Before we get into the numbers from Wednesday, we wanted to take the time to talk about option strategies. There are many different trading rules that we try to adhere to but the most important aspect for any option trade is the chart work you do on a stock or index.
Our rule of thumb is that we like to use stop losses on higher priced options as trades do go against you but on options under $1, we don’t carry stops. We also trade our own money so when other option newsletters recommend a trade and they cut losses at 50%, they move on. They also don’t have track records so it is really hard to judge them because they will only tell you about their winners.
We take the blame on losing trades and we feel we should never have one but over the YEARS we have averaged a 70% win rate for ALL of our trades. We like to trade slightly out-of-the-money calls and puts with premiums under $2. If we are in an option that costs more than $1, we will carry a stop. On options under $1, it never makes sense to keep 50% stops in place because of the volatility. We use the higher priced options to build up our portfolio while using lower priced options for speculation.
Our point is that we want to remind you that as long as you have a trade open, it isn’t over until you close it or the options expire worthless. Otherwise, anything can happen. Of course, not all of your speculation plays will be a winner but if you trust the chart work then it is easier to stay the course when it comes to option trading.
For example, we recommended 2 trades on the Powershares QQQ (QQQ, $70.01, up $1.33) that made our subscribers 63% and 64% (on half) yesterday in a 8 days. However, one trade was down 67% while the other was down 88%.
We don’t often trade WEEKLY options but at the beginning of April we were speculating the QQQ’s would make a run past $70. The April 70.50 calls WEEKLY (QQQ130412C00070500, $0.13, up $0.12) were going for 8 cents at the time and we were looking to play them for 2 weeks, or until this Friday. As you can see from the Yahoo Finance snapshot below, the options had closed at a penny on Tuesday but surged 700% by yesterday’s close. They traded up to 13 cents and where we got out. We could have left the trade open until today or Friday but once the QQQ’s triggered $70, we were out. That was our game plan.
The other option trade is still open and it was a higher priced premium (33 cents) and we closed half of it while setting a Hard Stop on the other half to protect profits. These options closed Tuesday at 11 cents and the trade was down 67% but is now up 64% with the chance of making move.
Had we set a 50% stop loss on these trades, we would have been out even though our chart work was spot on. Of course, if the QQQ’s hadn’t of rally we would still be in trouble with these trades but hopefully this gives you a better understanding on how we trade and why we are so successful year in and year out. (read more…)
If you are not a subscriber but would like to get more, real-time trades, please click here. We are one of the fastest growing stock options trading advisors on the internet and we had an incredible 2012. We offer 2-3 powerful call or put option trades each week (depending on market conditions) aimed at triple-digit returns for our Daily newsletter and our Weekly Wrap Covered Call Portfolio strides for double-digit returns on a monthly basis. Together, we were 159-70 (70% win rate) for both newsletters in 2012 with over 30-triple-digit winners. Our 5-year track record from 2008-2012 is now a staggering 621-273 that is also a 70% win rate. We doubt you will find a better options trading service. Closed Trades for 2013: 31-16, for a 66% win rate, including the Weekly Wrap that is 10-1).