Market Losses Shuffle Stock Leaders, Options


Simpler Trading Team

Feb 22nd 2022  .  3 min read

The recent round of earnings reports saw highs and lows that matched this seesaw, choppy market environment. All the action shuffled the leader boards across the indexes.

Tech darlings struggled in this latest shuffle while financials and energy sectors emerged with positive prospects. As traders should know, the market will do what it wants and this means Simpler’s team of traders work as hard as anyone to be on the right side of market movement.

Market continues shift in direction, momentum

As far back as October 2021, traders began to see momentum indicators beginning to shift. The move took some time, and in January of this year the market momentum shifted into the red on the chart indicators. Traders also saw the appearance of divergent bars that help identify potential shifts in price trend.

The appearance of back-to-back divergent bars can signal market consolidation. But, momentum levels are showing signs of exhaustion – and this could signal a pullback or chop. From a technical standpoint, this market could stand to take a pause.

Simpler’s traders keep selected strategies ready to roll for times when the market begins to sell off or chop.

Selloffs typically induce volatility into the market, which can make holding overnight trades tricky. This is why Simpler’s traders change their strategies from swing trades and introduce more intraday trades into their plans.

Volatility rough, yet can open up opportunities

Volatility creates a more ideal market environment for intraday trades.

Intraday trades using a profit-recycling strategy allow Simpler’s traders to work their setups without running up against the pattern day trading rules. Profit recycling strategy helps minimize risk while taking advantage of intraday moves without triggering a day trade.

With this market chopping along, what strategies do Simpler’s traders implement on pullbacks

Simpler’s traders include the broken wing butterfly strategy in bearish chop. A broken wing butterfly played to the downside helps limit risk for traders.

Broken wing butterfly strategy allows cushion

A butterfly spread is a neutral options strategy combining bull and bear spreads using options contracts with the same expiration, but different strike prices. This allows traders to create a range of prices to target potential profits.

A broken wing butterfly relies on the fact that the price of the underlying asset must move before a trader loses money. This strategy has a high forgiveness factor on a volatile move, helps keep risk smaller, and maintains potential for profit.

The broken wing butterfly also allows traders to save their day trades. Butterflies are cheaper than a directional trade while maintaining potential for gains.

When the market upsets the leader board, keep in mind there are possibilities in any market condition for traders who learn to work what the market gives.