting is scalable and transferable.

• Most trades should be in the direction of the daily chart. (there are exceptions)

The Chart

• A picture is worth a thousand…Dollars!

• A picture of the market psychology.

• Tells us what the market is “thinking”.

• Pure supply and demand in picture form.

The Chart

• Chart patterns occur in multiple time frames.

• Chart patterns occur in all asset classes.

• Anytime there is a buyer and a seller there is likely a chart pattern being created.

Candlestick Charts

• Break down individual trading periods.

• Can identify market sentiment in each trading period.

• Patterns can emerge within individual candlesticks or even groups of candlesticks.

Bullish Candlestick

OPEN

CLOSE

LOW

HIGH

Bearish Candlestick

OPEN

CLOSE

LOW

HIGH

Candlestick Reversal Patterns• Evening Star or doji reversal

• Morning Star or doji reversal

• Bullish Engulfing

• Bearish Engulfing

• Bullish Harami

• Bearish Harami

• Bullish piercing

• Bearish Dark Cloud

Evening Star Reversal Pattern

Doji Reversal (Engulfing)

Morning Star Reversal Pattern

Bullish Doji Reversal

Bearish Engulfing Reversal Pattern

Bearish Engulfing

Bullish Engulfing Reversal Pattern

Bullish Engulfing?

Bearish Harami Reversal Pattern

Bearish Harami

Bullish Harami Reversal Pattern

Bullish Harami

Continuation Patterns

Rising Three Method Pattern

Falling Three Method Pattern

Volume

• Bullish

– Price is rising

– Volume is rising

• Bearish

– Price is falling

– Volume is rising

Reversal Volume

• Potential Bullish Reversal– Price is falling and approaching support

– Volume is falling

– Watch for reversal patterns

• Potential Bullish Reversal– Price is rising and approaching resistance

– Volume is falling

– Watch for reversal patterns

The “Bullish Blow Off”

• Potential Bullish Reversal

– Stock price has been falling sharply

– Stock Price starts to reverse, leaving long wick below

– Volume is spiking to unusual highs, typically 1/3 or more higher than the opening volume for the day.

– Volume spike occurs when massive buy orders are triggered due to the sell off.

The “Bearish Blow Off”

• Potential Bearish Reversal

– Stock price has been climbing sharply

– Stock Price starts to reverse, leaving long wick above

– Volume is spiking to unusual highs, typically 1/3 or more higher than the opening volume for the day.

– Volume spike occurs when massive buy orders are triggered due to the rally.

Blow Off

Bollinger Bands

• Bands measure Volatility

• Can act as “Support” or “Resistance”

• BB mean can act as support/resistance.

• Can signal changes in momentum

Bollinger Band Top

• Stock price moves aggressively above the upper band.

• Price retraces below the upper band.

• Stock price rallies but fails to reach the upper band before retracing lower.

• Can signal a loss in momentum.

Bollinger Band Top

Bollinger Band Bottom

• Stock price moves aggressively below the lower band.

• Price retraces above the lower band.

• Stock price sells off but fails to reach the lower band before retracing higher.

• Can signal a loss in momentum.

Bollinger Band Bottom

Bollinger Band Channel

• Bollinger Bands and the 20 SMA are moving essentially sideways.

• Stock price moves below the lower band or above the upper band but fails to stay beyond the band.

• The stock price is likely to revert to the opposite band.

Bollinger Band Channel

Bollinger Band Channel

Rally Point!• I have agreed to do live Trading Mentoring at my office

where I teach my 3 Day Risk Management and SPY the Market Workshops.

• I am limiting the mentoring to two students at a time.

• We will focus on providing you a real Mentor/Apprentice experience for as many days as you want (up to 5).

• The Live “Rally Point” Mentoring must be prescheduled with me personally.

Rally Point!

• 1 to 5 day Live trading mentoring in my office!

• Limited to two students.

• Live, real time practice trades, mindset work, trade executions and evaluation!

Non-Lab Members for $1995/day

Lab Members$1495/day

I am not a registered broker-dealer or investment adviser. I will mention that I consider certain securitiesor positions to be good candidates for the types of strategies we are discussing or illustrating. Because Iconsider the securities or positions appropriate to the discussion or for illustration purposes does notmean that I am telling you to trade the strategies or securities. Keep in mind that we are not providingyou with recommendations or personalized advice about your trading activities. The information we areproviding is not tailored to any particular individual. Any mention of a particular security is not arecommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for anyspecific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation,regardless of whether we are discussing strategies that are intended to limit risk.

I am not subject to trading restrictions. Myself and other instructors could have a position in a security orinitiate a position in a security at any time.