Hello, everybody. Lee Lowell here, smartoptionseller.com. Yes, we're back for another Saturday. We talk about options trading and we talk about stock charts. This morning, we will be discussing part two of options trading basics for beginners. Last week, we went over some of the initial options trading basics, talked about call options, got another long list of questions that came in from last week on specific areas of the pricing of options. Today, I will discuss a little bit more about how we term certain strike prices, how their prices come about, how to factor or figure out the break-evens of certain prices. This is all very important. If you want to become a smart option trader, you need to understand how option prices react in regards to how a stock moves and how the option will move along the expiration scale as well. These are all important things.  It's not like buying stocks where you just buy a stock or you sell a stock. Options trading has a lot of moving parts to it, so you need to understand these moving parts so you can become a smarter option trader, make more money in the future. Let's take a look at some of the more basic fundamentals of options pricing and some of these terms that you'll hear people throw about throw around certain terms. I want to explain some of these things and just help you understand a little bit more about option pricing. Then after we do that, we will go into our Saturday synopsis. We'll take a look at the stock charts, see what happened over the last week's worth of trading, and come up with an idea of what may be going forward for next week. Let's jump right in. As you see, I have my cheat sheet here, my Word document, and this is nothing fancy. We're not fancy here. I'm just trying to teach you all the good stuff about options trading, so there's not a lot of bells and whistles, not a lot of crazy charts and things, just real basics. Let's go right to it. When you look at an options price, obviously, if you trade options, all options have a price. They have a bid price and an ask price, just like a stock does. Options prices can be bought or sold at will, don't have to be held until expiration. You just go in and buy the option price at whatever you can get. You try to get it for a limit price, which is somewhere in between the bid and ask price. You don't always want to have to pay right at the ask price. That's paying retail, as I like to say. You want to haggle a little bit. Anyway, you try to buy somewhere in between the bid and ask, and when you want to sell the option, you try to sell it somewhere in between the bid and ask prices. Trading options are just like trading stocks. They have a bid and ask price, and you try to buy or sell it at whatever best price you can get. Once again, the option does not need to be held until expiration date.  Option prices are there to be bought and sold, but the question is, where do these option prices come from? How are these options priced? What are some of the lingo around options prices? If you've been trading options at all, or even if you're just starting out, all option prices have a strike price. That's how options are listed with their strike price. There's tons of different strike prices listed. You've got puts and calls, but each put and call has their own strike price. Those strike prices are set by the options clearing corporation, and it's based on demand for those options. You can't just buy an option at any old price you want, an option strike price. I should say the strike prices are set by the options clearing corp, and I think the exchanges might have some say in that as well. Let me just bring up the option chain here from Interactive Brokers. Here we have the option chain. This is for Apple options, and I used this option chain last week. If you watched video from last week, and if you missed the video from last week at all, I'll put it up in the last towards the end of this video. You'll be able to click on it within the YouTube video anyway. We have the option chain here. We've got call options listed on the left, put options on the right, but in the middle here is the strike price column, and we're just talking about strike prices. These are the strike prices that you can choose to trade the options on. The strike prices for Apple, these are Apple options that expire in May 2021. As I scroll here, you can see the strike prices range all the way from $25 a share all the way up to $225 at the top end. Let's move this out of the way, $225. Apple stock itself last traded around $120 per share, and these are all the different strike prices you can choose. Let's go back to our word document here. Let's understand how options are priced according to where the stock price is. Let's look at a little bit of the lingo here. These are options trading terms that you should become familiar with. Out of the money option, and we're going to talk about call options again today. We're only focusing on call options. These terms will apply to how call options are priced according to where the stock price is. Out of the money call options is when the strike price is above the current stock price. Let's just say the stock's at $100. Any strike price that's listed above $100 is considered out of the money. Out of the money. Why is it called out of the money? Well, if the stock's at $100, and let's say you bought $120 call option, if you exercised that call option, that means you would be buying the stock for $120 a share. If the stock's at $100 in the open market, there's no reason why you should exercise that call and buy the shares at $120 when you can buy the shares at $100 in the open market. It doesn't make sense. So that's why it's called an out of the money option. It has no value. You would be making a huge mistake if you exercised that call option to buy the shares at $120 when it's currently trading in the market at $100. That would be locking in a $20 per share loss. So that's considered out of the money. It doesn't have any value yet. Call options that are at the money, ATM for short and OTM for the out of the money. ATM is the strike price is pretty similar to the current stock price. So if the stock's at $100, you're looking at the $100 strike call options. That's considered at the money same level as the stock price. And the in the money options, call options, is when the strike price is below the current stock price. So stock's at $100. Any strike price below $100 is considered in the money. So let's take a look at the eight. So we'll look at some examples here, but consider the stock at $100, the $80 call option. If you exercise that $80 call option, that means you could buy shares at $80 and immediately turn around and sell them for $100 in the open market. So that's got a $20 of real intrinsic value. It's called in the money. It has value. So these three terms, out of the money, at the money, and in the money is just the way to describe where the strike price sits in relation to where the stock price sits. And like I said, in the money call options sit below the stock price, at the money options, call options are same as the stock price and out of the money call options are set above the current stock price. Those are just terms that you should know. If you're having a conversation with other option traders, you can be more well versed and understand where the options stand. Now, an options price. Like I said, when you go to buy or sell an option, it has a price. Where do those prices come from? And what makes up those prices? You need to get a little deeper with options. These are some things that you have to understand how options are priced because it will help you become a smarter option trader. So when options value or an options price or an options premium, those are all the same terms that describe what an option is worth. A premium price value cost, all those terms describe an options price. And an options price is made up of two different components. You got intrinsic value and extrinsic value. And intrinsic value will only apply to in the money options. Intrinsic value means that option has real worth. It has real actual value. If you were to exercise that option, it would have