The PowerShares QQQ (QQQ) traded to an all-time high of $153.85 following a backtest towards $153 on the open. We mentioned continued closes above $152-$152.25, and current support, could lead to a run towards $154.50-$155 over the near-term. A close below the former would be a slightly bearish development. RSI is nearing June resistance at 75 with a push towards 80 and May resistance coming on continued strength.
TXMD Surges on Yuvvexy News
TherapeuticsMD's management team met with the FDA last Friday, to discuss the resubmission process for the drug, TX-004HR. The drug, also called Yuvvexy, is a possible treatment for dyspareunia, or moderate-to-severe vaginal pain during sexual intercourse.
The company had previously received a complete response letter, which is the FDA's equivalent of a rejection letter, for Yuvvexy because its application lacked long-term safety data. The resubmission process can be lengthy and expensive, but the stated today that the FDA has agreed to accept Yuvvexy resubmission without the need to run any additional pre-approval studies.
Given the breathe of fresh air, the company plans to move forward with the resubmission process within the coming weeks. If everything goes well, Yuvvexy could be approved within 2-6 months afterward.
TherapeuticsMD reported a net loss for the quarter of $14.7 million, but losses are typically the norm for companies developing drugs until they mature. The good news is the company has over $148 million in cash and no debt.
As far as the market, trading has been somewhat choppy but the bulls are showing continued strength. The Dow is up 18 points to 23,558 while the S&P 500 is gaining 4 points to 2,591. The Nasdaq is higher by 20 points to 6,785 and the Russell 2000 is adding 4 points to 1,499.
The Energy Select Sector Spider (XLE) closed higher for the 4th-straight session following the recent backtest to $66.34 and breach of a descending 200-day moving average. The 50-day moving average is in a strong uptrend and is on track to clear the 200-day moving average to form a golden cross. Current resistance is at $68-$68.25 with today’s high reaching $68.16. A move above the latter would be a bullish signal for another run at $69-$70. A move below $67.50-$67.25 could signal additional weakness. RSI is back in an uptrend after bottoming near early August support at 50.
The iShares Russell 3000 ETF (IWV) traded in a tight range between $151-$152 into mid-month following the breakout above $150 to start October. The recent all-time peak reached $152.91 last Monday and was matched on Friday’s intraday high.
Continued closes above resistance at $152.75-$153 would be bullish for a possible push towards $154.50-$155. Fresh support is at $152-$151.75 with a close below $151-$150.50 being a bearish development for a continued backtest towards $149-$148 and the 50-day moving average. Last Wednesday’s intraday low hit $150.61. RSI held near-term support at 60 last week and is back in an uptrend with resistance at 80 on continued strength.
Since 2008, We've been helping investors like you beat the market by an incredible 6-to-1 margin while racking up an incredible double-digit and triple-digit winners.When people see those results, the first question they always ask is “What’s your secret?”
We start by telling them that the secret isn’t. The secret to successful options trading is NOT spending thousands on fancy courses… it isn’t found in some expensive black box trading software… and it isn’t using complicated options strategies that you need a PhD to understand.
Instead, our success is driven by 5 proven, “golden” rules for options trading success.
These powerful options trading tips can help you pocket your own double- and triple-digit winners month after month no matter what direction the market is headed.
Whether you are new to options or have years of experience, these 5 Golden Rules can help you to:
Lock in bigger, faster gains
Avoid the common mistakes that plague most investors
Turbocharge your profits
Boost your win rate
Wring the risk out of your options investing
Become a more confident, more successful options investor
Let us show you how we do it…
1. Don't Fight the Momentum – Ride It
The first step to all technical trading is identifying the trend you’re in. In a bull trend, you go long via call options. In a bear trend, you go short via put options. As an options trader, it’s critical that you understand that you can — and should — trade bear markets. When markets go down, it’s not the time to be on the sidelines, and you shouldn’t necessarily try to get bullish trades “at a discount” because prices might drop further.
Trade what the market gives you and don’t fight the momentum, whether that trend is up or down.
Of course, it’s easy to see trends once they’re over, but the only way you can truly profit is to identify the direction of a trend before it has run its course. That’s why we let the charts tell us where the momentum is.
One of our favorite parts of what we do is sharing the charts’ signals with our readers to help them see what we see so that they don’t waste their time or money fighting the momentum. We spend a lot of my time researching the market, but we really do keep things simple: We identify the broader trend, and then we look for stocks that are breaking out or breaking down to take advantage of that trend.
A 3%-5% up or down move in the underlying stock can mean a return of 100% or more if you’re in the right options — and choosing the right option to ride the momentum has a lot to do with price.
