Trading Insights
Bearish IWM UOA Following Massive Head & Shoulders Pattern
Following a massive whale trade is great. When it matches up with several technical patterns and trends, that’s even better.
Happy Friday Rebels! This week’s free piece of UOA is actually my favorite in a while. It aligns cleanly with what I’ve been saying since the beginning of August, and it corresponds with a massive head & shoulders — I love when the technicals align with the UOA. Today’s UOA is in bearish IWM put spreads expiring October 6th, 14 days from now. Here’s the trade breakdown:
TICKER: IWM
QUANTITY: 7,081
TYPE: PUT SPREAD
STRIKE(S): Long $171, Short $165
COST(S): Long $171 Put = $0.74, Short $165 Put = $0.23, Total Cost = $0.51 Per Spread
MAX VALUE: $6.00, Max Profit = $5.49 (Possible Gain of 1076.47%)
For those who don’t know, you can build a put debit spread by purchasing a put option, and then, at the same expiration, simultaneously selling another put option at a lower, further OTM strike. In this instance, the trader caps their maximum gain at $165 (meaning any price action below $165 will leave the trade unchanged from that level), but in turn, reduces their cost by -31%.
As I mentioned above, one of the biggest reasons I love this UOA spread is because it corresponds with a massive bearish head and shoulders pattern in the IWM.
But another reason I really love this UOA is because it also corresponds with an extremely weak period in the market broadly speaking — the end of September. The two weeks following September Op-Ex (which we are smack-dab in the middle of currently) are statistically the worst-performing two weeks of the trading year. The first half of October usually isn’t great either, with the majority of October’s average gains usually coming during the latter half around the kickoff of earnings season.
For these reasons, as well as the fact that this UOA offers an incredible risk-reward for a relatively small move in the IWM, this “smart money” move really excites me. (It’s relatively atypical to find a buyer looking for a potential r/r of >1000% in 14 days in UOA like this.)
As a final note, for those who aren’t able to enter spreads, or who are only planning to piggyback on this trade for a short period of time (1-3 days), you could use simply the $171 puts for $0.74, which could benefit more from snappy moves in the price action, and also benefit more from increased volatility than their debit spread counterparts (downside moves often lead to an increase in volatility, after all). In other words, if the fact that this trade is a spread is scaring you, it doesn’t really have to be in this instance.
This is the most important part
As with all of our UOA, the most important thing to ensure is that you’re comfortable enough trading to take on this task. Options can be risky no matter how many catalysts you feel are in your favor, and even the best traders in the world have the potential to be wrong. That’s why it’s key to practice, practice, practice before you decide to take the plunge.
Practice trading — you can find free options paper trading platforms across the web. We aren’t affiliated with them, but Thinkorswim offers a free options paper trading platform that uses real market data and real options chains.
Practice your discipline — whether you’re making a paper trade or a real one, don’t be afraid to take profits off the table. This is possibly the biggest trait that separates professional traders from the rest of the pack. Usually, the best traders know exactly how much they’re looking to make before they even enter a trade. Knowing this ahead of time helps take emotions out of the equation.
And equally as important, practice knowing when to fold — that means knowing when it’s time to throw in the towel if your trade isn’t working out. As a general rule of thumb, Market Rebellion co-founder Jon Najarian has said he likes to take profit or roll at 100% profit (meaning your position has doubled in value from when you bought it), and likewise, Jon likes to cut his losses and exit the position if it loses 50% of its value (meaning your position gets cut in half relative to where you entered).
Practicing these forms of trading discipline will help you to make more informed trading decisions, and they’re the backbone to our motto — trade smarter.
Good luck out there Rebels.
PS: Interested in getting more UOA insights, complete with full trade ideas and technical analysis every week? Try a month of UOA Essential below.
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UOA Essential
- 1 Primary Trade Idea + Bonus Trades Per Week
- 1 LIVE Weekly Webinar
- Member Forum
- Weekly Newsletter
- Pete Najarian's UOA Playbook
- VIP Friday Virtual Cocktail Hour
See Terms of Use for details.
UOA Pro
- 10+ Trade Ideas Per Week
- 3 LIVE Weekly Webinars
- LIVE Q&A Session With Lead Instructor Bill Johnson
- Q&A Sessions
- PLUS All Essential Features
Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.
UOA Essential
$
995
/year
Billed Annually at $995
- 1 Primary Trade Idea + Bonus Trades Per Week
- 1 LIVE Weekly Webinar
- Member Forum
- Weekly Newsletter
- Pete Najarian's UOA Playbook
- VIP Friday Virtual Cocktail Hour
- SAVE 58% Annually
Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.
UOA Pro
$
3,495
/year
Billed Annually at $3,495
- 10+ Trade Ideas Per Week
- 3 LIVE Weekly Webinars
- LIVE Q&A Session With Lead Instructor Bill Johnson
- Q&A Sessions
- PLUS All Essential Features
Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.
UOA Essential
- 1 Primary Trade Idea + Bonus Trades Per Week
- 1 LIVE Weekly Webinar
- Member Forum
- Weekly Newsletter
- Pete Najarian's UOA Playbook
- VIP Friday Virtual Cocktail Hour
- SAVE 58% Annually
Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.
UOA Pro
- 10+ Trade Ideas Per Week
- 3 LIVE Weekly Webinars
- LIVE Q&A Session With Lead Instructor Bill Johnson
- Q&A Sessions
- PLUS All Essential Features
Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.