SPY Great risk reward trades

How to Find Great Risk Reward Options Trading Ideas

This article teaches you how the Top traders in the world go from a nascent thought to options trading idea in minutes. It highlights a specific trade that gave the OptionsGeek community a huge win. I'll reveal what triggered the idea; What Puts we bought; Which strike we chose; Why we chose it; and how much money there was for the taking. Then I’m going to show you exactly how you can do it yourself!

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Global Markets were volatile this week coinciding with growing concern around the Coronavirus pandemic and the effect on the World Economy. The S&P 500 "crashed" 15%, while global losses hit a staggering $6 Trillion. 

That said, one very specific technical set-up last Friday inside this backdrop of growing negative macro news provided the signal I needed to jump on a great risk-reward trade.

In fact, it gave me the opportunity to make a real-time market call to buy SPY (S&P 500 ETF) Puts in front of the Crash. This trade produced incredible profits for the OptionsGeek community as the options rose more than 2,100% by this Friday's close.

Let’s start at the beginning...

Friday, February 21, 2020

High Prob Trade SPY

First, it’s important to point out that Thursday showed some weakness. A very sharp move lower (1) in the morning woke people up, only to put most investors back at ease when the market regained most of the losses by the close. (2)

Friday morning saw another sharp drop right back through the previous day’s lows. (3) It found some support at $333.00, but this time it couldn’t get back through the $334.50-335.50 range, (4) which had now become resistance. 

While this showed weakness, the following two charts really caught my eye…

High Prob Trade MSFT
High Prob Trade AAPL

MSFT and AAPL were both getting hit hard that day. Each was down more than 3%, while the SPY was only down 1%.

Oftentimes, we get caught up in a small window of time. “Opening” up the chart allows us to gain a different perspective. So, I re-opened the SPY chart, but this time, I gave myself a 6-month view. 

And this is what I saw:

SPY chart strong

While it looks like a very strong market, I saw tremendous weakness. MSFT and AAPL were just the cracks. But on this chart, there is a very clear warning sign showing imminent danger. Put simply, it looked to me like the dam was about to break. 

So, what did I see?

The Technical Set-Up That Signaled Danger

As soon as the SPY 6-month chart opened up, I immediately perked up in my seat. The AAPL and MSFT charts took on new meaning. It started to feel more and more like the tipping point, so I needed to warn the OptionsGeek community.

Here’s the quick email I sent to Free Members on February 21st at 2:33PM:

Time stamp of trade
SPY MACD diversion

SPY

This is what you call a MACD Diversion.

In late January, we had a HIGH PRICE and HIGH MACD.
Now in February, we hit an even HIGHER PRICE but a LOWER MACD.

This is troubling.
You have been warned.

Best,
Felix

Admittedly, this email feels a little rushed. It was! 

I needed to act quickly. There was very little time to waste.

The Options Trading Idea

The SPY was making lower highs and establishing strong resistance levels. The leaders that took this market higher over the last 6 months, including AAPL and MSFT, were very weak. This MACD diversion was screaming "Trouble!"

In my mind, the probability of a market crash was climbing with every minute and I could see that the options market wasn’t pricing in the risk yet. 

I wanted to get an options trading idea to my OptionsGeek Premium members. 13 minutes later at 2:46PM, they received this: Buy SPY March 2nd $330 Puts for $2.00.  

Time stamp of trade

SPY March 2nd $330 Puts $2.00.

I want these on.
That MACD Diversion is dangerous.
Could see a Monday collapse.
And I am choosing the following Monday because weird things happen at the end of the month. 

If you only want to do half so you don't get stopped out, then do that, it's ok.

We are not going to be sitting ducks when this turns.
It could be violent. I think $115 [sic] is possible quickly.

Best,
Felix

The Toughest Question in Options

Now, the question you should have is how did I pick that option? More specifically, how do you pick a strike that maximizes the potential of your idea?

Let me be clear… this is the toughest question in options. And knowing the answer is what separates the experts from the wannabe experts.

To pick the option, I used the New Options Chain. It's a tool I built that thinks exactly like the Top 1% of investors. I'm talking about Hedge Fund Managers Steven Cohen, Carl Icahn, and George Soros just to name a few.

I know how they think because I’ve spent my whole career dealing with, advising, and trading against them. 

The New Options Chain takes out all the guesswork and options analysis that needs to be done.

It simply needs your idea.

Options Trading Ideas Made Easier

My ideas was simple.

From what I described above, I thought the SPY was going lower. I wanted to give myself time and also wanted to buy an “event.” How much time?

I consider the turn of the month an event, because on occasion you get some wild movement in that short time frame.

So I decided on Monday, March 2nd.

Now, when dealing with options, thinking that the market could go lower isn’t good enough. I needed a Target Stock Price and chose $321 to start. It happened to be near the low on that late-January dip.

Spy chart with Target

Finally, I needed a confidence level. How confident was I in this trade? I liked this set-up a lot. It was a high confidence set-up I look for in trending markets. The coronavirus scare in the background along with the weakness in the market leaders made this idea even more compelling.

HPT SPY Options Trade

I entered my thoughts:

  • March 2nd (1)
  • $321 Target Stock Price (2)
  • And a Confidence level of 85% (3)

The New Options Chain pointed to the $330 Puts. (4) That’s the exact options trading idea that would give me the Best Risk Reward on my money.

And it did!

CNBC Market Crash

That SPY Put Option went from $2.00 to $1.80 to almost $44.50.
That’s over 2,100%... In. A. Week!

But we didn’t stop there. We caught 2 more trades last week that reached 176% and 100% returns. 

High Prob Trades Data

How to Find the Next Big Options Trading Idea

I went from a quick idea to the right options play in only a few minutes. As you can see, the options process was rather simple. Input my thoughts into the New Options Chain and the machine spits out an answer.

No Greeks, No Implied Volatility. (Imagine that!)

At OptionsGeek, I teach risk-reward. Specifically, how to think like the Top 1% and use options to “shift the odds in your favor.” I know you’ve heard that statement before, but no one ever teaches you exactly how to do it.

You'll learn that later in 3 Steps to Profit, a world class options education for any investor looking to gain an advantage. 

OptionsGeek Products

Now, I also realize many people don't have the time to commit to finding their own Options Trading Ideas. That's why I created Winning Picks, where I do it for you. If that is more your speed, then check out the details HERE. As a member, you will get 2-4 Options Trading Ideas every week and clear instructions on how to play them. The results have been fantastic (although now I have to tell you that past results are not an indication of future performance).

My Mission

Right now, I want you to spend a few minutes looking at what's inside the Free Membership Area. You'll find courses, ebooks, interviews, quizzes, trading ideas and much more. It's loaded with information that will help you decide whether or not you trust me as your guide. 

In closing...

I am disrupting the Options Industry by making it fun, exciting, and SIMPLE.

I'm doing that with new, easy-to-understand concepts; a game-changing tool that’s helping every stock trader gain the confidence needed to trade options; and high probability Options Trading Ideas that are catching the big moves.

My goal is to show one million investors what Options Education & Trading was supposed to look like.

And I can’t do it without you.
Join me.

About the Author Felix Frey

As a Wall Street Veteran, Options Expert, and founder of OptionsGeek, Felix has found a way to simplify options. He's on a mission to close the knowledge gap between the Top 1% and everyone else.

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