Two VIP Picks In 1 Week
Hi Trader,
[This report from several years ago remains relevant today – use it to refine and solidify your knowledge of the strategy.]
We had another great week. Both VIP picks worked out perfectly.
The reason these trades worked was because they were based on the principals and concepts I teach in this course.
Let’s do a quick review of the 3 steps we go through.
Last week, before I recommended this trade, I did what I teach you to do.
Step 1. I put my fingers on the pulse of the broad market.
Simply look at ticker symbol DIA in your charts or Trend Point to determine the broad market’s trend. The reason we do this is because research has proven that you can increase your odds of success on every trade simply by trading in the same direction as the broad market.
In other words, if the market is bullish, trade stocks long or in our case, use Bull Puts spreads.
If the market is bearish, trade stocks short or use the Bear Call spreads.
If the market is trapped between trend points, you can use the Bull Put spread or Bear Call spread or even the Iron Condor.
When I put my fingers on the pulse of the broad market last week, it was trapped between trend points. But is was also weak and probably headed lower.
Let’s take a look at the broad market…
Since the broad market was weak, my plan was to use the Bear Call Spread on a stock that was weaker than the broad market.
This completes step 1.
Step 2 is to select a stock.
The stock I chose was Apple.
The reason was because when using the Bear Call spread we want a stock that is in a downtrend. Apple was in a downtrend that was even more aggressive than the broad market.
Let’s take a look at the Apple chart…
As you can see the stock was dropping hard. Picking the stock is step 2.
Since the stock was trending down, the next step is to select your Bear Call spread.
When I select my Bear Call spreads, I don’t go for the most money. What I do is look at the chart and pick a spread that is at a level the stock is not likely to rise to by Friday’s close. I stay deep out of the money. My main goal is to not lose money and not even have to unwind the trade. I want as little risk as possible. With that in mind, I still try to get at least 2% per week.
My first VIP pick was a Bear Call Spread at 610/615. In this spread we sell the 610 Call and buy the 615 Call. We would get more money for selling the 610 than we would spend on the 615 and the difference would be our net credit. In this trade, we win if Apple stays below 610 through Friday’s close. It did.
The second VIP pick this week was also a Bear Call Spread on Apple. Sell Apple 590 Call, buy Apple 595 Call. For this trade to work, Apple would have to stay below 590. It did.
Both Credit Spread picks were winners.
As you can see from this chart, these spreads were deep out of the money. That also means they had very little risk.
I prefer to take as little risk as possible with this strategy. However, you can make more than 2% per week by simply choosing a spread that is not so deep out of the money, but doing so carries more risk.
With weekly options, I prefer to use credit spread strategies – Bull Put Spread and or Bear Call Spread – to create weekly income. I want this to be consistent, and low risk.
For higher returns I suggest out right buying of weekly puts or calls depending on the situation. As I showed you in the weekly options day trading video, some of the returns on these weekly options were insane. In the video you can see how people made 100% – 300% in 1 or 2 days buying a few Calls or Puts. We had the same situation this week with Apple Puts. These types of trade have more risk than the spread trades but the returns are off the charts.
Some people like nothing but buying Puts and Calls and some like the credit spread strategies best.
Some do both.
People ask me the best way to take advantage of weekly options and here’s my answer. My preference is to build a solid weekly income with low risk credit spreads and rarely speculate with buying calls or puts. I feel this way because, regardless of market conditions, you can always find low risk credit spreads yielding 2% or 3% every week no matter what. We’ve don it every week since we started. Making money buying Puts and Calls is not as consistent because you need the right market conditions for the underlying stock to make a big move. That does not always happen. The other problem with buying weekly Puts or Calls is that 77% of the time option buyers lose 100% of their money. So with the credit spread strategy we put the odds dramatically in our favor. That’s why my personal preference is to focus on weekly income with low risk credit spreads and occasionally speculate by buying weekly put or call options. I am not a stock broker or registered investment advisor. This is just my personal opinion on the best way to use weekly options.
Next week, plan on the same thing. Take a look at the chart of the Dow Jones. On the far right you’ll see a purple colored bar. That indicates the market closed below all three trend points It’s a very bearish sign. Once a stock or the broad market trades below all three trend points, there is no support at all and no telling how low it could go.
One more thing. Next week is the third week of the month. That means three things. 1: That means that regular monthly options that expire in November expire next Friday. 2: Since it is the third Friday, the monthly options are treated as the weekly options this week So there will be no separately listed weekly options. 3: Since it’s the 3rd Friday of the month, any stock that has regular monthly options can be traded as a weekly option trade this week. Normally, as you know, we can only trade weekly options on stocks that have available weekly options, but since any stock that has listed options can be traded like a weekly options trade this week, we have an enormous amount of possibilities for credit spreads.
Trade Well,
Jack