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Picking the direction of the stock market can be a difficult task. Even CEO’s of companies don’t know which direction their stock price will go. There are pandemics, banking collapses, wars and other possible geopolitical events that all affect the stock market and can make it move drastically at almost anytime.
In this video we discuss:
Should you trade both sides of the market? - How much should we trade long versus short?
- How do we trade both long and short?
We talk about action steps you can take today to increase profits and reduce risks in your portfolios by trading options.
Real quick: Please check out and download the FREE options Workshop. It talks about the two main reasons why options can be less risky and more profitable than just buying stocks alone. It also details how to profit in both directions and pick your win percentage which you can’t do just buying stocks alone.
DISCLAIMER, I am not a financial planner and I am not recommending trades. Please do your own research and if you are new or learning options, I recommend you start small.
Should you trade both sides of the market?
Guys, this is a no brainer. The markets move both up and down in the short term. So yes, we should trade both sides to reduce our risks, improve our cost basis and profit in both directions.
We may have a long term bias on a particular company and stock like Tesla. Maybe it is trading at $195 and in our mind we have a 6-12 month target of $220 where we think it will be trading.
So we decide to sell a PUT Vertical. We go to the trade tab on the Tastytrade platform (the best option trading platform).
We punch in TSLA in the upper left and make sure we are on the Trade Tab. We then click on the 190 bid and 185 ask to sell the 190-185 PUT Vertical.
We collect $1.95 x 100 shares so $195 for selling the spread and our max loss is the width of the spread $5 – $1.95 (premium collected) so $305.
We clicks on Curve to switch to the Curve mode.
We see the huge profit range in green. As long as the stock price stays above the $190 strike price at expiration in 31 days we keep the entire $195 that we collected up front when the trade was placed.
How much should we trade long versus short?
Since we trade in the 45 DTE Days to Expiration range, the stock market in general can move up and down. So we should always have trades in both directions. This way we can profit on big down days as well as up days.
I like to look at the SPY (S&P 500) trend lines and see where we are today versus the historical S&P.
Now Trend Lines can be drawn and interpreted in different ways. Here you see a more bullish trend line and a more bearish one. This is just a tool and other factors should be taken into account as well.
When we are above the SPY historical trend lines like to have more short positions on hoping for a market downturn. If we are below the trend lines then I like to have more long or bullish trades.
We can also look at the PE Ratio of 19 which is a little above the historical averages. I like to be more long or bullish when we get down to the 15-16 PE level.
We are also in a recession, have rising interest rates and recent banking closures. So there are risks that the market may sink lower.
How do we trade both long and short?
Well we just showed a long trade in TSLA. So now let’s show how to place a short trade in the SPY. We punch in SPY in the upper left.
SPY is trading at $397. We click on the bid to sell the 407 Call and the ask to buy the 412 call. We collect $180 and our max risk is $320 or the $5 wide spread minus the premium collected.
We look at the Curve mode and see that as long as we stay below the $407 short strike price we keep all of the $180 collected when we place the trade.
We hit review and send and place the trade.
Now we have a long trade in Tesla and short trade against it SPY. So we can collect profits on both sides of the market.
What is really nice is that we can take the profit when it happens on the winning side and then roll the losing side out to the next monthly option cycle and wait for the market to turn the other way.
So we eventually win on both sides! Sometimes it stays in the middle and we win on both sides!
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Alright guys, I’ve put a link down below for the FREE Options Workshop. Be sure to grab that.
Remember to please let me know your thoughts in the comments.
Thanks and see you in the next one!