Swing Trading

S M A L L, M I D & L A RG E CA PS – STO CK S & O PT ION S

Warrior Trading
I’m a full time trader and help run a live trading room where
we trade in real time and teach people how to trade stocks.
My primary focus is on Swing Trading, but I day trade as
well. Like a good carpenter, a good trader will have more
than one or two tools in the tool box. As a trader, you should
learn several strategies and be able to apply them in
varying market conditions.
My job as the head swing trader is to handle all of the trade
due diligence, research, analysis, alerts and follow up
commentary. You can subscribe to my TickerTV channel for
LIVE watch list building, market analysis, trade review and
general Q&A www.ticker.tv/swingtradewarrior
Trading Courses
Swing trading
CHAPTER 1. INTRODUCTION TO SWING
TR ADING AND HOW TO UNDERSTAND AND USE
OPTIONS
 Course Schedule
Day 1 – Chapter 1: Intro to Swing Trading & Options 101
Day 2 – Chapter 2: Options Trading Strategies
Day 3 – Chapter 3: Fundamentals and Technicals
Day 4 – Chapter 4: Risk Management
Day 5 – Chapter 5: Stock Trading Strategies & Watch List Building
How does Swing Trading Work?
The idea behind swing trading is to capitalize on short term moves
of stocks, in any direction, over a period of time.
As swing traders, we profit from trends and finding entry
opportunities EARLY, before the crowds. (b/o and run vs. scalping)
Swing trading is defined as: “a speculative activity in financial
markets where a tradable asset is held for between one to several
days in an effort to profit from price changes or 'swings
swings'.”
swings
As traders, it is our job to identify trading opportunities that align
with our risk parameters, evaluate trade candidates and execute
trades with adherence to our rules and strategy. Be a robot!
Like day trading, swing trades come from catalysts, events,
technical setups and speculative opportunities.
Swing Trading is SIMPLE
Many people have a tendency of over complicating
or over thinking swing trades…don’t do it. Don’t
micromanage, hover, hope, wish, rationalize or think
when trading. Be a robot. Stick to your plan (have a
plan). More on this later…

Swing Trading is a 3 step process

1) Find a trade idea (scanner, news, etc.)
2) Develop a plan for the trade idea (analyze entry/exit/target,stop)
3) Execute (monitor trade and adjust as needed)
What’s the Difference? Both show a
breakout right?
 One Chart Was a Daily and the Other was a 5m Chart

Which trade would you want to be in? Why?

◦ It depends on goals, risk, size etc.
Why do Most Traders Fail?
Day trading requires quick decision making and lots of
discipline. Many new traders initially lack the ability to make
good decisions and maintain composure while under the
stress of a losing position, and even winning ones. The deer in
the headlights syndrome comes into play!
Skill and Discipline are like muscles that require exercise to
grow. Your ability to make quick decisions and follow your
trading rules will improve with experience and understanding.
This is why we tell people to paper trade! Practice with fake
money, not real money.
Swing trading can provide income and profits while one works
to develop their day trading ability and build up their mental
game. Swing trading can be emotionally “easier” when you are
playing by the “rules.” Also, swing trading is great for those
looking to trade part time due to other full time commitments.
Set your orders and walk away!
 Swing Trading With Warrior Trading

