There have been so many wild days in the market over the past few weeks, and the price action has got many traders with knots in their stomachs.
I mean just take a look at the price action on Monday as the S&P 500 ETF (SPY) gained 6.72%, while the tech-tracking fund, QQQ, finished up by 7.15%. I believe any market participant who understands momentum trading would’ve bought into that price action.
However, in this market environment, it gets tough to buy shares or options outright… especially since we still don’t have a whole lot of clarity as to when the economy will revert back to normal.
What I do think can happen is — once there’s a solution to the COVID-19 pandemic — an economic comeback like no other. That means stocks can start experiencing wild moves (to the upside).
Do I know when this can happen?
No, but I will be prepared to the best of my ability. I’ll be equipped with key strategies that can allow me to play directional moves, without chasing stocks or momentum.
The best part? I don’t really need to change a whole lot of what I’m doing right now.
So what’s the solution to chasing stocks and how is it beneficial to my trading?
The Anti-Chasing Strategy
How many times have you witnessed a stock run higher, and think to yourself, “If I only had bought shares earlier”? Or what about buying a stock or call options after it’s already made its move and watching your position go against you?
I can tell you that’s happened to me in my career before… especially with options trades. Now, I don’t want that to happen to anyone else, and right now is a time when options plays could hurt traders — if they don’t know what they’re doing.
Well, when there’s so much volatility in the market, options premiums are actually juiced. What that means is if you buy calls or puts, it can take a massive move in the underlying stock or ETF for the position to make money.
That doesn’t sound too advantageous, right?
So what’s my solution for this?
Not only that, but time is on my side and I don’t necessarily need the underlying stock to move in my favor.
How To Take Advantage of The High Implied Volatility
First things first, implied volatility (IV) is an important concept, in my opinion, you need to understand if you’re going to be trading options… and quite simply, it’s how volatile traders think a stock could be in the future.
The higher the IV… the more expensive the option.
Here’s how it works when you’re long calls… if IV rises (more traders buying that strike price)… your PnL benefits… but if IV gets crushed (more traders selling that strike price), your PnL suffers.
That’s really all it is.
So if you think about it, when a stock has a massive move… IV typically rises, and if you’re buying options, you could be paying up for them.
But what do you do if you know you want in on a stock and it’s already made a move, and the implied volatility is high?
Use an anti-chasing strategy, like my Weekly Windfalls strategy.
How does my strategy work in this environment?
Let me show you…
My $2K Winner In Tesla (TSLA)… Without Buying A Single Share
If you know anything about trading TSLA, it’s one stock that experiences wild moves… and it’s very easy to get caught up and try to chase the stock. However, there’s one strategy that I believe has been beneficial to my trading performance when it comes to bullish trades — the bull put spread.
With this specific strategy, it allows me to profit off a stock move without exposing myself to risk that buying calls outright have.
So with TSLA, I was bullish on the stock… but I definitely didn’t want to chase the calls nor did I want to buy shares. Instead, I placed the bull put spread on TSLA.
Before I even placed the trade, I let Weekly Windfalls subscribers know I was looking to get in.
When I actually got into the trade, I alerted my clients of the prices I got filled at and the details about my risk-reward.
The next time you think about buying options in a stock with a high implied volatility… think twice and keep this strategy in your back pocket.
Weekly Windfalls not only improves my chances of success when I’m trading options… it also takes out the guesswork.
If you want to see how it can help you profit off directional moves in the most stress-free way possible, click here to claim my complimentary eBook Wall St. Bookie and see how spread trades have helped me find success in the options market.