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Full Interview Transcript:
Mike Burnick, Senior Analyst, Inside TradeSmith: Hello again everyone.
I’m Mike Burnick, and I’m very excited to be joined again today by Jeff Clark. And for many of you TradeSmith Insiders, Jeff needs no introduction.
Jeff’s a master options trader and technical analyst who recently joined our TradeSmith team, and welcome, Jeff. It’s good to see you again.
Jeff Clark, Editor, Delta Direct: Thank you, Mike. It’s great to see you as well.
Mike: You know, you’ve been trading the markets almost as long as I have, for more than 40 years, actually longer than I have.
It actually makes me feel like a bit of a newbie in the business with only 30-plus years of experience.
And the way that your systematic approach to options trading works is actually very similar to my own, which is why I always love to chat, you know, talk shop with you here.
You use kind of a very systematic approach that always puts the odds square in favor of the trader.
So, tell us a bit more about your option experience and, you know, the system you refined over these many years.
Jeff: Sure. Well, you know, as you’re quite familiar with, the reason anybody can exist as a trader in these markets for any length of time is you have to have some systematic approach that does exactly what you just introduced — that puts the odds in your favor.
Oftentimes when we talk to people about options, they get this, they get a little weirded out by it, you know, they’re a little bit concerned because it seems risky, it seems like it’s gambling.
And it can be that if you do things the wrong way in the option market.
You know, options were originally designed to reduce risk. So, what I do, and I think what most traders who’ve been around a long time — long enough to have gray hair or no hair — what we tend to do is we utilize that limited risk characteristic of the option market.
So rather than, you know, buying a stock, we take a look in the option market and see if there’s a way that we can put together an option strategy that lowers our risk but still keeps the reward as much or perhaps even larger using the options.
And that’s really what we try to do.
And my particular version of strategies, what I like to trade, my favorite type of trading is reversion to the mean trading.
And all that really means is what I do is I look for very extended conditions, whether a stock is extremely overbought or extremely oversold, you know, where that rubber band — you know, if we use that proverbial analogy of a rubber band — it just gets stretched so far that there’s really nothing else it can possibly do but snap back.
So, I look for conditions that that rubber band is stretched, overbought or oversold, and look to trade that snap back.
And, you know, it’s a great strategy to use in volatile markets.
You know, we talk a lot about what’s happened so far in 2025 with President Trump and the tariffs and the big, beautiful bill and all these things, all these headlines that are hitting that cause the market to go back and forth and go crazy.
And people say, oh my god, there’s just so much volatility. I can’t possibly make any sense out of it.
Well, a reversion to the mean strategy is perfect in that type of environment because you get those incredibly extended conditions and then you get those moves back.
If you look back in 2024, we didn’t have that last year, we had basically a one-way market that had very little volatility.
So, reversing to the mean—it worked if you can find those individual, specific trades that setup existed on, but in 2025, we’re just finding all sorts of trades. I mean, the volatility has been very, very good for us.
Mike: Yeah, it’s been crazy, and you’re right, the volatility can often be your best friend as an option trader. And you know what I think is impressive about what you do, Jeff, is you’re willing to put your money where your mouth is in terms of your actual options track record being publicly available right on your website.
And the trades you’ve closed just since Liberation Day when everything went haywire—I mean, really impressive. You’ve got average gains on five or more trades of about 80%.
So, I guess the question is, with all the market chaos that we’ve seen since Liberation Day—and likely to continue—what specifically do you look for in these winning trade setups?
Jeff: Well, what I say today might be different than how I would look at things months from today. And just to put this all in perspective, the year started off relatively slow for me. We didn’t do a lot of trades in January and February because we didn’t have that sort of volatility. Just look at a chart of the S&P 500—you can see it sort of flatlined all throughout January and February.
Then in February, we got the first downdraft and a little bounce up and then another downdraft, and of course everything that’s happened since Liberation Day. And since then, we’ve seen all of this sort of volatility.