Watch lists, Alerts, Blotter, Varied Strategies and Trade Updates/Analysis

https://www.warriortrading.com/swing-trade-alerts/
 Options 101
Options can be difficult to understand, but are very effective when used
appropriately. They get a lot of hype, good and bad
People tend to see high % wins on options and fall in love – losses can be
high % also. In some cases, losses could technically be infinite!
Options trades are generally for more speculative ideas as they rely on
volatility in most cases, but not always. You can use them to play the trends
For swing trading, I prefer the simpler uses for options. Basic puts and calls,
vertical spreads and iron condors for earnings plays make up my playbook
for options
This section is just to give you a basic understanding of the options types
that I use when swing trading, how and why. We will discuss the right time to
use which option, depending on our goals and application
There are MANY complicated explanations for options, I will try to keep it as
simple and relevant as possible. Most analogies attempt to explain
exercise/assignment, which we will almost never do when swing trading,
but we still have to be mindful of that risk
 Options 101 Continued
Options provide financial leverage without needing to use
borrowed capital. By investing in options, you can control a
larger number of shares for the same initial investment, than if
you purchased the shares themselves.
Options contracts control 100 share lots of a stock. Cannot be
purchased on margin! Cash only. T+1 settlement
For example, if you wish to invest $1 000, you could purchase 10
shares of ABC stock (hypothetically) valued at $100 per share.
Alternatively, the option contracts may realistically be valued at
$200 for lots of 100 shares ($2.00 per option). For your investment
of $1 000, you could buy five options contracts, increasing your
financial leverage by allowing you to control 500 shares
instead of just 10.
Like with anything, too much leverage can be bad and often
gets new traders into big trouble!
 Options 101 Continued
The price (or cost) of an option is an amount of money known
as the premium. An option buyer pays this premium to an
option seller in exchange for the right granted by the option.
Which is, the choice (the "option") to exercise the option or
allow it to expire worthless
An option’s contract is like any other contract, with rights and
conditions. They also have expiration dates.
The same concepts are at work here as when buying stock…for
every buyer, there must be a seller and therefore, liquidity.

Two common ways to trade options:

- Exercise vs. Assignment (Want to own stock/sell the stock you
own)
- Flipping them for premium (Want to profit in price
changes/trade)
 Options 101 Continued
Calls and Puts

The two types of options are calls and puts (both control 100
shares of an underlying stock)

A call gives the holder the right to buy an asset at a certain

price within a specific period of time. Calls are similar to having
a long position on a stock. Buyers of calls hope that the stock
will increase substantially before the option expires.

A put gives the holder the right to sell an asset at a certain

price within a specific period of time. Puts are very similar to
having a short position on a stock. Buyers of puts hope that the
price of the stock will fall before the option expires.
 Options 101 Continued
Participants in the Options Market

There are four types of participants in options markets

depending on the position they take:
Buyers of calls (long/bullish on the stock)
Sellers of calls (long stock – covered calls, bearish on the
stock)
Buyers of puts (short/bearish on the
stock/insurance/hedge)
Sellers of puts (bullish on the stock/want to own stock below
a certain price)
 Options 101 Continued
Story time!

Just like in stock trading, for every buyer, there MUST be a seller!
Options 101 Continued
Strike Price - The pre-agreed price per share at which stock may
be bought or sold under the terms of an option contract. Some
people refer to the strike price as the “exercise price”.
In-
In-The-
The-Money (ITM) - For call options, this means the stock price is
above the strike price. So if a call has a strike price of $50 and the
stock is trading at $55, that option is in-the-money.
For put options, it means the stock price is below the strike price
(remember, puts are bearish). So if a put has a strike price of $50
and the stock is trading at $45, that option is in-the-money.
Out-
Out-of-
of-The-
The-Money (OTM) - For call options, this means the stock
price is below the strike price. For put options, this means the stock
price is above the strike price. The price of out-of-the-money
options consists entirely of “time value.”
 Options 101 Continued
At-
At-The-
The-Money (ATM) - An option is “at-the-money” when the stock price is equal to the
strike price. (Since the two values are rarely exactly equal, when purchasing options
the strike price closest to the stock price is typically called the “ATM strike.”)

Intrinsic Value - The amount an option is in-the-money. Obviously, only in-the-money

options have intrinsic value.

Time Value - The part of an option price that is based on its time to expiration. If you
subtract the amount of intrinsic value from an option price, you’re left with the time
value. If an option has no intrinsic value (i.e., it’s out-of-the-money) its ENTIRE worth is
based on time value (makes out of the money options more speculative).

Time Decay – Also known as “theta,” is the ratio of the change in an options premium
price compared to the decrease in time to expiration. As options approach expiration,
the time value declines. This is good for sellers/writers, but bad for buyers. Credit vs
Debit trades (more on this later).
 Options 101 Continued
Exercise - This occurs when the owner of an option invokes the right embedded in the option
contract. In layman’s terms, it means the option owner buys or sells the underlying stock at the strike
price, and requires the option seller to take the other side of the trade (enforcing the contract). We
will rarely ever exercise options or hold them until expiration. In most cases, we want to use options
to profit quickly from short, volatile moves by flipping the premium (buy low/sell high).

Assignment - When you buy an option (a call or a put), you cannot be assigned stock unless you
choose to exercise your option.
option Plain and simple, the purchaser of an option contract will always
have the choice to exercise the option, but not the obligation to do so. When you sell an option (a
call or a put), you will be assigned stock if your option is in the money at expiration.
expiration As the option
seller, you have no control over assignment, and it is impossible to know exactly when this could
happen. Generally, assignment risk becomes greater closer to expiration. With that said, assignment
can still happen at any time.

Open Interest – Open interest will tell you the total number of option contracts that are currently
open. These are contracts that have been traded, but not yet liquidated by either an offsetting trade
or exercise/assignment. When you buy or sell an option, the transaction needs to be entered as
either an opening or a closing transaction. If you buy 10 of the NFLX August $100 calls, you are buying
the calls to "open". That purchase will add 10 to the open interest figure. If you wanted to get out of
the position, you would sell those same options contract to "close," and open interest would then fall
by 10. Selling options as a writer will also add to the open interest. There is no way to determine if the
open interest is reflecting bought or sold (written) calls. OI is used to help determine liquidity and
interest in a particular stock.
 Options 101 Continued
Implied Volatility (IV) - The estimated volatility of a security's price. In general, implied volatility increases
when the market is bearish and decreases when the market is bullish. This is due to the common belief that
bearish markets are more risky than bullish markets. Implied volatility is sometimes referred to as "vols." IV
WILL increase in the weeks before earnings, causing premiums to be more expensive than if the stock were
trading at the same price during non earnings season. This is the basis for the iron condor strategy. More on
this later.

Implied volatility plays a big role in our options strategies. Remember, as options traders, the general rule to
follow is, BUY low IV and SELL high IV. Implied volatility is a measure

Volatility measures uncertainty. A higher volatility stock will have a greater potential price range than a lower
volatility stock.

Historical Volatility (HV) – is the realized volatility of a security over a known period of time. Generally, HV is
calculated by determining the average deviation of a security from the average price in the given period of
time. Using the standard deviation is the most common way to calculate HV.

Put to Call Ratio - When looking at options liquidity, this measurement can help us determine market
sentiment in an underlying security. As the ratio grows larger, this tells us there are more put buyers than call
buyers, and therefore, a more bearish sentiment. Conversely, when the ratio nears .50 or less, it implies a
bullish sentiment as call buyers are in charge. This ratio, combined with large “sweeps” or relative volume in
the puts or calls, can help to determine institutional sentiment in an underlying security. Retail traders don’t
generally buy 5,000 calls on the ask for $1.00. So, what is going on there? Is big money moving in? Is there
pending news expected? Are they hedging a short? Maybe the put to call ratio can help us determine.
 Options 101 Continued
The two main components of options premium pricing are Intrinsic
Value & Time Value
Intrinsic Value refers to the portion of the premium that is IN THE
MONEY.
Note: The ONLY options with intrinsic value, are those ITM
Intrinsic Value (calls) = Underlying Price – Strike Price
Intrinsic Value (puts) = Strike Price – Underlying Price
Any premium in excess of the intrinsic value (ITM) is called “time
value” or Theta (one of the Greeks).
 Options 101 Continued
Assume a call option has a total premium of $10 (buyer pays $10, seller
receives $10 for each share of the stock. Remember, this would be
$1000, since options contracts control 100 shares) If this option has an
intrinsic value of $8, that means that its time value would be $2 ($10 - $8
= $2)
Option Premium = Intrinsic Value + Time Value
Time Value = Option Premium – Intrinsic Value
Why do you need to know this? It is important to understand how
premium pricing works, so you understand what you are really paying
for. Assume it is January, and that a call contract for an ATM strike price
on a stock costs us $5 ($500 = $5 x 100 shares) for a February monthly
expiration. That same strike price for the same stock could cost us $7
($700) for a March expiration. And $9 ($900) for an April expiration, etc.
This is the effect time value has on options. In those cases, we are
paying for time, the ability to hold the contract longer costs us more,
because the potential for profit is greater over a longer period of time.
Options 101 Continued

