Of course, not all the trades will be winners, and it’s important to learn how to manage risk.
You’re probably wondering how I achieved those returns…*
I took advantage of the enormous interest in small caps – interest so large the index began to OUTPERFORM the Nasdaq 100.
Now, a lot of people associate small caps with risk.
But, I use option strategies like cash covered puts to not just manage risk, but ENHANCE my returns.
Let me show you what I mean.
Supercharge with small caps
Are small caps riskier than large caps?
That depends on your point of view.
In general, they carry greater risk. But that’s proportional to the additional reward.
You see, large companies like Tesla (TSLA) or Facebook (FB) receive enormous amounts of scrutiny and study. Very little occurs that gets past the market.
With small caps, you might only find one or two analysts covering a stock. And more often than not, their businesses thrive or dive with the economy.
Think of it this way. How much bigger can a company like Apple (AAPL) get? Double? Maybe 5x its current size in a decade?
Now consider a small fintech startup payment processor. They could be 100x the current size in a matter of years.
But they could also be bankrupt. It’s unlikely anyone holding shares of Apple worries about their business folding in a decade, let alone the next few years.
Let me dispel another myth for you.
Options carry no more risk than stocks when used properly. In fact, investors often use them to reduce their risk.
Think about a fund that invests money in various stocks for clients. If they worry about a market drop, they might buy put contracts on the S&P 500 index or the like to hedge their portfolio.
That’s all option contracts are at the end of the day – insurance products.
As a trader and investor, I can take both sides of this trade.
And one of my favorite ways to pick up stocks at a cheaper price – cash covered puts.
Essentially, I set aside money to buy 100 shares of a stock per contract. Then, I sell a put contract to someone else, giving them the right to sell me (forcing me to buy) 100 shares of the stock per contract at a specific price.
It’s like a farmer locking in a sales price of at least $30 per bushel. I’ll buy X number of bushels at $30 until the expiration date. If the market price is over $30, he’ll sell at market price. If it falls below $30, then he might exercise the contract.
However, I wouldn’t just give the farmer this gift for free. He might pay me $2 per bushel as a lump sum for this privilege.
So, even though I might buy his bushels at $30, I get to keep that original $2.
That’s what stock options do.
Let’s use an example from my portfolio.
Alpha Pro Tech (APT) is a stock I wanted for my Portfolio Accelerator. Beyond the growth in the company’s industry, the chart looked extremely promising.
APT Daily Chart
After hitting a strong support area, I decided that I liked this price level for an entry point.
So, I sold the APT, December 18, 2020, $12.00 put contract for $0.70. That means my effective price, if I had to buy the stock, would have been $11.30.
For each contract I sold I needed to set aside $1200 (100 shares x $12 per share).
Since each expiration was about 17 days away when I took the trade, if we get to that date and the stock is over $12, the option expires worthless and I keep the $70.
Think about it this way. I could earn $70 on $1200 over 17 days, or a return on investment of 5.83%.
If I made similar trades back to back for an entire year, my annual return on investment would be 125%!
Sounds too good to be true.
Well, you can see that at the time of this screenshot, the stock is up at $13.12. If I simply bought the stock at $12, I would be up $1.12. So, there’s an opportunity cost if the stock takes off running.
Still, I can use this strategy to generate income against stocks I want to own. I can also increase my probability of success by going with option contracts further-out-of-the-money, although they pay less.
And best of all, I can take the trades off early for partial profit and further increases my odds of turning a profit.
A strategy every investor needs
Everyone wants to generate consistent income from the markets.
Few achieve it.
But you can never start that process without the right tools and information.
In fact, here’s what Mandy and Daniel (members of my trading room) had to say:
“People in the chatroom actually respond, whether it’s the moderator, or members, I always get an answer for my question” — Mandy H.
“This chat room makes me feel included, everyone is very helpful, it is a community built on trust and friendship” — Daniel M.
So you don’t work at a hedge fund or at a big firm on Wall Street?
No problem! You can still trade as part of a team… I am going to show you how you can AND why it will help you trade better and become more profitable…
Growing Your Profits With A Team
Just look at the big money making firms in the industry. Hedge funds for example split traders into groups (stocks, options, bonds, etc.) and they each share their ideas with each other, as well as talk out their trades.
In my experience… the traders who don’t share their ideas and thoughts about their trades and try to go at it alone are typically the ones who end up failing.
While I may have started trading with little to no money and no experience or knowledge… I DID have a trading partner that I would talk about all my trades with.
In fact he is the co-founder of RagingBull, and super successful trader Jason Bond…
I wouldn’t be where I am today without having him there to talk to in the beginning… and he would tell you the same thing about himself…
We are both successful traders today because we talked to each other about our trades…
And I’ll tell you this as well… it might sound hokey… but I wouldn’t be where I am right now without my members…
I might miss something that someone else sees and vice versa…
I’m a teacher and a mentor… but I’m also a member of my team… and that makes all the difference…
You see, we all come from different backgrounds and different experiences that shape our views… therefore when we trade in a group setting, we benefit from the many different ways of looking at something.
And that’s priceless…
Take a look at this chart:
This is a classic consolidation breakout. One of my favorite patterns that I use every day. We talked about this in my chatroom when volume picked up (circled on chart) with a break above the consolidation range (blue line on chart).
The stock closed strong right on the high of the day. This tells me there is good potential for follow-through the next day.
What happened next?
As seen on the last bar on the chart, it gapped up hitting a high of .72. This is a classic overnight move that I teach and preach in my chatroom.
Buy strength on breakouts at the end of the day… and pull profits out the next morning on the follow-through.
In and out… over and over.
Now…Imagine trading this breakout all alone.
You might get excited at the fast move and try to hold it for more gains (instead of cashing out on the follow-through)…
Just to watch it crash back down below your entry, where it retested the original breakout point (the blue circle on the chart).
Then being alone you freak out and bail for a loss… after which you watch it take off again (the blue arrow on the chart).
So what went wrong?
It’s simple… you were trading all alone.
You didn’t get out on the follow-through… a key part of the strategy I teach.
You bailed at support for a loss… where other traders were likely buying.
It’s hard to trade, but it’s even harder to trade alone.
There is a reason for the way I trade these setups, and when you are a part of the Stock Profit Pro trading room, you are seeing it and learning it first hand…
If you traded VXRT in my Stock Profit Pro trading room… that was a money trade… an easy one.
If you traded it alone… who knows…
And that’s not all you get from trading within a community…
There’s another big benefit to being in the Stock Profit Pro trading room every day…
Let’s face it, sometimes we miss trades and don’t realize it until after the fact. Trading in a community is one solution to that problem.
For example, in the Stock Profit Pro trading room, we’re always looking for new trades and talking to each other about our ideas and what we see.
I have a great group of moderators that all post their trades too, along with other members calling out setups they are watching.
So you won’t just be seeing the trades I take…you’ll be seeing so much more.
And many of my moderators are more active than I am, so there are trade alerts going off all day in the room.
As you would expect, this has been helping members tremendously…
“Puts a great group of people together trying to accomplish similar goals. MOD are great for trade ideas. Jeff does an absolutely fabulous job of practicing what he preaches with the steps he takes everyday!” — Aaron B.
“I love the support from Everybody, and the CONSISTENCY! It takes time to truly learn and begin to master anything, and this group is more of a “Family” than just some place to make money. Everybody truly cares about everybody’s success.” — James G.
“You and Mods are real, you all care about this group. I have had many services over the years, some very expensive, and this real world trading…. Good, Bad and Ugly… Can’t be beat. Education is priceless and can’t find it in any other stock services.” — Mike E.
Listen… if you want the benefit of a community of traders helping each other make more money…
Then join me in my Stock Profit Pro trading room every day where I talk about setups and trades with a group of traders just like you… and the best part — we have a blast while doing it.
Of course, I’ve been teaching traders for a decade — and if you don’t know by now…
I put my money where my mouth is when it comes to my strategies.*
That said, let me show you the details behind this trade, and how I was able to lock in about a 50% overnight.*
Once You Learn This Strategy, You Might Not Want To Trade Stocks Anymore
Let’s face it, we all want to trade these tech stocks… but for retail traders, they’re just too expensive. I mean take a look at TSLA, the stock is well over $450 per share. That means if you wanted to purchase 100 shares, it would cost a whopping $45K!
I know a lot of people don’t want to drop that much on a trade, and I get it. It’s a capital suck and it can cause you to miss out on other trades.
So what’s the alternative?
Well, yesterday, I mentioned how selling a put spready would be advantageous.
Here’s what I noted…
TSLA of course is all the rage today and I think, based on the pattern, $500 isn’t out of the question. So my goal is to sell $450 / $440 or slightly lower for $4 premium if it dips a little into some gap recovery today. Expiration for this Friday and next Friday make sense to me here.
I would like to make both of these trades today and will keep you posted if I’m able to get the premium I’m looking for. Nasdaq is light green this morning with the Russell, Dow and S&P all light red.
I’ll be looking for my TSLA entry early, assuming there’s some gap recovery
Now, I actually had to switch my plan a bit.
You see, after TSLA pulled in, the initial puts I was looking to sell were actually somewhat in the money, and I believed it was less risky to sell the $445 / $435 put spread expiring on Friday.
So what that position allowed me to do was establish my bullish position in TSLA.
Basically, I believe the stock would stay above $445. Now, that doesn’t mean I have to hold onto the position the entire time.
As shown earlier, you can see that you don’t have to hold until expiration date and you can exit the trade whenever you want.
I just so happened to take off the position for a 50% winner. If I had held longer… it could’ve been a lot larger, but that’s just how trading goes.*
The next time you see an expensive stock and you’re bullish on it…
I think you’ll want to keep this strategy in your back pocket.
Listen, I don’t show you these gains to brag. I truly want to show you what’s possible and just how much opportunity is out there.
I get it though. It’s hard to come up with trade ideas and learn how to develop them.