So, your question was: what is it that I look for?
I really just look for situations where I think either fear has gotten a little ahead of itself, or greed has gotten a little bit ahead of itself.
So, way back in—well, eight weeks ago, early April, Liberation Day—you had the markets wigging out on the downside and everybody panicking and selling. That was an emotional extreme level on investors in fear.
What we’re seeing more recently here, as we get into June, is we’re seeing greed take over. You’re seeing these emotional overreactions to the upside.
All I try to do is gauge where the market is and where individual stocks are—and where investors are—on that fear-to-greed scale and take the position on the other side of that.
Because, I mean, we’re very consistent as humans. The stock market is going to react to different conditions in different ways. In other words, the things that cause the market to be volatile today are different than the things that caused the market to be volatile yesterday, and they’re different than what it will be next week.
But as humans, we react the same way to that type of volatility. We act with fear, and we react with greed. We’re afraid we’re going to lose all our money, or we’re afraid we’re going to miss out on potential upside.
And when those emotions get extreme, you can look at it on a chart. Just pull up a picture of any chart. Anything that’s gotten so far extended beyond all of its various moving averages—that’s an example of overbought conditions. Or so far below all of its various moving averages—that’s an oversold condition.
And all I’m doing—it’s really simple—all I’m looking to do is find those particular setups and then go over to the option market and see if I can put together a strategy that is relatively low risk and allows me to capitalize as that rubber band snaps back.
It’s really no more complicated than that.
Mike: Yeah, I really love that approach. And you know, I have a very similar approach to the markets myself. It always pays to be a bit of a contrarian—to take advantage of those extremes.
And you know, one thing I love about your style—again, very similar to mine—you feature plenty of short put trades, which I also recommend quite often in the Constant Cash Flow service. And of course, that produces recurring premium income for investors as they’re trading them.
And also, it’s a great way to take advantage of that volatility—and kind of take advantage of it—and make money from it on a regular daily basis even.
Tell us a little bit about how you feature those short put trades.
Jeff: Well, sure. When volatility is extreme, option premiums inflate. If you look at the volatility index—symbol VIX—that’s essentially a measure of option premiums across the market. When the VIX is high, typically above 20, option premiums become relatively expensive.
In that environment, buying options becomes less favorable because you’re paying a premium, which lowers your probability of a profitable trade. So, it often makes more sense to sell options.
Let’s go back to Liberation Day. One of my favorite trades at the time was in Marvell Technology. The stock had fallen from $120 to around $60 per share—already cut in half. Technically, it was extended well below its moving averages. Fundamentally, it was historically cheap. And option premiums were sky-high.
So, I was thinking Marvel could rebound, and in fact it did, but because the option premiums were so large, I couldn’t buy a call option to take advantage of it. It would have required a much higher rebound than I was looking for in order to make a profit off of that.
So, yeah, so when options are expensive, you look to sell them. So, I sold some uncovered puts because it’s a stock I wanted to own anyway, and I wouldn’t mind buying it at $60 a share.
But somebody was willing to pay me or pay our subscribers $400 a share just for agreeing to buy it at $60. And so, we were able to sell that option, collect $400 upfront for committing to 100 shares. And when the stock rebounded, all that premium stayed in our pocket.
So that’s typically what I look for when you have an inflated premium environment. So, the VIX is high, 20 or above, I like to sell option premium.
When the VIX is low, and for me that means below 15, I favor buying options over selling uncovered options simply because the options are relatively cheap and it doesn’t require that large of a move to make a profitable trade.
So again, it’s just going back to putting the odds of a successful trade on your side.
Mike: Right, exactly. And you know, it’s part of what you have to understand as an investor or a trader, is that you sometimes have to just take what the market gives you.
If it’s high volatility, it’s better to be a seller of options than a buyer, just like you said.
Jeff: And yeah, you have to have a lot of arrows in your quiver, I guess I should say.
Mike: Exactly. There’s more than one way to skin a cat always in the stock or option market.
