Hey there, Power Profit Traders!
To start, I want to update you on my bug. I’m on the mend – but won’t be doing much for this week as I get my health back up to full speed as quickly as possible.
However, this won’t stop me from providing market color in my daily Power Profits Trades newsletter, and today you can still catch Team Tom’s own Jeff Beamer trading and teaching LIVE from 9:30-10:30 a.m. ET right here. (And don’t forget, you can now watch REPLAYS of my sessions right here!)
In addition, I do hope that you got to attend and enjoy our Mistletoe Mania event last evening, and thank you for the well wishes and lovely comments in chat.
While I couldn’t attend due to illness, I still wanted to offer my Power Profit Traders a gift, which is why I’m taking 20% off one of my most popular subscriptions: Microcurrency Trader, where I keep my finger on the pulse of the BUZZING cryptocurrency market!
Next year is setting up to be pretty epic in the coin world, and I hope to see you along for the ride of a lifetime.
Now, let me get back to trading opportunities in volatile markets…
For a shortened holiday trading week, we’re off to quite a start.
Monday we saw a big sell-off, as a virus resurgence and fears of a lockdown had many concerned that we were heading back to 2020, rather than advancing into 2022.
And don’t forget we had the fallout from what might be the end of a massive spending legislation, which got stomped on by a leading Senator on Sunday.
With economists discounting US gross domestic product (GDP) growth prospects with the legislation’s demise, stock traders were edgy.
But on Tuesday, folks woke up and thought, “Hey, the virus isn’t going to be with us forever, and we’ve beaten it back before – the economy won’t be ruined.”
And after that spending bill got a whiff of new life, stocks got bought again.
S&P 500 Index Intraday Price Dec. 17-21 – Source: Bloomberg
This down and up stuff in the market can be tiring.
But the volatility also comes with benefits… IF you know how to work it.
I’m Striking with a Trading Opportunity
By keeping a clear eye on the technical conditions of the S&P 500 Index (SPX), I can identify important resistance and support levels to potentially trade around.
That said, the volatility pickup of late means that implied volatility (IV) in stock options also increases, making option prices more expensive.
But by trading credit spreads – where you’re on the selling side of the options aisle – one can take advantage of rising IV.
For example, I recently showed my Operation Surge Strike members how I might exploit an opportunity I’m seeing around key SPX levels by putting on a credit spread via the SPDR S&P 500 ETF Trust (SPY), one of the biggest tracking ETFs in the market.
My Operation Surge Strike is all about taking advantage of great short-term trading opportunities using options.
As I’ve been talking about, we’ve seen a big surge of inexperienced traders enter the markets in 2021, and for those without guidance and reliable trading tools, the recent chop is likely eating them alive.
So it’s times like these I really appreciate my years of experience and especially my toolbox, which includes the TG Suite app and the Morning Report tool, which is the basis for today’s Power Profit Trades Watchlist.
Although call volume in general is typically considered bullish, there’s a way to utilize call options to put on a bearish trade, as I did with SPY.
First, I took a look at SPY after a bear gap corresponded with a surge in trading volume, setting off one of the algorithms that make up my Operation Surge Strike methodology.
I took a look at the charts and quickly identified a potential level of resistance for SPY, and with IVs on the rise and options expensive, it looked like a great backstop for a short-term bear call spread.
Using options that expire in early January, this means that I:
- Sold to open a call on SPY around my identified resistance level
- Simultaneously bought to open a higher-strike call on SPY
The trade provided a nice upfront credit for me. And as long as the SPY stays below the call strikes (and my resistance level) into expiration, I am hoping to retain 80% of that credit.
And while I do see some upside opportunities in the stock market, as I discussed yesterday, if the SPY rockets higher sooner than I expect, the bought call option limits my risk on the spread.
The lesson to learn today is – even in volatile markets, there are ways to make money. Whether that’s changing your focus to another realm, like the bustling cryptocurrency markets, or just knowing how to make options work for you.
As long as you take the time and effort to identify major levels of support and (in the case of SPY) resistance, keep an eye on IV, and have the right mentoring, you can actually profit during a chop.
And this is what continues to work for us at Operation Surge Strike, which is another tool inside the TG Suite app. Click here for instructions on how to use and download.
So, kids, that’s your Power Profit Trades lesson for today! Be sure to tune into this morning’s Power Profit Trades session at 9:30 a.m. ET right here!
America’s #1 Pattern Trader