real value right then and there. So let's let's try to explain what those terms mean. And so you can understand the value of an option and where it's worth at any moment in time. Let's consider the scenario where the stock is $100 per share. The $80 in the money call option. So remember, $80 it's in the money, its strike price is set below the current stock price. Let's just say this $80 call option in the market was worth $22 per contract. That would mean a $2,200 investment. Each option contract consists of 100 shares of stock. So any option price, option prices are based per contract, you have to multiply the option price times 100 to get the actual dollar amount. So let's just say this option contract, the $80 call option is worth $22 per contract. It has intrinsic and extrinsic value. Now, in order to find the intrinsic value of a call option, you subtract the strike price from the current stock price, $80 from 100 is $20. Okay, so $20 of this $22 whole amount is from intrinsic in the money real value. And the other $2 is what's called extrinsic value. It's just whatever's left over after the intrinsic value is taken out. Where do we get $22? Well, like I said, the $20 is the difference between the strike price and the current stock price. If you were to exercise this $80 call option today, that would give you the right to buy 100 shares at $80 a share. Then you could immediately turn around and sell them for $100 in the open market. So that is an $20 real value right then and there for that option. So that has to be priced into the full option price. That's $20 of real value. But the whole option is worth $22 per contract if you were to buy or sell that option. So that extra $2 is just what's called extrinsic value. Extrinsic value is what's left over to compensate for days to expiration. That's how much time there's left until the option expires. You got volatility to deal with. And then a very small amount, interest rates and dividends. But for the most part, it's the days to expiration and the volatility of that stock that makes up this extra $2 of extrinsic value. So that's the in the money call option. It has intrinsic and extrinsic value. Just remember, only in the money options will have intrinsic value. Now let's take a look at an at the money call option. The $100 call option has the same strike price as where the stock currently is. The $100 call option costs $7 per contract. And that means it's only made up of extrinsic value. If you were to exercise the $100 call option, that means you can buy shares at $100. But since it's already trading at $100 in the marketplace, there's no gain or loss at that point. You're buying the stock at $100 and it's trading at $100 in the marketplace. So there's no real value in that option yet, unless the stock starts to move up in price. If you buy the stock at $100, and it's still at $100, you've got no gain or loss. But that option costs $7 per contract to purchase, which is $700 actual dollars in real money. Take the contract price seven, multiply by $100. That's $700. So when you buy that option, it costs $7 per contract. It only has extrinsic value. There's no real value to it yet. If the stock stays at $100 for the life of the option, you're going to lose all that $700. Extrinsic value, by the time expiration rolls around, extrinsic value gets completely stripped away from an options price. It will no longer exist at expiration. You're only paying for the future movement for the stock of the stock. If the stock doesn't move, you're going to give away all that extrinsic value. Whereas with this $80 call option, you've got $20 of real value built in, so you'd only lose $2 of extrinsic value if the stock didn't go anywhere. If it stayed right at $100 the whole time, this $80 call option would eventually be worth $20 per contract. So you would lose the $2 of extrinsic value. With the $100 call, it's $7 of extrinsic value. If the stock stayed at $100 the whole time till expiration, all $7 would just slip away. That's what happens with options. Extrinsic value just disappears as it moves towards expiration. I've used an example before. If you have an ice cube sitting out on the counter, over time that ice cube is going to start to melt away to nothing. That's the same thing that options do with extrinsic value. That extrinsic value just starts to melt away once the option starts to get towards the expiration date. If the stock doesn't move in the right direction, all that extrinsic value just disappears. So let's look at the $120 call option. Out of the money, stocks at $100. The $120 call option costs $1 per contract. That's $100. And it is, of course, made up of extrinsic value. It's all extrinsic value. $1 of extrinsic value. It has no true value yet. If the stock stays at $100, you're just going to lose that $1 of extrinsic value. And that's how options work. So the other thing that I had talked about last week was that you have to understand your breakeven prices. You want to know where the stock needs to move to in order for you to just breakeven on the trade if you hold it until expiration. That's very key to understand. I talked about that last week. Most players opt to hold the option all the way to expiration because they want to give themselves as all the time possible for the stock to move in their favor. So we always talk about the breakeven prices at expiration date. So the $80 call option, the breakeven is at $102 per share on the stock. How do we find that? Well, you need to know what the option costs. This $80 call option costs $22 per contract. So you add $22 to the strike price. $80 plus $22 is $102. The stock needs to move from $100 to $102 in order for you to at least breakeven on that option purchase. Once the stock moves above $102, you're making money. If the stock drops, you're going to lose money as well. If the stock drops, this $80 call option starts to lose money also. So it works in both directions. But it's important to understand where the breakeven prices take the strike price plus the option price gives you your breakeven on the stock if held to expiration. The $100 call costs $7 per contract. You add $7 plus $100. Your breakeven is $107 per share. So as you hold this option, as you hold this call option, the stock has to move from $100 a share up to $107 by expiration in order for you just to breakeven on the trade. You want to cover your cost in the trade. So you always need to know where your breakeven is. And on the $120 call, it costs $1 per contract. So your breakeven is $121 per share. Stock has to go from $100 all the way up to $121 just to breakeven on the trade. So part of your decision-making when you buy options is how strongly do you feel the stock can move to the breakeven price by expiration if you hold it until expiration. Now, if the stock moves greatly in your favor right away, let's just say next week the stock moves in your favor, all these option prices will go up in value. And then you could turn around and sell those option contracts and lock in a game. Okay, so it's very important to understand and watch the market because if the stock moves in your favor quickly, you can turn around and sell these options and make a profit. But if you opt to hold all the way until expiration, the stock has to move above the breakeven prices in order to make a profit. Let's just say you bought this $120 call and you know that by expiration it has to move up to $121 a share. Let's say the week after you bought this call, the stock jumped up to $130. Went from $100 to $130. You're thinking this is great. Now this call option is worth a lot of money. You could sell it right then and there and lock in your game. But let's just say you opt not to say I'm going to give this stock more time to appreciate. Well, let's just say by the time expiration rolls around, the stock drops from $130 all the way back down to $100. You just missed out on $30 of gain. Now this call option will expire worthless with no value. So it's very important to understand that options are a wasting asset. If you don't take advantage of them by a certain time, you're just going to give back all the money. So if a stock moves in your favor