I spoke to a lot of people last Thursday night. Everyone is worried.
Most folks are worried about the possibility of a market crash. They have too much exposure to stocks (many were deeply stretched out on margin). And they want out.
But some folks were worried about something different. They didn’t have much exposure to the market at all. They’re looking to buy into this correction. But they were worried they would either be too early, and suffer as the correction worsened, or that they’d be too late and miss their chance to buy.
To the first group… A crash could happen. But it’s a low-probability event. Betting on it would be similar to betting on one number on a roulette wheel – a roulette wheel with 1,000 numbers.
But if you’re losing sleep worrying about it because you have too much exposure, then you need to lessen your exposure. You have too much risk. It’s messing with your emotions. And your emotions are going to make you do something unwise. Trim your positions to the point where you can sleep easier. And swear off ever borrowing money to buy stocks.
To the second group… Forget about the idea of buying into this market right at the bottom. It’s not going to happen. You’re either going to be early, or you’re going to be late. Define several points at which you are willing to buy and then slowly buy as those targets are met. You don’t need to put all of your money to work all at once.
As I told my Delta Report subscribers before the market opened Friday morning…
Personally, I bought some stocks yesterday. I put a little money to work when the S&P hit the 2650 level, and I put a little more money to work at 2595. If stocks keep falling from here then my next target is 2535.
After Friday’s dramatic reversal off the 2532 low on the S&P, folks are breathing a sigh of relief right now. But let’s not drop our guard too soon.
There’s a lot of emotion among investors and traders right now. So we’re probably going to get some more wild swings over the next few weeks. Look for the S&P 500 to trade in a large trading range between about 2580 on the downside and 2730 on the upside.
If you’re in the first group I mentioned above, then you should get a chance to lighten up your stock exposure at slightly higher prices. And if you’re in the second group, but didn’t put money to work last week, you should get another chance to do so at slightly lower prices in the weeks ahead.
Best regards and good trading,
Today, Delta Report subscribers write in with their experiences using the service…
I’ve been following you for years, and you have taught me a great deal. I am one of your lifetime subscribers.
I agree that in a hyper-oversold market like this, the SPY put was a classic low-risk/high reward set-up. I was “lucky” in the sense that, by the time I was setting up the trade, prices had moved so much that I elected to sell the 256 (below the market) for good premium, right before the close, instead of the 263. We’ll see what happens.
The point is that learning options trading from you has empowered me, for years now, to be able to “improvise” on your recommendations, using my own thinking. Thanks!
Just a quick note. No one is 100% all the time and expecting so is like believing in the tooth fairy.
There are always those gurus who seem to always toot their horns about their successes and never mention their failures. You, however, are a breath of fresh air and I enjoy reading your commentaries. Your lifelong experiences in the trading world (your good, bad, and ugly) are most valuable to me.
I love your fundamental and technical teachings that show your true understanding and professional depth. Keep up the good work!
Please keep providing us with your observations. I am especially interested in the double buy signal from February 5th. What can we learn about this situation that applies to “the big one” we have all been waiting for?
Your observations and perspectives are great and very useful to me.
I hope you are well. This has been a heck of a week! I’m mentally and emotionally drained now.
How can you have so much volatility in just one day, go up almost to 1% then -1.3% then back up to 1%. This is crazy. It is probably a new normal, but man it is draining to get used to it. I need a clear paradigm shift in how to handle positions and risks now.
Thanks for your continuous guidance, advices, and learning tools you are providing us.
I am sure you will get plenty of negative feedback about the SPY put trade. Two things we all should realize are: 1) that you specifically titled it “Aggressive” and 2) that we are big boys and should take responsibility for our trades.
I lost as we all did who took the trade. It is for us not to berate you as many did, but rather to figure out a plan for the next time. This has been a reliable indicator both on the short side and the long side. Of course, nothing is 100%.
I very much enjoy your service, your calls, and your explanation of the rationale behind them. I have learned so much as previously I did not trade options at all, and now am comfortable using them both speculatively and conservatively. Continue the great work.
To those complaining about Jeff’s trades. He’s already told you his style: He has said he has had a bearish bias for 20 years and doesn’t trust the market makers to play fair. He has said he’s a reversion-to-mean trader, not a momentum trader, so you are not likely to ride a trade much past the mean for long term gains. His Twitter is @JeffClarkTrader – implying he is not a buy-and-hold guy but more a shorter-term trader. And he’s a technician – which means he looks at price movement and tech analysis, not talking heads on CNBC.
I’ve missed some big moves up in the market because I didn’t realize that early on. His trading style is not right for your whole portfolio – for longer buy-and-hold positions. And he has a bias towards buying and selling puts rather than calls, or exotic double or triple option plays.
As a technician (like all of them) they tend to be right but they tend to be early. The market can be more extreme than we expect a lot of times. So, I’ve learned when he suggests a trade to wait a day or two and watch. Or, if I’m itching to get in, I only put on a partial position.
Jeff also likes to trade the current month options because he says it takes the time value and premium out of the equation. He’s right but I sleep better at night if I do the same trade but one or two months’ expiration away. Not as much profit, but again a little buffer and less nail-biting.
Also, I’ve learned to sell a little early on a profitable trade. Maybe only 50% rather than 100%, but 50% is nothing to sneeze at and the option market can reverse so quickly. And as one famous trader said when asked how he made so much money, he said “I sold too soon.” Anyhow, those are my thoughts.
How’s your experience using the Delta Report been so far this year? Would you recommend that others sign up?
As always, don’t hesitate to write to us with your trading stories, experiences, questions, and suggestions. You can do so right here.