Two weeks ago we looked at a potential trade that quickly doubled. The latest market shift is creating another one. Take a look.

We have already explained how the downtrend we are in has some turbulent bounces. (read that article here) Now we are spotting a repeating opportunity to take advantage of those moves. The last trade that really worked was a call option on an inverse index ETF. It sounds complicated but it is pretty simple. And, by adding a key twist to the strategy, we are able to increase the window to take the win.

The inverse index ETFs have been fairing well in the decline, but these swings can really be painful to ride out. Take a look at SQQQ, the leveraged inverse index ETF that tracks the NASDAQ. (more about inverse ETFs here)

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Keep in mind this ETF goes up as the index it tracks goes down. In this case the NASDAQ has been dropping since the beginning of the year so SQQQ is trending up. But… there is always a but… you can see that wild swing could easily shake you out. At this point, based on all of the information we are being beat up with every day, it is likely the broader downtrend will continue. We will watch for signs to confirm a bottom but don’t fight the trend.

By looking at options, we can create a trade that aligns nicely with what we know. The secret sauce is how to give that trade a good runway to do its thing since we know it has a tendency to swing its way along. By using a longer term option we can be able to take the win if the move farther down happens right away or it takes a few weeks to work through another swing.

It is pretty realistic to expect that as the market drops SQQQ could hit 75. If we look at the Dec 16 calls for SQQQ the 76 calls jump out as being oddly cheaper. They are definitely looking juicy.

Andy Chambers explains this in his Market Propulsion guide and lays out how to use this approach very effectively. There is a bit of a premium for the longer term options but you get what you pay for. In this case, more time for the move to play out. Whenever I can get a premium product at a good discount, I am all in.

Keep learning and trade wisely,

John Boyer


Market Wealth Daily