After the tech-led selloff, there are those who panic and hit the sell button…
On the other hand, there are those who want to step in and buy the dip.
Of course, since many traders have been conditioned to buy on pullbacks over the last few months… and unless the trend breaks, that idea might work.
Who really knows.
When volatility starts to get to extremes, I think it’s important to have a few tricks up your sleeves.
For me, that’s using an alternative strategy to buy the dip…
It’s one that puts me in a position to win in three different scenarios.
How I Plan To “Buy The Dip”
Listen, I’m not going to go out on a limb and try to say the market is going to continue higher and this is just a “correction”.
What I’m looking for is those with a high % Chance OTM. You see, I’m looking to sell these options instead.
Well, all of those options had a high chance of expiring worthless in my opinion.
For example, at the time these trades went off, they all had more than a 70% chance of winning.
I don’t know about you, but those odds are better than buying calls or shares outright (which is a coin toss to me).
I know, I know… selling options outright can be dangerous and if you don’t do it the right way, you can be staring at the screens with gut-wrenching pain, thinking what you did wrong.
The thing is, I don’t sell options outright.
I actually have a strategy that allows me to win in three different scenarios.
Take a look at these TSLA puts that were purchased when the stock was trading at $410.16 on Thursday.
At the time that trade went off, those options had a 90.32% chance of expiring OTM. That gives me a trade idea right there.
If I’m bullish on TSLA, I can sell the $300 puts and purchase deeper OTM puts (that would hedge my downside risk).
This way, if TSLA rallies and continues higher… I would be in a position to collect the premium.
If TSLA falls, but stays above $300, I would still be in a position to win.
If TSLA stays sideways, I would still be in a position to win.
Make sense, right?
If you’re bullish on a stock, don’t just think to buy calls or shares outright because there may be better strategies out there.
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