{"id":7091,"date":"2017-11-17T07:30:02","date_gmt":"2017-11-17T12:30:02","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=7091"},"modified":"2017-11-17T07:30:02","modified_gmt":"2017-11-17T12:30:02","slug":"you-must-be-joking","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/you-must-be-joking\/","title":{"rendered":"You Must Be Joking\u2026"},"content":{"rendered":"

It\u2019s Mailbag Friday.<\/p>\n

Or, perhaps as we\u2019ll call it today, Missed Opportunity Friday.<\/p>\n

Before we get to it, though, let me first thank you \u2013 my dear readers \u2013 for all the terrific feedback you\u2019ve sent in over the past few weeks.<\/p>\n

I love trading the market and sharing my thoughts on it. But sometimes, it\u2019s a really tough job.<\/p>\n

Getting positive comments from you is one of the greatest perks \u2013 especially when I take a contrarian stance like being bearish on the broad stock market this month or buying retail stocks.<\/p>\n

Those positions were tough for anyone to stomach. But they\u2019ve been profitable. And I truly appreciate the stories you\u2019ve shared with me.<\/p>\n

Please continue to let me know how you\u2019re doing. I can\u2019t publish all of the comments. But I promise, I read every single one.<\/p>\n

For me\u2026 it\u2019s terrific motivation.<\/p>\n

On a somewhat less terrific angle\u2026 not everyone is entirely happy with me. You know that, of course, because I publish<\/a> a whole bunch<\/a> of negative commentary<\/a>.<\/p>\n

Some of it is unwarranted, because the subscribers don’t always follow the instructions in my recommendations. But it\u2019s the negative commentary that provides the opportunity for education. So, that\u2019s where I often focus the efforts of the Friday Mailbag.<\/p>\n

Please, please, please, keep telling me if you\u2019re profiting off of my advice. I love hearing that. It inspires me.<\/p>\n

And, if you\u2019re struggling with my recommendations, then please tell me that as well. Your comments give me a chance to clarify my trading strategies to all of our subscribers.<\/p>\n

With that in mind\u2026 here\u2019s today\u2019s mailbag\u2026<\/p>\n

Surprised that the weakness did NOT trigger a trade for us in HYG or JNK. This has always been a benchmark that you love to be short or outright purchase puts.<\/p>\n

That is what a very strong market that “never” goes down does to even experienced traders. Hard to pull the trigger for fear of a reversal.<\/p>\n

\u2013 Jeff J.<\/strong><\/span><\/p>\n<\/blockquote>\n

Thanks for writing in, Jeff. You\u2019re right. I did not recommend shorting the junk bond market despite my obvious bearishness towards the sector.<\/p>\n

But that\u2019s not because I was afraid of being wrong. Heck, I didn\u2019t have any problem recommending a couple of long trades in the retail sector recently. So, I don\u2019t fear taking a contrarian stance. My problem with buying puts on HYG was that they did not offer a strong risk\/reward setup.<\/p>\n

Believe me\u2026 in early November I was dying to recommend a put option trade on HYG. I was bearish on junk bonds. I wrote numerous posts<\/a> about my bearishness<\/a> in the Delta Direct<\/em> blog. And it certainly wasn\u2019t a secret<\/a> to anyone who reads the Market Minute<\/em> on a daily basis.<\/p>\n

The problem was, the put options on HYG were just too darn expensive to offer a good risk\/reward setup.<\/p>\n

In early November, when HYG was still trading above $88 per share, the November $88 put options were trading for more than $1.00. So, HYG needed to trade below $87 per share by option expiration day in November \u2013 that\u2019s today \u2013 for this option to be profitable.<\/p>\n

Since HYG doesn\u2019t move all that much, the $1.00 premium for the put option seemed expensive to me. So, I couldn\u2019t recommend the trade.<\/p>\n

On Wednesday, even with the steep selloff in junk bond prices, HYG closed at $86.68. The put options I referenced closed at $1.28.<\/p>\n

That\u2019s a good 28% return on the puts. But that\u2019s hardly worth risking the 100% loss on the trade.<\/p>\n

So, instead of recommending buying HYG puts, I told subscribers to buy put options in the S&P 500 ETF (SPY). My thinking was that weakness in junk bonds is a leading indicator for weakness in the stock market. So, as junk bonds sold off, stocks would follow suit.<\/p>\n

That\u2019s what happened \u2013 and we sold the SPY put options for a 42% profit. That\u2019s better than we would have done with the HYG puts.<\/p>\n

Here\u2019s my point\u2026<\/p>\n

It doesn\u2019t matter if you\u2019re right about being bullish or bearish on a sector. If the projected move isn\u2019t enough to overcome the premium paid for the option, then you have a poor risk\/reward setup. You won\u2019t make money over time buying into those situations. It\u2019s better to find an alternative trade.<\/p>\n

We found an alternative trade and profited well off of it.<\/p>\n

I\u2019ve pointed out the bearish pattern in the high-yield bond market for quite some time. But, I couldn\u2019t recommend a good bearish trade in the sector because the option premiums were too high to offer a good risk\/reward setup. So, I suggested puts on the S&P 500 instead.<\/p>\n

Frankly, I think the 42% return in less than one week was a pretty good result for that trade. But\u2026 oh my goodness\u2026 here\u2019s what I got in my email on Wednesday\u2026<\/p>\n

We jumped out of SPY puts and now we\u2019ve got nothing.<\/p>\n

\u2013 Andy V.<\/strong><\/span><\/p>\n<\/blockquote>\n

Folks, I laughed when I got this. I really thought the subscriber was joking.<\/p>\n

The puts I recommended buying on November 3, and recommended selling for a 42% profit six days later, closed yesterday for less than the original purchase price. In other words, if you were still holding the put options I recommended, then you would be losing money on the trade today. You can\u2019t possibly be disappointed that we sold them for a profit.<\/p>\n

So\u2026 I\u2019m guessing this person is \u201cpunking\u201d me. It has to be a joke.<\/p>\n

But, even in humor, there is a lesson here\u2026<\/p>\n

When you are buying options, you must be diligent about locking in profits. Options are decaying assets. They lose value over time. So, if you want to be successful trading them, then you have to consistently take profits as they occur.<\/p>\n

Holding out for the highest profitable profit on an option trade is a losing strategy.<\/p>\n

Yes\u2026 my goodness\u2026 I have often looked back at some of my option trades and wished I had held them a while longer. But nobody has ever gone broke taking a profit.<\/p>\n

So, if you\u2019re looking to trade options for profits over the long term, you are going to do SO MUCH BETTER simply by taking consistent profits on option positions than by holding each trade for the maximum possible profit.<\/p>\n

My recommendations will always be focused on long-term success in the options market. You\u2019re not going to get rich overnight by trading options. That\u2019s a terrific dream. But it\u2019s not going to come true.<\/p>\n

I want you to be successful and to make money over time. In order to do that, we have to look for low-risk\/high-probability setups. And we have to diligently take profits as they occur.<\/p>\n

Believe me\u2026 I heard from plenty of folks who were underwater on my recent recommendations on bullish trades for Dick\u2019s Sporting Goods (DKS), Macy\u2019s (M), and Brinker International (EATS). But all of those trades are solidly profitable today.<\/p>\n

That\u2019s the result of trading low-risk\/high-probability setups. And that\u2019s how you\u2019re going to make money trading this market over the long term.<\/p>\n

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

<\/div>\n

Jeff Clark<\/p>\n

P.S. <\/strong>These strategies are what make the Delta Report<\/em> so profitable for my readers, week in and week out. They\u2019re the product of over 30 years of option-trading experience.<\/p>\n

But there was one day\u2026 March 2, 2000\u2026 where I learned the secret that\u2019s at the core of the Delta Report<\/em> philosophy. Click here to hear my story.<\/a><\/p>\n

Reader Mailbag<\/h2>\n

In today\u2019s mailbag, readers give their thoughts on yesterday\u2019s <\/em>Minute, \u201cHow Other Newsletters Steer You Wrong<\/a>\u201d\u2026<\/em><\/p>\n

This is a no-brainer.\u00a0Was an NAZ market maker and you are 100% correct!<\/p>\n

\u2013 Jeff W.<\/strong><\/span><\/p>\n<\/blockquote>\n

Thanks, Jeff, for the explanation of this week\u2019s recommendation, I always imagine something like that as I was cut out on so many opportunities of a lower entry point.<\/p>\n

I find that you are one of the 5% that know something about what you say, and not one of the 95% of the parrots that reread others\u2019 work just to make a buck. Thanks again.<\/p>\n

\u2013 Curtis J.<\/strong><\/strong><\/span><\/p>\n<\/blockquote>\n

And a couple updates from <\/em>Delta Report subscribers\u2026<\/em><\/p>\n

Way to go on the DKS put trade, Jeff. I was holding my breath on that one.<\/p>\n

Don’t let the complainers get you down. I consider every trade a chance for me to accept or not, so I don’t blame you on anything. But overall, I value your service more than other long-term focused letters simply because so much can happen in the long term that I don’t trust anything long-term right now.<\/p>\n

\u2013 Gary W.<\/strong><\/span><\/p>\n<\/blockquote>\n

Jeff, FYI. Sold puts on BBBY, M, TEVA, and DKS yesterday. All are profitable. Covered the DKS as you recommended \u2013 but this may be a real bottom for DKS heading into the end of the year. All holding up well, despite TGT.<\/p>\n

\u2013 John W.<\/strong><\/span><\/p>\n<\/blockquote>\n

As always, you can send in your thoughts\u2026 and any other questions or suggestions\u2026 right here<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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