Markets remain volatile in November with the S & P 500 seeing a 3% pullback so far. While painful, these drops are needed to reset valuations and can pave the way for future rallies. Before diving into a trade, look at the market’s fear gauge. The VIX is hovering around 20, and the CNN Fear & Greed Index is at 22, signaling “Extreme Fear.” In times of Extreme Fear or Extreme Greed, the best course is often to stay in cash or keep market exposure low until the sentiment shifts. If you are interested in following an emotionless trading system built on these principles, please check out here where my CNBC readers get a special launch offer. Given the “Extreme Fear” backdrop, the most prudent idea is to wait for the fear gauge to drop. However, for those looking for a setup, I am watching CROX as it shows signs of stabilizing near its 52-week low. This potential mean-reversion trade is based on four key confirmations. DMI: The DI+ and DI- lines are starting to change direction, which often signifies a trend change. MACD (5,13,5): My custom, faster version of the MACD is beginning to show an upside crossover, providing a second confirmation. RSI (Relative Strength Index): The RSI, which measures the strength of momentum, is now moving up sharply, adding to the confluence. Support/Resistance: Finally, the 6-month chart shows the stock is stabilizing and attempting to hold this support level. The Trade Setup: CROX 77-78 Bull Call Spread With CROX trading near $77.21, I am using my preferred options strategy: a bull call spread. This setup offers a clearly defined risk and a fixed maximum payoff. The structure is simple: buy one call and simultaneously sell a higher-strike call, both with the same expiration. The spread: I am targeting the $77 / $78 bull call spread. Max value: The maximum value of this spread is $1.00 (the $1 difference between the strikes). The goal: The goal is to execute this trade for a debit of $0.50 or less. Risk vs. reward: This creates a 1-to-1 risk/reward. We are risking 50 cents ($50 per contract) to make a potential $0.50 ($50 per contract)—a 100% return on risk. The objective is for CROX to trade at or above $78 by expiration. This trade is highly scalable. In this uncertain environment, you can start with a single contract, risking just $50 for a potential $50 gain. This 100% return profile makes it an excellent way to practice the strategy with minimal capital. Here is my exact trade setup Buy $77 call, Dec. 12 expiry Sell $78 call, Dec. 12 expiry Cost: $50 Potential Profit: $50 -Nishant Pant Founder: https://tradewithmaya.com Author: Mean Reversion Trading YouTube, Twitter: @TheMeanTrader DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. 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.