quickly, think about taking profits. We talked about that last week. So those are some of the things to consider when you're buying call options. You need to understand the terms which will explain where the strike price falls in conjunction with the stock price. You have to understand extrinsic and intrinsic and extrinsic value. And you need to understand how that applies to each option contract based on how much it costs and what the breakevens are. So let's take a look at some Apple options real quick, just like we did last week. Let me move myself over here. So we have the May 21, 2021 options on Apple that expired 62 days. Here's the Apple tab, Apple last price 120. Yesterday, March 19, 2021. So here's the call options over here, bid and ask prices. Like I said, each option has a bid and ask price. And so Apple's at 120 per share. Let's take a look at some strike prices. So the 120 calls are over here with the stock trading right near 120. This option is worth about $7. We had that right on $7. And the breakeven obviously would be 120 plus 7. So now, your breakeven is at $127. Apple's at 120. If you hold until expiration, the Apple has to go up to $127 a share. Those are the at the money options. Now the in the money options, we can look at the 100 calls in the money. 100 calls cost about $21 in change per contract. That's a little over $2100 in actual dollars. So you take the 100 strike, add it to let's say 2115. So your breakeven is $121.15. $121.15. Apple only has to go up $1.15 from 120 to 121.15 cents in order to break even on that trade, if held until expiration. That's not very far for Apple to move. That's not so bad. So remember, that's the in the money option. That's the in the money option. Take the strike price plus the cost of the option will give you the breakeven. That tells you where the stock needs to move to. Like I said, the 120 calls at the money cost $7. Apple has to go from 120 all the way up to 127. Now if we look at an out of the money, let's say the 140 calls is out of the money because the strike price of 140 is well above the current price of the stock. And that option costs about $1.62. $162. I take the strike price, add it to the option price. So $141.62 is your breakeven if held until expiration. Okay, Apple has to go up another $21 or so in order to just break even if you hold until expiration. Now remember, I said, if Apple shoots up very quickly, like the next week, all these option values are going to go up dramatically. So you can think about taking profits early if you want. What profit level you decide do you want to take a profit level at a 25% gain 50% gain 100% gain completely up to you. But it's very important to take those profits at some point. Because like I said, the stock could always drop again. And then all that option value will just slip away. Okay. So there you go. There's your lesson for today. The second lesson of the introduction to options basics call option basics. So it's important to understand some of the terms, understand the strike prices, where they sit in relation to the stock price, figuring out how much the option costs, if it has intrinsic or extrinsic value, and where your break evens are. And, you know, obviously, you have to understand the chances of the stock moving from your its current price to your break even what are the chances of that I discussed the probability calculator last week, you can look at a probability calculator and look at some of your chances. So understanding the stock, knowing where it may go is also very important. You know, there's components, the options price is based on where the stock is. So you have to understand how to figure out picking a good stock and where you think it's going to go. And that's one of the basis, your basis of how to pick an option contract as well. Okay. So I hope that's been helpful. Let's move on to our next part of our journey of our Saturday synopsis. And let's take a look at the charts, see what happened over last week and see what's going on and see what may be happening for next week. Let's take a look. We always look at the SPY, which is the exchange traded fund for the SP 500. See what happened over the last week. There we are. Let's blow this up a little bit, widen out so we can see here's our one week's worth of trading just this past week. As you can see, it was a down week. Okay, as we came off last week, we had a nice run up, came off the lows here from two weeks ago had that nice sell off, but it bounced pretty good. And it went up. But this whole week, it gave a decent chunk of it back on the charts. We always have our 20 day moving average, 50 day moving average, 200 day moving average, we have various patterns here listed on the chart. And down here, we have our RSI, which is an overbought oversold indicator. The defaults for the RSI are 70 and 30, which typically tells you if a stock is in overbought or oversold territory, based on the line here, the black horizontal lines are your overbought and oversold areas. I bump it out to 80 20. You can choose any parameters you want for the RSI. I bump it out to 80 20, which means if a stock gets above 80, it's typically overbought at that moment in time. If it gets below 20, it's considered oversold. Doesn't mean the stock will turn around right then and there. It's just giving you an advanced warning that, hey, this stock is getting into overbought territory or it's getting into oversold territory. But you cannot use it as the actual turning point of the stock. It's just giving you a warning. So here we got, we had a down move all week resting or found support right at the 20 day moving average. Small stocks that are in a nice either uptrend or downtrend will find some support or resistance as it pulls back to either the 20 day or 50 day. I put a little more importance on the 50 day moving average. But when stocks are in an uptrend, you'll see the pullbacks to either the 20 day or the 50 day as it moves up along the scale here. Stocks had good movement upwards, and then when it does bounce, it bounces off the 20 day or 50 day. So if you're looking to get long at some point, if you're trying to time your entry, you wait for a pullback to the 20 day or 50 day as long as the stock is continuing in an uptrend. So the market is still pretty strong. I'm still bullish. The sell off this week is and prior is that people are concerned about interest rates. The Federal Reserve here in the US decided to keep interest rates unchanged, close to 0% for the foreseeable future until at least 2023. It's a long time. But interest rates also trade in the open market. We got Treasury bills, bonds and notes that all have an active market and the players in those markets can have other thoughts than what the Federal Reserve does. So that's why interest rates have been going up because people or traders know in the future the Fed will eventually raise rates. So they're sort of getting a jump start on things. But historically rates are still very, very cheap. Let me see if I have the interest rate symbol here in my watch list. Let me see. Let me type it in here. Okay. So here's the 10-year, this is the 10-year US interest rate note on a daily basis. Okay. So obviously last March 2020, we can see interest rates dropped dramatically down to about 0.4%. Okay. And we were at that lows for a long time. And then just the last few months, we started to tick up. Let's take a look at a long term monthly chart of interest rates. So as you can see here back in the early 1980s, interest rates, 10-year note topped out around 16%. And has just since 1982 has just continually moved lower, lower, lower, lower. And we hit the lows here. Each bar is one month's worth of trading. So we hit the low last March 2020 for interest rates. But look where we are. We're back to about 1.73%. Historically, still just dirt cheap for interest rates. Okay. If the pandemic hadn't happened, we'd still be at these very, very low historical interest rates. So people are getting all up in arms that interest rates are going higher. Yes, they're going higher, but they're going higher from the most extreme lows that we've ever seen. So I'm not so worried about interest rates