The S&P 500 fell 3% yesterday, one of its largest declines of the year.
But there was a pretty easy way for traders to not only avoid the carnage but even double their money.
You see, I’m not a bull or a bear, I’m a trader who is ready to strike once I see my best setups…
When I wake up at 3 A.M. to start my day, I’m completely neutral and don’t have a bias. I let the charts and indicators decide which way I’m going to play the market that day.
That’s a pretty great feeling and an advantage when it comes to trading the market.
Most traders probably weren’t so calm. They knew their portfolios were going to get crushed the instant the opening bell sounded.
That’s when fear and panic set in and when the biggest trading mistakes are made…
The Trade of the Day Advantage
Yesterday started off bad.
Markets were down about 1.5% pre-market as I was sending my Trade of the Day to clients. No matter what’s going on, I always trade SPY options – an ETF that tracks the S&P 500.
Well, options allow you to bet on a stock going up or down, essentially doubling your profit-making opportunities.
While buying a call option allows you to bet on the underlying stock or ETF moving higher, buying a put option allows you to profit from the underlying moving lower – without the unlimited risk that comes with shorting stocks outright.
And like I said, I start my day off with zero bias, and lately, with no open positions. Instead, I analyze a few things before sending out my alert:
- SPY support/resistance levels
- SPY chart patterns.
- Overseas markets
- Potential market-moving news
Let me show you what I mean…
Yesterday’s Trade: +100% Upside Potential
My Trade of the Day narrows down the hundreds of SPY options into a single trade that I think will offer members the best odds of making money.
Yesterday that was SPY August 19 287 Puts.
Why did I go with puts? After all, just because the market is in the red pre-market doesn’t mean it won’t find support and catch a bounce during the day.
There were actually a few signals pointing to a bloodbath.
- First, there were overseas markets. The ones I track — and influence U.S. markets most — were in the red. That alone wouldn’t make me go with puts, of course, but it does reduce the odds of a reversal in my experience.
- Then there was SPY’s Tuesday trading action. You might remember that the S&P 500 jumped 1.5% after President Trump announced new tariffs on some Chinese goods would be delayed.
That might sound bullish… but check out the chart below. SPY was rejected right at the 50-day moving average (red line) and then pulled back a bit. That was a red flag for me.
- But what really pushed me over the edge, and made me go with puts, was SPY’s pre-market action. It wasn’t so much that the market was down, it was that SPY had broken support at the critical $290 level.
- This is a level I had been watching for some time and have mentioned regularly in Trade of the Day. It also happens to be the 100-day moving average, adding weight to the importance of that level.
The final piece to my alert was the trigger. I told members I was looking for a Head and Shoulders pattern (typically a bearish setup) and that “as long as SPY is trading below 290 I’ll be looking to buy to open put options.”
Soon after the market opened, I emailed and texted members that the pattern had triggered. The market continued to fall throughout the day and anyone who bought SPY August 19 287 Puts could have made over 100%!
Thanks to the leverage that options provide, these kinds of gains are possible with only small moves in the market. So while yesterday’s trade was exceptional, it’s not the only Trade of the Day alert that has had a triple-digit upside.
But just as important is how stress-free this strategy is.
The potential for major news — scheduled or otherwise — to move markets is why I tend to stay in cash overnight… and it’s one of the easiest ways to protect your account in a news-driven market like the one we’re seeing.
You can sleep well at night knowing that nothing can rock your portfolio.
Instead, you can wake up and have my top trade and market analysis emailed / texted to you before the market even opens. There’s no need to take on the additional risk of swing trading in this volatile market if you can bank double or triple-digit gains by lunch.