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When trading options, the best edge you can get is understanding the role of volatility in both the stock and the options. Your trades should reflect what you think about the stock - not only what direction you think it will go, but also how fast you think the stock will move.
And because I know that I tend to be early on pullback trades, I suggested to go in half position size and then add at 1. Bull put spreads were chosen because this is a pullback trade, meaning that the stock is selling off and we're expecting the downside action to be not as great as what the options are pricing in. This trade was set to expire worthless into January expiration, but because AAPL was trading right around I made the call to close out the short put for.
This is one of my "bread and butter" trades: The AAPL Failed Breakdown Another one of my favorite setups is to look for a " captain obvious " level where way too many people will have their stops. What you'll see is a "stop run," where the level is violated and everyone thinks the stock is now broken and the stock is ready to collapse.
And then it fails to see any followthrough and it reverses higher. On January 6th, AAPL broke down underneath its key support at , and I had a feeling that way too many people were watching that level. I sent out a trade alert that if AAPL broke back above A key point here: You want to have some wiggle room. After two days, the stock hit my first target, which is where I sent an alert to scale half of the options at 7.
The exact same day, AAPL continued to rip higher above and then gapped into After 3 days higher finishing with a gap, that's a great time to take risk off the table. That's when I sent the alert out to sell to close the Feb call This is known as a vertical roll, and allows you to take cash off the table but still keeps you in the trade.
I also set a trailing stop just under The same day, is broken and the Feb calls are closed for around 3 bucks depending on the fills. Bought to open AAPL calls 5. Sell to close AAPL calls for 3. Basically, if you think that the normal volatility of the stock will be greater than the cost of the weekly straddle, you should buy that straddle.
This makes many people uncomfortable because these options have a ton of time decay. But if the stock sees some decent movement, the time premium is replaced with intrinsic value and you can be profitable. The biggest risk to these trades is reversion so it pays to be aggressive in taking profits.
Bail on the trade at 3. Hold out on the trade and run a stop on a move back under If you chose door number 2, the trade's now worth 5. This Approach Works Can you make money just from timing the market and using long options only as leverage?
I believe that if you are looking to build aggressive and sustainable wealth with options, it requires a more nuanced approach. Sure it can be a bit more complicated but that is where the edge lies. Do you like trades like this? Want to learn more? Join me and the other traders at IWO Premium. You can learn more here. I've put together an Iron Condor Trading Toolkit that gives you the case studies and training needed to be consistently profitable in the market. Click Here to Get the Toolkit.
What that means is there is no "one size fits all" kind of option strategy. Let's review how I did it. Here's how the total execution of this looked like: Here's what the risk of a single straddle looked like: The next day, AAPL saw a 3 point move to the upside.
I sent subscribers an email to either: Yeah, but it's really hard and you can blow out your account. Can you just be a blind option seller and only focus on collecting as much premium as possible?
Sure, but if you get one bad trade it can wipe out weeks or months of hard work.