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If you’re as BIG a fan of American football as I am, it’s that time of year when it’s time to find new things to do on Sundays.

That usually means it’s time to start checking things off the “honey-do” list or spending more time with the family.

I know one thing, I am going to be spending at least some portion of my Sundays just like this, curled up next to my favorite K9.

As traders, we enter each week not knowing what the heck is going to happen in the market.

Sure, most of the time we have a pretty good feeling about what’s going to happen, but we never know what might come out of left field to surprise us.

Heck, this past week is a perfect example since the uncertainty was so thick on Monday you could cut it with a knife.

We were all wondering, is Putin going to invade Ukraine? Is inflation going to destroy all of our earnings power? Is the Fed going to pop yet another bubble? 

These are times when you have to know how to identify new trades that offer limited risk.

That’s why I actually chose to focus my Bullseye Pick of the Week on an ETF (Exchange Traded Fund) that I actually hate!

You’ve gotta have a well-thought-out thesis for every trade, and here is my thesis for this past week’s Bullseye Trade.

My Bullseye Pick of the Week was the ARK Innovation ETF (ARKK)

Current market conditions are not for the weak. 

Volatile, sideways price action, especially after the sharp market drop that decimated so many accounts back in January, can give anyone cold feet.

But one thing you can do in situations like this is look for securities that have become so washed out (i.e., oversold) in terms of momentum and sentiment that any further downside that might be left in it was extremely limited.

That was the case on Monday when I chose to buy calls in ARKK, which is an ETF that I actually hate.

Because this ETF is chock full of high-growth companies that, for the most part, don’t make any money, it has been beaten into submission in recent weeks.

In my eyes, that grossly oversold condition presented an opportunity to play for a bounce this week for my Bullseye Pick of the Week.

When we look at the top 10 holdings of the ARKK ETF, we see some familiar names.

At the top of the list, the name with the heaviest weighting (8.4%) is TSLA.

Then we see ROKU at 6.5%, TDOC at 6.4%, and ZM at 6.2%.

Now, I actually like ZM. I think it’s a good company.

But you know what I find really interesting is that, even though Cathie Wood owns ZM as part of the ARKK ETF and uses ZM’s online conferencing platform to conduct online video conferences, she still doesn’t have a paid account!

Unfortunately for her, she let the world learn this in a rather embarrassing fashion on CNBC.

I’m sorry, but that’s HILARIOUS!

Anyway, the other thing I liked about the idea of buying ARKK was the fact that it held up pretty darn well the previous week, falling just 0.87% from 02/07 to 02/11 compared to QQQs 3.07% drop. 

While this limited risk part of my thesis was solid, where things went wrong was with the timing of the reward portion of the trade.

I’ll say it again, I am not embarrassed to admit when things go wrong in a trade, because I know failed trades are inevitable. 

In addition, the fact that I learned to leave my ego at the door a long time ago means that I have the expertise to teach you to know when it’s time to exit a losing trade. 

You’ll be hard-pressed to find our competitors doing this.

So, the original trade idea this week was as follows:

My Trade Plan:

  • Buy ARKK Mar 4 2022 $70 calls near $5.00
  • Stop:  Under $69
  • Target 1: $77
  • Target 2: $80

At the time of the recommendation, ARKK was trading at $71.39.

You might be asking yourself, a downside stop that is only $2.39 away on a $70 stock?

Well, that’s because things were so uncertain at the start of the week that I made limiting downside risk a key part of my thesis.

As you can see from the trade details below, I got stopped out of the trade below $69 during the market’s puke fest on Thursday.

While it’s certainly a bummer, I feel great that I had what it takes to stick to my plan.

As you can see, ARKK continued to collapse below my stop on Friday, making this the perfect example of how you must respect the signals that the market provides.  

And that right there is THE reason I have been able to last in this business for 20 years. 

To YOUR Success!

Author:
Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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