Hello, Profit Takeover team!
As I told you LIVE on Tuesday — after nearly 20 years in the trading game, including 10 years on the floor, I’m ready to take over Wall Street and put the power back in the hands of the little guy.
I’m constantly on the hunt for option-buying opportunities that present relatively minimal risk vs. reward — I want those asymmetric returns in my favor — and I want them to meet my volatility and two-factor authentication criteria.
After all, the best risk management is putting on a solid trade to begin with.
But along with regular free trade ideas (another one coming next week!) and market commentary, I want to provide my Profit Takeover crew a solid foundation of options EDUCATION.
Which is why we went over the ABCs of call buying yesterday…
And when I asked YOU to ask ME anything… well, you guys didn’t disappoint!
So today, I’m answering a few of the astute reader questions you sent me this week, and then we’ll dive into our regular dose of “impact money” I’m seeing in the option pit today.
Let’s get down to brass tacks!
Q&A with Mark
But Corey wants to know if I’ll be applying the same methodology to buy put options.
ANSWER: The short answer is — YES!
As long as the risk/reward setup is in my favor, I also plan to buy puts on stocks I expect to decline.
I’ll mostly be sticking to long (purchased) calls and put options in this service.
Meanwhile, we had several excellent questions about implied volatility (IV).
One reader asked, “If IV causes the option price to go up, then wouldn’t selling options with high IV be a good way to profit?“
ANSWER: David — yes, rising IV should cause the option price to inflate, all other things being equal.
While selling options to open can be lucrative, it can also be very DANGEROUS.
When you sell a call or put, you’re basically drawing a line in the sand, saying you don’t expect the underlying shares to cross that threshold in the option’s lifetime…
BUT, if the stock does cross your strike, your risk is pretty enormous — and compared to the potential reward, which is LIMITED with this strategy, that doesn’t equate to the asymmetric returns I’m stalking in Profit Takeover.
Another member wanted to know HOW to find IV.
ANSWER: Most, if not all, platforms that allow you to trade options should calculate IV for you.
Personally, I don’t use Thinkorswim (ToS) — I prefer LiveVol usually — but I know it’s a popular platform on Wall Street.
So, to answer your question there — if you aren’t seeing IV already in your option chain, you should be able to fix that by clicking Layout (see image below) and adding as a parameter.
If you use a different platform and can’t find IV, I’d suggest giving your broker or customer service a call. I’m sure they’d be happy to walk you through the setup!
Finally, I received a few questions on trade management, including this one, from Terry:
ANSWER: In short — I can’t answer this, Terry, sorry.
It’s not because I don’t want to answer; it’s because I’m not able to give you personal trading advice.
Every trader is different, and we all have our own risk/reward appetites.
So, while I try to hunt asymmetrical returns in Profit Takeover — where the potential reward already exceeds the risk — what might feel like a cautious approach for ME could feel too risky for YOU.
I never recommend blindly following trades from ANYONE — always figure out what works best for YOU and what you’re comfortable with.
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 UBER – Courtesy of Trade-Alert
Uber Technologies (NYSE: UBER) is scheduled to report earnings after the close on Wednesday, May 5.
It looks like at least one big-money player is expecting a short-term bump for the shares, with a block of 3,000 60-strike calls, expiring May 21, spotted this morning.
By purchasing the calls to open, the buyer expects UBER to jump from its current price around $55 to above $60 — a level that’s acted as a round-number ceiling for the stock in recent weeks.
Again, this “impact money” is just one side of the two-factor authentication trading technique I outlined this week, so if UBER begins to trend on the retail side — which I’ll be watching like a hawk — consider my ears perked up.
That’s it for today, Profit Takeover crew, but I’ll be coming to you this weekend with a recap of this week… and what to watch in the week ahead.
Talk to you soon,
April 30 2021