Yesterday, we published part one of an exclusive interview I recently had with options expert Jared Levy within the pages of StreetAuthority Insider — a free newsletter reserved for premium StreetAuthority subscribers only.

In part one (which you can read here), Jared discussed why he’s concerned with the market’s fundamentals, the Trump Trade, and why regular investors need to add his “raiding” technique to their arsenal in order to survive a possible market correction.

In part two (below), Jared details why he’s worried about small-cap stocks, how they could be the “canary in the coal mine,” and how he’s already made 38.9% from this weakness in four days — with more gains to come.

Insider: You’ve spent a lot of time in Profit Amplifier talking about the weakness in small-cap stocks. Can you share the details?

Jared: At the beginning of the summer, I sent out an alert saying I had grown particularly concerned over the performance of the Russell 2000 Small-cap Index compared to its extremely high valuation. 

This group of smaller companies was expected to be the big breakout index of the year, but their performance had been abysmal. I told readers, “If news and data flow continue to deteriorate, things could get worse — at least temporarily.” 

Based on my analysis, I recommended a put trade on the iShares Russell 2000 ETF (NYSE: IWM) — a very liquid exchange-traded fund that closely tracks the Russell 2000 index, but at a tenth of the cost. 

While my original trade was maybe a little ahead of things — we had to roll our August put options into a later expiration before we pocketed our 9.1% profit — my warning that small-caps could continue to deteriorate was right on the nose.

#-ad_banner-#This time around, my models were initially forecasting light earnings growth of 2% to 4% in the Russell 2000, but the index’s results didn’t come anywhere close to that. Nearly 1,800 of the index’s 1,976 companies have now reported their second-quarter results… and earnings growth is down more than 6% compared to last year.

Bottom line, things are looking even worse than I expected for the index. At the very least, this data suggests that things are not great for the average American small business; at worst, it’s the canary in the coalmine for a stock market that has recently looked unusually strong. 

I think it’s possible that the weakness we’re seeing in small-cap stocks is indicative of weakness in the broader market as well… Bigger companies are just better at hiding it.

Let’s not forget that small business is the economy’s fuel and consumer incubator. Without that stable base, the larger economic picture can get cloudy.

Insider: So how are you trading it this time around?

Jared: On Monday, I issued an urgent alert to subscribers that we were going to make a new trade on IWM. While the rest of the market has been rallying, IWM had fallen 3.8% from its recent highs around $144, nearly breaching its 200-day moving average in a bearish way. For this new trade, I’m targeting a 3.8% drop down to $133.

I told my readers that I thought the coming down move could be swift — and that the time to take action is now. 

At the time, IWM was trading around $138.50. So I recommended buying (to open) IWM Nov 143 Puts for $7.60 or less. That’s an IWM put option with a strike price of $143 that expires on Nov. 17. We were all able to enter below $7.20, giving us a really nice entry price.

If you’re new to options, the math is really simple. This trade breaks even at $135.40 (strike price of $143 – premium of $7.60), about 2.2% below recent prices — and we already reached that point by Thursday! 

The ultimate goal here was for IWM to drop to $133 by expiration on Nov. 17. But the option hit our target on Friday morning and we generated a 38.9% gain in 4 days.

**Bonus — If you still want to get into the trade, I believe we could see $11 in the option before November. So even buying here just below $10 can still net you a 10% gain!

Insider: Any closing thoughts on your “raiding” technique and why you believe it’s so important?

Jared: When I first began market-making in the early 90s, I couldn’t believe how efficient and effective the pros were at consistently pulling big gains from what was a very unpredictable markets moving in all directions. 

I have to admit that being on the floor gave us a slight advantage, but we had to deliver big gains or our firms would simply cut us off. At one point it cost me more than $15,000 a month just to go to work (those were my exchange fees). Since I was on a 50/50 split with my employer, you can imagine how much profit I had to bring in just to stay in their good graces, let alone become one of the most profitable traders down there? 

So after learning the market-maker secrets and adding a ton of my own “special sauce,” I created a method that’s delivered me consistent gains over and over again for the last 20-plus years. It’s worked in bull markets, bear markets, sideways markets and even during the Great Recession. 

Over the last five years, I’ve perfected this method to work for normal, self-directed traders. And remember, I’m now off the floor and trading from home, just like many of you are. Since I no longer have the advantages of being a market maker, I’ve had to augment my strategy to maintain my lifestyle but not have to live in NYC or Chicago and work full-time.

I don’t come from money and certainly didn’t have a backup plan. Without hard work and these skills I’ve developed, who knows what my life may have become? I’ve been extremely fortunate to find a method that truly works and allows me the freedoms I enjoy, and frankly it feels good to be able to share it and help others make their lives a little easier as well.

Editor’s Note: I’d like to thank Jared for taking the time to share his perspective with us today. As you can tell, he’s a total pro who never loses his passion for helping regular investors understand he power that options trading can have on their lives — when it’s done right.

If you’d like to step up your game and learn how to magnify gains on stock moves of just 10%, 5% or even 2% — and turn them into 20%, 50% or even 70% in just a few days, then I invite you to check out Jared’s latest report here.