I came into today's Flow Show not having much of an appetite for any aggressively bullish bets. But by the show's end, I'm putting on a straight gamble! How the hell did that happen? Watch the video above to find out.
The chart and setup that piqued my interest is this one in Riot Platforms $RIOT:
I closed out eleven positions in five trading days. Unfortunately, many of them were losers. But the good news is all the losers were small (less than 1% of my portfolio capital each). Losers are never fun. But when they’re small, we will survive to trade again.
And the better news is that some of the exits this week represent the harvesting of large open profits. The size of the wins, while fewer in number, more than offset the sting of the losses.
When I’m doing it right, that’s how it’s supposed to work!
Check out my thoughts on the current market environment and the action among open trades in All Star Options in today’s Jam Session:
Berkshire Hathaway stock $BRK/B has traded down for eleven of the past thirteen trading days. That's not something you see often.
Call me sentimental, but watching implied volatility in Berkshire options creep up to its highest levels of the year feels like a gift to naked put sellers. So I'm going to take advantage.
Whether it’s a pullback in a position or a pullback in my portfolio, drawdowns are the hardest thing to endure as a trader.
However, let’s not forget that I first had to have a winning trade on to suffer a pullback. That’s good!
If I want to have a big winner, it must first start as a small winner. Then the hard work begins…
To grow from a small winner into a big winner, it’s very rare for the path to be a straight line. There will be pauses. There will be the occasional shakeout of weak hands. There will be people on social media or TV talking about how extended the move has become and how there’s a high risk of a correction.
There will seem to be a million reasons to take profits before they escape my grasp.
In today's Flow Show, me and Steve Strazza took a look at some potential directional bets, but we both agreed that the right trade for today is one that would benefit from some sideways trading action.
With the broader markets looking a bit indecisive here, making a strong directional bet (in either direction) feels like a high-risk proposition. But there's a big cap name currently stuck in a range that is offering us nice options premiums to bet on further sideways action. We'll likely have to hold through an earnings event to earn our profit, but with a defined risk and a large margin for error, I like our chances.
We're looking abroad for today's trade in a company involved in the manufacturing and sale of connectivity and sensor solutions.
The stock is breaking out of a multi-year base and it offers us a nearby risk management level to keep our stop tight which means the potential for nice gains versus a smaller risk of loss.
In today’s Jam Session, I discussed the potential for markets to hit the pause button soon (if they haven’t already) and how that’s affecting my trade selection going forward.
Considering that some of our big winners have hit or are nearing our profit targets, or have been approaching expiration, it feels like a perfectly logical place for this pause to happen. $AMZN hit our upside price objective this afternoon!
And it might be earnings season that does it.
Earnings season is beginning again, and our first earnings casualty is already on the books with Fastenal $FAST getting taken to the woodshed this morning.
What the market taketh, I hope it will giveth back via an “add-on” trade we’ve got open in Wells Fargo $WFC. It is specifically betting on earnings being the catalyst to pop $WFC higher out of a high-and-tight flag.
The good thing about both the $FAST and $WFC trades is I have defined my risks beforehand. I don’t want my trades to become worthless following earnings, but if they do, the dollar loss to my portfolio will feel like any other small loss. No sweat.
We discuss this and more in this week’s short Options Jam Session:
Traders have made a lot of noise about the recent correction in Apple. And yes, the selloff has been large (for Apple).
But with daily trading volumes beginning to wane, it feels to me that the run has begun to exhaust itself and bears will have one more last-ditch opportunity with earnings on the horizon.
Barring something unusual, I think there will be something to disappoint both bears and bulls alike, amounting to a whole lot of nothing. Which sets up the perfect time for a sideways bet.
When putting on positions with undefined risk (naked short puts, or short strangles, for example), one question I often get asked is: “How do you determine your position size?”
This is perhaps the most important question to ask when putting on these types of trades!
I have two imprecise, imperfect ways that I decide:
In today's Flow Show, me and Steve Strazza came out swinging with an opportunity to add to an already winning options trade.
Back in late January, we entered into a bullish longer-term bet in Wells Fargo $WFC. You can read about it here. That original position still has until January 2025 to play out (another nine months).
But take a look at this high & tight flag forming on the eve on their next earning release scheduled for this Friday morning:
When I was reviewing my open positions this morning, I couldn’t help but have the feeling that all good runs must eventually come to an end. Everything goes through cycles.
As I was doing post-mortems on winning trades that recently closed, and updating stops on winning trends I’m continuing to ride, a feeling of foreboding hit me that this run feels “too good to be true.”
This isn’t necessarily true, but it has felt like any long trade I’ve put on recently was destined to be a winner. If I’m not careful, I can easily cross the chasm into blind overconfidence. That’s where most trouble starts. Certainly for me, anyway.
In the near future, I’ll probably be looking for less aggressively bullish bets. And the ones I choose will likely require longer timeframes to play out. Meanwhile, I’m beginning to favor some delta-neutral credit spreads wherever I can find favorable setups.
I touch upon this and much more in this week’s Options Jam Session:
