Trade Alert: Avoiding Falling Knives
Bullish options bets on two of our system's top ten names that also pass our falling knives tests.
Avoiding Falling Knives
Wednesday was one of those days that reminds you markets don’t owe you a smooth ride.
The U.S. session was the worst day for momentum stocks since 2022—a 4-sigma event by some measures—with a lot of “this can only go up” charts suddenly remembering gravity. Then, as if that weren’t enough, silver briefly air-pocketed around 20% at the China open a few hours later, adding another jolt of volatility on the heels of that selloff.
As of late Thursday morning, that reset is still in progress more than it is resolved. The S&P 500 is down about 1.3% on the day, and the VIX has popped back over 21, up roughly 13% from yesterday’s close. The prior leaders are taking the brunt of the selling again, with investors rotating out of AI-linked growth and high-multiple software, while more defensive and “old economy” names are holding up relatively better. Silver’s reversal has continued as well, with the metal giving back more of its recent vertical move, which isn’t helping risk appetite.
You can see the same pattern in crypto: Bitcoin and other majors have been trading more like high-beta risk assets than digital havens—selling off alongside growth stocks instead of offsetting them. In other words, the parts of the market that usually scream “speculation” are the ones getting hit hardest, which is exactly what you expect in a genuine de-risking phase.
In an environment like that, the temptation is to swing harder at the dip. I’m doing the opposite: tightening the rules for when I put fresh capital at risk.
Our Falling Knives Tests
Originally, my “falling knives” tests were meant for add-on trades, not new ones—cases where we already had a position and the stock had sold off. The point there was to avoid throwing good money after bad in a genuinely broken name.
Those tests boiled down to:
Price action that had stabilized enough for the RSI (Relative Strength Index) to be back in a normal range (roughly 30–70), and
A Chartmill setup score of at least 5 before adding more exposure.
Given market conditions last week, I started applying those same tests to new trades as well, not just follow-ups. And after Wednesday’s momentum washout plus the overnight move in silver, I’m tightening them further: going from a minimum setup score of 5 to 6 for new entries, while keeping the same RSI band.
Trading The Current Market Environment
So the vibe today is:
Stricter entries: Setup ≥ 6 and RSI in range, not just “down a lot” or “my system likes it.”
Smart trade structures: Leaning into harvesting elevated implied volatility, while keeping plenty of upside if we’re early on the next leg higher.
Maybe This Isn’t For You
And if that still feels too wild to you in a tape where momentum can gap down double digits overnight, that’s fine too. You don’t have to trade this aggressively to benefit from dislocations.
For more risk-averse readers, this is exactly what my hedged portfolio approach is for: a systematic way to own a basket of names with built-in downside floors, instead of swinging for the fences with single-name trades. I walked through how that works in more detail here:
But If It Is…
With that context, in mind, we’ve got two trades today on Portfolio Armor Top Names from Wednesday night that pass our tighter falling knives screens. Full details below, including preset exit orders, as usual, so we don’t have to babysit the trades.
Today’s First Top Names Trade
Specialty consumer & small-business lending theme
The stock is Enova International (ENVA 0.00%↑), and our trade is a hybrid combo consisting of these four legs:
Buying the September 18th, 2026 $180 calls,
Selling the May 15th, 2026 $180 calls,
Selling the May 15th, 2026 $150 puts, and
Buying the May 15th, 2026 $145 puts,
For a max net debit of $4.80. The max gain on 1 contract is $1,290, the max loss is $980, and the upside is uncapped if the short call expires out of the money. This trade hasn’t filled yet. This is a day order. If it doesn’t fill today, we can try again next time ENVA appears in our top ten or another of our screens.
Today’s Second Top Names Trade
Experiential entertainment / live-venue tech theme
The stock is Sphere Entertainment (SPHR 0.00%↑), and our trade is a combo consisting of these four legs:
Buying the August 21st, 2026 $105 calls,
Selling the August 21st, 2026 $115 calls,
Selling the February 20th, 2026 $85 puts, and
Buying the February 20th, 2026 $80 puts,
For a max net debit of $1.50. The max gain on 1 contract is $850, the max loss is $650, and the break-even is with SPHR at $84.41. This trade filled at $1.50.
Exiting These Trades
My plan:
ENVA (assuming this fills today)
Calls/Calendar (legs 1 & 2): Open a GTC limit order to buy-to-close the May 15th, 2026 $180 short call at $0.20, and raise that price if necessary as we approach expiration. If the short call expires in the money, I’ll sell the longer-dated September 18th, 2026 $180 call and use part of the proceeds to buy-to-close the short call. If the short call expires out of the money, I’ll share a limit sell price for the longer-dated calls in the comments here and via chat/email.
Put spread (legs 3 & 4): Open a GTC limit order to exit the put spread at a net debit of $0.20, and raise that price, if necessary, as we approach expiration.
SPHR
Call spread (legs 1 & 2): Open a GTC limit order to exit the call spread at a net credit of $8, and lower that price, if necessary, as we approach expiration.
Put spread (legs 3 & 4): Open a GTC limit order to exit the put spread at a net debit of $0.20, and raise that price, if necessary, as we approach expiration.
Out of the SPHR put spreads at $0.20 yesterday.