Lessons from my biggest options trade

Hey, Jay Bond here. I hope you’re Saturday is going great.

Here’s my biggest win so far and exactly why it worked.

Stock option prices fluctuate based on volatility. 

1. Low volatility = cheap options

2. High volatility = expensive options

Think like Geico.

1. Good driver = cheap car insurance

2. Bad driver = expensive car insurance

But how do we know if the volatility is very low on a stock?

Green Bollinger Bands within black Keltner Channels is very low volatility.

Option prices rise as the Bollinger Bands expand outside the Keltner Channels.

When the squeeze fires it’ll often run for as many days as it was on the LOW ROAD. 

So in this case, volatility was low for 20 days. 

20 days on the LOW ROAD between the two black circles. 

The squeeze fired long in the middle of October.

As the price action climbs the risk of a pullback goes up and with it, volatility. 

The higher the stock price goes, the higher the volatility goes.

This creates very expensive on the HIGH ROAD. 

Make sense so far? 

Accumulate LOW ROAD or cheap option prices during the squeeze.

If the squeeze fires long, volatility will rise and sell at higher prices.

1. Low road → squeeze → cheap options = buy

2. High road → squeeze fires → volatility rises → expensive options = sell

Breakouts will last about as long as the accumulation phase on the LOW ROAD.

Which is how I hit my biggest win ever. 

On day 14 of the breakout I started buying put options on TSLA. This means I’m looking for a sharp pullback or reversion to the mean. More on mean reversion in a moment. 

Now for mean reversion. 

The TSLA squeeze fired long after 20 days on the LOW ROAD.

As it approached day 20 Keltner Channels showed me it was overbought.

See how it climbed higher than +5 Average True Range (ATR)?

See the overbought RSI above 70?

An overbought stock is like a lifeboat with too many passengers in it. The lifeboat will dump, then right itself. In stocks we call this reversion to the mean or purple dotted line. 

I started buying put options which go up in price if the stock price falls or experiences mean reversion. 

That weekend I got the catalyst I needed. 

I took profit on the mean reversion. My biggest win of my career.

Summary.

LOW ROAD = stock is in an uptrend and the Bollinger Bands go inside the Keltner Channels I want to buy cheap options. We call this consolidation phase a squeeze. As the squeeze fires I want to start selling for profit using Fibonacci extensions to plot my exits.

HIGH ROAD = as I offload my call options into the breakout I want to be cognizant of any supernova moves. If a stock gets too far from the mean e.g. +4 to +5 ATR, I can go short by buying put options and selling call spreads. Reversion to the mean sets in the put options will swell in price and I collect the time decay from the call options. 

These are a few of the strategies I’ll be teaching you in my ROADMAP service.

» Annual subscriptions SAVE $589 «

I alert my real money option trades to your smartphone moments BEFORE I buy and sell them. 

Jay

P.S. now do you see why I alerted ROADMAP subscribers, then bought put options on COIN Friday?

Anything look familiar? 

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