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Stock Trades Are Not Always Either Bullish or Bearish

My recent Walmart options trade was all about time frame.
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On Tuesday, I outlined a bearish trade on Walmart (WMT) . The thesis was simple: the stock often fades after its quarterly earnings report.

There appeared to be a little confusion over the trade, but not in the trade itself. The short call spread is straight forward. It's worked quite well in fact. The short spread is under a dime to close now, and as I mentioned on Twitter already, I wouldn't get greedy here. A nearly maximized profit can be captured in less than 24 hours, so there's no need to wait around to pick up a nickel or dime in front of a steamroller.

The confusion here lies with my overall view of Walmart in terms of time frames. As a trader, yes, I had a short-term bearish view for a trade, but as an investor, I wouldn't be bearish Walmart if my time frame were six months or longer.

Unfortunately, some traders and investors view things in terms of black and white. If you aren't bullish, then you're bearish. This approach fails to take into account the variable of time. It is possible to have one view for a shorter time frame and an opposing view for a longer time frame. Views can also differ fundamentally and technically.

For instance, Walmart was all about time frame -- the short-term view being bearish while the long-term view bullish. I've always seen traders who are bearish on the fundamental valuation of Tesla (TSLA) , but have taken a long side position based on the technical setup or chasing a short squeeze.

It can be tricky navigating what appear to be mutually exclusive views, but that's the benefit of having different strategies or vehicles to buy or sell. One could be long a stock (bullish) yet still implement a trade to profit on a pullback or to protect gains or vice versa. When a trader or investor falls into the trap of black versus white, they can miss opportunities or become frustrated by flat markets or short-term changes in direction.

I often extol the virtues of understanding time frame, but I should add to that it is just as important to understand the underlying thesis behind every trade, especially since many extend beyond simply time frame.

Not every bearish trade is "bearish" and not every bullish trade is "bullish."

At the time of publication, Collins had no positions in any securities mentioned.