Over the past four days, I told you the story of how I lost $75K on Best Buy…
We walked through the market’s current volatility feedback loop…
We sold out of our long-held Nordstrom position…
The moment it’s time to exit this trade, or any of the other open positions in the portfolio, I’ll send you both a text and an email. So, be sure to sign up for text alerts to ensure you don’t miss a moment of the profits!
Now, before we wrap up the trading week, I’ve got three great Ask Me Anything questions to answer today.
I’m going to tell you the best time of day to trade…
Explain why we exited our Nordstrom call…
And teach you when to use a butterfly spread.
First up, Mary wants to know exactly when she should set her trading alarm…
The majority of guys on the floor really pay attention the first hour of the trading day – that’s 9:30 to 10:30 – and the last half hour, from 3:30 to 4 pm ET.
In fact, I knew a whole slew of traders that would trade until 11AM, then go across the street to Ceres (the most legendary bar ever), eat lunch, and drink for three hours. Then they would come back at around 3PM half cocked (or fully cocked) and trade the final hour of the day.
As crazy as it sounds, this worked. The majority of trading activity tends to occur during these times. And more trading activity means bigger market moves, which means your chance to make money is pretty high, especially if you’re focused on short-term trades.
But now, I want to talk about longer-term trades. Most specifically, our Nordstrom Inc. (NYSE:JWN) January 21, 2022 $40 calls that I sent exit instructions on earlier this week.
I recommended we exit our JWN position for a couple of reasons…
For starters, I think these calls are going to go out worthless – that’s the cold, hard truth. They weren’t going to recover, so it was better to exit earlier and preserve capital.
But more importantly, there are better ways to be long JWN right now.
Now, I’m not saying I want to be long JWN right now. But if I were to set up a long position in JWN today, I would buy the $30 strike or the $32.50 and sell the $40-strike in a call spread instead.
We set up this JWN trade back in April. At the time, it was the best option (pun intended).
But things change, and it’s a different story today. I’ll always do my best to put your best interests first – and that’s exactly why I recommended an exit on our JWN call position this week.
Now, a call spread is a lower-risk way to make a trade on a more expensive stock. And another low-risk strategy is one I introduced you to last week: the butterfly spread.
Most often, I use them when options are really expensive. That’s because in a butterfly spread, you’re selling one of three legs, which allows you to capitalize on high option prices.
I also put them on as a way of reducing cost on a bull or bear play I might have on when volatility is more normal.
The final reason I use butterflies is when I have an idea in my head on where the stock might go. When I think I know where the stock is going to go, I buy the first leg near where the stock is currently trading.
I sell to open the second leg beyond where I think the stock might go.
And of course, for the third leg, I buy a far out-of-the-money option even further and equidistant to the short.
Remember – here at Profit Takeover, I’ll only recommend straight calls and puts. Butterflies require a higher level of clearance – but they’re a great trading strategy to have on hand.
If you have any questions that I didn’t answer here, then please Ask Me Anything right here. I’ll do my best to answer every question that hits my inbox.
Have a great weekend,
August 27 2021