Ken Trester

Stay Invested During Volatile Times

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While I love to talk about trades that went in my favor, Sony is a frustrating one because no sooner had it spiked that it pulled back lower than our entry point. That's the challenge with investing in a tough market -- we've got to be quick to cut our losses, and sometimes quicker still to capture profits.

We took a 37% loss on that trade, but just two days later, we laughed all the way to the bank with a 112% winner in Nvidia (NVDA) call options -- which serves to illustrate how important it is to establish a balance of promising calls and puts.

The market will move as it must, and it will take stocks up or down accordingly. We don't know exactly when a bullish market will turn into a bearish market -- and how much time it will take to go back to the way it was. But it behooves us to be ready for the ride -- in whichever direction it takes us!

It's not as easy as it looks to find the "right" options to trade. When market conditions are grim at worst, or uncertain at best, puts are an obvious choice for more and more traders. And when conditions get better, traders tend to gravitate to call buying, as it's more familiar and because it's similar to outright buying a stock.

Therefore, it can be tough to find options that are fairly or cheaply priced, because the market can irrationally drive up the cost of options to a level that it compromises the risk/reward picture. If an option doesn't have the potential to return at least 50%-350%, then it's best to leave it behind and search for the ones that can generate that kind of payoff.

No matter how the broader market is trading, it's essential to have a balance of bullish and bearish option plays so that we can not only profit from the current environment, but to also be ready to profit in the event that the markets do a sudden about-face.

How we profit (whether we're establishing a long call position or simulating a short position with a long put) isn't important -- just as long as we're profiting, over and over again by taking advantage of market volatility and not fighting against it!