Hi everyone. Today is going to be a little different, because not all of you have access to the Options Goddess community where I post rapid fire. Rapid fire is my mind exactly as things are happening, quickly, in real time. And what I talked about on Friday was a market that was selling off so hard and so fast that people were panicking. They were watching huge profits evaporate in front of them.
I want to add a few thoughts here. Why is this happening, and what am I actually doing when I see it happen. This is not financial advice, but I have been doing this a long time. I learned options early because my mentor handed me a book, the most boring book I ever read, and told me I would never be a great stockbroker if I did not learn how to trade options. Twenty eight years later, I can tell you he was right. I use options more than anything. They let me adjust positions, preserve capital, reduce risk, and enter the market with a little leverage while staying protected. They are a powerful tool, and that is why I talk about them here over and over.
So what is going on right now. On Friday the jobs report essentially put the brakes on any rate cuts in the very near future. Does that mean cuts are not coming? No. It just means they are not coming next month, or in the next 60 to 90 days. They are going to have to cut at some point. And what does that do to risk assets in the meantime? It sends them down.
So what do I do when I watch my risk assets fall? With my winning trades, I do not do much. I have already locked in profits using options. I sold some calls and I did some back flips, which are diagonals going backwards to lock in gains. I already maneuvered while things were strong. That is the whole point of staying ahead of the trade instead of reacting to it.
The trades that are underwater are a different story. That is where I start to pull levers. That is where I look at a position and say, I have a call here, let me improve it. And this is where the real work of a pullback begins.
How I Roll an Underwater Position
Let me put real numbers behind it. Say I own XYZ stock and it is trading at 120, and I am holding a 140 call. The first thing I need you to hear is the rule. I only roll LEAPS lower. I am not going to roll an option that is 60 days out, because there simply is not enough time for me to be right. So I go out to a December 2028 LEAP and I drop my strike down to better my position.
Maybe I sell my 140 call to close and I buy to open the 130 call. What is my rule of thumb on that? Thirty cents on the dollar. That is when I will step down and lower my basis, and I lower it as much as I can while it qualifies.
Here is the math. If I roll from the 140 down to the 130, that is a 10 dollar roll, so 30 cents on the dollar means I will pay up to 3 dollars to do it. If I can roll all the way from the 140 down to the 110, that is a 30 dollar roll, and 30 cents on the dollar would be 9 dollars. If I can get that 30 point drop for around 9 dollars, I will take it. The bigger the drop I can buy cheaply, the more I improve my position.
If I am holding a modified synthetic long, where I have sold a put spread underneath, I will take some of the credit from those puts to help offset the cost of rolling the call down. The put side funds the call side. Then I go to my entire portfolio and ask, what else can I do this on. This is the exact rolling repair routine I walked through step by step in MM46, so if you want the live numbers on a real position, go watch that one next.
Why You Cannot Do This On 20 Trades
This is why I keep telling people not to own 20 assets. You cannot efficiently pull levers on 20 trades at once. As you get better, start with three, then build to five. Paper trade and practice the mechanics. A market like this one is the perfect place to practice, because this is exactly when the skill matters.
Redeploying Into Strength: The Space X IPO
A pullback is not only about repairing. It is also about where the next money goes. I mentioned that many of us, myself included, took profit out of some of our AI plays to put toward the SpaceX IPO. So far it is oversubscribed by 12 times, and it could go higher, which means I will be lucky to get maybe 5 to 10 percent of what I originally wanted.
So what do I do with the money that does not get allocated? I put it back into my favorite stocks. I diversify. A pullback hands me cash and a discount at the same time.
Why I Am Looking At Silver
I talked about silver earlier in the week, and I know this community was surprised, because I have actually been in gold for a few years and I still hold most of it. Gold became a rather large position simply because of how much it appreciated. Now I am looking at silver. It is an industrial metal, and I am not doing a lot with it yet, but I did a one third position the other day. I entered it as a modified synthetic long because it has 3X to 4X to 5X potential over the next two years.
What will I do from here? I will wait for confirmation. I will either adjust my LEAP lower or put on my next third. Why am I comfortable saying that? Because this sector did not sell off on volume. The selling here is anemic. There is nothing behind it.
If you recall, I did a Market Minute a while back where I said if I owned silver I would be considering a collar. That was a different setup, a huge volume spike and a big drop, and yes, in that case I would hedge. This is the opposite. This is weakness with no volume, and that is where I start to get in. I use weakness like this to better myself for the future.
I Like Pullbacks, I Do Not Like Crash Days
Let me be clear about the difference. I like pullbacks. I do not like scary 20 and 30 percent down days. Nobody likes those. But when you have learned the mechanics and you have the right tools, you can take a day like Friday, and maybe a day like tomorrow, and start positioning yourself for your future trades instead of panicking through them.
When You Chased A Trade Up
Here is the other place a correction helps. If you are holding LEAPS on key positions that are underwater because you chased a trade up, this is your moment. People do this all the time, and I am not criticizing, I have seen it for years. Someone tells me they bought too high, they chased it, they were sure MicroStrategy was about to break out, so they grabbed it at the high, and now it has rolled over.
This is exactly where I take advantage of support levels. This is when I say, okay, I was wrong, I should not be looking up there anymore, I need to be looking down here. We are near support now. So I improve my position.
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How I Actually Use Corrections
This is how I use corrections. I use them to fix the portfolio. And how do I do it? By rolling based on my rules, 30 cents on the dollar. If I roll from the 140 call down to the 130, that is a 10 dollar roll, so I will pay 3 dollars. If I can go from the 140 all the way to the 110, a 30 dollar roll, and I can do it for 30 cents on the dollar, which is 9 dollars, I will do it.
I only do this on LEAPS. I am going to reiterate that, I only do this on LEAPS. And I only do it on stocks I still like, where the narrative has not changed. If the story is broken, that is a different conversation. But if I still believe in the company and the chart has simply pulled back, this is how I turn a scary day into an opportunity.
If this is where you are in your journey, this is the heart of Course 301, where we build synthetic longs and modified synthetic longs, and Course 302, where we get into rolling LEAPS lower, repairs, and capital preservation. For the live rolling mechanics, MM46 walks through it with real numbers, MM44 covers the silver and collar thinking, and MM38 shows how I lock in profits on the winners before a day like this even arrives.