affecting the market. Maybe in the short term, people get a little worried about it. But in the long run, as we know, stock market goes up over time, whether interest rates are high or low. Let's take a look at the Dow Jones industrial average. One of the strongest of the three indexes right now. Open this up a little so we can see a little better. I drew this channel here, we have the the Dow Jones making this nice up move up channel, getting a little ahead of itself, I think, towards the end of last week. So here it ended the week yesterday, this bar right here is where it ended came right down to the top of the up trending channel. So let's see if it'll bounce here next week and continue its move up. If there's a sell off next week, it'll come down within this channel, probably sit on the 20 day moving average here. But we'll see the market's been strong. But let me blow this up to the monthly chart for the Dow. Obviously, since 1982, let's go back to 1982, all the way back here, markets gone up, whether interest rates go up or down, market will still go up over time. The stock market is where you will get a decent return on your money in the long run. Okay, so the Dow, here's the pandemic last year, nothing but up in this channel, nice little up trending channel, got a little ahead of itself, and now it's come back down to touch the top of the channel. So let's see if it'll bounce here. Let's take a look at the Nasdaq.  It's having the most trouble out of the three indexes. Okay. Last few weeks, we're in this down trending channel. And part of technical analysis is drawing these lines to give yourself an idea of where a stock or an index may go. Now the Nasdaq had sold off, made this down trending channel, but then it bounced. So you can kind of draw an up trending channel as well. What we see here is, what we see is, here's the top of the down trending channel. The Nasdaq is sitting right on that level. Okay, we want to see it bounce. It's already below, here's the 50 day moving average. I know it's a little hard to see. Here's the 50 day moving average. So the Nasdaq is below the 50 day moving average. We want to see it bounce back up relatively quickly. We don't want it to be underneath the 50 day moving average for too long. You've got the down trending, the down trending, 20 day moving average. Let me remove some of these lines so we can see things a little bit better. We can always add those back in later. Okay. So here you got the now a down trending 20 day moving average and the Nasdaq touched right on it. So we want to see the Nasdaq start to move up again. Okay. It's below the 50 day. Don't like that so much, but we want to see it bounce back up. So the Nasdaq's having the hardest time out of the three indexes, the S&P 500, the Dow, and the Nasdaq. So the Nasdaq's got a little work to do. Maybe we found some footing here. You can always draw a support line. So it looks like maybe right here, we've got some support. We draw the lines at most recent lows. So you've got a kind of a support level here. Okay. We want to see this area hold. So if the Nasdaq comes off again, we want to see it hold right around this 13,000 mark and bounce. I'd like to see it bounce before that, but it's getting close to an inflection point here. We want to see it bounce sitting on the 20 day moving average. It's below the 50 day, but it's trying to find itself a bottom here. We don't want to see it come all the way back down again. So the Nasdaq's got some work to do. The S&P 500 looks decent. Take a look at that one more time. S&P 500. I don't think we looked at this one yet. So let's take a look at the S&P 500. It's sitting right on the 20 day moving average right here. Okay, blow it up a little bit more sitting right on the 20 day. So let's see if it'll bounce and start to move higher as well. Let's take a look at some individual stocks like we always do every week. Take a look at Apple. Always look at Apple. I'm long Apple. I need Apple to go up. It's been quite frustrating. You can see Apple had this congestion pattern a few months ago, finally broke out, but has now come back down into this downtrending channel. And right at $120 a share, it's roughly right where the breakout was from this congestion pattern a few months ago.  Just like I gave in the earlier part of the video about taking profits along the way. If Apple was making all-time new highs here, you think, oh, it's making all-time new highs. I think it's going to keep going up. I'm going to hold on to my call options for a bit longer. And then boom, Apple comes all the way back down, gives up over $25 of value. And now your call option is worth a lot less. So just be mindful. If you're playing short-term call options, options that expire a month or less, you've got to take profits quickly when you can. So Apple's in this downtrending channel now. It's sitting right on the top of the downtrending channel near the 20-day moving average. We would like to see Apple start to gain its footing and start to move back up again. So tech stocks are still a little hesitant here. People are selling out because interest rates are going up and moving into, they're rotating into more of the Dow industrial stalwarts. So we've got some more selling in the Nasdaq. Eventually, value will come into play. People will see, okay, Apple's at a value level now. Let's start to jump back in. So obviously, stocks will start to move up again. It's just trying to figure out when that will happen. And so we try to look at chart patterns to help us decide when that may happen. Apple's falling from $145 all the way back down to $120. It's given up some good gains. So let's see if it can find some footing here. Let's take a look at Amazon. Amazon, still in this long time channel, came down like two weeks ago, almost hit the support line here and bounced pretty good. So now it's hugging. This is the 200-day moving average. 200-day moving average is the granddaddy of moving averages. It's basically the line in the sand for a lot of stocks. Amazon's been trading below the 200-day moving average for a decent amount, popped above it, down again popped above it. So the 200-day moving average, it's acting as a magnet for Amazon. We would really like to see Amazon start to get its act together and continue to move up. But at $3,300 a share, it's a pricey point. It's at a pricey dollar point. Does that really matter? To some people. But what the chart is telling me is that it really still can't figure out where it wants to go. It's just meandering in a pretty wide range for sure. But falling below this 200-day moving average was pretty significant two weeks ago. It's trying to find its footing and pop back above it, which it has a couple of times, but still finished below the 200-day moving average. So Amazon still has some work to do. It needs to get off its butt here and get back up into this triangle here and start to move higher if it can. So Amazon not really doing much, but with a bearish slant to a degree. I'm not completely bearish on it, but because Amazon's just incredible company, it's hard to believe that its price will go down. But at this price point, there's a lot of people are digesting the moves and saying, okay, let's just wait a little bit longer before we get full on bullish again. All right, so that's Amazon. We looked at Apple. Let's take a look at Tesla. We look at some of these popular stocks because these are the stocks that people like to trade. And they want to know where the stock may be going. Tesla, obviously hit all-time new highs near $900 a share. This is post-split from back here, back in September. It's made some triangle patterns, triangle, triangle, and eventually it falls out of the triangle pattern. Trading around $650 a share. Tesla's got some work to do. It's below the 20-day, below the 50-day, still above the 200-day. So it's kind of meandering around in here, trying to figure out where it wants to go next. Can always draw another triangle pattern here. Always attach the tops, attach the bottoms. So you've got another triangle pattern that's sort of forming, trying to figure out where it wants to go. So it may meander around here a little bit