Well…that went down quickly. 

Today I don’t want to go through the clean and dirty lists, as probably every chart is gonna look similar. Instead, I want to do some group therapy and talk about what happened last week, how are we feeling and most importantly how do we go from here. I will share with you my personal “check list” of things I try to do, or not to, after a little market meltdown. This list has helped me keep focused and avoid doing some dangerous mistakes in market conditions like the current one. It is not other thing than a combination of the various concepts we’ve covered in the blogs through this year, as I feel like in times like this we need to refresh the ideas, be focused and plan more than trade. Let’s get into it.  

 First and most important, I hope you didn’t lose all your money. Naturally, you probably lost some as we all did, unless you had a purely bearish biased portfolio which would be strange given the bullishness of the market until two weeks ago. But if you followed your rules (mostly position size and exits), and you were hedged or added hedging last week, you probably controlled your loses. I personally lost some more than what I planned to, but not with the Environmental Hedging system though. I exited most of my short-term positions and currently have only three from this system. I have issued a naked-put for SPWR with the objective of getting assigned, as below $7 I am a buyer any day of the week. So just a couple of contracts and let the rest happen. Same with AMD, I have one naked-put currently slightly ITM and collared, premium is too good so with the premium for both NP and CC (collar) I would reduce the break-even price significantly. Finally, I still hold a bull-put on TSLA at $230-$220, and it keeps me a little nervous honestly. If it breaks below $250, I’m automatically out. Otherwise, it will expire worthless at the end of this week right before earnings. This position is partially hedged with a bear-call above $1700. 

Other than that, I am sitting in the sidelines right now. And the question we all have is, how do we go from here? How do we recover and get back in our feet? What do we do? Well, lucky you I learnt a couple of lessons during the last market correction (February 2018) that I translated into a “check list”. Unfortunately, I came up with this list not from the theory by from the experience…believe me it was a painful list to draft. These simple tips helped me out last time and hopefully this one as well. Check it out: 

1) DON’T get frustrated. 

This is not the first nor the last market correction you’ll go through. Let’s be honest, the market has been pretty loyal this year with only two down moves. Now, this one is not over yet or at least we don’t know. But we gotta change the chip and focus on what’s next instead of last week. Embrace the idea that you will face corrections and losing trades, and that’s part of the game. And if you are pissed off is probably because you broke one or two rules so just learn from that and move on. 

2) DON’T try to recover the loses right away.  

This one is a classic…Oh, dang, I just lost this trade on X but now is even further down and premium is double, so I’ll just do a deeper OTM naked put and recover my loss…WROOONG. Remember we’re not in a casino here. We are in the market to make money in the long run. Moreover, don’t you dare to try to recover the money you lost in a trade with the exact same trade. Go take a walk, get a coffee, come back and look at the chart. Is it giving you a good set-up for that trade you have in mind? Probably not yet, so don’t do it…Pride is a trader’s enemy, remember that.  

3) DON’T overtrade.  

Ok, let’s admit it. We (premium sellers) are a little bit overexcited the current options prices. “23% ROI for a 30 days out, 0.20 delta naked put on X???” Yes, but easy boy…remember that there is a reason why premium is that high, don’t let me market fool you. The reason is risk. So let the dust settle for a bit. 

4) DON’T keep thinking about the “what if”… 

“what if I had only bought that put last month”, “what if I had only taken those profits earlier”, “what if I had only diversified better with bullish and bear trades”…I hate to break it to you, but those “WHAT IF” ain’t getting your money back. So stop regretting, write down what you did wrong, learn from it and move on. Also, there are a bunch of “what if” that could show you that your loses could have been way way bigger as well. I bet you don’t spend time thinking about those, uh? Again, no regrets…we can’t change the bad trades from last two weeks. It’s only a bad trade if we don’t learn from them. Move on.   

5) Be PATIENT… more than usual.  

This one is a well-known rule, but it’s especially important with corrections. The issue with some traders is the F.O.M.O. (no, it’s not a typo, I did not mean MO-FO :P). That’s Fear Of Missing Out…”OMG, what if the market turns back up and I miss the opportunity and then is too late to jump in”. That, my friends, is a non-sense. Market just fell about 7% and we don’t know if it’s over yet. But rest assured that once it turns back up, it has a long way to go so don’t rush it. And remember, patience doesn’t mean slow. You can be patience but very alert, so when we see the opportunity and some confirmations, we jump right back at it. Be a tiger in a hunting position. 

6) Look at the BIG PICTURE.  

Yes, I know, you look at your P&L and you see red. Look at the daily chart…red. Twitter…the end of the word. The news…we’re back to 1930. It is important to take the time to analyze the situation and avoid losing sight of what is going on here. Regardless of how painful last week was, honestly…it was not that bad. Yes, it was a very significant move when we compare it with what we’ve seen the last two years. But look at the weekly chart of the SPX, for example. It doesn’t seem like the end of the world to me, does it? If anything, I would say this looks potentially like an amazing opportunity in a solid bullish trade. Upon confirmation this could end up being just a nice breath-taker for the market before running back up. So don’t let one tree cover the entire forest. Stay tuned with the Tackle Team and start always at the top of the market. 

 

7) Stick to your RULES 

I know this is relevant, but one thing is to be over-leveraged and over-position sized when the market is moving 0.5% a week, and when it’s moving 7% a week. Be very professional and strict with your rules. 

 

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Final Thoughts 

Like I mentioned earlier, I personally thing this a mere correction. A little deeper than what we are used to, but a correction anyways. But the market actually doesn’t care what I think, nor you should…all we have to do is be very careful this week, don’t lose money, and pile some cash in your account. Because if this is indeed a correction, I see great opportunities ahead. Maybe the best ones we’ve seen this year so far. And if this is not just a correction and we are actually finally getting some cold water from the shower…well, in that case the, if we survive, the opportunities will be even bigger after that. 

Stay tuned to the TT community, half-time reports, and all the amazing information available for us so we surf this market wave as smoothly as possible. I hope that during the next blog, the market has calmed down and we have plenty of picks to trade towards the end of the year. 

P.S: do you know who couldn’t care less about the market? My Kales 🌱. They look amazing, some pics and videos coming up next week. 

Cheers, 

Franco.