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19 Nov

[Case Study] Two Ways To Bet Against A Stock


The beauty of options trading is the fact it allows me to get crafty with the way I trade.

I can use different strategies depending on my outlook on a specific name.

For example, if I’m bullish on a stock or ETF, I can look to buy calls… or sell a put spread.

On the flip side, if I’m bearish on a name, I would look to purchase puts… or sell a call spread.

Let me show you how I actually use options to my advantage and give you an inside look at two different setups I could’ve used yesterday to profit off IWM.*


Two Ways To Bet Against A Stock Or ETF

Given the way the market has been shaky, I’ve received some questions about shorting stocks and ETFs.

Listen, for me personally, I typically do not want to short stocks. In other words, I don’t want to put myself in a position in which I bet against a stock, then one day… it rips higher, and I don’t know how much I can possibly lose.

That’s a dangerous game.

So what’s the alternative here?

Either purchasing puts… or selling a call spread.

Let me show you an example of a trade I could’ve used both those strategies on. 

Yesterday, I actually traded options on the iShares Russell 2000 ETF (IWM).

Of course, with all my trades, I want to review and figure out different ways to get better.

So for this trade, I actually purchased puts, but I didn’t plan to hold on for the long haul. Instead, I actually wanted it to be a day trade.

Here’s what I noted about the setup…

My rationale is the IWM is overbought, which in and of itself isn’t a reason to get short, but as I look around at momentum stocks, I’m not seeing much I’m comfortable buying at their current levels. 

Usually, if I’m running out of ideas on stocks, it’s because the market is a bit extended. I certainly could be wrong about both points here but to me the risk / reward is betting against another big move up. 

However, given the strength of the IWM and it’s resilience on pullbacks, I’ll be very disciplined with this trade should I get in.



Now, I did lock in a winner on this trade… but I realized there was another way I could’ve played it.*

I could’ve actually sold the $180 / $182 or $183 call spread.

This would allow me to collect premium and benefit from a pullback in IWM.

For example, if I sold the $180 / $182 call spread expiring on Friday, a bulk of that premium would’ve got sucked out…

And I could’ve been looking at a large percentage winner.

Listen, I get it… we can’t play the woulda, coulda, shoulda game in the market… but it’s important to go back and review your trades…

Regardless of whether you win or lose on them.

You see, when you do that, you can figure out patterns that suit your trading style.

Over the years, I’ve done this and uncovered key patterns that have helped me build a trading career.

That said, let me teach you some of my favorite setups, and how I utilize chart patterns to attack the market…

And uncover momentum stocks before they take off.

If you already know how to trade options, I believe pairing these chart patterns with an options trading strategy can potentially help to generate higher returns.

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