John Carter

Filters: Options, Swing Trading, Aggressive/Advanced

Name of Trade/Strategy: THE “BEST TIME TO BUY OPTIONS” TRADE

Rules for Entry:

1. Looking at a stock or market that recently made a 52 week high or even better, all-time highs.
2. Then you see a squeeze developing (red dots) on the daily chart
3. Note: If there is also a squeeze on the weekly chart, this is a bonus. I will utilize out of the money options in this case – one of the few cases I will buy delta 20 to 30 call options. Why? The weekly squeeze, when it fires, can generate a much greater than expected move.
4. Back to the daily chart. Price is above the 21 EMA and a “cup and handle” pattern is forming
5. ENTRY: After 3 red dots on the squeeze, set up a bracket order to enter the trade either on a pull back to the 8 and 21 EMAs or on a breakout of the 618 retracement of the move.

Scale In! So if your full size is going to be 10 contracts, then buy 3 on a pullback to the 8 EMA, buy 4 on a pullback to the 21 EMA, and buy the last 3 on the breakout. However, if you don’t get filled on the pullbacks then of course you will have to buy it all the breakout.

It’s ok if you don’t end up with full size – but don’t be a dick for a tick! It’s ok to “chase” a trade like this – but don’t wait too long.

TIP: If the price goes through the .786 retracement, then the chances of this trade hitting its 1.272% extension rise to 90%.

Indicators Needed:

• Squeeze Pro
• Multi-Squeeze Pro
• 8 and 21 EMA

Time Frames used:

• Daily Chart
• Weekly Chart

Trade Management:

First, I prefer buying in the money options with a delta of at least 70. This means your theta decay will be minimal and you will get a lot of “bang for your buck” meaning for every $1.00 the stock moves, your option will move 70 cents initially – and the delta will increase as the underlying price increases, meaning your option will increase “greater” as it gets deeper in the money. That is, it will start at a delta 70, then shift to a delta 80, etc.

It is ok to buy weekly options here as long as they have at least 5 days of life left.Otherwise, go out to the NEXT week or even use the monthly options. You truly do not want to be buying options that expire “tomorrow.”

Second, it is imperative that you manage this trade in such a way as to continually increase the probability of reward and reduce the probability of risk.

WHY? Because you can easily wake up the next morning and this stock has bad news or is downgraded, etc.

TIP: a downgrade in an uptrending stock is typically a tactic employed by hedge funds to get the stock at a cheaper price. If you are in the trade when this happens, it is going to hurt. That’s called trading. If you aren’t, look at it as a buying opportunity.

Your initial stop is equal to TWO TIMES the 21 period Average True Range of the daily price action. This is critical as the biggest reason people miss out on good moves (i.e., have you ever been stopped out of a trade, only to then see that it goes your way) is because of stops that are too tight. DO NOT USE OVERLY TIGHT STOPS!! Along these same lines – and this is somewhat controversial – if this trade isn’t profitable after 3 trading days, I cut it loose. The stop in place is meant to be a disaster stop in case of a downgrade, etc. If after 3 days I’m down money on the trade, I go flat and re-evaluate. You can always get back in. When you are long options, being right, right away, is important. Otherwise you are just sitting on a depreciating asset.

Exits:

• Let’s say you have 10 contracts that you bought.
• Sell 1/3 just below new highs – this is the “easy trade”
• Move your stop from 2X ATR to 1X ATR (i.e., if the 21 period ATR was $2.50, then your initial stop was $5.00. Now your stop would move to entry less $2.50).
• A note on stops: what I’m referencing here is the underlying price of the stock. The option you are trading will be impacted by many different data points. Is it in the money or out of the money? Does it expire in 3 days or 3 months? Regardless, these levels on the underlying stock tell me “when to get out of the stock if I was trading the stock” so at that point I would also get out of the options, regardless of where they are trading
• Another note: this applies only to direction options. If you sold a 1 standard deviation put credit spread, you could still be up money if the stock is trading sideways to down after 3 days.
• Sell 1/3 at the 1.272 extension and move stop to your entry point.
• Then for a potential home run trade, use a 3 day trailing stop for the rest of your position, with your final target being the 1.618 extension. Note the 1.618 extension has a lower probability of being hit. It’s ok to exit the rest of the position at the 1.272 and move on to the next trade (three day trailing stop = leave your stop just below the lowest low of the prior 3 trading days).

Position Sizing:

This will depend on your own goals. I will typically risk 5% of my capital on this trade setup.Meaning if I have a $10,000 account, and I get stopped, my loss should not be more than $500.This is how you calculate contract size. If the stop is $5.00, then you can only do 1 contract. If it is $1.00, you can do 5 contracts, etc. CONTRACT SIZE IS DRIVEN BY STOP SIZE AND YOUR PER TRADE RISK. There is never any reason you should be trading the same number of contracts on each and every trade.

