Options Trading Insights: How to Trade a Bear Market

Transcript

Hey, everyone, how are you? John Napolitano here with you from Top Trading Pros. I hope everybody’s having a fantastic day.

Just wanted to introduce myself if you don’t know me already. My name is John Napolitano. I have been an institutional trader for well over 20 years.

I left that business to trade my own capital and I have partnered with Top Trading Pros to be their options instructor.So it is my duty and my work to make sure that the average person understands the options markets and knows how to navigate and trade them effectively. That is the number one thing that I do here.

So I hope you all enjoy my videos. The purpose of today’s video is obviously talking a little bit about what themarkets have been doing the last couple of weeks, which have been doing basically nothing but going down. I did anticipate a little bit of a sell off after the summer.

It’s pretty normal this time of year. By the way, for those of you who are new to the markets, October tends to be seasonally, one of the worst times of the market to trade. So if you’ve decided to trade this time for the first time, or if you’re kind of new to trading, this is a challenging time.

So just be aware of where you are in the markets. We are at pretty much where the highs were in the summertime.The Nasdaq was up well over 30%.

So a sell off was pretty understandable given those types of returns for the year. So how do you trade a market like this? One of the most important things if you want to learn how to trade options effectively, is to not only understand what being bullish and bearish means and when to go long or when to go short and stuff like that. But one of the most important things you have to understand when you’re trading options is volatility and what strategy to use at what times.

So at Top Trading Pros, one of the things we spend a lot of time doing, not only on these videos, but in our classesand our coaching, is we teach students what strategy to use at the right time. I see a lot of things on YouTube where they give you like one strategy or they send one thing into your inbox every week with a couple of trade ideas, which is great, but those strategies only work for a certain time period and then they don’t. Options are designed to allow you to use different tools at different times, so it’s important to understand how that works.

So I’m going to give you a quick example of a trade that I entered yesterday that’s doing fairly well. So let me show you really quick what’s going on here. There is a stock called Rivian.

It’s obviously a stock in the auto manufacturing space, in the EV space, and it competes against likes of Tesla. So it’s kind of a second tier name to begin with. When the market rolls over and things are going badly.

What I love to pick on are names that are kind of, I call them second tier names. So I talk a lot about in my coaching sessions with our students and with our traders, I talk about how to build an effective watch list from scratch. Thisway you don’t trade the same stuff every single week.

What you’re essentially doing is trade things that match what the market is doing in front of you. So in this case, with the market rolling over and with some of these high flying names also rolling over, rivian is particularly vulnerable in my opinion, because not only it’s a second tier name, it already started showing signs of weakness, as you can see back in July and August when the markets actually hadn’t sold off yet. So this kind of already started showing a little bit of relative weakness and that’s what I look for when I’m looking to do something on the bearish side.

So the point of this video is to show you how to make money when the market goes down. And one of the strategies that I look at is obviously put options when you’re looking to be bearish. But particularly what you want to do is a bear put spread when essentially what you’re doing is you’re allowing volatility to kind of do its thing when volatility is elevated, which is what we’re in right now, you can’t just do straight puts and that’s one of the things we teach our students.

You cannot do that because you’re paying too much for your premium. And you can tell by analyzing volatility and analyzing the behavior of the stock through its implied volatility. And these are all things you’ll learn if you spend some time with us, if you really have an interest in changing your life for the better and trading options either full or part time, you have to have some education, you have to have some coaching on top of that.

And that’s what we offer at Top Trading Pros. Not only do we have trade alerts and newsletters and stuff like that, that you can subscribe to, we also have coaching available as well. So please, when this video is over, like and share like and subscribe to our channel, but also check out our website at toptradingpros.com,

You have a lot of free content there. You’ll see exactly what we’re all about and what we offer. And you’ll see also a free ebook that you can download as well.

Okay, so there’s plenty of free content for you to get your feet wet, but I’m going to jump into this trade now. So if you look at this, it had a pretty major rally yesterday after an 8% sell off the day before. So it’s been kind of bouncing around quite a bit and to me that shows just a lot of uncertainty and like I said, it’s already kind of sold off a bit.

So that’s one of the things I like to look for. But keep in mind there is area of support here. And whenever you get a major kind of sell off in the market, you do sometimes get a pretty violent bounce to the upside before it rolls over a second time.

So what I do in a situation like this is I’ll put together a trade with a pretty conservative initial target of, let’s say 20. So this stock right now is at 21 56. I’m setting this trade up to basically just have a target of 20.

And then what I could do is reevaluate the trade at a later date and add more put options if I choose to and maybe pick a secondary target for 18 or 17 or something like that. So my initial target is around 20. And what I’ll do is I won’t just do simple put options.

I will buy the 22 and a half puts. And as you can see here, another thing I’ll do is I’ll go ahead and sell the 20 puts against it. And what that happens is I’m only spending about $0.90

For this trade. If you net those two out, because I’m buying in one and selling one, I’m getting a debit and a credit at the same time. I’m essentially only paying a net debit of $0.90

Or $90 for this trade. And if you look at the risk reward profile for something like this, if it hits my target, I’m going to get $160 for risking $90. Now that’s with no stop.

Obviously you can place stop and risk management, we talk about that in our classes as well, how to place a stop,what percentage of premium you’re willing to lose, and so on and so forth on the risk management side. But if you have a 50% stop, you’re risking essentially $45 to make $160. So these are the type of trades that I like to implementing these high volatility environments.

And the reason what I mean by high volatility, as you can see right here on the left hand side, it might be hard for you to see on the screen, but basically the implied volatility on this particular stock is well over 100% in some cases. Soto me, that is something you cannot just do straight puts on. And these are things that we teach our students how to put the right trades together at the right time.

So if that was to reach my target of $20, I would have a really nice two, two and a half to one reward to risk situation.On top of that, if I have some equity capital in the trade, I can set a secondary target by adding a straight put option after the fact, after I’ve already had some gains in the trade itself. So these are all little trades I like to show and put together.

And this is the stuff that we coach and teach our students on a weekly basis. So if you have any interest in learning this stuff, you don’t need a huge trading account to start trading options. You just need the right strategy at the righttime.

And you actually need proper coaching that will Help set you In The right Direction. So I Hope this video is helpful please like and subscribe this channel also check out our website at toptradingpros.com and I will see you guys very soon okay be careful out there and have A wonderful day bye.