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This is the most difficult market I've traded in since 2011. We've witnessed a lot of sideways action over the last two weeks, low volumes, and broad indecision. Investors aren't dumping stocks in droves - as it's clear that not many people want to sit in cash.
The divergence between the market's expectations for rate cuts and the current Federal Reserve Dot-Plot is extreme. And hedge funds have been dumping oil over the last month on concerns about a recession (even though oil is now moving higher off oversold lows.)
If you feel like every move you're making isn't working right now - you're not alone.
It's not you... It's the market.
Today, I want to discuss a better way to improve your edge in this environment.
What Do You WANT To Own?
If you've spent the last few weeks buying long calls and puts, you're likely frustrated. This market has traded sideways, and you're likely trading positions with a lower probability of success.
When it comes to trading options, it's critical that you know your likely success rate ahead of time. We calculate this using Probability of Profit.
The probability of profit (POP) in options trading estimates the odds that a particular options trade will be profitable. It is a statistical measure that takes into account factors such as the strike price of the option, the current market price of the underlying asset, the time remaining until the option expires, and the implied volatility of the underlying asset.
The POP is typically calculated using an options pricing model such as the Black-Scholes or similar models. This model takes into account various inputs to determine the theoretical price of an option, including the current market price of the underlying asset, the strike price of the option, the time remaining until expiration, and the volatility of the underlying asset.
Once the theoretical price of an option is determined, the POP can be calculated by comparing the difference between the theoretical price and the cost of the option.
A higher POP means there is a greater likelihood that the option trade will be profitable.
When you are trading call options, a PoP of 20% of less is a long shot. When you're selling put spreads - my preferred strategy at Flashpoint Trader - your odds of success on each trade is typically 80%.
Today, I want to walk you through the best tool that I use for free each day.
Check out the show at 12:30 pm ET and look at the replays for our free training today.
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Recap: The World's Biggest Indicator (Momentum) is Red...
Negative momentum has been falling, allowing low volume buying to push this market higher. We've seen larger outflows from the ETFs like the SPY and QQQ over the last week. This environment feels reminiscent of last June/July where it took six weeks for momentum to turn positive afte…
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.
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