Good morning, traders…
We’re watching the worst multi-day sell-off in recent memory. The Nasdaq is down 6% in eight days.
Enterprise software names, data analytics companies, legal tech providers, and memory stocks are getting hit the hardest … but nearly every tech stock is getting slammed.
Plus, the VIX climbed over $20, making options premiums more expensive across the board.
But even though the market was deep red all week, I closed two pullback trades for 122% and 240% gains, both overnight.*
What allowed those trades to work?
Four specific changes to my trading approach.
When the market shifts from trending to dumping, your approach has to shift with it.
These 4 Small Shifts Brought Me 122% and 240% Gains During The Selloff…
Look For Relative Outperformers
The first adjustment is about where you focus when an entire sector is selling off.
When tech stocks are leading the market lower, you have to look for relative strength (stocks that are holding up better than their peers).
That’s why I traded AAPL and CSCO.
Tuesday morning, I bought AAPL Feb 6 $270 Calls at $2.25. The stock had pulled back to $269, the premarket high acting as support.
While most other major tech names were breaking down, AAPL was holding that level.
Wednesday, the Nasdaq dropped 2.5% intraday. AAPL opened green. I closed my calls for 122% gains.*
The CSCO trade followed the same pattern. I called it out on Monday when I saw a perfect VWAP pullback forming.
The stock ran in the morning, rested all afternoon, and held near the highs.
The next morning, CSCO gapped up, and I closed the Feb 7 $61 Calls for 240%*
Watch Stocks Outside Of Tech
Everyone always wants to trade tech stocks because that’s where the action is. But when the market shifts and tech is leading the declines, you have to add names to your watchlist that have nothing to do with tech.
This week, I’m watching names like Monster Beverage Corporation (NASDAQ: MNST), The Charles Schwab Corporation (NYSE: SCHW), and Nike Inc. (NYSE: NKE).
When tech is weak, rotate to where the strength is.
Look at consumer staples, financials, names that aren’t correlated to the Nasdaq. That’s where opportunity lives during tech selloffs.
Focus On Pullbacks To Key Support Levels
Both of my winning trades this week came from pullbacks.
AAPL pulled back to $269, a key support level at the premarket high.
CSCO pulled back to VWAP after running all morning.
Different support indicators, same exact principle:
If the levels broke, I’d be out.
If the levels held (which they did), I had room to run.
I had a small amount of risk below support, but a large reward when the stocks bounced.
The worse this selloff gets, the closer we are to a reversal.
Now is the time to know your support levels and set alerts.
When charts hit support and hold, you’ll be ready to enter at one of the best risk/reward spots possible.
Let The VIX Be Your Guide
With the VIX over $20, you’re fighting an uphill battle as an options buyer.
High implied volatility (IV) means you’re paying more for contracts, which eats into potential gains (even when you’re right).
Fair warning: it might be best to wait for entries until the VIX drops below $20.
I took the AAPL and CSCO trades because they checked all my boxes.
But I’m being way more selective than I would be in a low-VIX environment. Every trade has to be higher conviction when the market is this wobbly.
The VIX tells you what kind of environment you’re trading in. Above $20, be selective. Below $15, you can be more aggressive.
Right now, we’re in a high-volatility environment, which means only the best setups are worth taking.
How To Actually Implement These Changes
I made triple-digit overnight gains this week (twice) thanks to these exact adjustments.
But let’s be honest…
Reading about the changes I made and actually implementing them yourself are two completely different things.
That’s why I’m hosting the Simpler Options 2-Day Virtual Bootcamp, February 17th-18th from 12:30PM to 5:30PM EST.
Day 1 (Tuesday, February 17th): My team and I will show you step-by-step how we take high-probability options trades that have been winning over 80% of the time, even in the most volatile markets.* You’ll see the exact process we use to identify these setups.
Day 2 (Wednesday, February 18th): We’ll help you determine the specific types of options setups that fit your own unique lifestyle and personal goals with trading.
Click here to reserve your spot.
The market is shifting. You need to adapt to it … or else.
Happy trading,
Ben Sturgill
*Past performance does not indicate future results
