We’re Banking Gains Amid the Market Chaos

Last Monday’s sell-off spooked a lot of investors out of the market.

Analysts and commentators had a field day speculating about the reasons behind the dramatic fall.

But while they were busy dissecting the market chaos, I was doing what I always do: scouting out our next trade…

In my Opportunistic Trader options advisory, we’ve had a string of wins during the recent volatility (including 131.5%, 54.4%, 29.5%, and 15% gains).

But there are always more opportunities for profits.

And we generated yet another win with crypto exchange Coinbase Global (COIN).

The dust was still settling after Monday’s slump. And COIN was looking oversold and showing signs of a potential bounce. So, I recommended a trade to my subscribers.

Let’s see how things panned out…

All Wins Matter

As you can see in the chart below, COIN had peaked and reversed at “A” before last Monday’s selling gripped the market.

COIN had already dropped 25% from its peak on July 23.

But that drop jumped to 40% when COIN gapped heavily down on Monday’s open…

Coinbase Global (COIN)

Source: eSignal

That kind of plunge might scare some folks away. But this is the exact type of scenario I look for…

When stocks overstretch in either direction, we can profit when they snap back the other way.

Several factors combined to provide the setup for a COIN trade.

One of the clues was the price action on Monday. COIN opened on its lows. But then it recovered strongly throughout the day, showing that the panic selling was subsiding.

Also, COIN’s sharp fall put the Relative Strength Index (RSI) near oversold territory (lower gray dashed line). Any recovery in the RSI could set off a potential bounce.

More broadly, after Monday’s big drop, stocks all over were trying to recover.

So, on August 7 (two days after Monday’s plunge), we bought a call option on COIN to gain exposure to any upside. (A call option increases in value when the underlying stock rises.)

And as the chart shows, things went our way…

Take another look:

Coinbase Global (COIN)

Source: eSignal

Our position turned a quick profit. Yet buying momentum started looking anemic.

So, we closed out the trade by selling our call option on August 9 for a 12% gain.

For some, that kind of return might seem like small change… especially considering the size of other wins we banked recently.

But 12% is more than what the S&P 500 averages over a year.

For comparison, we made this gain in two days.

This perspective highlights one important lesson I learned as I became a successful trader.

This lesson put me on the path to Barron’s ranking my hedge fund in the top 1% and Jack Schwager featuring me in his book Hedge Fund Market Wizards.

The lesson is this…

Big wins are great and can give your account a real boost. But they don’t come around every day.

Few people can afford to wait around indefinitely in the hope of a bigger profit. And a winning trade can easily turn into a loss.

So, you need to keep banking profits – whatever size – whenever you can.

Understand the Risks

As always, we made this return by trading options. Options magnify both gains and losses.

And because options have an expiry date, time decay eats away at the option’s value. If the trade doesn’t go your way and you hold the trade until expiry, the option can expire worthless.

But that’s the risk you take to snag these quick gains.

If you get your setup and timing right, you’ll be in and out of the trade before time decay can work against you.

So, remember: It’s always great to make big profits. But those types of moves aren’t guaranteed.

By raking in lots of smaller wins, you’ll still grow your account quickly… and probably experience less frustration along the way.

So, be ready to capitalize on whatever size moves come your way.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict