How to Trade Options with Small Accounts

One of the greatest mistakes new traders make is trading outside of their price range. Searching for trade setups that both fit your budget and present quality opportunity can feel overwhelming.

We're going to tackle these small account dilemmas head on by analyzing a recent small account trade setup in $AAL that resulted in over 120% profit using technical analysis & options flow confirmation.

Small Account Case Study - $AAL

$AAL Daily chart with 20 day SMA (Green), 50 day SMA (Purple), 100 day SMA (Red), & 200 day SMA (Orange)

$AAL first popped up on our radar on March 3rd when we noticed the stock trading within a tight channel. Going back to November 23rd, $AAL had failed to close above the 200 day SMA on all 8 attempts. The stock had also failed to close below $15.50 on all 4 attempts.

With the overall market sentiment shifting bearish as war tensions and inflation concerns heightened, we determined the best opportunity in $AAL was to the downside. Since $15.50 was acting as support, our target entry was a break below this price level, but we wanted to take a look at institutional sentiment in the options flow market to see if we could add a layer of confidence to this trade setup.

2/22/22 - 3/3/22 $AAL P/C Ratio (Left) & notable aggressive bearish transactions (Right) via TitanFlow

Institutional sentiment between February 22nd (the most recent break below all SMAs) & March 3rd (the most recent trading session) confirmed our bearish trade idea in $AAL, as evidenced by put transactions outweighing call transactions by 49% during this period. We also detected several noteworthy aggressive bearish purchases all costing between 0.43 to 1.05. This price range was more than adequate for small account traders.

On March 3rd we detected a couple aggressive bearish purchases that added an extra layer of confidence to our trade idea.

March 3rd $AAL aggressive bearish transactions via TitanFlow

These transactions contained a couple details that stuck out.

Both orders had a spot price of $15.69, just 19 cents away from our target breakdown price of $15.50. They came in within the last half hour of market hours on March 3rd, indicating a belief that the $15.50 support could breakdown after-hours, or early in the next trading session at the least. This belief made sense when noticing March 3rd's price action picked up downside momentum heading into market close.

The expiration dates on the contracts were 4 months out, suggesting the institutions were confident in a multi-day downside trend if the $15.50 level could be broken.

It's also important to point out that $AAL rarely sees transactions over $100k on the options flow market. This made the $300k order exceptionally significant in showing us the level of confidence an institution had in $AAL's downside potential.

Let's take a look at how the next couple trading sessions played out.

$AAL Daily chart

March 4th saw $AAL open right below $15.50, putting in an aggressive move to the downside after a brief test and rejection on a weak attempt from buyers to push back above the support level. Overall, $AAL dropped 24% from March 4th - March 7th.

The $300k order on 6/17/22 $14 puts we had detected the day before PAID. At the lowest price in the downtrend of $12.46, the contracts ran from 1.25 - 2.84, good for 127% profit. Even catching just half the move would have resulted in over 50% profit.

While there may be less opportunities overall, the combination of technical analysis, Unusual Options Activity, and Darkpool Data is just as powerful of a strategy for small account traders as anyone else.

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