LottoX members LOVE to ask me about my 10x trades.
And today, I want to show you how they come about.
*See disclaimer below
It’s no accident that I’m routinely hitting trades for +1,000% winners…
I aim for them.
However, it’s a numbers game here.
You have to be willing to take a few losses along the way…
You will strike out when you swing for the fences.
The key to making this work?
It starts with “sizing”
Think about risk as a coin flip.
Your chance of heads or tails is 50/50.
So, if you bet $1 to make $1, you break even over time.
Coin flips are consistent in producing 50/50 results.
High-risk LottoX trades are don’t have that same probability.
A LottoX trade may only win 20% of the time and lose 80% of the time.
However, if I win $5 for every $1 I bet, then at least I break even.
If I win $6 for every $1, then I come out ahead overall.
But, if my account only has $3 in it, if I try betting $1 each time, there’s a good chance I’ll go broke most of the time.
In order to handle the variance, I need to shrink the size of my risk to let the averages take hold.
That’s why traders often use rules like 1%-5% of their accounts, etc.
You want to make sure that no one trade or even a string of losers puts you out of business.
Now, one of the main keys components of these trades is smaller timeframes. This goes hand in hand with option contract selection, which I’ll discuss next.
Smaller timeframes means going down to something less than the daily chart.
Ideally, I want to find a setup on the 5-minute to 78-minute chart.
These shorter timeframes mean I expect the trade to play out faster than I would at the daily or weekly timeframes.
You can see in this example with Spotify (SPOT) that the setup only last 20 minutes on the 5-minute timeframe.
SPOT 5-Minute Chart
Once the squeeze fired (red dots at the bottom turned green), the trade was complete.
This would be considered a day trade.
While not all of these finish the same day, many of them do.
So, it’s important to make sure you are comfortable working with that. If you can’t get to the charts during the day when needed, this may not be a great trading style for you.
Option contract selection
Now, I mentioned how timeframes play into option contract selection.
Shorter-dated options have two main characteristics for these setups: they cost less and their exposure to the underlying stock changes rapidly.
To the second point, it means that once the stock starts moving in a favorable direction for the option, how much that option changes based on a change in the price speeds up.
Think of it like a cars acceleration.
A car accelerates at a very slow rate.
But if the driver’s rival starts getting closer, the guy decides to start putting the petal to the metal.
For long option traders it means that a small amount of money can create big gains.
So, where’s the catch?
Short-dated options decay at an extremely fast rate.
As options approach expiration, their extrinsic value declines and an increasing rate.
It looks something like this.
This means you have to be right in direction and time. Otherwise, your options lose value.
Adjusting for slippage
One thing most traders don’t consider is slippage.
Slippage is the difference between the price you want or should theoretically get and what you actually get.
The more liquid the options, the tighter the spreads and the smaller the slippage.
Stocks like Apple (AAPL) have smaller slippage than say IBM.
Selecting the right stocks
Along those lines, I want to find stocks that have weekly options, and those options trade frequently.
Weekly options give me more flexibility to maximize potential gains and create those juicy payouts.
Monthly options can do that, but usually only the week of expiration.
As I noted above, I also want stocks with lots of volume. That way I keep more of my money and give less away to the market makers.
Some of my favorite stocks are momentum plays like Tesla (TSLA), Wayfair (W), and more.
In fact, chances are I’m looking at one to put on one of these trades as you read this (unless it’s after market hours).
Members get an inside look at how I structure these trades including my setup, entry and exit.
If practice makes perfect, then I’ve got all you can handle!