until it pops above or below this level. I think most people would like to see it go up. So tech stocks have taken a beating of late. People are getting out there. Very lofty levels. Interest rates are going up. That spooks some people out. So they start to take profits and sell. Stocks like NVIDIA. NVIDIA has been in this channel for a long time, kind of fell below it. Caught some support right at the 200-day moving average and popped back within the range. So now it's sitting again right at support right here at the bottom of the channel. So NVIDIA needs to pop. The next move should be pop up towards the top end of the channel. We'll see. Stocks like Adobe. These are very expensive stocks, but very popular as well. Adobe's been coming off. It's below all the moving average, below the 20, 50-day and 200-day moving average. You can draw this downtrending channel for Adobe. Now it's kind of stuck in this channel. The next move probably could be to fall a little bit more, maybe towards the bottom of the channel. Or if the market could get its act together, it could pop out above it. So it's more of a waiting game. You want to see a stock move outside of a channel or support and resistance level before you actually get in. You want to get in on the move, but you want to wait for the move to happen first. You may not buy the bottom, but at least you'll be getting on after the stock makes showing you signs of it's moving in the right direction. Let's see what other stocks do we have here? Oracle is a stock we've been playing. We've been trying to play. I like Oracle. Had this nice move up. Earnings came out and knocked it back down to reality. So it's sitting right on the 20-day moving average. Oracle, good company. If you're looking to get long Oracle, somewhere around here you could be thinking, all right, maybe it's finding support. I might want to see it start to tick up again before starting to get long. So these are the things that you want to look at. The moving averages are still moving upwards. That's important. You want to see the moving averages trending upwards, not downwards. Let's see. What other stocks do we have here? We'd like to look at Netflix. There's always a popular stock still in this wide channel. We can even lengthen this out a little bit because it's just still been trading in this long, long channel here. So you can see it's in between the moving averages, but still in this broader range could pop back up again right now, sitting on support at the 200-day moving average, upsloping 200-day moving average. The next point should be a move up, but if it does come off, you'll probably catch support down here. It's still a big move. We don't want to see it drop that far. We'd like to see Netflix start to move up, but that'll all depend on the broader market in general and how people are feeling. What else? What else would we like to look at? Walmart, another favorite great, great company, but stuck in this downtrend, 20-day, 50-day moving averages are sloping downwards. That's giving some headwinds to it. The 200-day starting to flatten out a little bit, and you can see the price movement. Price movement is down. If I were to get long, Walmart, I'd wait to see another confirmed move to the upside. Right now, it's still languishing down here. If you put your money in Walmart, it may just meander for a while. You may get frustrated. So you want to make sure the stock's moving in the intended direction before you actually get in. What else do we like to look at? Microsoft, another tech stock that's trying to break above the upper part of the channel, just meandering around. It's stuck between the 50-day and 20-day moving average. This all depends on how the overall broader market will start to move as well. So Microsoft's stuck here. If it could bounce, then it will get some good momentum behind it. We want to see it get above this resistance line. So it's got a confluence of things here. It's in between the 20-day and 50-day at the resistance line. If it could get its act together, it can move. Otherwise, it's going to get knocked back down and probably start to hit towards the 200-day moving average. So these are some of the popular stocks. Google, we can look at. Google, still pretty strong. It's got this support level right at the $2,000 level, roughly right here. Don't want to see it drop through there if you're long. If it does, it's trying to close this gap right here. This big gap. Lots of stocks try to close gaps somewhere in the future. But it's got the 50-day sloping upwards, so it could catch some support right around there as well. So Google's been pretty strong for tech stock. Twitter. People like to look at Twitter. Twitter is made all-time new highs. I think that was all-time new highs. Let's take a look at the monthly. Yep, all-time new highs near $80, but it's come off underneath the 20-day moving average. You've got the upsloping 50 down here waiting to catch it if it does keep falling down. So Twitter is just kind of me entering around not much for me to see on this chart. And let's look at GameStop as our last one here. Still hanging around. GameStop $200 per share, I should say. I'm not playing it. I'm just watching it. I'd love to see crazy stocks like this, but there's really no sense of me playing it. But it's still hanging around. Last one, Riot. We want to look at Riot. Riot is tied to Bitcoin. This is Riot. Company is Riot. R-I-O-T, Riot. And it's tied to the moves in Bitcoin. Obviously, Bitcoin's hitting all-time new highs around $60,000 per coin. So Riot is moving in sympathy. And it's $60 a share, so it's moving up. The options volatility on Riot is tremendous, huge. So if you're selling options, we're selling put options on Riot. You get really good money for these options. You can sell these way out of the money, put options on Riot, and they're paying decent amounts of money. So if you're into Bitcoin and you think Riot is going to keep falling Bitcoin higher, which I do, that's my personal opinion, no personal advice here. Selling put options on Riot to give you an opportunity to buy shares of Riot way down here could be a good way to earn some passive income by selling way out of the money, put options on Riot. All right, so that's it. That's all for today. Getting close to our 45-minute mark here. I know that's long for some of you, but I want to give you some good information. So that's it for me today. If you like this video, if you think you got some good information, good content, give me a thumbs up down below the YouTube channel. Don't forget to subscribe if you're not subscribed yet. It's important for you to do that. Leave me a comment, send me an email. Love to hear from you. And remember that the video on part one of the options trading basics will be popping up. So if you haven't watched last week's video, watch that. And lastly, let's go to our website and show you your put selling basics. Download our free guide on how to sell put options that we do. We are put option sellers. We are option sellers in general. Name, email address, put selling basics, get a free copy. And lastly, if you need some help, one-on-one coaching, and our two newsletters here, just hover your mouse over the services tab, click on one of these three items. All right, so that's it for me today. I hope everyone has a great weekend and a great week ahead. And I will see you here next Saturday. This is Lee Lowell signing off.


And finally, in business, oil prices have fallen about $1 on Monday, extending losses after the world's top exporter, Saudi Arabia, slashed crude contract prices for Asia over the weekend, reflecting well-supplied global markets and concerns over the outlook for demand. Brent crude futures for November fell 98 cents or 1.4% to $71.63 a barrel at 0613 GMT while U.S. West Texas Intaminator crude for October was a $68.34 barrel down 95 cents or 1.4%. State oil giant Saudi Aramco notified customers in a statement on Sunday that it will cut October official selling prices for all crude grades sold to Asia, its biggest buying region, by at least $1 a barrel. The price cuts were larger than expected according to a writer's poll among Asian refiners.


