It took most of the day but Family Dollar Stores (FDO, $32.10, up $0.82) traded down low enough for us to our get our entry price for the April 32.50 calls (FDODZ, $1.45, up $0.25). These calls opened at $1.35 and traded to a high of $1.60 earlier this morning. However, the stock fell to $31 late in the afternoon which brought the April 32.50 calls down to a low of $1.03.
We were looking for the stock to hold $30 which it did, and since we always wait 30 minutes after the market opens to place orders, all we had to do was set our limit price and wait. I had mentioned that a good area would be the $1.00-$1.10 area and once we got there your order should have automatically been triggered.
If you will recall, we were targeting $1.50 initially for the trade which would put our profits at 50%. We are almost there and by waiting for OUR prices, we were able to get in at our target price and we are looking good for an exit of at least $1.50.
Here is the tricky part and it’s all about how you manage your money. If you were able to get in at $1.05 and bought 10 contracts, it would have cost you $1,050. The beauty of this trade is that if you would have bought these calls at 2pm then a couple of hours later you could have sold them for $1.40-$1.45 and put $400 in your pocket.
As I mentioned the other day, if you can do a couple of these trades a week while limiting your losses then you are well on your way to growing your trading account. Now, if you would have bought these options at the open, you would have paid $1,350 and would have waited all day just to make a $100. By planning the trade and waiting for the stock to come back down to our level, we were able to take all of the emotion of the trade.
Sometimes when the market is acting the way it is, all you can do is look for these types of trades. Making 40% or 50% on a day like today is what option trading is all about. I wanted to show you how you can use limit orders to make money in a stock that is in a strong uptrend and we accomplished that today. I know we didn’t technically hit $1.50 when the market was closing but as I’ve said many times before don’t get greedy.
I think the trade is still going to do okay and if Family Dollar opens lower to start Thursday’s session then your profits could sink a little. If the calls open at $1.25 then you may only have a $200 profit but don’t give it back. I think the stock is still headed higher but I wanted to show you how to get in and out of an option trades quickly and how easy it really is to make $500 in a day. Set stops at $1.25.
As far as Blackstone Group (BX, $7.79, down $0.43), they popped at the open as well but the stock looked weak all day and hopefully you were able to tell by its trading pattern that we were headed lower. The stock broke down like a rented mule and once it broke below $8, I figured it might have trouble making it back above it. Plus, with the market showing solid gains and the fact that Blackstone wasn’t partcipating reaffirmed my instincts to wait for lower prices.
The April 7.50 calls (BXDU, $1.00, down $0.30) just got 30% cheaper from yesterday and hit a low of 80 cents. I liked them yesterday and loved them before the close. The direction of the stock could push it back down to $7 but this trade has three weeks before it expires and I don’t think the action in Blackstone is over quite yet.
Rick Rouse
Rick@OptionsMentoring.com
