MM47 - Capitalizing on a Pullback
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.