Ko driver is James, my son. He's co-driven with me for the last 10 or more years. Our first target was 2006. We've probably done, in excess of a dozen, full targets and Bambinas, Rotoruas. A little car, 1985 Toyota Levin AE86. It's magic. It's only a little old school on carburators, but it goes like a cut cat. Not fast, but it goes around corners. I like the roads, I like the driving. It's just magic. Blind rally, and I just love it. It's absolutely buzz. I'm trying to still do it while I can, and we're thoroughly enjoying it.


Hello, everybody, I welcome you to the quality control session. And this is split into the theoretical part and the practical part. Here I will cover briefly the intention behind quality control for next generation sequencing experiments and then go deeper into how to do quality control. There we use mainly a tool called FastQC. And in order to, for you to understand this session, you need to have listened to the introductory courses for Galaxy, so you need to know how to operate in Galaxy. And I will answer these three main questions. So how to control quality of next generation sequencing data, what are the main quality parameters to check. And I also sometimes briefly explain, if you see there's a quality breach, then how can I improve my nature? And the main objectives you get from the session is that you can manipulate FastQ files, that you can control. So you can do a quality control with FastQ files and that you can use it to FastQC, understand what the output is of FastQC, and then act accordingly if you see there are some quality breaches and maybe do some quality corrections. So why you have to do quality control? I mean, it's obvious why you would do quality control because you want to check if your experiment worked on right. So you want to check. You have a lot of steps for next generation sequencing data. So the experiment, the library preparations, the sequencing, and even some additional steps in between. And you want to check, for example, did my knockout work correctly? Did the sequencing actually? I mean, if you send it to a sequencing facility, it's always worth to check if the sequencing facility did something incorrect, something might happen there, or even for your library preparation, right? So there could be some contamination happened. And you want to check if your library is really, if there was a quality breach. And there are many, many next generation sequencing experiments. Chipsake, Clipsake, Arnaisake, Hi-C, and so on. They all generate their own. So they all have their own protocols, their own biases, which you have to look after. And even, for example, for Clipsake, so in the investigation also of the proteome and the transcriptome where you link the protein to Arnais with cross-linking, even there you have different protocols like iClip, eClip, Parklip, Hits, and so on. And all of these protocols, I can tell you, they have even different biases, which you have to check. However, every next generation sequencing data follows kind of these last steps. They are some sequence, of course, with Illumina, Ananturant, or Nanoporms. And what you get out of it is either a raw pasta file, but more importantly, you need a fast queue file. For Nanopor, for example, you get a faster, also sometimes, we just call it a faster five file, but even the faster five files, or you try to convert it into a fast queue file. And this fast queue file, you then use for quality control. And after you've done the quality control, after you checked, if my raw data has some quality reaches, you go in other steps, like mapping and your general data analysis. So now let's talk about the main format. So I mentioned you have faster format and you have a faster queue file. So what's faster, if you never heard about it? Faster file lists mainly all of your reads. Which you sequenced. And it always follows this format that you have one line for your read, which is your read identifier. Sometimes after the read identifier, you have some comments like the organism which was sequenced. And then the second line is the actual sequence. So ATC or G, we symbolize it here with access. You sometimes have ends in there. What an end stands for, I will explain later on. And then after the second line follows the second read. So a second read identifier, a second saw the sequence for this read. And this goes on and on. So then follows the third, fourth, and so on. And so this is the basic faster file. And then you have the fast queue format, which so the queue stands for quality. And again, you have two lines. You read one line for the read identifier with some comments and then the second line for the sequence. Then you have an additional third line. You very, very often see a plus sign here. So this is kind of a filler line if you want to include again some additional information. And then you have a fourth line where you have the quality string. We symbolize it here with queues. But of course there are different characters. And each queue here, so to say, so each character stands for the quality that this base or this base call was wrong or not. So the accuracy of this base call from the sequencing device. After the fourth line follows again this second read. So a second read identifier, the sequence, the additional filler line, and then the quality string. And then again, the third read, fourth read, and so on. So what is this quality string or what are these quality scores? They are called FRED quality scores or FRED scores. And they again, give you an idea about the accuracy of the base call. Let's say you have a FRED quality score of 10. This means that your base call was 90% accurate. Meaning to a chance or probability of 10%, this base call was wrong or not. So let's say if you have 10 reads, so 10 times the same read, then one of these reads, this base is wrong. Obviously if the FRED score increases, so let's say you have a FRED score of 20, then you have a base call accuracy of 99%. Meaning there's only a chance of 1% that the base call was wrong, so then this particular base, so this ATG, C is wrong or not. How is this FRED score actually calculated? So there's a conversion, so this probability of your base call being wrong. So let's say 1%, 0.1, you calculate or you convert it into a FRED score by taking the logarithm and then multiply it by minus 10. So let's say 1% 0.1, the logarithm is then minus 1 times minus 10 is 10, so you have a FRED score of 10. And here also in this picture, it's very important. So you have to make sure which kind of sequencing device you use. So this calculation is different for the technologies. So let's say for Solexar, it's kind of a bit different conversion. And so you always have to check which kind of sequencing device you have used. And I always also mentioned that at the end, what you have in the FASTQ file is a quality string, so not numbers because obviously if you have numbers then it's either a very long line or it's very hard to know them because you have a very, very big number to know what kind of quality scores you have or not. So at some point it was decided that the FRED score is converted to a character by using the ASCII code. So what you have in your computer, all of these characters, so what you have on your keyboard, if you type it in, actually this is normally represented in the machine so in the computer as a number. You can see so an ASCII code, the add sign has the number 64. And now we can use this to convert the number of the FRED score into a character, so to say. And again, it's very important here that you know what kind of sequencing machine, so which kind of sequencing machine was used because if you ever want to investigate these base chords yourself or these quality strings, then based on the sequencing device, there's a different default where these FRED scores starts. So for example here, already also with different versions of the sequencing devices can change. So for example here in Illumina 1.3, they started with a FRED score of zero and this add sign. And then if you have a FRED score of 40, you would end up with an H whereas in Illumina 1.8 and higher, they change that the default is here, the FRED score of zero is at the exclamation mark. And if you have a FRED score of 40 or 41, then you're here at JOK. So you always have to check for your sequencing device. Okay, so now we go a bit deeper into identifying potential quality issues. And for that, we concentrate on the very important tool called FastQC. So if you try to search for it in Galaxy, you'll find it very quickly. And you apply it to a FastQ or a set of FastQ files, you can also apply it to some BAM files. And then you get as a result an HTML report. So if you open it, you read it with the first page, so to say, where you see the basic statistics. It lists you some general