AMA: How Do I Prepare For The Next Bloodbath?

by | Mar 2, 2020

Futures were hit hard in the pre-market… but the market is so crazy right now, and there’s a lot of back and forth action today.

Many traders are having a tough time navigating through this volatile mess. All thanks to the coronavirus, which pushed stocks off a cliff, and economists are now forecasting a global economic contraction.

Since I want to help out as many traders during this tough time, I opened up a discussion with my readers… and one response I saw a plethora of times: How do I prepare for the next bloodbath?

With stocks trading lower to kick off the week, patience will be key. Today, I want to provide you with actionable tips that could benefit your trading this week — and potentially turn your profit and loss (PnL) frown upside down.

 

How To Navigate Through This Volatile Mess

 

The market is so volatile right now, and it could experience violent moves in either direction… what I’ll be focused on are my profit buckets — strategies in which I have an edge and aren’t necessarily correlated with the overall market.

You see, it’s very easy to get caught up and trade stocks that move with the market… but in my experience, I’ve found it’s hard to pick the direction of the overall market.

So instead of trading FANG and other stocks that move with the S&P 500 — I look for stocks that have catalysts of their own. Not only that, but I’m focusing on leveraging my capital with options.

Why options?

Well, it allows me to know my risk ahead of time, so I can size my positions properly. Additionally, options allow me to maximize my returns. In order to find these money-making opportunities amidst this bloodbath… I’ve been looking for short-term momentum plays, rather than swing trades.

When the market moves this much (in either direction), it’s hard to hold positions overnight… and I believe short-term intraday trades will perform the best in this environment. Let me show you how it works…

 

How I Spotted A $12K Winner In Less Than 2 Hours

 

When volatility is rampant, I want to be nimble when it comes to my trades. I still focus on my edge, but I know exactly what I’m risking and trade with comfort. For example, last week I spotted an interesting setup in Luckin Coffee (LK).

The “Starbucks of China” had catalysts on the table, and I figured it could cause the stock to pop. Remember, in this environment, I’m not really looking for swing trades… just short-term intraday trades.

So when I noticed the LK play… I felt like it was a no-brainer to me.

 

 

There was a company-specific catalyst on the table. LK was being added to the MSCI Index yesterday. What that means is, funds would be purchasing shares of LK to take into account those changes… it’s what’s known as the “rebalance”. 

Typically, on the day this happens, traders who catch wind of this news pile into the stock in anticipation of demand picking up. That’s exactly what I expected in LK. However, rather than buying shares… I looked to the options. 

I figured if my thesis was right, those call options could move 100 – 200% (pretty similar to the SBUX trade from the other day). Not only that, but LK could’ve got pulled higher from the market forces… after all, the buy the dippers were probably waiting to pile in. 

Guess what happened?

LK made the move and those options exploded!

 

 

Of course, when markets are volatile, I’m not looking to overstay my welcome… so when I see profits on the table, I’m taking them and looking for my next play. Now, if you’ve been having trouble navigating this market… I think I may have a potential solution for you — Dollar Option Trader. In it, you’ll find the one strategy I use to hunt down profits in any market environment.

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