I’m willing to take more risk on a stock that is at all-time highs and is a newer company (i.e., not IBM, but yes on PLTR.)

Other Strategy Tips: This discussion plan has been based on stocks near 52 week highs. The reverse can be applied to stocks near 52 week lows. What about for stocks in the middle of their yearly range? These are fine – but I will tend to trade them more conservatively, i.e., selling premium, as opposed to going directional. The exception to this if there is a squeeze within a squeeze, where I would apply the same plan as above – getting out 1/3 at the 1.272% extension of that swing move, etc.

Filters: Futures/Stocks, Intraday Trading, Beginner/Small Account

Name of Trade/Strategy: THE “PIVOT POINTS” TRADE

Rules for Entry for Pivot Buys on Trending Days (Sells Are Reversed): 

1. Unlike with the gap charts, I want to see 24 hours’ worth of data, so that I can view ay overnight highs and lows. Each day I update the appropriate pivot levels on the charts to reflect the previous day’s action. On Mondays, I also update the weekly pivots, and on the first trading day of a new month, I update the monthly pivots.
2. The first pivot play is done in conjunction with the gap, if there is one. If there is a gap down, then I will buy a decline into the closest pivot level. If there isn’t a playable gap (more than 10 YM points or 1 ES point), then i will wait until 9:45 am eastern to initiate the first play.
3. If the volume on the five-minute ES chart is more than 25,000 contracts, then I’ll wait for the markets to penetrate a pivot level and move up at least a quarter of the way to the next pivot level. Once this happens, I will then set up a bid to buy the first retracement back to the violated pivot level.
4. ENTRY: I enter my trades with limit orders only. I place orders “just in front of” the pivot. 

• For the YM, 3 points 
• For the ES, 0.25 point 
• For the NQ, 0.50 point
• For the TF, 0.20 point
• For Individual Stocks, 5 cents

Sometimes the pivot will be an odd number, such as 1817.38 on the ES. In this case, I always round in the direction of the trade. So, if I’m bidding for a long, I will round 1817.38 to 1817.50, and my bid will be 1817.75

TIP: If the Squeeze Pro has fired in the direction of your tick fades, there is a 90% chance of the trade working. 

Indicators Needed:

Squeeze Pro

NYSE Tick Chart ($TICK on Tradestation)

8 and 21 EMA

Time Frames used:

5 min 

Trade Management and Exit:

5. For the YM, I use a 30-point stop and a 20-point target. I also set a time limit of 35 minutes on this trade. If my stop or target isn’t hit within the 35-minute time span, then I exit my position at the market once the alarm goes off.
6. For the ES, I use a 3-point stop and a 2-point target, as well as the same time limit.
7. If I am stopped out twice in a row on this trade, I am done with tick fades for the day. By “stopped out,” I mean that my physical hard stop is it, as opposed to the time stop. Note that it is on these days that I will switch to a “go with” strategy, which will be outlined further below.

(In writing these sections via copyright, Options Gold and Small Account Mastery can be upsold for managing trades with that specific trader, the idea is to provide enough information that it is helpful, but not enough that they truly understand.)

Position Sizing:

8. This will depend on your own goals. If my account is less than $10,000, I will trade one contract per the ES and YM. Every $10,000 extra in my account, I will trade another contract. This is how you calculate contract size. By following the rules above, my maximum loss on the ES and YM is $150 per contract. CONTRACT SIZE IS DRIVEN BY STOP SIZE AND YOUR PER TRADE RISK. 

Other Strategy Tips:

Note: If by 12:00 noon eastern the ticks have spent more than 85 percent of their time above zero, I will pass on all other tick fade plays for the day. This shows an extreme level of buying in the market, indicating that funds are accumulating stocks. These “power days” are rare, but they do happen about once every four to six weeks. They are accompanied by many extreme tick readings above 1,000, typically between 1,200 and 1,400 ticks. In addition, if it is past 10:00 am eastern and the ticks have all been one sided, for example, all positive on the day, I will wait until the ticks have spent some time in negative territory before setting up the first tick fade play. On these days, this is a sign to “go with” the ticks.  

Filters: Options, Swing Trading, Aggressive/Advanced

Name of Trade/Strategy: THE “BEST TIME TO BUY OPTIONS” TRADE

Rules for Entry: 

1. 1. Looking at a stock or market that recently made a 52 week high or even better, all-time highs.
   2. Then you see a squeeze developing (red dots, update for squeeze pro) on the daily chart
   3. Note: If there is also a squeeze on the weekly chart, this is a bonus. I will utilize out of the money options in this case – one of the few cases I will buy delta 20 to 30 call options. Why? The weekly squeeze, when it fires, can generate a much greater than expected move.
   4. Back to the daily chart. Price is above the 21 EMA and a “cup and handle” pattern is forming
   5. ENTRY: After 3 red dots on the squeeze, set up a bracket order to enter the trade either on a pull back to the 8 and 21 EMAs or on a breakout of the 618 retracement of the move.
   6. Scale IN! So if your full size is going to be 10 contracts, then buy 3 on a pullback to the 8 EMA, buy 4 on a pullback to the 21 EMA, and buy the last 3 on the breakout. However, if you don’t get filled on the pullbacks then of course you will have to buy it all the breakout.
   7. It’s ok if you don’t end up with full size – but don’t be a dick for a tick! It’s ok to “chase” a trade like this – but don’t wait too long.
   8. TIP: If the price goes through the .786 retracement, then the chances of this trade hitting its 1.272% extension rise to 90%.  

