Would you like to learn a strategy with an overwhelming likelihood of success which involves selling options using our technical analysis of short-term reversal areas?
At Master Trader, we use an objective, rule-based approach to trading stocks, futures, cryptocurrencies, options – and, yes, in trading options.
Our Advisory Swing and Options Letter focuses on identifying high-probability long and short trades in stocks and options using Master Trader Strategies (MTS).
We buy call and put options as Directional trades when they are liquid as they provide us with leverage and limited risk.
One of our favorite income strategies is selling options and credit spreads around technical turning points. We profit from time decay, the underlying stock or ETF moving away from the reversal area, and volatility contraction.
Read about the Weekly Options Trader letter which sells options/spreads for weekly Income that expire in 10 days or less around Master Trader technical turning points, CLICK HERE.
Last week we seven for seven in trades recommended in this letter (a slow post-holiday week and whippy price action), sporting a 90% success rate for the month of May.
Trends reach climactic levels when most market participants are skewed towards one side. Learning this Setup will help you nail the reversal points at prudent points for counter-trend trades.
Understanding the causes behind these patterns and intelligently Trading them present lucrative trading opportunities for those who recognize them.
At Master Trader, we have several criteria to define quality W-Reversal patterns.
These are based on the structure of the price pattern and confirmation.
In short, for W-Reversal patterns, we are looking for momentum moves down (which creates a Price Void), followed by a counter-trend bounce of less than 1/3 of the momentum move down. Then the key is the next pullback and potent reversal at or around the prior low, Major Support (MS). The opposite is true for M-Reversal patterns as you will see with MSTR.
Although the exact formation is endless, these are great examples of variations of how these reversals can occur.
Master Trader M-Top Reversals Are Great Patterns to Sell Calls/Spreads as Income Trades
Now let's apply this reversal setup to MSTR and how we profited by selling a bear call credit spread on an M-Top Reversal.
Master Trader M-Top Reversals Are Great Patterns to Sell Calls/Spreads as Income Trades
Setup: After breaking out on 4/21, MSTR rallied robustly, getting extended from the 20-MA and creating what we call a Price Void (i.e., insignificant support or congestion because of the momentum move higher).
In early May, it stalled and consolidated sideways in an uptrend; however, we are now on the lookout for a “potential” M-Top to set up similar to one of the images above.
On 5/21, MSTR broke out from a bullish +123 Continuation Setup and closed with a bearish engulfing bar, not good for the bulls. The following bar made new highs and again closed with a bearish engulfing bar, confirming the overhead resistance/supply was growing at the prior high, Major Resistance.
Now we are gaining more confidence of a potential M-Top Reversal.
On 5/23, MSTR gapped down under Major Support (MS) and couldn’t bounce (notice there is no Topping Tail on the daily bar shown).
That was our entry for bearish option trades for the M-Top Setup. Although the Setup supported shorting the stock or buying put options as Directional trades, we recommended selling the noted bear call credit spread as an Income Trade since we collect full profit (premium received) as long as MSTR expires below the short strike price of $425.00.
As you can see, we recommended shorting the May (5/30) $425/435 bear call credit spread for $1.00/share. Selling one contract would generate $100 of premium being deposited into your broker account which becomes profit over time as it approaches expiration. Selling 10 contracts would have generated $1,000 of premium.
After entry, we are always in management mode, trailing pivot lows and monitoring price action with bar-by-bar analysis.
Profit: As you can see, the trade made $180 profit (6.7% return) in an easy-to-manage 5-day swing trade. Had you sold 10 put contracts (representing 1000 shares of the underlying) and followed our trade management, you would have made $600 profit (or the full $1,000 premium received if did nothing and let it expire worthless, which it did).
We sell options and spreads as Income trades where we profit through time decay and volatility contraction. To learn this Strategy, CLICK HERE
Conclusion
Master Trader Strategies (MTS): Learn our proven methods for high-probability trades in all market conditions!
We sell options/spreads around technical turning points and literally “get paid” to determine where a stock will not go in a short time.
Traders should add this strategy to their trading arsenal since the odds of profit – particularly after market mini-crashes -- are overwhelming high when they set up, like now.
Directional Swing and Options Trades daily in the Advisory Swing and Options Trader Letter.
Master these strategies and achieve consistent trading education and success.
Money Management for Trading and Investing
Proper money management for investing and Trading starts with position-sizing based on the amount of money you are willing to risk on a signal trade.
