I received a lot of emails on the JPMorgan Chase (JPM, $49.49, up $0.24) trade yesterday and this morning. First, thanks for writing and keep the emails coming. Many of the questions involved stop losses and targets and where the options I discussed are headed. I’ll go over a few quick reminders and what I look for in trades and we can go from there.

The market just opened and JP is slightly higher. The October 47.50 calls (JPMJW, $4.60, unchanged) could have been bought yesterday at the open for $2.75 and before the market closed they were up around 40%. The biggest thing here is that anytime the market gives up a 40%-50% profit in a day, most of the time it is best to take the quick profits and close the trade. It eliminates the greed and emotion we all can get.

Next is your entry prices and exits. If I buy an option for $2.00 a contract and I buy 10 contracts, I have got $2,000 tied up in a trade. I usually set my stop loss anywhere from 25%-50% below my initial investment. That means once my $2,000 investment starts to lose money and goes down to $1,000, I usually cut my losses. Done, no questions asked, move on to the next trade.

For every option trade, my goal is a 100% return. Now, like I mentioned in earlier notes, if you can get 50% in a day then take the money off the table. When I target 100% returns the trade can take anywhere from one to three weeks. However, sometimes stocks move faster than we expect and why risk the 50% you make in a day for maybe a 100% you might make in two weeks?

It was a tough call for many of you to close the trade on JPMorgan because it looked so strong going into the close. The October calls I mentioned still might double but remember it’s okay to take half the position off the table or even the whole thing when your profits grow that quickly.

Rick Rouse