The Volatility Acceleration Trade, or VAT, is a trade that was inspired in large part by Victor Sperandeo and his two books, Trader Vic: Lessons from a Wall Street Master and Trader Vic II: The Art of Professional Speculation. The VAT setup can be used when trading stock options, futures, currencies, or with almost any type of investment or style of trading whether it is Forex swing trading, position trading, stock option trading, trading futures, or combined with any option trading strategy in any particular market. In this article, I want to look at how to make money trading stock options with swing trading stocks using the VAT trade setup.
Now, I don’t want to go into detail about the rules for the VAT setup in this article because that article is located back at my site so if you’re confused about some of the details go find it on my site and read up on it but for now let’s look at how to combine it with option trading.
The core principle of the VAT setup is that there is some event that causes a security to explode in the opposite of its present trend or out of stagnant price action. For example, if ABC stock has been on a steady downward trend for years but, lately, it has reversed course and exploded to the upside. That reversal often results in a price lap or gap in the price action (see the article, ‘How to Qualify Stock Trends for Stock Option Trading Profits’ within this site for price action terms and definitions) and price setups up outside the Bollinger Bands overlaying the dollar’s price action.
Now, where you make money trading stock options is finding that ‘sweet spot’ where price has now reversed itself due to a huge event (i.e.: earning announcements, product launch, stock buy backs, etc.) and timing your entry with stock option trading to take advantage of the leverage you get when option trading versus just swing trading the stock. That sweet spot for an aggressive VAT trader is the moment the stock explodes past its Bollinger Band, breaking its trend line, on big volume, and in either a confirmed bull or bear market. The price action virtually screams at us telling us that momentum has shifted and to board the train because it’s going to take off.
In today’s environment, when so much of the stock market has declined, trading stock options on even the heavy hitters in today’s markets in relatively easy pickings when you consider that even the strongest stocks that resisted the early heavy sell-offs eventually fell apart. To stock traders armed with reliable option trading systems, swing trading strategies, and combined with proper trade management, there were fortunes being made even as stocks fell apart as despaired investors looked on in horror.
Now, to learn how to make money trading stock options with the VAT setup once an entry has been made and you are now managing the trade I would recommend when trading stock options that you “rollover the option” as it rises in value. Rolling over the option means that, for example, if you buy the $80 call options upon a VAT setup entry as soon as it reaches a 50% or 100% gain that you “roll it over” by selling as you purchase the next strike price. So the next strike would be around $120 or $160 for the next call option and you would lock in your gain while staying in the trade as the stock is in a strong trend.
This allows you to take profits while swing trading stocks but still lets you take advantage of the risk control that options offer while still utilizing a option trading strategy that allows you to stay in a hot trend and maximize your return. Almost any option trading strategy will work with a VAT setup like some sort of credit spread but, for me, I like the potential of multiple gains that directional trading in options affords me with just trading call options or put options with this strategy.
Just about any swing trading strategy can be enhanced with options trading but it is still a rather advanced strategy. Even though directional trading with just a straight call or put option is rather direct the fact is that takes diligence and timing to pull it off but, with practice, it can be done as your experience level grows. The enormous benefits of risk control and leverage that options offer are too great to be ignored and if you put just a little effort into it you can potentially magnify your returns several times.
