While some traders are still trying to make sense of all the trading events that occurred this week:
- On Monday stocks experienced their worst single-day performance of the year, as the Nasdaq dropped by more than 3.4%, and the Dow almost losing 1,000 points at some time during the session.
- China devalues its currency to the lowest level in over a decade
- Gold prices crack $1500, and reach six-year highs
- Global bond yields fell to 120-year lows
One day stocks were down… the next day up…
…it was back and forth action throughout the week… and choppy to say the least.
And despite all the chaos.
I managed to have one of my best trading performances of the year, scoring more than $57K in trading profits. All thanks to momentum swing trades and options.
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The bulk of my profits came from my Weekly Windfalls strategy. And I’m going to take the remainder of this post discussing some of those trades, why they worked, and how they can work for you– starting as soon as this Monday.
It’s been really hectic for the markets, and a lot of traders are still having a tough time out there… and many have been struggling to find ways to make money with all the volatility.
For example, on Monday, we saw the market gap down and sell-off… with all major market indices falling by nearly 3%. We also saw the Volatility Index ($VIX) move more than 30% one day.
During times like these, it’s very easy to get caught up in and try to pick bottoms or tops to spot the overall trend. However, when you do that… you actually put yourself at a disadvantage, especially when the markets are volatile like we’re seeing now.
So how can you start making money during volatile markets (or any other market environment)?
Well, it’s simple, use a strategy that benefits from drops in volatility.
For example, my Weekly Windfalls strategy was able to help me lock in $26K in just ONE day last week. That’s right, when traders were scrambling and panicking, I was actually taking profits.
Well, the strategy allows me to profit in multiple scenarios, benefit from time decay, achieve high win rates.
For example, when there was all this volatility… I didn’t need to pick a direction in the options I traded. In fact, the direction didn’t really matter.
Well, I was trading spreads, which is a bit different from when you just buy options outright.
When you buy options outright, like a call or a put, you need the stock to move in your direction and you need volatility to go up too.
However, when you sell options spreads, you don’t necessarily have to be right on the direction. I’m talking about using bull put spreads specifically. With this strategy, we actually benefit from a drop in implied volatility.
Here’s a look at the risk profile, also known as the profit and loss (PnL) diagram at expiration.
Basically, when you look at the risk profile, you know exactly what your max profit and max loss are. Not only that, all you need the stock to do so that you’ll be at your maximum profit is to stay above a specific level.
That means even if the stock falls a little, you can make money… just as long as it stays above a specific level. Moreover, if the stock trades sideways you can still profit… or if it runs higher, you’ll make money at be at your maximum profit.
Getting back to volatility.
If the stock actually stays above that specific level… you actually want volatility to drop… this will cause the value of both the options to decrease. In other words, the faster the volatility collapses, the faster you’ll be at your max profit.
With that being said, it makes a lot of sense to use this strategy when the markets are selling off.
Well, when markets are selling off… traders actually bid up the prices of options, causing volatility to spike. Often times, those options are too expensive and the volatility collapses.
So if you’re able to sell those options when the premiums are rich, you can make money once the markets calm down.
For example, when the market was selling off last week, I was actually looking for potential buys in large-cap stocks.
I noticed Apple Inc. (AAPL) was getting back above a key level and just pulled back into a key uptrend line. I figured this was a good spot to place a bull put spread trade on.
Here’s how I set up the trade:
- I sold $195 puts expiring on Friday.
- I bought $192.50 puts expiring on Friday.
This created a vertical spread (bull put spread) with a net credit of $0.85, or $8,500 profit based on my position size, if AAPL stays above $195 at Friday’s close. At the time, AAPL was trading above $195, and I figured it would run into the weekend and close above that level.
Well, the day after I put on the trade, AAPL started to run higher… and the volatility collapsed, causing those puts lost almost all their value (we want this to happen because we are selling put spreads here)… and I was locking in around $7,000 in real-money profits!
I was actually able to REPEAT this same strategy multiple times this week. In fact, I had two trades in Tesla Inc. (TSLA) and locked in $10,000… following the same approach I used for the AAPL trade.
“I just closed Verticals. sold AAPL put spread +90% and sold VXX call spread +50% Thx JB!” – Gary T.
and I used the same strategy in Alphabet (GOOG) options… locking in $9,000.
That’s right, using the same strategy… I was able to lock in $26,000 in just ONE day during one of the most volatile weeks in 2019 using just my Weekly Windfalls strategy.
If you want to see the ins and outs of my Weekly Windfalls strategy and how I’m able to maintain a high win rate even when markets are volatile, all while having defined risk, check out my exclusive training here.