Weekly Options Trader for the Week of 2-17-26

Wednesday’s delayed January jobs report showed stronger-than-expected payroll growth which pushed Treasury yields higher (but closed much lower on the week).  That, along with inflation continuing to run above target for years, most think that the Fed won’t cut rates until late 2026.   The futures market, however, predicts a July cut.

Trader sentiment has moved close to levels typically seen near market lows, but it has not reached an extreme. There is still room for additional pessimism before we get the kind of washed-out condition that often marks durable turning points.

Breadth remains neutral. The reason is simple: the sharp rotation out of AI-related growth stocks has been offset by rotation into defensive and value sectors. That push-pull dynamic has kept the breadth oscillator hovering around the zero line rather than reaching an extreme.

One possible scenario for this week is that the broader market weakens further, pulling most stocks lower. If that occurs, breadth could finally push to a bullish extreme at the same time sentiment reaches one.

That combination would generate a buy signal we have not seen in some time. When breadth reaches a bullish extreme, we typically begin to see constructive reversal patterns develop, which present higher-probability buying opportunities.

This week is an options expiration week. These weeks are often choppy as market makers adjust and rebalance hedges, which can mute momentum and reverse sharp moves. After expiration, those hedges are unwound, and the market tends to move with more clarity. That timing suggests patience early in the week may be rewarded.

I am optimistic that this week could provide a clearer view of a short-term tradable low in both Bitcoin and Software (IGV). The bullish reversal in Coinbase (COIN) is worth noting, as individual leaders often turn before the broader group stabilizes.

Friday will likely be the key catalyst. PCE and GDP are scheduled for release, and both have the potential to move markets significantly. If inflation data surprises to the downside, risk assets could respond favorably. If not, we may get the final push toward the breadth extreme discussed above.

In short, conditions are approaching a level where opportunity may emerge—but confirmation is still required. Patience remains the priority.

The political drama continues with a partial government shutdown starting on Saturday over funding of Department of Homeland Security and ICE.   Many employees, including TSA workers, are now working without pay.

Nothing changes in how we operate. We will continue to trade the same price patterns, manage risk the same way, and let the market—not opinions—tell us when opportunity is present.

If you're not in the Green Room with us, log in to YouTube, Facebook, or Twitter to get our pre-market review at 9 AM ET. If you can't make it, you can view the recording.

Good trading and enjoy the day off on Monday for President’s Day.

Be sure to log into your Member's Area to get connected to text messaging through Telegram -- it's critical to receive timely updates to new trades and trade adjustments!  NOTE:  New trade ideas included in these emails are not sent in Telegram when they trigger -- only subsequent needed adjustments.  Alerts for Targets and Stops triggered are also not sent; it is your responsibility to set alerts and manage them following posted instructions if desired.

NOTE:  Please see the document in RESOURCES entitled Master Trader Guidelines for Trading the Open and Gaps.

Because your success is vital to you – and us.   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.

Basic Money Management 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.

NEW OPTIONS TRADING IDEAS

Here's our Checklist for shorting options/spreads using MTS.  Spreads have unfortunately been wider than normal recently which is why the number of trades recommended in this letter has been fewer than normal.   Additionally, when the VIX is low, the premium received has not been attractive.  Most of you also subscribe to our Advisory Swing and Options Letter and, as you can see, we have many Directional ideas.

2/27:   ARM – Over $127.42, consider shorting Feb (2/20) $120/115 bull put credit spread for a limit of $.80/share (closed at $.90/share).    Buy Setup and reversal at the 20-MA after Breakout of a bottoming pattern.  Stop $199.98 (however, stop out of position if the “debit/cost to close” the spread reaches 2x premium received, which would be $1.60/share in this case, which means that you are not risking more than 1:1).

2/27:  JPM – Over $304.73 (intra-day resistance), consider shorting Feb (2/20) $295/290 bull put credit spread for a limit of $.70/share (closed at $.86/share).   Bullish reversal on Major Support and the 200-MA.  Stop $294.98 (however, stop out of position if the “debit/cost to close” the spread reaches 2x premium received, which would be $1.40/share in this case, which means that you are not risking more than 1:1).

2/17:  SMH – Under $402.49, consider shorting Feb (2/20) $422.5/427.5 bear call credit spread for a limit of $.70/share (closed at $1.01/share, caution - spready). Bearish reversal at Major Resistance.  Stop $421.22 (however, stop out of position if the “debit/cost to close” the spread reaches 2x premium received, which would be $1.40/share in this case, which means that you are not risking more than 1:1).

2/27:  MSFT – Over $410.00, consider shorting Feb (2/20) $390/385 bull put credit spread for a limit of $.60/share (closed at $.86/share).   W-Bottom reversal.  Stop $294.98 (however, stop out of position if the “debit/cost to close” the spread reaches 2x premium received, which would be $1.00/share in this case, which means that you are not risking more than 1:1).

NOTE:   We found many compelling patterns for directional trades which are contained in our Advisory Swing and Options Trader, see below.  All directional patterns are credit spread CANDIDATES provided they are liquid and have attractive net credit for the DTE.  In this case, every one of these unfortunately have illiquid options, preventing us from presenting credit spread ideas.

As you know, by selling spreads on stocks and ETFs where MTS indicates price is unlikely to go, we become the “smart money,” getting paid to take calculated, well-defined risk.

Check out the blog article with more information and monthly results, CLICK HERE

Professional consistency, short-duration trades, and risk-controlled income — that’s what defines the Master Trader approach.