Mailbag Q&A: Order Types, IV, Small Accounts, and More
What a week – in just five days, we’ve dove into a new trade on silver…
Used Cathie Wood’s ARKK to our trading advantage…
Done an encore presentation of the Profit Takeover launch…
And explored the fall of FAANG.
Every day, we get closer and closer to our goal of taking over Wall Street – and taking financial power back into our own hands, where it belongs.
Which is why today, I’m bringing you another mailbag edition of Ask Me Anything.
Today, we have a whole roll of great questions. We’re talking order types, implied volatility, and trading with a small account.
Want to see one of your questions answered in Profit Takeover? Then just click here and send away – I love hearing what all of my readers have to say.
Because unlike the so-called Wall Street elites, I’m here to help you.
First up, we have a question from Joel. He’s a newbie trader but he’s excited to get started – which is exactly what I love to hear.
Remember – you don’t need an MBA or years of experience to trade options. Anyone can do it. That’s exactly what I’m here for – to help you navigate the trading world.
Because Joel is new to trading, he doesn’t have his options clearance yet. And that means he hasn’t had a chance to take any of the trades in the Profit Takeover portfolio.
See, trading options isn’t like buying and holding stocks. In order to buy options, you need to get clearance from your broker first – bringing me to Joel’s question…
Well, Joel – and everyone else – when you buy an option, there are a few things you’ll have to fill out in the options order form.
The underlying, the strike price, the expiration date – I’ll give you all of that. But another section of your options order form will say “time in force.”
Essentially, this refers to the amount of time you want your order to buy to be in place.
Typically, you can choose from two options: day-only or good-’til-canceled.
Day-only orders are exactly what they sound like. Say you set an order to buy an option on a Tuesday at 10:00 a.m. for a limit of $1.00. If, by market close at 4:30 p.m., that option hasn’t yet filled, then it will automatically be canceled.
If you make an order good-’til-canceled (GTC), then your order will stay open until you cancel it. Simple as that.
Now, remember, option prices move fast. That’s why I don’t recommend getting into these trades more than a week after I’ve recommended them – although the exact timing differs depending on the trade’s expiration date.
Going forward, when I recommend a trade, I’ll specify whether you should make the order day-only or GTC. But for now, the short answer to Joel’s question is this: no.
Option prices move fast, and a stock’s story can move quickly as well. If you get into a trade I’ve recommended more than a week late, you could end up losing money instead of banking the asymmetric returns we’re looking for.
If you’ve missed out on our past trade recommendation, don’t worry. I’m recommending a new trade every single week. So, your next trade will never be too far away. Just keep an eye on your inbox.
Next up, I have a question from Chris on the topic of Wednesday’s webinar – volatility.
Specifically, Chris wants to know more about implied volatility (IV). Which, if you remember, is key to building the perfect option trade.
This is a great question. Cheap is a relative word, right?
$10 sounds cheap. But if you’re talking about a can of Coke, then $10 is incredibly expensive – we’re talking baseball stadium prices here.
On the other side, $10 for, say, a television set is a whole lot cheaper (and so is watching the baseball game on that television set, with a Coke from your fridge… but it’s not the same, is it?)
When it comes to IV on an option, think of it like this….
IV prices move just like stock prices – and every stock has its own IV. And just like a stock, IV is always mean reverting – meaning it will always eventually return to the average level.
Now, remember – IV, just like the price of that Coke or TV – is relative. So, you need to compare a stock’s current IV with its past IV. When IV gets to the 52-week low, that’s generally what I consider “cheap.”
And that’s your opportunity to buy.
How do you identify 52-week lows in IV? Well, just take a look at the chart below of AT&T (NYSE:T):
Above, you can see the stock’s movement. And below that is the IV – and those blue circles? Those are the lows – and that’s your visual representation of cheap IV.
And now, for our last question of the day, let’s turn to another beginner trader, John.
John wants to know if he can still trade options with a small account.
Well, John, I can’t give any specific advice regarding your trading account. I’m not a licensed broker – and I always suggest talking with one when it comes to taking any trades.
That said, I will tell you this – back when I worked with the Wall Street elites, my boss didn’t give a rat’s you-know-what about accounts less than $500,000.
But my goal here at Profit Takeover is to do the exact opposite of what my boss did.
The concept that you “need money to make money” is complete and utter bull. You don’t need a million-dollar account to trade options.
Here at Profit Takeover, we’re targeting asymmetric returns. That means low-risk trades with high-reward potential.
For the most part, I’ll never recommend a trade more than $500. And most often, I’m looking for trades way below that – less than $100, really.
All we need to see is a $0.25 option contract turn into a $0.75 option contract, and boom – a 200% asymmetric return. And just like that, you’ve turned your couple-thousand-dollar account into more.
For the first time, the little guy’s small account is a major threat to the guys on Wall Street’s seven-figure one.
And threatened they should be… because we’re taking over…
One asymmetric return at a time.
Great questions, everyone, and if I didn’t get to yours yet, don’t worry — I have another Q&A installment coming next week! So if you haven’t submitted your questions yet, Ask Me Anything right here.
I Spy Impact Money
Here’s an unusually large option trade that crossed the tape this morning, pointing to potential institutional-level activity:
Click To Enlarge
Unusual volume on SNOW – Courtesy of Trade-Alert
Snowflake (NYSE:SNOW) shares are up 7.9% at $203.07, at last check, thanks to an upgrade to “buy” at Goldman Sachs. The analysts like Snowflake’s competitive position, and said SNOW stock’s recent sell-off looks overdone compared to its peers.
Against this backdrop, it looks like one big-money trader opened a bull call spread on SNOW today, buying to open 3,000 June 205-strike calls, and then reducing their cost of entry by simultaneously selling to open June 240-strike calls.
While pairing the positions cuts the potential risk on the bullish trade (compared to buying the 205-strike calls outright), it also caps the potential reward on a move above $240 — a level that’s eluded SNOW since early March.
Since I’m looking for two-factor authentication at the retail and institutional level, I’ll continue to keep an eye on SNOW.
That’s it for today, Profit Takeover crew, but I’ll be coming to you this weekend with a report on what NOT to trade next week… Stay tuned!
To your success,
May 14 2021
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