As we close out the first half of the year, I want to share a unique trade I executed last week with members in Weekly Options Profits program.
You’ll know if you’ve been following me for a while that my strategy usually involves trading in the direction of the broad market and finding a strongly trending stock in that same direction.
But this past week, we did something a bit different. We took a bearish trade on AVGO, even though the broad market is fairly bullish and AVGO has been a pretty strong stock.
You might be wondering why we took this approach, especially since both the broad market and AVGO itself have been more or less bullish. The answer is that I spotted a temporary weakness in AVGO.
I own AVGO and trade it regularly, so I’m quite familiar with its patterns.
Recently, AVGO had a steep incline leading up to a stock split. This kind of sharp upward movement is usually unsustainable. Basically, the stock got way ahead of itself and was due for a pullback.
As the split approached, AVGO started to cool off significantly.
Recognizing this short-term weakness, I saw an opportunity to capitalize on a bearish trade using AVGO.
Again, this was not our typical setup, but flexibility is key in trading. And while having “rules of thumb” is important, it’s also just as important to be able to adapt to the market’s current conditions.
The Result
The trade worked out perfectly. Last Tuesday, we sold the 1735 call and bought the 1740 call, giving us a net credit to enter the trade.
As always, we enter these trades on a Tuesday and they expire on Friday, so we’re never in the trade for more than 3 days.
AVGO was trading around 1600 when we entered the trade, so the 1735 call we sold was more than 8% out-of-the-money. That weakness I spotted in AVGO held throughout the week and the trade expired worthless for the options buyer.
But for us as the options seller, we kept the full credit, resulting in another winning trade.
This is a prime example of why it’s essential to stay vigilant and be ready to adjust your approach based on market conditions.
Moving Forward
While this trade deviated from our usual strategy, it’s a good lesson in the importance of being adaptable.
Rules of thumb are great, and they’ll work in most cases — but when you keep an eye on the market, and understand the specific patterns of the stocks you trade, you’ll be able to spot opportunities like this which can result in sizable wins.
I just went live today to explain how the strategy works, AND give out my Top 3 Energy Stocks Likely To Soar on the Energy Supertrend → → Click here to watch your on-demand replay!
Trade well,
Jack Carter
