Last week started my most favorite sports time of year – the NCAA Tourney, or March Madness. It’s the one time of year that has me fully excited about sports. The tournament is wonderfully balanced, any team can win on any occasion, and while a #1 seed has never lost in the first round I suspect at some point that will happen. I love to see the underdogs win, even if it kills my brackets! I play the higher probabilities even though the longshots do the most damage.
So, as we journey our way through markets we also look for the best trade probabilities but always aware the longshots exist. It’s not so bad playing those and when they hit the payoff can be substantial. As option traders know, even the low probability trades do come in, and the leverage with options make for some very nice gains. But we don’t look for those on a regular basis.
In the brackets, the top seeds are ranked high for a reason, and while it may be razor thin differences that separate them from the others, they have the confidence and the swagger come out swinging hard. Much the same occurs with options trading and taking the higher probability choice. Taking a higher delta, or a higher probability play affords the luxury of having some intrinsic value or more time to let a trade work, rather than the low probability bet that might pay off 5% of the time or less. You can have a great system but if the odds are not in your favor you can lose far more often than you win. And when that big win actually does come in, how far behind are you? Will you just get back to even?
When filling out your bracket, I suppose you have at least one top seed headed to the Final 4. It really makes sense, you go with the chalk and history is on your side – not often have we seen a Final 4 without a #1 seed represented. Trading is no different. We flock to the names which show reliable patterns and trends, the best odds for winning. Traders will put money behind names like Tesla, Netflix, Google, Amazon and Apple when the market is running hard to the upside and short when the flow is moving the other direction. It’s where the money is made – these top seeds are the ATM machine if you’re on the ride side and the right time.
Enjoy the rest of the tournament, best time of year for sports. And enjoy those high probability trades, you’ll find yourself ringing the cash register much more often. Bob Lang
EDITORS NOTE: Bob’s Aztec’s are still in it.