information about your read library like the file name, the file type, the encoding. So there you can also check again which kind of sequencing device and version you have used or was used. Then the total number of sequences in your read library. So you have here a thousand reads. These are the sequences which are flagged by FastQC as pure quality and so you're zero. Then you see the general sequencing length. So all of the reads in this read library have a length of 100 nucleotides. And you see the average or the general GC content or the fraction of GC content. And it's here, so almost all reads have like 50% or GC content of 50%. And if you then go to the first plot, this is one of the most important ones where you see the base quality score. So the x-axis, you see the position in the reads. So the base pair or the base. And for each position, you get as the distribution for the quality, so the fret quality score which is plotted as a box plot, as you can see here. And the blue line is the mean quality score for all of the positions. And the red zone is basically very poor quality. The green zone which begins at around 20 to 28 is okayish quality and 28 to 40 is a very good quality. So the green zone. And so a fret score of 20, as you may remember is around about like accuracy of 99%. So 1% of the base is wrong or not, a probability of 1%. Here you can see, this is an experiment where you see already good quality. And in this example you see an experiment with a very bad quality. And you see the end of the reads in the read library. You have very poor quality. So it's in this red area. You will also get an information, immediately an information on the report about this. And now you have two decision or you can make several decisions now. So you either can get rid of the data set at all. If you have another lot of other quality breaches as well. But you can also decide to actually trim off the ends. This is actually quite common. So you do this quite often because with every sequencing technology, even with this nano-poor, the base quality at the end of the reads is always a bit worse than in the beginning. And the longer the read, the worse it gets. And quite often you then do something called an end trimming. So you cut out the ends if there is some quality issues. And this you can do with traumatic or cut adapt. For example, here in this intermediate quality example, where you can see that you have only here three positions at the end, which are poor quality. You will probably do an end trimming and leave, of course leave the whole data set. After this per base quality, you have this per sequence quality where you see on the X axis the fret score or the distribution of the fret scores and on the Y axis, the number of reads with this average fret score. And so it's basically a distribution of the average fret score in the read library. And you hope to see a very high peak and then at least with a fret score of 20 or 20 plus. If you see a little bump here with some reads with lower average quality, then you can either again decide to get rid of them. So this you can do either again with cut adapt has I think some options to get rid of low quality reads in general and also mappers. Some mappers already do this internally like O-type. Of course, if you do an end trimming, this can also change. So if you do with cut adapt and end trimming, then the average quality for this read increases and this can already improve your overall quality for your read library. Then you have this plot here, which is specific for Illumina sequencing. If you're familiar with Illumina sequencing, you have a flow cell with different lanes. And you have a flow cell with two lanes. And here on the Y axis you see this and on the X axis is the position in the reach because it's a sequence by synthesis. It's kind of plot showing you how the sequence performed over time. So the longer, so the higher the load is, the position or the later the position, so to say the later the time. And it's a cold by what scaling here meaning that cold, the cold colors or blue color stands for good quality. Hot colors or red stands for poor quality. Ideally this picture should be completely blue, but you can see there are some bars, some positions here in both lanes, which are red doesn't have to mean now that this was a very poor experiment or sequencing. Maybe these two positions have been or these positions have been a poor quality. I would actually keep this experiment. However, if you see a very big stretch or a lot of positions was read, then this is an indication that the sequencing went wrong. So what might have happened is then quite often there was an air bubble in the flow style and then the sequencing didn't work out well enough and you would probably then get rid of this dataset. And we come back to this plot, which is the per base sequence content showing you on the x-axis the position in the read and on the y-axis the fraction of the reads which have this nucleotide. So the fraction for T, C, A and G. Ideally, of course there shouldn't be any bias. So the fraction for all of the nucleotides should be similar through the whole read library. This is of course not the case. You see it actually quite often in the beginning or at the end, at the end because the quality is sometimes a bit worse in the beginning. Could also be because of adapters and also at the end because of adapters. However, there are also protocols like Clipseq or Chipsseq even like Cut and Run. They have internal biases because of the restriction enzymes they use or sometimes even if you, yeah, because of the restriction enzymes you have used, then you see generally some biases in there and this doesn't mean this is quality, it's just a bias of the protocol. So you have to kind of, so this is, we have to say, you really have to again know what your protocol is doing and what kind of biases your protocol is inducing to your data. So it doesn't, if you do for example, a Clipseq experiment and I see something like this doesn't mean immediately this is a bad quality, it just confirms the bias, the protocol induces. However, if you know and you anticipate no bias or no different nucleotide composition in your data, then this is either a quality breach because of poor fragmentation or your fragmentation didn't work so well because you have done a very aggressive adapter trimming. I come to that in a moment, what this means, meaning that you removed the adapters quite heavily and ending up with a bias because of this step or because of all represented sequences. So there's maybe contamination or some repetitive RNA in there or some RNAs from repetitive regions, then this can show you, or this could be the case for this nucleotide bias. The other plot here, the sequence GC content shows you what you also get from the initial statistic shows you the mean GC content, so the fraction for it on the percent and on the y-axis, the number of reads with this GC content. In blue is always the theoretical distribution which should be normal distributed and in red you see the actual empirical distribution of your data. So there can be, it's again a plot where you kind of have to know a bit more about your experiment, your organism and the protocol you have used because you can end up here also with a bimodal distribution so meaning you have a second bump or more than one bump in here. If you do a metagenome analysis, of course if you analyze a sample with different organisms they have different GC contents and therefore end up with a distribution showing more than one peak. However, if you don't anticipate something like this should be uni-modal, so only one normal distribution, one peak and this maybe means that you see a bimodal distribution that you have a contamination in the data. The contamination in the data probably is also shown if the distribution is very broad and another thing if the distribution is very spiky so there's a very spiky peak then this could imply that you have a very heavy adapter contamination in there which has a specific GC content of course and then you have this big spike in there. So look out for this GC content so this indicates a bit more about contaminations about library contaminations. Then you have this per base end content maybe remember I mentioned when I talked about the fast and fast Q file format that you have your sequence string so where you have ATG and C however there might be another character and N in there and this is due to the case that the sequencing machine of course does your base calling so it decides at which position, which base you have and gives you then also this quality scores and the spread score for it. However, if the algorithm because the signal was not strong enough or it couldn't really detect what this base is and it gets really, really low then it