11 Minute Read

Options Theory: How I Deal with Gaps that Steal My Entry

October 4, 2018

By | 3 Comments

Options Theory: How I Deal with Gaps that Steal My Entry

It’s the weekend. You’ve scoured the Options Report, found your favorite setups to trade for the next week. You’ve set your alerts or entry orders, Monday arrives and BAM! the market gaps higher right out of the gate robbing you of the ideal entry.

Like a pirate.

“Boo! C’mon Mr. Market. Why you gotta hate like that?”

I feel your pain and have noticed a few of the comments in the Clubhouse regarding these pesky gaps. DIA, BA, CAT, CMI, AXP, and NVDA were all perpetrators this week. So what’s the solution?

My semi-sarcastic answer is to enter on Friday, the day before it gaps. But then you’ll come back to me with the obvious remark that nobody can predict the day it’s going to gap. So I won’t say enter on Friday;)

Before I divulge how I would deal with this situation, let me say that every single entry technique or trick has tradeoffs and you won’t find one that doesn’t leave you high and dry from time to time. So I think it best not to stress about missing the occasional trade. Opportunities are like Uber drives in the city. There’s always another one around the corner.

The inescapable tradeoff for varying entry techniques is as follows:

Do you want more confirmation and a worse price or less confirmation and a better price?

I prefer the latter. Take the setup in CAT for example. Would you have entered a bull trade last Friday or would you have waited for Monday when it rallied above the prior day’s high?

I deployed my trade on Friday because one of my trigger techniques is to enter when the stock breaks above intraday resistance. And, well, CAT broke above intraday resistance and closed near the high of the day with a bullish hammer candle. This tactic often gets me in quicker than waiting for the daily chart to pop above the prior day’s high. The sacrifice I’m making, of course, is a higher risk of entering a trade prematurely.

I could argue that you could have entered BA and DIA on Friday as well. Honestly, I wouldn’t have minded entering AXP and CMI as well with anticipatory entries.

Here’s why I’m a little more relaxed about my entry points: because I scale-in. I have two or three chances of nailing the entry. Most new traders only have one. And because they buy all at once, they obsess about the entry, fretting about whether they are too early or too late. I prefer to enter on the day I think it’s turning – EVEN IF IT HASN’T NECESSARILY GONE ABOVE THE PRIOR DAY’S HIGH. The upside is I’m already in if it gaps higher the next day. The downside is I sometimes get tricked in early and have to then sit through some pain before the stock finally moves in the right direction.

And, here’s the most critical part, I’m okay with that trade-off. I’m comfortable with it and am willing to accept the ramifications of my technique.

Once you develop a full understanding of scaling and sound management techniques, your worries about perfect entry points will diminish. It’s still important to identify quality setups and the closer you are to the eventual turn in the stock the better. Nonetheless, entering with multiple tiers doubles or triples your chances of playing the pattern successfully.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

The Options Theory series is brought to you by Tackle Trading.

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.

Sign up now for a 15-DAY FREE TRIAL #


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

3 Replies to “Options Theory: How I Deal with Gaps that Steal My Entry”

  1. Avatar FERNANDORODRIGUEZ says:

    Great article Tyler. I was one of the “victims” of the market gap up this Monday.
    I missed a few ones, but was able to get later and I felt OK with my compromise between confirmation and price.
    And certainly, having more than one opportunity (scaling in) helpmed me a lot.

  2. KarlHoffmann KarlHoffmann says:

    Great article Tyler, i read this after my short trades on ABBV and BDX gapped outside of my entry!

Leave a Reply

Chart Modal

Tackle Trading