And you know, you’ve also created, Jeff, a proprietary system of technical indicators, which I think is really impressive. It kind of gives you those trade setups. And I know you’ve actually created a new powerful stock screener for Tradesmith.
Now, I don’t want you to give away all the secret sauce here, of course, but tell us a little bit about your convergence, divergence system and how that works.
Jeff: Well, I mean, it sounds complicated, but it’s really not all that complicated. It’s basically just putting together everything that I just said, where I’m looking for extreme conditions.
I’m looking for a stock that’s trading far away from its various moving averages. Where those moving averages are extended, looking at a handful of technical indicators, I use things like—this is gonna get way off into the weeds here—but the moving average convergence/divergence indicator (MACD), relative strength index (RSI), commodity channel index (CCI), all these various things that I look for.
I look for divergences between the momentum indicators and the stock itself. And what I mean by that is if the stock is rising, your momentum indicators ought to be rising as well.
Stock is falling, that trend is going to stay in place, the momentum indicators are falling as well.
What I like to look for is a situation where they’re not in agreement, where the stock is rising, but the momentum indicators are falling, where the stock is falling, but the momentum indicators are rising.
That tells me that there’s a higher probability that that rubber band’s ready to snap back.
And so, when TradeSmith and I got together, I’ve always been a skeptic of systems.
I’ve always been a skeptic of technology because I think once technology takes the emotion out of things, which certainly has its advantage, but my particular style of trading is I like to see the emotions and then trade opposite them. And technology sort of takes that away.
Well, Keith Kaplan, who’s the CEO of TradeSmith, he promised me he could put together a screener using my data and my parameters on these various indicators, to put together a screen that would do exactly what I do and spit these things out daily and save me all sorts of time.
So I challenge him I guess, and he came through and created using the parameters that I set up, he’s created a screener that does exactly that.
It looks for situations where you have stocks that have rallied too far or stocks that have fallen too far, where all the momentum indicators are diverging, where everything is in line with the moving average, differences, the expanding moving average lines, all this sort of stuff.
So I get this on a daily basis and it spits out, I don’t know, maybe 50 bullish names and 50 bearish names. Sometimes there’s more, sometimes there’s less, but that’s usually about right.
And so I always have some sort of trades available. And so rather than doing what I used to do, which was every day, go one by one by one through all of these different charts, the screener has it all up there for me. So it saves me a couple of hours. My family appreciates that.
And, you know, and it puts everything in more of a systematic approach. So I can come up with more ideas when the market is as volatile as it as it is lately.
Mike: Yeah, I know exactly what you mean. I was a quant myself back when being a quant wasn’t cool, right?
Back in the 80s and 90s, I remember pouring over excel spreadsheets till all hours of the morning, much to the chagrin of my family trying to figure this stuff out by hand.
But, you know, that’s where, Tradesmith really comes in.
And this new stock screener that you’ve created that finds your trademark chaos patterns is very exciting. I can’t wait to use it.
And I know you have a briefing coming up very soon where you’re gonna talk about that more.
But before we get to that, I want to ask you about your track record for mastering these directional turns in the market and warning folks before some of the biggest market downturns, you know, just like me, you were early on with the housing bust in 2007 that led to the 2008 financial crisis and the bear market that we had a couple of years ago in 2022.
Tell us a little bit about what you think of the market now.
Recently, I know you’ve been saying that the rally off these April lows might be running out of steam here a little bit. What are your thoughts?
Jeff: Yeah, I think it is, I don’t want to get, I don’t want to sound overly bearish, but yeah, I am leaning that way, mostly because what I see happening in the market is something that has happened several times in our adult lifetimes.
And it deals more with the yield curve. And if you back up a second and just think about the way interest rates are typically structured, normally, short-term interest rates are lower than long-term interest rates, or long-term interest rates are higher than short-term interest rates. So you have an upward sloping yield curve.
