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As you know, I hosted a Live Event Tuesday.

Thousands of people attended to get access to my latest picks and my Watch List.

During the event, I also closed one of my recent trades.

I earned an 82.5% (or $3,300) return on Callaway Golf (ELY).*

This is how it feels to nail a trade so freaking hard.

 

 

Keep in mind, I opened this trade just two Fridays ago.

In eight days, I generated a return that would take some investors YEARS to obtain. 

How did I do it? 

I’m going to explain this Callaway trade from the ground up.

I want you to understand every little nuance of my recent Callaway trade and the 12 other trades that are open right now in my Portfolio Accelerator.

Dive in right now.

 

The Great Rotation Creates Greater Opportunities

 

This market is incredible.

Things have been on fire since Pfizer announced last week that it had completed its vaccine trials. The vaccine has an efficacy rate of 95!

Now, we witnessed a huge rotation from growth and tech stocks into cyclical stocks more tied to an expected economic recovery. 

The chart below offers a glimpse into the impact of a vaccine on specific sectors.

 

 

This kicked off a massive run in various consumer-facing sectors. 

It has also created a vast selloff of great companies that I want to own for the long-haul. 

And it’s created some insane mispricings in the market… 

Seriously, I’ve been making money hand over fist in the last week, and I expect this rotation to continue and create an incredible amount of trading opportunities for my personal portfolio. 

But I’m not interested in just buying a stock today. 

If a stock hits my screen that I want to own… I want to squeeze every dollar I can out of this AWESOME market.

At the heart of every trade I do is making sure I pay the price that I want to pay.

Rather than just buying a stock at the price it sits at today, I use a much different strategy. 

I sell “puts” on the companies I want to buy.  

Now, let’s take a step back. A put is a contract that allows a person to sell a stock at a predetermined price by a specific deadline. 

The predetermined price is known as the “Strike Price.” 

This specific deadline is known as an expiration date. 

Let’s walk you through each of these components before I outline my 82.5% in just eight days.*

 

The Strike Price

 

You need to understand the strike price before you do anything with options. 

The strike price (or contract price) is the specific price that a put buy will deliver shares. 

And it’s the price that the put seller will accept and purchase those shares.  

Here’s a quick example of the current price of AT&T calls and put contracts. 

It’s standard to list Call Options on the Left side of the options column, and Put Options on the right side of the column. 

At the center of this column is the strike price for both calls and puts. 

 

 

These are options available to trade on December 18, 2020. 

At 12:30 on Wednesday, November 17, 2020, AT&T stock traded at $29.00 per share.

With shares trading at $29, someone can sell $28.00 puts for approximately $25. 

They would get a premium of $0.25 for every share they would want to buy with each contract totaling 100 shares. 

This means that they would get paid $25 to purchase 100 shares of the stock at $28.00 within the next 30 days.

The stock would have to fall to or below that strike price of $28 for the seller to execute that trade.

The added benefit is that if the stock does fall to that level, you’ll be able to snap it up at a higher dividend than it pays today.

 

The Expiration Date

 

The options expiration date is the date that the contract must be settled, or it becomes invalid.

In the case of AT&T, contracts are currently trading for the following dates.

 

 

The contracts available will expire on one of the dates listed above. Some options trade in short-term periods ranging from just a few days to a few months. Others – known as LEAPs – are traded over 1 year until they expire.

Now, as an example, the $28.00 put has an expiration date of December 18, 2020 (fifth in the chain above).

That expiration date matters because once an option is within third days, the value of that option price begins to expire quickly.

A trader wants to go out far enough to ensure they are not affected by the quick decline of the options price as the expiration period approaches. This decline in price is commonly referred to as the Decay. As you can see, there is a fast decline in the options price (decay) within 30 days of expiration.

I like to go out 30 to 45 days when selling options.

 

Three Possible Scenarios Can Produce Gains

 

As I said on Tuesday, I had more than 10 trades that had developed into Money Trees.

Each position was ripe for me to take profits from.

So, I picked Callaway Golf (ELY).

 

 

Nom. Nom. Nom!

I LOVE Callaway Golf.

I think that the sport is making a strong comeback.

