How to find sleepy stocks trading sideways that are about to move and trade them with options

Published Tue, Jun 4 202410:34 AM EDT

Nishant Pant @TheMeanTrader @TheMeanTrader

A trade set-up I use in my own account focuses on identifying stocks exiting a low-volatility, sideways choppy price movement into an explosive directional move. I've identified one such stock and will explain a trade I'm using to capitalize on the pattern. The indicators I rely on for this setup are: Bollinger Bands and Keltner Channels: When Bollinger Bands get trapped inside the Keltner Channels, it signifies a choppy, sideways market. During these times, expect little to no directional price movement. Many traders avoid stocks stuck in this chop zone. However, low volatility periods often lead to explosive price movements, presenting an opportunity for directional traders. TTM Squeeze Indicator: Most trading platforms offer a free indicator called TTM Squeeze. This indicator helps identify when a stock is exiting a tight, sideways consolidation phase and moving into a directional trend. Red dots on the TTM Squeeze indicate that the stock is in a sideways consolidation phase, and it's best to avoid trades during this period to prevent getting chopped out. When these red dots turn green, it signals the beginning of an explosive directional move. This is when traders should prepare for a significant price movement. In the case of Waste Management (WM) , we are currently observing green dots on the TTM Squeeze. The direction of this move is to the downside, indicating that WM is about to experience an explosive downward movement. By using TTM Squeeze, traders can capitalize on periods of low volatility transitioning into significant price movements, allowing for strategic entry and exit points in the market. The Trade Setup: A Bear Put Spread I will use a trade structure called a “bear put spread.” At the time of writing this, WM was trading at $201. To construct my bear put spread, I will need to buy a $205 put and sell a $200 put as a single unit with a limit price of 2.50 (or $250 due to the 100x option multiplier). Most trading platforms will offer a bear put spread (or long put spread) as a trade type and automatically construct the trade for you. All one needs to do is make sure that they pick the right strikes and expiration dates. Here is my exact trade setup: Bought $205 put, June 28th expiry Sold $200 put, June 28th expiry Cost: $250 Potential Profit: $250 WM is already trading at $201. If WM stays at or below $200 by expiration date, this trade will double my money, providing a 100% return on investment (ROI) on the money invested. To be sure, traders should keep an eye on the macro picture. This week is littered with several jobs-related reports, which could significantly influence the equity markets. The JOLTS data that was released this morning points to a slowing jobs market which at least in the short term could be bullish for the equity markets as it feeds into the rate cut narrative. -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Twitter: @TheMeanTrader DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.