cannot decide with some confidence anymore that this is an ATG or C and therefore it sets a placeholder and this placeholder character is an N so showing you the sequencing machine couldn't any more detect what kind of base at this position is correct or not or if this is a ATG or C. Of course here on the X axis you see the position in the read on the Y axis how many or the fraction of the reads in your read library having an N at that position and of course ideally you hope to see nothing so everything should be at zero. If you see something like this here so this is very poor quality then maybe you can get rid of it by again N trimming so getting rid of these bases at the end or at the beginning however if you see a lot of them here so like this there's also in the middle some a lot of reads which has Ns here so there's really then this you would then combine all of the plots which we already discussed and see if there maybe happened something with the sequencing device or if there was a problem with contamination then you would probably maybe get rid of the dataset entirely. Then you have the sequence length distribution just showing you a length of your sequences in your read library here on the X axis on the Y axis the number of reads. So this here means that all of the reads have a length of 75 bases. This doesn't have to be so if you already anticipate that there is a variation as the sequences because of fragmentation or because of your experimental design then at least you hope to see a very high or big spike at a specific length you how you designed at which you know how you designed your read library and then it drops immediately. Also when you do and the end trimming or adapter trimming and you investigate again the quality of the reads to check these steps and of course also these reads have then different length and you would also see a non-constant distribution. Yeah, so this is a general check up if you can check if your design of your read library was correct. And then we come back to this plot and duplicated the duplication level plot showing you on the X axis the sequences sequence duplication level as you know or maybe know that because of PCR you will end up with sequence duplicates. So reads or sequences which are simply duplicated because of the PCR and the sequencing technology. This happens and I hope ideally would see actually no duplicates so duplication level of one but quite often you see at least two a bit of a spike here in two which you can see here. So the blue line is your actual distribution and the red line is the distribution if you would do the duplication here on the Y axis so this is on the Y axis is the fractional reads with this duplication level and how fast QC is doing this is it's just checks the sequence so in the read library that can find the same sequence once, twice, three, twice and so on. Again, doesn't mean that this experiment was bad or not if you see spikes in higher duplication levels like maybe nine, 10 or even higher. It just so for example in Chipsack or Clipsack I anticipate to see something like this and on ASAC also probably however if you see it really a very big spike in the higher levels and this is an indication that you have done too many PCR cycles and yeah probably you have to then redo the experiment if not, so small bumps in here or maybe a bit more bumps in higher levels it's not that big of a deal you only have to then consider if you do a deduplication or not a deduplication so remove some of these non-unique molecules. This is where I would say you have to decide based on the experiment again and if you have enough material for example in Chipsack I see that again often that there is a bit of some duplicated treats in there and I see that I only have two million reeds depending on the world let's say on human two million reeds then probably I wouldn't do a deduplication if I have to do the differential expression analysis because I have reduced the data too much or I removed too much of important information because also in Chipsack maybe these reeds come from different transcribed isoforms so I actually remove some important information and I have not enough data so for Chipsack if you don't want to do differential expression analysis at least you need to have around about 10 million reeds which is which is a good number to do a differential expression analysis in Chipsack however they are quite often do a deduplication because it's very important to know your protein is binding to your transcriptome and the reeds are generally quite short and therefore it's you have a high duplication level and you need to do a deduplication this one here this plot shows adapter contamination so far as QC also checks for standard adapters for well-known devices Lumina and XTERRA and so on so these kind of adapters it checks if it can find these sequences in your data hopefully so if you already removed your adapters it will not find anything of course if you really have the raw data then you will see that there is something in your data and so if you have a quality breach there you do an adapter trimming with cut of that or trim galore there are a lot of tools which will help you with that and I have to point out if you do an adapter trimming really check this again don't assume that I applied now my tool to my data then the adapter is gone now please check this it's also sometimes really important to check this because they are sometimes read like we which is a bit more complex you have maybe an adapter at the beginning and at the end and sometimes a double ligation of an adapter and so you have to do a double adapter trimming and so really check this if this is gone so on the X axis is the position of the read on the Y axis is the fraction of the reads having this adapter sequence and again if you see a quality breach in here so as soon as there is a fraction or some fraction higher than two or three percent it will show you a warning that there are probably some adapter sequences in your data and then you have to do an adapter trimming this goes more or less hand in hand with this plot this is the K-mer content plot showing you the position here on the X axis in the read on the Y axis the fraction of your reads with this K-mer and this position I set hand in hand because if you have adapters in there then you quite often see also something in the K-mer content of course you have a molecule or a sequence which queues more than once in your read line and therefore you have an increase in some K-mer also then shown here if you removed some adapters and you still see some K-mer content doesn't have to be that again that this is a poor quality maybe it just means it happens quite often for an ASIC experiment so if you have repetitive or satellite sequences in there then of course you see something in the K-mer content okay with that we are more or less at the end so I already talked at every plot a bit what you can do what you can to improve the quality I told you that so filtering of sequences if you see that you have this average or mean quality score distribution of this if you have there a quality breach you can filter for low quality sequences some mappers include this already internally but you can also do it with cut-adapt or some other tools if the reads are too short so you see that your read lengths are too short so lower than 30 maybe also worth to filter out depending on your experiment with a tool also you can use cut-adapt or traumatic with too many end bases you can do an end trimming or again filter out these sequences GC content wise if you see GC content bias in there which you don't assume or which you have not anticipated there is a tool also to correct for this it's called if you search for deep tool GC content correction in Galaxy there's a tool which you can use to correct for GC content bias but only use it if you are sure the GC content or there's a bias should not be in your data there are other quality measure tools which you can use to remove some quality bridges I talked a bit already about at every step now again cutting and trimming sequences is possible for this end trimming adapted trimming you probably have to do okay so I hope you now know how to run the quality control in the practical presentation I will do the hands on so we go a bit deeper and doing it a bit hands on in Galaxy how to run this I hope you know which kind of quality parameters are important for application sequencing data so you know how to run maybe already fast to see and what kind of impact it has for your quality control and with that I thank you very much and yeah I hope you enjoyed this presentation which is part of the Galaxy training network so you find these slides of course there and you can also join on the practical part that we see in each other by the way