Don’t look too closely at the market. Stepping back can offer some better opportunities.
Markets are trying to form a rebound from the recent drop and it makes it super tempting to start scooping up discounted stocks. To grab bargains with the best chance of them becoming a big winner means figuring out what their longer trend looks like.
We looked at the S&P yesterday and it has been on a rocky downtrend all year long. Trying to grab a rebounding stock that is falling in the longer term increases your risk of getting whipsawed. Instead look for the uptrending stocks that have gotten beat down by the broader market.
One of our favorites is the clean energy ETF, TAN. It fell last week but it’s over all trend is still up.
It is sitting at its 200 day moving average and if we see a rebound in the overall market this might create a great point of support. An upward move in TAN could make a run back toward the recent range it was in between 80-85 or higher. One way to exploit this is to look at call options in that range. For instance the Nov 18th 85 calls are currently at 1.82.
Even a quick bounce back up towards that previous range has the potential to double that premium in a short period of time.
This is a great example of how to put the odds in your favor when trading options. If you are looking for more ways to stack the advantage on your side of the table check out Don Fishback’s Quick Start Guide to Options Success. It gets you up to speed quickly and outlines which strategies to use in which conditions. Check it out here.
Keep learning and trade wisely,
John Boyer
Market Advantage Press
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