It’s socially distant. It’s a nice way to spend the day outside.

But I REALLY LOVE that Callaway recently bought a large stake in Top Golf.

Top Golf is one of the coolest places in the world.

They are driving ranges with a full restaurant and bar. Every time I travel, I visit one, and they are packed. Several floors of driving ranges, top shelf liquor, pools, sports on the televisions, and great food.

 

 

This is a great stock to own for the long-term.

But how many shares do I want to own and at what price?

I would buy 5,000 shares. But why pay more than what I’m willing?

Why not get paid to buy it and wait for a downturn in the stock.

On November 6, 2020, I sold 50 put contracts.

The price target was $17.

The expiration date was this Friday: November 20, 2020.

For each share that I had committed to buy, I received a premium of $0.80.

Since every options contract is worth 100 shares, I received a premium for each contract at $80.

As I said, I sold 50 contracts, so I received a TOTAL PREMIUM of $4,000. 

There are three possible scenarios that could happen after I sell those contracts.

Let’s look at them.

1)   The Stock Falls Under $17 by November 20

If the value of Callaway had declined to $17 or less by Nov. 20, then the buyer of the put contract could have executed it. This means, I would be delivered 5,000 shares of Callaway Golf at $17. 

Now, keep in mind that because I received a premium of $0.80 per share, my breakeven price for this trade would be $16.20.

So long as the price remains above $16.20, I would make money on this trade, even while executing it.

Remember, even if the stock falls to say $16.00, I would still be getting in on the stock at my desired price of $17, which is what I wanted the whole time.

It might be a small loss on paper for the moment, but I’m happy to get the shares I want at my preferred price.

That’s a WIN in my opinion.

2)   The Stock Stays Above $17 and Expires on November 20 

In the second scenario, Callaway Golf might go higher, stay at the same levels, or decline. But so long as the stock’s price stays ABOVE $17, the option becomes worthless if it expires without executing.

In that scenario, I would keep 100% of the premium that I collected when I sold the put contracts. That would have been a $4,000 or 100% win. 

That too would be a WIN for my portfolio.

3)   I Buy to Close the Contract 

In scenario three, I can close my trade by simply buying back the same contracts that I sold in the first place. 

For example, if Callaway Golf shares rise to $19 per share over the contract period, the value of the put is going to decline. The probability of shares falling back under $17 would decline in this scenario. Let’s say that the price rises and the value of that put falls to $0.40.

I could “Buy to Close” that contract for $0.40 each x 100 ($400). Since I sold each for $0.80 (x 100 = $80), I would pocket $40 per contract or $2,000 (50 contracts). 

We could also see the stock just paralyze and stand still for two weeks. Even if the stock doesn’t go higher or lower, the decay will kick in and drive down the price of the stock. In that case, I could buy the options back and simply close the trade for a gain as well. 

Or, the stock could fall under $17 in the final days, but never get down to the breakeven price of $16.20. 

So, if on the day of expiration, the stock was at $16.85, and the put traded at $.20, I could buy it back and make a gain of $0.60 per share.

That’s $0.80 minus the $0.20 that I bought it back for – to give me a gain of $0.60 x 100 shares x 50 contracts = or a gain of $3,000.

Again, that’s a WIN.

 Given that my trade was up 82.5%, I could have let this contract expire on Friday.

But I used the time during my presentation to close this trade and show you how I do it.

 

A WIN-WIN-WIN Recap on Callaway Golf

Remember, I sold to open the contract for $0.80 and at a strike price that I wanted to own the stock at. I set aside cash in case I needed to buy the stock.

The stock didn’t decline to that level in the expiration period, so I bought it back for $0.14. and pocketed $3,300.

I’ve made it easier than ever to take part in this strategy and follow my live REAL MONEY trade.

Watch yesterday’s event right hereYou need to learn this strategy.

In fact, I just closed another trade today on GameStop that used the same strategy AND netted me another $2,800 for just a few days of work.

Yep… that was another 80% gain.

Or, you can get access to my trades from today.

Two trades that I just made a little while ago… Just do it already.

I’ve given you everything you need. It’s your job to take the next step in your investing career. Join my Portfolio Accelerator today.

Author:
Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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