The markets continue to be in a corrective mode. We remain in cautious/defensive mode which is why our current open positions and new recommendations are light.
As of last Wednesday, SPY, QQQ, and DIA were consolidating bullish. By the day's end, it was another narrow range consolidation day, and even the weak Russell 2000 Index, was able to close with a green reversal day.
Last Thursday and Friday, however, there was a lot of damage done to the short-term trends in multiple sectors in the broader markets apparently in reaction to longer-term interest rates rising to new 7-year highs. On Wednesday, long-term interest rates decisively broke out of their trading range to the upside. There was no uncertainty about the move since it ended the day well above the range and with a Bullish Wide Range Bar (+WRB).
The higher yields have helped the the financial XLF ETF and have hurt home builders, home construction, auto stocks — and the broader markets.
The selling continued on Friday and we have bearish weekly candles.
However, as this ongoing correction continues to unfold, it is going to present some fantastic opportunities to make money. Every correction does!
Below is a daily chart of Union Pacific Corporation (UNP).
Trade: Over $164.77, consider shorting Oct (10/12) $162.5/157.5 bull put credit spread (5 DTE) for mid-point but limit of $.60/share (closed at $.84/share).
Technical Setup: Breakout from bullish multi-week consolidation above r20-MA after bullish gap on the daily, bullish +123 continuation weekly.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: $162.38.
VIDEO ON OPEN AND CLOSED TRADES AND ADJUSTMENTS
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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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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.