Today’s letter wraps up my 3-part coaching series How to Score Big Profits from Tiny Stock Moves.
In Part 1, I shared my 3 proven principles of wealth-building and demonstrated how options trading lets you control stocks for pennies on the dollar. Part 2 outlined the benefits of active trading.
Today, I’ll briefly explore 3 tactics the best traders use to make more money.
Tactic #1 – They seek out “cheap” options
Traders often fall into an all-too-human trap of trading the options of stocks in the news.
Unfortunately, those options are typically overpriced, because of all the interest. And buying expensive options immediately destroys most of your profit potential.
That’s why I insist on “cheap options.”
At Power Options Weekly we hunt for “diamonds in the rough” — under-the-radar stocks, where trader interest is low at the moment and options are undervalued.
That doesn’t mean you can just buy any old low-priced option. After all, even the cheapest option can go bad if the trade is based on faulty assumptions.
Sometimes trades are in the bargain bin for all the wrong reasons.
We start with “cheap options” but then we apply all the rest of our strict standards to deliver the best potential profits.
Earn 10-20 times the money from America’s favorite stocks
Tactic #2 – They have a plan before they trade.
Legendary Yankee catcher Yogi Berra once aptly said, “If you don’t know where you’re going, you might end up someplace else.”
So true when it comes to trading options!
I find that many traders simply get a blank look on their faces when I ask them to articulate their trading plan or reasons for a specific trade.
They often act on hunches or tips from a chat room with no good idea of why, how much to pay or how to manage the trade.
We use time-tested, proprietary software to identify trades — and apply strict parameters to minimize risk and maximize our profit potential.
Whether trading with me or on your own, you should always do the same.
That’s why, with each new option recommendation I make, I include all of the information you would ever need to enter the trade quickly and easily.
That means you get:
- The name of the stock and its ticker symbol,
- The expiration date and strike price of the option being recommended,
- The option’s ticker symbol,
- And my specific buy-under prices to ensure that you never overpay for our trades. You can find more of what my members get each week by clicking here.
Earn 10-20 times the money from America’s favorite stocks
Tactic #3 – They always have an exit strategy
As I touched on in Part 2 of this series, traders often have a hard time knowing when to exit their trades.
That’s why I also include specific exit instructions with each new Power Options Weekly trade. Each Friday, my subscribers get two different target prices they should be mindful of:
The stock target price: If the underlying stock of one of our option trades reaches its target, whether it’s an upside target for calls or a downside target for puts, we’ll go ahead and take profits. You won’t need to wait to hear from me. If a stock target is reached, you can sell to close the option and enjoy your winnings.
The option target price: Once you’ve entered the option trade in your brokerage account, you can set a sell to close limit order at my option target price. This kind of order will be triggered and close the option for you automatically if the limit price is reached. In this case, the limit price is going to be our option target price. Once you’ve set your orders, you can step away from your desk and, when the target price is reached, your broker will automatically take profits for you.
However, not all of our options will reach their targets, which are often in the 100%+ range, but that doesn’t mean we can’t still earn fantastic returns.
No one has ever gone broke taking profits!
So when profits reach 40%-60%, please take them — unless there are compellingly clear reasons to let the trade run. If you’re in doubt, cash out.
If you see a profit in this range that looks too good to pass up — don’t wait around. After all, if you’ve got 40%-60% profits in only a day or two, there’s no reason to hang on and get greedy.
If that happens, I send you a profit alert directly to your inbox and your mobile device so you can act quickly and take your profits off the table.
Now, if a trade sours — and some will — don’t try to be a hero. Take your lumps; keep your losses small; and redeploy your assets to hunt for your next fat winner.
At Power Options Weekly, we’ll use stock-based sell signal prices to know when it’s time to get out of a trade on the downside. Let’s say we’re in a call option, and our stock sell signal price is at $50. During the trading session, the stock might dip below $50 on occasion, but we won’t take action unless the stock closes below that sell signal price at the end of the trading day. (That way, we don’t get unnecessarily jerked around by brief intraday moves.)
Earn 10-20 times the money from America’s favorite stocks
So, when a stock violates our stop at the close, we simply sell to close our corresponding option position at the opening bell the next trading day and move on.
And remember, options are depreciating assets — their worth decays over time. That’s why we have a hard-and-fast rule at Power Options Weekly: We never hold any trade longer than 3 weeks.
Unlike stock investing, time is not your friend when you are holding a long option. The closer an option gets to expiration, the faster the premium in the option deteriorates. This deterioration is very rapid and accelerates in the final days before expiration.
Now, because of our 3-week maximum holding time for all our calls and puts, at Power Options Weekly we will never hold options into expiration. In fact, we’re sometimes out of a trade months before it expires, so we never need to worry about time-value erosion.
Sometimes, however, you will get into a trade, and the underlying stock will simply stall out and move sideways. In situations like these, your option is not likely to move very much either! Eventually, time-value erosion will start to set in and eat away at your option premium, so we’ll use this simple 3-week rule to prevent us from taking unnecessary losses.
At Power Options Weekly, we’ve certainly found that this kind of discipline pays off — especially when the profits tend to come much more quickly.
You can learn more about our disciplined approach here.
Wishing you great trading,
Ken Trester
Power Options Weekly
