Explosive moves this week.

Weekly Plan 10.27.24

Hi traders-

This is going to be an important one, you do not wanna miss this, especially if you are super new to the game. As always, remember I am sharing my personal views. This is not a call to action in any form or shape, but I am sharing my journey as a personal blog.

I wanna kick off the post with where I see the role of different markets in overall scheme of things. One thing I have learned over the years, is that every market type has a role to play in a trader’s life. If you are super interested in how the markets work, like I am, you want to be active, whether it’s the stocks, or futures or options. If you are really not interested at a basic level, if you don’t treat markets as play but as odious work rather, I think it is better to stick with the ETFs, HODL them, and forget that you HODL them for a long-long time.

For those of us who are genuinely interested, and consider this as play rather than work, the first step is to understand what each and every market type is for.

Now as far as the stocks go, my views have crystallized over the years that I wanna buy stocks and hold on to them for a long-long time. If I am fully loaded, I have a 7 figure account, long term stock ownership, when bought at decent price levels can be a great way to increase my wealth over a long period of time- I personally think holding stocks for small and minor moves is counter productive and only enriches your broker.

Now as far as the futures go, I consider the futures to be extremely well suited for one purpose- making a living. With futures, based on my experience, even with a small account, one can make a living provided they know what they are doing. This is due to the leverage. Same kind of thing applies to forex too. I feel the same way about forex. These markets potentially can be excellent for making a living for a very experienced trader IMO.

Now as far as the options go, specifically when it comes to the options buying, rather than selling, I personally know a couple of folks who make a living, but in my experience that is far and few. I consider the options as purely speculative. The best part about options is that unlike the futures, I am not gonna worry about stop loss. If I am long a call or a put, I expect it to go to 0. I am specifically looking for an event to occur that no one has thought of. It is so unlikely that the options can go up in value 10X-20X (2000%) within a matter of days. This is what happened with those TSLA options I shared last Sunday. Even some of the November 1 CALLS now are up from $2 to $25 at time of this post with a week to expiry. The MM were selling these calls for 1-2 dollars, despite knowing that TSLA can move 10% on earnings day. These are the type of asymmetric opportunities you wanna be looking for at all times. This does not come about every day though. For instance even now I like META but the META similar calls are like 20-25 bucks apiece. For a similar result, META will have to rally to 750-800 from these levels here. Just using this as an example of a “Goldilocks” type set up we had with TSLA.

So you can see the sheer power of options when it comes to 3 things: A) Leverage B) No need to worry about stop loss (as its likely gonna go to 0 anyways) C) Insane potential for wild moves.

These characteristics make options very good for a smaller speculative account in my personal opinion. Now you don’t hit a trade like TSLA calls every day. Based on my own experience sharing here, I think we come across such a trade every 2 months or so. Now in theory, a 2000% gain on one trade can take care of 100% loss on 10 trades and still be green. This is why so many folks chase these options, and those in the influencer community prey on the retails by luring them to a promise of easy money by posting fake screenshots and fake gains- reality is not as simple or easy. You will have a lot of losses and then you can hopefully make that one trade every few months that is a monster winner. But if you are consistent about this, I think you can scale up, and then trade larger. Again just my 2 cents based on my personal experience. To benefit from these markets, you need to be patient. You don’t wanna chase everything that moves, you wanna wait out a few weeks to months if you have to- and then get in when there is sufficient amount of uncertainty like we had in our TSLA bullish play last week.

If you go to this market with an attitude of swinging at everything that moves, you will end up very disappointed. Mark my words. You only wanna swing at those trades which A) don’t make any sense B) have significant amount of uncertainty.

Once all the unknowns are known, there is nothing left to do but to donate your money to the option sellers. This is why I don’t always share options ideas here, but I do it when I sense a certain degree of unknowns in the market. This means the frequency of trades is less- may be 3-4 a month but those tend to have a higher degree of uncertainty. Now this does not mean I go out and find out the stocks with the highest IV. Even that is a form of certainty when the IV is so high, masquerading as uncertainty Not good. In other words, find options which no one is expecting to trade. With high IV, everyone is hedged, options are super expensive. It is more of an art than science. It includes a lot more context.

