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Aug 07, 2024

Good morning! 👋

Futures are trying to claw their way back as I type.

This is a classic mean reversion trade – meaning that prices are simply returning to the mean.

Forget the headlines.

Current trading action is being driven largely by computers trading so fast humans can’t keep up even if they wanted to.

The key to not letting this kind of nonsense get the better of you is to understand how the game is being played (largely by computers) and to constantly focus on investing in the world’s best companies (because that’s what these jokers will buy first).

Think like a shark, not a minnow.

Case in point, one report I saw yesterday suggests that Wall Street’s big money bought $14B worth of stocks Monday. The retail public, just $1B.

I know I sound like a broken record, but I will say it again.

Chaos creates opportunity.

And the more of the former, the bigger the profit potential associated with the latter, particularly if you’re buying quality names like those we talk about regularly.

You know what to do.

And with that, I know what I’ve got to do... dash out the door to visit the local vampires for bloodwork as part of my annual physical.

As expected, I’ve come through with flying colors but doggonit if the floor doesn’t keep getting farther away every year. And not for nothing, I want to have a word with whomever is making the trails steeper and the weights heavier, too! 🤦‍♂️

Before I go, a quick update.

If you’re following along with the NVDA put options trade I suggested yesterday

Many inexperienced investors and aspiring traders leave options to expire because they’re being taught that doing so maximizes profits. That’s true but what they’re not being told is that it also maximizes risk.

My experience is that it’s better to take the money and run if the markets want to hand you that opportunity. Generally speaking, that’s about 80-90% of a trade’s profit potential.

There is simply no need to be greedy.

For example, I received $1.30 for the 20SEP24 $65 Put I sold yesterday.

Now I am going to enter an order to buy it back and close the trade for $0.26 (which is roughly 80% less than the $1.30 I received). If that works as planned, I'll keep the difference which, in this case, is $1.04.

A quick look at my screens tells me that NVDA will need to rise to roughly $119.01 (a $12.21 per share move higher) to make my order work. If not, I’ll wait it out.

Excellent!

Btw, I share strategies like this with the OBA Family regularly so if that’s of interest and you fancy learning to trade around core investing positions using options, you may enjoy becoming a member. (Learn more)

And with that, I’m on the road.