If you have $1,000 and you double it 10 times, you are a millionaire. So if you choose wisely and successfully 10 times in a row, even if it is call or put options on one stock, and that trade doubles your money, you're a millionaire after 10 times doubling. So to me the goal is always to make better choices and work towards perfect timing, and keep your profits, rather than lose them.
For example, I will look for a a stock chart try to pick a stock that is just breaking out, along with the sector and stock market that are in favor. AAL had such a chart 3 weeks ago and I watched it like a crouched leopard, ready to pounce. All the other airlines were already up and this one was lagging.
I love bank stocks, but had to learn that bank stocks often just sit there for months and months without going anywhere. Time is only on your side until you are out at least three months to expiration. Then your option drops in half for every month until its worthless. If you choose an expiration date one month out, you better be right that this stock will rally tomorrow. Racing against the clock is not usually in your favor. Sometimes buying an option with an expiration date one or two months further away only cost a a few more cents. That's insurance money in case you are wrong in your timing or something unexpected happens. Use time to your advantage and get a close ask/bid price in case you have to sell tomorrow.
Ok, so you might say you can't always get 100% profit and your options may suddenly tank if the earnings come in bad or the stock market crashes. Yes, that's true, but it doesn't change the premise. Last Thursday when the Dow dropped 1,800 points 6 of the stocks I was watching hit buy points. But I didn't know if the market would continue to fall on Friday, so I bought 1/2 of the call options I would normally buy. Well on Friday the market bounced up 800 points out of the gate and my options jumped 15% and I sold them. Why? I didn't expect that the market would bounce that high, but my charting showed that the DJIa, the Russel 2000 both breached their 200 day moving averages and the Nasdaq broke through its uptrend channel on Thursday, which is very bearish. I thought this might be when the markets start to drop for the second bottom. I don't trust the bounce. Any profit in your pocket is profit towards your goal.
So I actually set a monthly goal of 50% increase in my entire portfolio and then work towards choosing well and taking profits. Hell it only cost $3.00 to buy and sell, so I would rather not wait for the options to drop $2,000 and say, "Oh shit now I have less than if I sold yesterday." I always keep 50% in cash, except for certain instances. For example, if these markets go down for a second bottom, I will be be all in with calls. I can't pretend to pick the exact bottom, but I have a trading range I will start buying calls, probably expiring 3-4 months out, and will expect a huge rally that first week, when everything will be discounted. I will look for everything to double, then....take profits! Until then, most of my stuff will stay in cash. I have two short positions for next week, but I usually don't like to short. I have made a lot of money shorting, but I have lost even more. No thank-you.
For example, I will look for a a stock chart try to pick a stock that is just breaking out, along with the sector and stock market that are in favor. AAL had such a chart 3 weeks ago and I watched it like a crouched leopard, ready to pounce. All the other airlines were already up and this one was lagging.
Sure enough, it jumped out of its base pattern, I bought calls $1 out of the money ($12) and followed the rally up to about 18 and sold it. Why did I sell if it was still rising? Because I had an 80% profit! It went on up to 22, I think and started coming back down. I'll buy it again after the second bottom. It's that simple. Yes, it is.
Just takes good research, good chart reading, lock in step with wall street and do it. You don't have to wait until it reverses. You should not try to guess the absolute bottom or how far the rally will go. You look at the chart to calculate where the stock will rally to and sell it when it gets there. If it doesn't get there, you sell and collect whatever profit you have.
Brokers will tell you options are so risky, but not if you choose the right stock at the right time and get a expiration time a few months in the future for insurance. You still sell when it reaches your calculated goal based on the chart. It doesn't matter when it expires. Never hold an option just because there's a long time for expiration. If the stock continually goes up, great. But 5 day rallies are the best for me. Once you have your profit you are out. You can always buy it again tomorrow if you look at the chart as if it was a new stock and determine it it still a perfect buy.
I love bank stocks, but had to learn that bank stocks often just sit there for months and months without going anywhere. Time is only on your side until you are out at least three months to expiration. Then your option drops in half for every month until its worthless. If you choose an expiration date one month out, you better be right that this stock will rally tomorrow. Racing against the clock is not usually in your favor. Sometimes buying an option with an expiration date one or two months further away only cost a a few more cents. That's insurance money in case you are wrong in your timing or something unexpected happens. Use time to your advantage and get a close ask/bid price in case you have to sell tomorrow.
Ok, so you might say you can't always get 100% profit and your options may suddenly tank if the earnings come in bad or the stock market crashes. Yes, that's true, but it doesn't change the premise. Last Thursday when the Dow dropped 1,800 points 6 of the stocks I was watching hit buy points. But I didn't know if the market would continue to fall on Friday, so I bought 1/2 of the call options I would normally buy. Well on Friday the market bounced up 800 points out of the gate and my options jumped 15% and I sold them. Why? I didn't expect that the market would bounce that high, but my charting showed that the DJIa, the Russel 2000 both breached their 200 day moving averages and the Nasdaq broke through its uptrend channel on Thursday, which is very bearish. I thought this might be when the markets start to drop for the second bottom. I don't trust the bounce. Any profit in your pocket is profit towards your goal.
So I actually set a monthly goal of 50% increase in my entire portfolio and then work towards choosing well and taking profits. Hell it only cost $3.00 to buy and sell, so I would rather not wait for the options to drop $2,000 and say, "Oh shit now I have less than if I sold yesterday." I always keep 50% in cash, except for certain instances. For example, if these markets go down for a second bottom, I will be be all in with calls. I can't pretend to pick the exact bottom, but I have a trading range I will start buying calls, probably expiring 3-4 months out, and will expect a huge rally that first week, when everything will be discounted. I will look for everything to double, then....take profits! Until then, most of my stuff will stay in cash. I have two short positions for next week, but I usually don't like to short. I have made a lot of money shorting, but I have lost even more. No thank-you.