The markets will always give you 5-6 of these setups or events a year- may be someone lost the elections, may be some banks collapsed, may be there is a geopolitical event gone wrong. Be vigilant and observant when this happens. This is exactly where you are going to find the best setups. 80% of the market moves will happen in 20% of time.

So to summarize this- I see stocks as means to build long term wealth, spanning years to decades. These are desirable assets, just like real estate and rare art. You don’t trade your real estate for every 5-10% move. So why do you bother so much about your stocks when they drop 10%? I see futures as means of consistent daily income but be prepared to be stopped out a lot, it requires tremendous skill and ability to flip back and forth bullish to bearish, often in the same session. With options, I see them as great ways to speculate and be right once in a while. When you are right, you win big. When you lose, you lose small. I personally think that every one who is genuinely interested in the markets, should try and learn as much as possible about these markets. In this Substack here, we talk about all 3 markets. Our subscribers get access to all setups regardless of the market.

One often overlooked aspect of trading is that most of folks will come to the market not with love of the markets but with a desire to get rich quick. This is a futile endeavor. Give up on this. Sooner you do, sooner you can start understanding how markets work. If I am starting new, I am starting with a small account which I can afford to lose it all. I am making small trades, mastering the craft and then once I can consistently grow my account month over month, I am increasing the size. This is what makes you confident. When you come to the markets new and start swinging big size, not only you will lose your shirt (and hair), you also lose your confidence. It is simply not worth it folks. The reason I can say this is I don’t have any expensive chat rooms or signal services to sell to you. I don’t have to post screenshots of how many millions I made today since I don’t need to justify $500 a month chat room. These chat rooms know that most of the retail traders will not last more than a few weeks to a few months. This is why they want to harvest your $500 and move on the next retail victim.

This Substack is a community for long term traders and the community benefits the most when most of you survive long term. Many of our readers are here for 2 years or more. There is reason for that. When my folks get bagged doing wild stuff, not really understanding the game, it hurts me too. This is your wake up call.

The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.

- Livermore

Outside of this, just make some trades, learn from them, improve execution by remaining observant of the tape. Most of us, for most part train ourselves to think and act a certain way based on stored images. Unfortunately, this storage is full of bad images. Turn this around. Approach the world as you will process sound, not images. Which is to say, focus less on stored images but make space for new imagery- this is one sure shot methods to bring about rapid positive changes in execution and delivery with minimal effort. Read up on my posts about Neuro languages and processing (NLP). This is a great time to be alive in markets. In just few days, we are getting a brand new President. Getting a new President is like a public company getting a new CEO. Lots of movers and shakers, lots of exciting ideas and set ups in weeks and months ahead, you do not wanna sleep thru this!

With this out of the way, let us talk about some other stuff on my radar this week

CRWD

So late last night we heard about Delta seeking half a billion dollars from CRWD due to loss of operational revenue and cost. This could soften the stock a bit may be on Monday but in my view, this is a whole bunch of malarkey.

I understand Delta IT operations very well- let us just say they are not the sharpest tools compared to their peers. This is without merit and I think any softness in CRWD due to this into, let’s say 280 is something I am not worried about. If we begin to see some closes below 280, let us reassess.

If 280 holds, I think we should revisit 330-350 area at some point next year.

ARKK

If you recall, I have had a bearish view on ARKK, back when it used to be 130 dollar or so.

This ETF really has not gone anywhere for last 2-3 years now, and has remained in this tight zone. Interestingly, I noticed the inflows were very strong when ARKK was dropping like a rock thru most of 2022. Recently the ETF has seen strong outflows, even though the kind of stocks ARKK owns have been rising.

ARKK tends to hold a lot of meme stocks and junk as such, which is normally not something I like. However, with a new President on tap here in 10 days, with the excitement building up around more fresh stimmy potentially, some of these meme stocks could surprise to the upside. This is why I think ARKK, if 44-45 holds, could take another swipe at 50-55 area. If you look at the November MOPEX, the 52 CALLS at the moment are like 50-60 cents. These same calls for December MOPEX are around a dollar.

TSLA

What a monster rally in TSLA. Within 2 days, this is up 60 dollars or about 30% from that 210 support area into 270 today.

Can this thing have legs or is it over now?

To understand this, you have to first understand my views on broader index as such. Friday’s action was quite weak for the general market. NQ failed the breakout, and ES carved out another weak session. Textbook definition of weakness.