The weekly and daily time frames of the broader markets are out of sync and that tends to make the market’s or stock’s direction a coin flip.
The weekly trends have been violated in the broader market indices — and they were violated decisively with a strong move to the downside.
We are hopeful that the pullback that began on Friday continues to do so at the beginning of this week to set up higher-probability bullish patterns (e.g., a Head and Shoulders Bottom pattern on the daily time frame).
A move lower would also build a strong area of support to try and move higher into the historical bullish seasonal end of year period.
Considering the weekly reversal from two weeks ago, that would be a desirable set up that could take the market higher if it can trade above last week’s high.
Of course, it could also result in the markets going into a trading range between the October high and low. The current market environment is a coin flip, which is why we have no new credit spread recommendations now.
We would like to provide you with a clear and decisive recommendation, but it just doesn’t exist at this time.
Below is a daily chart of Cree, Inc. (CREE).
Trade: We will be watching to short a Nov (11/16) $41.5/38.5 bull put credit spread (5 DTE) will advise via text alert if sets up.
Technical Setup: +Gap from bullish consolidating n after Breakout with price void above on the daily chart.
VIDEO ON OPEN TRADES AND ADJUSTMENTS
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Please read the information on Money Management below
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Before selling options or credit spreads, we urge you to review the valuable and detailed information that we have provided for you in your Member’s Area.
You will find it by scrolling to the bottom of the page to Master Trader Subscriber Resources.
The link is Money Management Considerations When Selling Option Credit Spreads for Income.
It explains Master Trader Money Management, Trade Management, understanding the use of Contingent Orders, and much more.
If You’re in a Rush to Start
A quick simplified approach to calculating contract size is to simply base your contract size based on the number of shares permitted in your Trading Plan as if you were trading the stock or ETF.
Simple Share Sizing = $ Risk / Stop Loss
The amount of money that you are willing to risk – divided by – the stop loss amount. For example, $100 / .20 = 500 shares.
Credit Spread example, if your Trading Plan allowed you to trade 543 shares of AAPL based on the stop loss, then simply round down to the nearest hundred and short an equivalent number of contracts of the option.
Since 1 contract represents 100 shares of the underlying, this would be five (5) contracts.
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Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director of Master Trader
Trading the Pristine Method — Origin and End
Dan Gibby
Chief Options Strategist
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Twitter: @GregCapra
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NOTE: Master Trader will show opening and closing prices of all stock and options trades. We recommend that all traders and investors use proper share sizing for positions and money management. However, we cannot recommend what that is for your particular trading style, risk tolerance, or account balance.
We urge you to calculate your own share/position size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade strategy and risk. Advanced Management Strategies (AMS) covers in detail foundational and advanced position and money management.
NOTE: Master Trader and its representatives may have existing positions in actual or other trade recommendations before or after suggested herein. Additionally, we may manage them differently for internal purposes based on different risk parameters than noted herein.
All trade ideas and content are for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, option or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds. Investment or trading information provided may not be appropriate for all investors, and is provided without respect to individual financial sophistication, financial situation, investing time horizon or risk tolerance. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. Master Trader Consulting, Inc. is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardize Options and the Risk Disclosure for Futures and Options found here: CLICK HERE.
