Another wild ride in the stock market. Once again due to the high price of options we had no trades in our SPX Daily Outlook. However, we did have trades in all of our other strategies, and ended the week with +37% ROM in our SPX Spread Trader and +59% ROI in our SPX Binary Trader. Given the high price of options over these past few weeks, we’ve not had any trades in the SPX Option Trader. However, we plan to start trading this current market, even with higher priced options.
We’ve consistently said over the past few weeks, that we don’t trade when options are too expensive, because of the risk to reward. For example, when the option on SPX is over 50 a contract, it means the SPX must move over 50 pts early in the day, just to make 100% profit. That historically has not been a good risk to reward ratio. Yet, we’ve seen everyday in these past weeks all 3 target levels have been hit. The market has gone as we forecast and had we been willing to trade we would have seen some profitable days. So, we are going to make a change to our approach going forward. We are going to risk trading on certain days, even with higher than normal priced options. Some days the options will still be too expensive and we will not trade. But we believe on some days, it will be worth the risk to trade even with higher than normal option prices.
However, we want to make sure all our members are aware of the increased risk on high priced option days. On these days we will designate the trade as “High Volatility Trade”. These days are higher risk trades, simply due to the higher price of the option. On these days we will have a smaller than normal profit % target and % stop. We will be using our target levels to help us monitor our position, but will not be using our normal trading guidelines.
Below are the trading guidelines for a “High Volatility Trade”
Once our initial profit % is close to being hit, we will normally follow with about a 10% trailing stop. We will be watching the market closely and determine exit based upon our key levels and the 10 and 20 period SMA on a 5 -minute chart. We will also be looking at other possible levels of support/resistance. Each day is unique and requires traders to act quickly based upon ever changing market. If all 3 levels have been broken, we will be adjusting our stop. Depending upon market conditions, we may use one of the target levels or at least the daily level as the new stop loss. Trading in this environment is not for everyone, and the risk is much greater. Because of the volatility, each day is unique and guidelines must be adjusted. But for those who are willing to adjust and take the risk, there is the potential to make some profit. There is higher risk when the options are so expensive, but we are willing to take that risk, after studying this market for the past few weeks.
So, going forward, if we say that today is a “High Volatility Trade”, we will be employing the above guidelines in our trading strategy. If we do not make such a distinction, then our normal strategy will be used. We don’t want to confuse anyone, but we also want to share how we are trading this unique market right now. If you don’t want to do these High Volatility trades, then simply skip trading on those days or use your own method of adjusting stops and exits. If you have any questions, please let us know.
Below are our comments for each trading day of this past week.This content is for members only.