There’s been a handful of times in history where it’s gone the other way, where short-term rates are higher than long-term rates. That’s abnormal. It’s not supposed to happen, but when it does happen, it oftentimes warns you a little bit about chaos in the markets going forward.
And you can look back in, and when the yield curve inverted 1992, 2001, 2007,
and most recently in early 2020, right before the COVID mess up.
All of those were pretty good warning signs that, hey, there might be some chaos about to hit the market.
A little over two years ago, the yield curve inverted. And there was a lot of talk at the time. I remember turning on CNBC and Bloomberg and Fox Business and all that sort of stuff, and everybody’s worried that it’s a precursor to a recession.
Typically, an inverted yield curve, according to the economics textbooks, tells you that a recession is coming.
My argument back then was it’s not the inversion that causes the chaos in the markets and in the economy, it’s when you go from an inverted state back to an upward sloping yield curve.
Mike: Right, it’s the un-inversion you’ve got to watch out for.
Jeff: Exactly, exactly.
That’s when you get the chaos, and that’s what happened in late December of 2024 is we went from an inverted state, an inversion that lasted almost two years, which was the longest time in our lifetimes that that occurred. There was the deepest inversion in our lifetimes. So just now it’s starting to go back into an upward slope.
The concern about that is, a lot of folks look at the correction that we saw in April and they go, OK, that’s it, that’s the worst of it. I don’t see how that’s possible because we just have the deepest inversion ever in history and the longest inversion ever in history, and I don’t think that ends with a 4-week correction in the stock market. I think there’s some turmoil that comes.
And just look at the past situations where this has been the case, and there’s only four examples of it. But it’s always led to some sort of disruption in the markets.
I don’t look at that as something to be afraid of though, I look at that as a fantastic opportunity because when you think about it, you go back to 2008, when was the best time in the century to buy stocks?
Mike: Oh yeah, yeah, it was 2008. Yeah, Warren Buffett would agree with you. That’s when he scooped up shares on the cheap of Goldman Sachs, Bank of America, you name it.
Jeff: Yeah, you have bought anything back then and done very, very well.
Well, now we’re facing what I think might be a generational buying opportunity in the stock market later on this year if things play out that way. They don’t have to play out that way.
It’s certainly possible that, I hate to say it, this time, it’s different, and the market responds differently to the same sort of data set. I don’t think it will, but it’s certainly possible that it does.
And if it does, that’s OK. I’m more than happy to use my particular type of strategy and keep finding stocks to bet on as they snap back, you know, from either overbought to neutral or for oversold to neutral. That’s going to exist in a volatile market.
I’m really hoping though – I shouldn’t say hoping – I’m really looking forward to the possibility that we do get incredibly oversold conditions, much more than we saw even on Liberation Day.
That give us just fantastic buying opportunities because it’s in those opportunities that you can do really, really well.
You know, I often say, in a bull market, everybody can do well. But it’s the decisions that you make in a bear market that can make you rich. And I hope people who are watching view anything upcoming in the market as chaos and turmoil as an opportunity to potentially get rich.
Mike: Yeah, absolutely. That’s always the best time, the best opportunity to make money right there.
And speaking of which you have a special webinar event coming up actually one week from today, Count Down to Chaos, and during that event, I know you’re going to be talking with our CEO Keith Kaplan, and revealing 10 different opportunities that you see right now from that chaos pattern screener you’re talking about.
And of course, all you folks that are watching today can sign up to see that event live with Jeff and Keith Kaplan, just one week from today, June 11, 10 a.m. in the morning.
Jeff, thanks again for taking time out to talk shop with me again today. Always fascinating stuff.
Jeff: Of course, Mike, thank you for having me, and, and everybody watching, thank you for watching and if you’re interested at all in anything I’ve had to say today, please, June 11th at 10 a.m., we’ll be going over this sort of same information in much more detail and it’ll certainly be worth your time.
Mike: Exactly one week from today, folks, don’t miss out. Well, Jeff, thanks again and good trading to you.
Jeff: Thank you. Right back at you, Mike.