New Trade Recommendation
Every week, I answer questions straight from Profit Takeover readers.
We cover anything and everything – how to place a trade, how to find implied volatility, how to read the VIX – I could go on.
I want to help you be the best trader you can be. So, please, ask me anything!
Today, we’re talking about naked calls…
My VIX traffic light criteria…
And taking an asymmetrical profit on our UVXY put position!
Want to see your question featured in next week’s Profit Takeover? Then click here to submit one!
This week, I explained the how-tos behind selling covered calls. But what happens if you sell a call that’s not covered?
Well, that’s what Philip wants to know:
Let me start out with a warning. If you’re new to options, then you absolutely should not sell a naked call.
Chances are your broker wouldn’t even let you if you tried – and with good reason. You need special clearance to perform this option strategy. Why?
Because naked calls are one of the riskiest trades in the ‘biz.
Selling a naked call is just like selling a covered call… with one key difference.
You don’t own any shares of the underlying. So, if the calls go in-the-money (ITM), and the buyer of the call exercises his or her right to buy that stock, then you’re screwed. Because you don’t have the shares to sell them, meaning you have to buy the stock at market and then sell it at the strike price.
When you write a naked call, you’re selling the rights to something that you don’t own.
And think about it – a stock can seemingly rise to infinity. That means that while your profit is capped at the premium you collect on the call you sell, your risk is essentially unlimited.
There are benefits to this strategy, sure. But it’s not a strategy we’re interested in using here at Profit Takeover.
We’re in the business of making quick and easy asymmetrical returns – and to do that, we’ll stick to simple calls and puts.
Next up, we have a question from Josh. My VIX traffic light – aka, my #1 indicator – has been red for weeks now. And he wants to know when that will change.
The VIX is best-known as the market’s “fear gauge.”
When the S&P moves up, as it has been, the VIX is supposed to move down. When the S&P moves down, the VIX is supposed to move up.
Sometimes, however, that doesn’t happen. Occasionally, the S&P and the VIX will move in tandem with one another.
Say the S&P starts moving lower… and the VIX moves lower with it. That would signal a bottom in the market.
If the S&P and the VIX are both moving up, then that typically signals a market top is coming – and a crash could be on the horizon. That’s a situation that would turn my traffic light green.
For now, the VIX is moving as it’s supposed to. The S&P is hitting new highs, and the VIX is trending down. All the way down to sub-15 by the Fourth of July, might I add. So for now, my VIX light will stay red.
Now, there’s a lot more that goes into my VIX light calculation than that. And right now, I’m putting together a report exclusively for Profit Takeover members that explores each of the traffic light’s factors.
I can’t wait to share it with you. For now, keep checking your email – I’ll always tell you what color my VIX light is.
Speaking of a red VIX – Ray wants to know what’s up with our UVXY puts:
This is a great question.
Every time I recommend a new Profit Takeover trade, I’ll provide a limit price. If we’re buying a call or a put, then this limit price should be the most that you pay for the trade.
When you’re buying a call, you should always target the lowest price you can. That way, you lock in as much upside potential as possible – increasing your chance for an asymmetrical return.
I track my trades in the portfolio as if I’m a reader, just like you. The moment a trade recommendation is released, I check the price of the option.
In this case, the UVXY June 18, 2021 $35 put was available for just $2.68 after the email went out. So, we locked in that price in the Profit Takeover portfolio.
Now, remember – option prices move fast. So it’s possible you won’t always get into a trade at the same price as me.
But that’s okay. That’s exactly why I always provide a limit price. That way, you can ensure that you’re never paying too much for a trade.
We’re targeting huge gains on these trades. So, even if you got into a trade for a few cents more than me, you’ll still be taking home a profit based on the original limit price. The moment it’s time to exit any trade in our portfolio for an asymmetrical return, I’ll send an email straight to your inbox.
And on that note, this UVXY position is already up over 100%. So, let’s take this asymmetrical profit right now!
Here’s what to do:
Sell-to-Close the UVXY June 18, 2021 $35 put for no less than $5.00 .
This trade worked exactly as we wanted it to – it doubled in just 10 days! Congrats on this asymmetrical profit… there’s more where that came from.
Remember to track all of our open trades in the portfolio right here.
Now, as always, I want to hear from you. So please send me a question right here – and maybe next week, I’ll answer yours!
Until then, have a great weekend.
Talk to you Monday,
June 11 2021