Yesterday, I pulled an audible.
I was supposed to talk about Q2 earnings. But when I powered up my computer in the morning, everything was in the red.
So I thought, screw earnings. I wanted to make sure no one at Profit Takeover was panic-selling. So instead of talking about Q2 earnings reports, I showed you how to trade a red day.
If you missed it, you can find a replay of yesterday’s live event – including all the details of your trade recommendation – right here.
And now that you know how to trade falling stocks, I’m ready to take a step back and answer another round of Ask Me Anything questions.
We’ve got a great group of questions today – check them out below. ..
Stop-losses are a great way to control losses – but you may have noticed that I don’t use them in my Profit Takeover trade recommendations. And Knisley wants to know why…
Here’s the thing. Stop-losses are a way to “set and forget” a trade. But I don’t need to forget my trades, because it’s my job to sit here and stare at the screen all day.
So, instead of physically setting stop-loss orders on all of my trades, I say to myself “I’m going to exit this trade once it loses 50%.” Before every trade, I know at exactly what level I want to bail out. And because I’m watching the trades on my screen all day, I know when it gets there.
Now, for those of you who don’t stare at a screen all day – you can use stop-loss orders. But honestly, if you have a trading app on your phone, then I’m generally a proponent of alerts from a broker more than actually using stop orders, so that you can put your own thoughts into a trade rather than exiting based on automation.
Next up, Ron wants to know more about strike prices – one of the most important components of an option trade.
I recommended the Transocean LTD (NYSE:RIG) trade at the end of June. With a January 21, 2022 expiration date, this trade has about six months. When you’re that far out, the $5 and $6 calls are pretty darn similar.
In this case, the $6 calls were less than $1.00 – and I’m after cheap options, which is why I selected them. But paying $1.10 for the $5 calls is perfectly reasonable as well. And I like where your head’s at, Ron – a trader should always think about if there is a more appropriate avenue for their own trading rather than something I might recommend.
Speaking of my recommendations – while not official trade recs, I did mention both Pfizer Inc. (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ) on Tuesday as great stocks with cheap options.
But Edita noticed something interesting…
So, a lot of the time, “known knowns” lead to flat returns. When these companies first announced good news surrounding their vaccine trials, the stocks popped. Just check out this chart of PFE:
PFE February 2021-July 2021, taken from stockcharts.com
But now, the fact that Pfizer developed a COVID vaccine is known. A good portion of the country has gotten the Pfizer jab, in fact. So, we aren’t seeing a lot of upside from the current situation. As you can tell, PFE has essentially gone flat.
That being said, I’m looking ahead – and if a third vaccine or booster shot becomes required for the PFE or JNJ COVID vaccines, then we could see 100% or more upside from these stocks.
Have a great weekend, folks. I can’t wait to get back into the trading game next week!
July 08 2021