The Perfect Setups

2021-01-25 | Allison Ostrander

2020 was a crazy year for the market. We saw the most dramatic monthly range that SPX has ever seen. We saw choppiness as the market was unsure which way it would continue to head during the pandemic year. Then we saw a strong recovery bringing us back to new all time highs. Moves that used to take 5-10 years for the movement and range to occur, happened within less than a year.

For many traders, it was a year to test their accounts and their sanity. Many traders, both new and experienced, were asking when is the best time to jump back into this market. Where should I look to go long? The other question of course is, what should I buy? I had this question come up quite a bit in my life, and as a technical trader, I look to the charts for that guidance.

Last year there were some technicals that popped up showing when to buy back in, and if you did and held, you found 2020 to be a great year. There were also some individual symbols that gave excellent buy back in symbols. When everything lines up on my charts to create these signals, I call them “The Perfect Setups” because it is the perfect time to jump into the trade. Last year, TSLA had this perfect setup on the Weekly Time Frame. If you were an Options Gold Room member, then you heard me talk about this entry like a broken record.

TSLA Weekly ATR switch

When you have all the technicals in line screaming “BUY” or “SELL” it’s time to start putting your capital in use. This, to me, doesn’t mean to bet the whole account. I am still very mindful of my risk as a trader, I don’t want to blow out my account. However, it does mean I start with my full risk tolerance. If you have a larger account, you could consider jumping into shares or leap calls. These strategies will leave you with that unlimited profit potential and the time to hold for the continuation of the move. However, not all of us trade large accounts. So how do you take advantage of this move in a smaller account? When I’m trading smaller accounts, I look at trades that are low risk vs high reward. Where going in with my full risk tolerance at the start of the trade can lead to gains with over 100% return on risk.


Instead of Buying and holding for the move, which itself would have created huge profits, I pivoted to smaller trades, but multiple of them throughout the bullish trend. This allowed me to stay within my Risk tolerance, and trade within my smaller capital accounts, while still allowing myself to take part in some of the big wins. This was done by taking advantage of the Butterfly Strategies. By using these strategies and compounding on them, I was able to stay with low risk, high reward trades, and oftentimes was in and out in a day -no more than a week and a half.


The Standard Butterfly Strategy is a low risk trade that is a combination of the Vertical Debit Spread and Vertical Credit Spread that share the same spread width, short strike, and expiration. The Standard Butterfly is a great strategy to learn because you can lose on both sides of the trade, so it allows you to hold a very small capital risk, but a very strong profit potential. Once you understand the Standard Butterfly strategy, you can then build from that knowledge to learn about more non traditional butterfly strategies, like the Unbalanced Butterfly, or the Broken Wing Butterfly. Having tools like these in your trading toolbox can be a great way to control your risk, grow smaller accounts, and still allow for profit potentials above 100% return. They can also be very forgiving trades, which with the market that we had last year, is not a bad arsenal to know.

Going into 2021, keep your eye out for these Perfect Setups in your account. If you have a large account that can hold shares on long far out calls, look to buy and hold. If you have a smaller account, however, consider taking a look at adding Butterflies to your toolbox. They can allow for those great profit potentials while still being low risk and sometimes a forgiving strategy to use.