ITM, ATM, OTM, Strikes, Volume, OI, Premiums

 Options 101 Continued
Choosing the right strike using Volume, OI, time/expiry, and basic analytics
is critical. Use your tools!!
We want liquidity because liquidity breeds competition for the best price,
and that is when we find tighter spreads. It is easier to get in and out of
positions where we know other people are actively trading.
Not all stocks have options, and not all stocks with options are going to be
liquid enough to trade reasonably.
Generally, we want to find options at LEAST a month out to give the trade
time to work, this will be more expensive b/c we are paying for time value.
This does NOT apply to our Iron Condor earnings strategy.
We want a strike that will give us an optimal delta for making profits as soon
as possible (higher delta, means the options premium increases in value
faster as the stock moves in our favor, more on this in a bit), but we don’t
want such a high delta, that we take on unnecessary risk.
We also may need to consider adding a short leg to a long trade, to help
neutralize the effect of theta and vega. (spreads) More on this in a bit as
well.
 Options 101 Continued

-Max Profit vs. Probability

-Real time vs projected
-Risk/Reward
-Important events that can
impact trade

Basic analytics can tell us about market sentiment. We can learn to

leverage technology to help us increase the probability of
profitability. What are other people seeing and doing and where is
the smart money going?
 Options 101 Continued
Options types:
Monthly Options – Expire the third Friday of each month. (Not
all stocks trade options, not all stocks that trade options are
liquid enough to trade)
Weekly Options – Expire every Friday at the close. (Not all
stocks that trade options, trade weekly options)

◦ Note: Some ETFs now trade Wednesday Weeklys and Extended

Weeklys. In this course, we will only be working with and
examining regular Friday expiration weeklys.
 Options 101 Continued

The Greeks, which ones do we care about and what are they?
◦ ∆(Delta) represents the rate of change between the option's price and the
underlying asset's price - in other words, price sensitivity.
Delta is the rate of change of the option premium for every $1.00 move in the
stock price. Delta of .60 means that when ABC moves from $10 to $11, the options
premium will increase from $1.00 to $1.60 or a rate of change of 60%
◦ Θ(Theta) represents the rate of change between an option portfolio and time, or
time sensitivity (aka “The Silent Killer” for longs). Theta value is always negative for
options b/c they are always losing time value. At time of expiration, all options will
have 0 time value or extrinsic value. Theta represents the loss in premium value in
options every day. Theta increases as expiration nears.
If XYZ May $50 calls cost $3.50 and had a theta of -.20, for every day you own the
XYZ May $50 calls, they will lose -.20 in value. Day 2, $3.30, Day 3, $3.10, etc.
◦ Γ(Gamma) represents the rate of change between an option portfolio's delta and
the underlying asset's price - in other words, second-order time price sensitivity.
This one is easy and we don’t use it often. It tells how much delta will change when
the stock price changes. Basically, how sensitive delta is to the stock prices
movements.
 Options 101 Continued
◦ ϒ(Vega) represents the rate of change between an option portfolio's
value and the underlying asset's volatility - in other words, sensitivity
to volatility. Implied and historical volatility are more important
when trading spreads, however, we need to be aware that Vega
WILL influence our premium value.
Have you ever bought a call option and had it lose money even
though the stock price was moving in your favor? This is a result of
the effects of volatility or Vega priced into the premiums. This is why
we love using options on gap fills trades, earnings plays, and
reversals.
This is also why buying options on volatile movers is all about timing.
If we buy after a sharp move, we are buying inflated Vega and it will
become harder to profit without a continued sharp move in our
favor. Wait for the pullbacks!
◦ ρ (Rho) represents the rate of change between an option portfolio's
value and the interest rate, or sensitivity to the interest rate.
Important to know it exists, but for our swing strategies, and most
options strategies, we don’t really need to know much about Rho.
 Options 101 Continued
The Greeks are necessary guides and can usually be
helpful, but they are NOT ABSOLUTE
They are constantly changing from one moment to the next
as price, implied volatility, time and other factors affect the
premium pricing
 Options 101
Questions, comments, concerns?
Email me: [email protected]