Indicators Needed:

Squeeze Pro 

Multi-Squeeze 

8 and 21 EMA (Free)

Time Frames used:

Daily Chart

Weekly Chart

Trade Management:

First, I prefer buying in the money options with a delta of at least 70. This means your theta decay will be minimal and you will get a lot of “bang for your buck” meaning for every $1.00 the stock moves, your option will move 70 cents initially – and the delta will increase as the underlying price increases, meaning your option will increase “greater” as it gets deeper in the money. That is, it will start at a delta 70, then shift to a delta 80, etc.

It is ok to buy weekly options here as long as they have at least 5 days of life left.Otherwise, go out to the NEXT week or even use the monthly options. You truly do not want to be buying options that expire “tomorrow.”

Second, it is imperative that you manage this trade in such a way as to continually increase the probability of reward and reduce the probability of risk

WHY? Because you can easily wake up the next morning and this stock has bad news or is downgraded, etc.

TIP: a downgrade in an uptrending stock is typically a tactic employed by hedge funds to get the stock at a cheaper price. If you are in the trade when this happens, it is going to hurt. That’s called trading. If you aren’t, look at it as a buying opportunity.

Your initial stop is equal to TWO TIMES the 21 period Average True Range of the daily price action. This is critical as the biggest reason people miss out on good moves (i.e., have you ever been stopped out of a trade, only to then see that it goes your way) is because of stops that are too tight. DO NOT USE OVERLY TIGHT STOPS!! Along these same lines – and this is somewhat controversial – if this trade isn’t profitable after 3 trading days, I cut it loose. The stop in place is meant to be a disaster stop in case of a downgrade, etc. If after 3 days I’m down money on the trade, I go flat and re-evaluate. You can always get back in. When you are long options, being right, right away, is important. Otherwise you are just sitting on a depreciating asset.

(In writing these sections via copyright, Options Gold and Small Account Mastery can be upsold for managing trades with that specific trader, the idea is to provide enough information that it is helpful, but not enough that they truly understand.)

Exits:

• Let’s say you have 10 contracts that you bought.
• Sell 1/3 just below new highs – this is the “easy trade”
• Move your stop from 2X ATR to 1X ATR (i.e., if the 21 period ATR was $2.50, then your initial stop was $5.00. Now your stop would move to entry less $2.50).
• A note on stops: what I’m referencing here is the underlying price of the stock. The option you are trading will be impacted by many different data points. Is it in the money or out of the money? Does it expire in 3 days or 3 months? Regardless, these levels on the underlying stock tell me “when to get out of the stock if I was trading the stock” so at that point I would also get out of the options, regardless of where they are trading
• Another note: this applies only to direction options. If you sold a 1 standard deviation put credit spread, you could still be up money if the stock is trading sideways to down after 3 days.
• Sell 1/3 at the 1.272 extension and move stop to your entry point.
• Then for a potential home run trade, use a 3 day trailing stop for the rest of your position,with your final target being the 1.618 extension. Note the 1.618 extension has a lower probability of being hit. It’s ok to exit the rest of the position at the 1.272 and move on to the next trade.
• (three day trailing stop = leave your stop just below the lowest low of the prior 3 trading days)

Position Sizing:

This will depend on your own goals. I will typically risk 5% of my capital on this trade setup.Meaning if I have a $10,000 account, and I get stopped, my loss should not be more than $500.This is how you calculate contract size. If the stop is $5.00, then you can only do 1 contract. If it is $1.00, you can do 5 contracts, etc. CONTRACT SIZE IS DRIVEN BY STOP SIZE AND YOUR PER TRADE RISK. There is never any reason you should be trading the same number of contracts on each and every trade.

I’m willing to take more risk on a stock that is at all-time highs and is a newer company (i.e., not IBM, but yes on BYND.)

 

Other Strategy Tips:

Note: this discussion plan has been based on stocks near 52 week highs. The reverse can be applied to stocks near 52 week lows. What about for stocks in the middle of their yearly range? These are fine – but I will tend to trade them more conservatively, i.e., selling premium, as opposed to going directional. The exception to this if there is a squeeze within a squeeze, where I would apply the same plan as above – getting out 1/3 at the 1.272% extension of that swing move, etc.