If there is one thing that stands out from any conversation with Brian Shannon about the trading process, it is this:

For discretionary traders, there are no rules. Instead, there are "guidelines."

And because Brian is human, he occasionally breaks his guidelines and suffers the same consequences as anyone else. Everyone gets what they deserve. Even a trader of 30+ years like Brian Shannon.

If a trader buys the dip or sells the rip without a plan to control her risk then she, too, will get what she deserves. Eventually. The market is always on the hunt for our weaknesses.

In today’s Options Jam Session, we reviewed how the profits from one delta-neutral credit spread more than paid for the losses on another, and I demonstrated what to do with a big winner that has the potential to pay for a lot more losses while still leaving us in the green!

This is how trader math works. Lose frequently and small, win occasionally and big. That simple heuristic is the key to long-term success.

But of course, it’s not easy.

We have to battle against our strong urges to close out winning trades too soon.

In fact, in the $APH trade that I demonstrated in today’s session, you’ll see there were several opportunities for me to get scared and pull the trigger to exit BEFORE our big profits accrued. This is why having an unemotional plan in place ahead of time is so valuable.

Next to individual trading plans, these weekly review sessions are one of the most valuable things I do each week to keep myself on track with my trades.

Be sure to check out the full video!

All Star Charts chief options strategist @OptionsSean joins Yahoo Finance to discuss the meme stock craze: pic.twitter.com/OXp18lXl1I

— Yahoo Finance (@YahooFinance) May 14, 2024

It appears that “Meme Stock Mania” is back. Or we’re at least having an echo moment.

Cool. I’m all for it!

Whatever leads more sheep to slaughter, the better for those people who trade with plans and logic. People like you and me.

If we learned anything from the last go-’round, remember that it’s very hard to control our risks in these mania stocks – especially when we have to deal with trading halts that may or may not resolve in the direction we desire.

Fortunately, options traders have a unique and specific advantage over common stock traders – we can PRECISELY define our risks. Of course, this privilege comes with a cost: high options premiums.

In today's Flow Show, Steve Strazza and I talked about how this market is setting up to be potentially very problematic for short sellers.

And the most pain will likely be felt in the stocks that currently have a heavy short interest.

With this in mind, the short squeeze pond is where we want to be fishing for long ideas.

In the video above, you can watch how Steve and I developed today's trade idea in Wayfair $W.

In today’s Options Jam Session, I revealed my itchy feeling that stocks are on the cusp of “popping” higher. Looking at charts of $SPY and $QQQ and $WFC has me thinking that there’s a pile of tinder just waiting for a spark to ignite.

What will be the trigger that gets this wildfire in motion? I don’t know.

But I’m positioned for it with a good variety of sector, time frame, geographical, and time frame exposure.

Click through to see me review many of our open positions that are likely just getting a head start on the coming breakout…

An All Star Options member recently asked me to explain what “short interest” meant.

This is a hot topic at the moment because there have been a few setups I’ve entered trades into recently, precisely because short interest levels are high.

So what is “short interest”?

According to chatGPT:

Short interest refers to the total number of shares of a particular stock that have been sold short by investors but have not yet been covered or closed out. When investors sell short, they borrow shares of a stock from a broker and sell them with the expectation that the stock's price will decrease. They then plan to buy back the shares at a lower price, return them to the broker, and pocket the difference as profit.

No setup gets me more excited than buying a fresh new all-time high.

There are no bagholders looking to unload their losing position to breakeven. Every investor or trader holding a long position is making money. And every trader holding a short position is losing money and the only way they correct that sad state of affairs is to buy stock to stop their losses.

In other words, blue skies above.

This doesn't guarantee success on a long trade here, of course. But these are the types of trades that commonly lead to my biggest gains.

Here's a weekly chart of semiconductor name Analog Devices $ADI:

The dramatic decrease in volatility ($VIX is a good proxy for this) across the board over the past ten or so trading days is taking the starch out of my inclination for looking at delta-neutral options credit spreads. It’s getting harder to find good candidates. They are still out there, but I need to be more selective.

That said, I am open to getting long select names here. But the types of setups we’re more likely to find are ones where stocks come off nicely formed bases, rather than breaking out through key levels of resistance or all-time highs.

It doesn’t mean these setups are any more or less likely to work, it just requires a different mindset and tools.

Luckily the options market gives us a lot of tools.

I discuss this in today’s Options Jam Session, as well as a teachable lesson in a trade that got away from us: