{"id":5881,"date":"2017-11-10T07:30:00","date_gmt":"2017-11-10T07:30:00","guid":{"rendered":"https:\/market-minute\/you-and-i-are-on-the-same-team\/"},"modified":"2017-11-10T07:30:00","modified_gmt":"2017-11-10T07:30:00","slug":"you-and-i-are-on-the-same-team","status":"publish","type":"post","link":"https:\/\/stage.jeffclarktrader.com\/market-minute\/you-and-i-are-on-the-same-team\/","title":{"rendered":"You and I Are on the Same Team"},"content":{"rendered":"

\tThis has been a very difficult market for anyone with a bearish bias.<\/p>\n

\tI naturally lean bearish. I’m skeptical of the financial markets. And I think the entire game is rigged to take my money.<\/p>\n

\tSo, I constantly doubt the integrity of any move higher in the stock market, and I’m always looking for an opportunity to profit on the short side.<\/p>\n

\tHaving said that… I’m also quite selective about when I decide to take a short position in the market. Most of the time, the odds are against it, and it’s hard to hold a short position and lose money while the market is moving higher – and, it seems, everyone else is making money. So, I am quite selective when placing short trades.<\/p>\n

\tBut, I did tell my Delta Report<\/em> subscribers to buy put options on the S&P 500 last Friday. I was a few days early on the trade. But with yesterday’s pullback in the market, we were able to close the trade for a profit.<\/p>\n

\tNot everyone was happy about it, though. So, I’d like to share this email with you today…<\/p>\n

\n

\t\tJeff, what happened to the Nov 17 $256 puts on SPY? You are giving suggestive recommendations – are you guessing? Also, I have asked you for many weeks, what is your sell discipline? Every trading plan has to have one to have effective money management.<\/p>\n

\t\tCurrently down 50% on above puts, I am going to cover them today because I keep losing money…<\/p>\n

\t\tAlso, please comment on DKS position. Thank you.<\/p>\n

\t\t–  John G.<\/strong><\/span><\/p>\n<\/blockquote>\n

\tHi John, thank you for your email.<\/p>\n

\tI know you’ve sent several emails over the past few weeks. And I have subtly tried to address your concerns in my blog postings. This time, though, I’m going to be very direct – because I would like you to understand a very basic principle behind every one of my recommendations…<\/p>\n

\tYou and I are on the same team. I want you to make money on my advice. I want your experience to be profitable. And, in every recommendation I make, my only motivation is for you to achieve a profit.<\/p>\n

\tAt the same time… I’m a realist. While I expect every trade I recommend to be profitable – otherwise I wouldn’t make the recommendation – I know there’s a good percentage of trades that will be losers. That’s just the nature of trading. So, I try to define the risk up front.<\/p>\n

\tFor example, on the SPY November 17 $256 puts you referenced, I thought it was quite clear in my recommendation that if you bought the put you would have to be willing to risk 100% of the premium you paid for them. In fact, I think I stated that at least three times in the recommendation.<\/p>\n

\tThat was the whole point of buying put options on SPY. Rather than shorting the stock at more than $256 per share and risking an unlimited amount if the market moved higher, we bought put options for $0.75. So the most we were risking was $0.75 per share.<\/p>\n

\tI also stated – quite clearly, I thought – that we might be early on the trade. I recommended buying the puts last Friday when the S&P 500 was bumping into resistance at 2583. I said there was a chance the index might run up to the 2595-2600 level before it turned lower, and that you had to be willing to risk that sort of a move if you bought the put options. But, I also thought we were close enough to a significant, intermediate-term top in the market that the risk\/reward setup of buying put options made sense.<\/p>\n

\tThe stock market moved higher every day this week – until yesterday. But every day this week I also updated my thoughts on this position.<\/p>\n

\tI continually stated the S&P looked poised to run up to the 2595-2600 level. But I also pointed out that the divergences in the technical indicators and the breakdown in the high-yield bond sector justified maintaining at least some modest exposure on the short side.<\/p>\n

\tThat exposure finally paid off on Thursday as the S&P lost support and traded down to the 2570 level – which was my first downside target for our SPY put trade.<\/p>\n

\tI recommended selling the puts in two transactions. The end result was a gain of about 42% on the trade in less than one week.<\/p>\n

\tThat’s less than the profit I was hoping to achieve. But we were early on the position, and I was glad to be able to take the gain as the market moved lower yesterday.<\/p>\n

\tIf you took a loss on this position, then that’s unfortunate. But it’s also not the result of my advice.<\/p>\n

\tI quite clearly stated that you needed to be willing to hold this position through a move up to 2595-2600 on the S&P 500. I said you had to be willing to risk a 100% loss on this trade. When I recommended the trade I said I was probably early, but I liked the odds of it. And, as the trade went against us early this week, I updated you every day as to the status of the S&P 500 and the multiple divergences that were setting up. I reiterated – multiple times – that I was more comfortable holding a small loss on a small short S&P position than in not having any short exposure at all.<\/p>\n

\tAnd… when the market started to fall on Thursday… I told you to take the profits as the conditions quickly shifted from overbought to oversold.<\/p>\n

\tFrankly, John, I think I’ve been quite clear about my purchase and sell disciplines on this trade, and on every other position I’ve recommended.<\/p>\n

\tMost of the time, my sell targets are listed in the original recommendation. I tell you where I think we’ll take profits on the trade, and where we need to cut our losses if I’m wrong.<\/p>\n

\tI’m not perfect, of course. Some of the trades I recommend are not going to work out well. And, in the event that one trade gets away from me – as is the case with our current holding of TEVA Pharmaceuticals – I’ll try to keep you updated on my thoughts and on my plan for working the trade back to profitability, or on just taking the loss and moving on.<\/p>\n

\tMy main point here, though, is that we are on the same team. I want you to profit on my advice. And I will try – constantly – to keep you updated on our trades and to let you know if my thoughts on any position have changed.<\/p>\n

\tThat said… there’s no reason for you to have taken a loss on the SPY put trade I recommended. This was a profitable trade for us. And, had you adhered to the advice I provided, you should have been profitable on this trade as well.<\/p>\n

\tAs for the DKS position… we’re still in it. We’ll be profitable on the trade as long as the stock holds above $24.40 by the time the options expire in December.<\/p>\n

\tBest regards and good trading,<\/p>\n

\t<\/div>\n

\tJeff Clark<\/p>\n

\tReader Mailbag<\/h2>\n

\tFor today’s mailbag, we hear about another reader’s experience with the recent bearish SPY put trade…<\/em><\/p>\n

\n

\t\tI was a few days behind you getting in to the SPY put trade so the price was a little lower than on the day of the recommendation and I got in at $0.45. My usual threshold on bearish trades these days is between $250 and $500 so I bought seven contracts of the 256 put and then watched as the value kept declining as the pullback didn’t come. So by Tuesday I had decided that with expiration next week, I would give them until this Friday to “show their stuff.” When I saw the decline in futures starting last night, I knew I had a good chance to get out at a profit today.<\/p>\n

\t\tAnd so it happened. I sold the seven contracts within the first hour of trading for $0.67, representing almost a 50% gain against the cost basis. I did contemplate holding on to see if there would be further downward movement but with the reversal at 9:50 a.m. towards the upside, I figured this was going to be another one of those short dips.<\/p>\n

\t\tThis trade reinforced two ideas: One, the entry price is critical. It was only circumstance that led me to get in to this trade later and lower. Had I entered at the original recommendation, I would have only been at breakeven at the low point today. And second, a put does not have to go in the money to be profitable. In this case, the price bottomed about $257.50 – still $1.50 above the strike.<\/p>\n

\t\tThank you, as always, for your commentary and the education you provide. Since it was only seven contracts, the gain today was only about $150, but every little bit helps!<\/p>\n

\t\t–  Paul W.<\/strong><\/span><\/p>\n<\/blockquote>\n

\tIf you have any trading experiences you'd like to share, a question about option trading, or even a suggestion for the <\/em>Market Minute or<\/em> Delta Report, let us know right here<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

This email shows why diligence is key to turning a profit.<\/p>\n","protected":false},"author":28,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-5881","post","type-post","status-publish","format-standard","hentry","category-uncategorized","publication-market-minute","person-jeff-clark"],"acf":[],"ai_tts_audio_outdated":false,"ai_tts_legacy_post":false,"_links":{"self":[{"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/5881","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/28"}],"replies":[{"embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=5881"}],"version-history":[{"count":0,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/5881\/revisions"}],"wp:attachment":[{"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=5881"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=5881"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=5881"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=5881"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=5881"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=5881"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/stage.jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=5881"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}