The secret to riding the momentum is this: Buy higher priced options when the market is breaking out or tanking because that is where the explosive profits are. In a trading range, go for cheaper options because you can put on more trades and increase your chances of making money.
Success Playing Momentum Stock Calls
A 5.8% move in IMAX from $25.33 to $26.81 got us 116% in IMAX September 28 calls
A 7.9% move in ARUN from $19.09 to $20.61 got us 54% in ARUN February 21 calls overnight
A 5.3% move in FTNT from $22.63 to $23.84 got us 77% in FTNT July 24 calls
A 6.6% move in RMBS from $13.78 to $14.70 got us 100% in RMBS August 15 calls
Let’s look at one of the many times this has played out for us: Back in January, we identified Aruba Networks (ARUN) as a stock that was getting ready to break out to the upside. We noticed that investors were bidding up the stock and a bullish trend was starting to develop. It was time to make a move.
After confirming the trend, we recommended that our readers purchase the ARUN February 21 calls (ARUN140222C00021000). We entered the calls on Jan. 14 at $0.55, or $55 per contract, when ARUN common stock was trading at the $19 level.
The very next day, the stock shot up almost 6%, at which point we alerted our readers to close one-third of the position at $0.85 for an overnight profit of 55%. We could have closed the entire position and booked a very nice gain in less than 24 hours, but our analysis was telling us that there was more room to the upside. In a note to our readers, we wrote that “we are going to remain aggressive with Aruba” and hold on to the remaining two-thirds of the position for even better gains.
Our intuition ultimately paid off — big time — a few days later when the stock hit the $21.50 mark. At that point, we recommended that we set a stop limit at $1.25 in order to ensure that we would walk away with a gain of no less than 127% on the remaining portion of the trade. The stock eventually faded from those highs, and our $1.25 stop limit was triggered.
Although the stock came back down from those levels, holding on to the remaining two-thirds of the trade proved to be the right move, as we walked away with an average return of 103% on the entire position.
Remember that momentum can work for you both ways. If momentum stocks are moving up, we play bullish calls. And, if momentum stocks are getting killed, that’s fine by us. I ride them down!
As you can see from the table below, I’ve also been able to successfully play put options on stocks that are trending lower.
Success Playing Momentum Stock Puts
A 9.42% move down in GM from $36.21 to $32.80 got us 100% in GM September 32 puts
A 3.87% move down in PM from $78.31 to $75.28 got us 94.1% in PM March 75 puts
A 5.16% move down in MGM from $25.57 to $24.25 got us 50% in MGM September 25 puts overnight
A 3.4% move down in CAT from $86.26 to $83.30 got us 83% in CAT June 82.50 puts
A great example of this strategy is when we traded on Apollo Education Group (APOL) puts.
From the first day of April until we recommended opening the put trade seven days later, APOL common stock had already dropped by 12% to set up a new bearish trend. This was our first clue that the stock would continue to fall. So, after consulting the charts and confirming that the trend was strong, we recommended that readers purchase the APOL May 30 puts (APOL140517P00030000), and we entered the trade at $0.90, or $90 per contract, on April 7.
Over the next two days, APOL declined another 9%, and that boosted the price of our put options by over 100% to $2.00. With such a great run-up, we suggested that subscribers sell one-quarter of their position to lock in a two-day, partial profit of 122%. By April 11, APOL had dropped another 5% to the low $27 level, which pushed the value of our puts up another 50% to $3.00. At that point, we instructed our readers to sell another quarter of the position for a massive five-day gain of 233%.
Finally, as buyers started to pick up shares after the week-long selloff, we made sure to lock in our profits by setting a hard stop at $2.60 on the final half of the puts. The selling pressure diminished, as we suspected it would, and subscribers were taken out of the second half with an impressive 189% gain. All together, the trade netted us a return of 183%, which is much higher than the 122% profit we would have reaped had we sold the entire position at my first target of $2.00.
We hope these examples show you that when you ride the momentum, whether it’s up or down, there’s often more money to be made. As long as you stick to the right price point and protect your gains with stop losses, it’s easier and more profitable to play the trend.
2. Find the Catalyst
Once you understand the trend and commit to making the most of the bullish or bearish momentum, the next step is identifying which stocks are going to move the most — and why. There are any number of catalysts you can trade, but the ones I act on most often are:
Mergers and acquisitions
New product releases
You’ll hear a lot of pundits say that news around product lines or mergers or financial woes is already priced into stocks, and perhaps that’s true — but what you’re really trading is investors’ reactions to the news.
We might all be aware that Apple (AAPL) has a new iProduct coming out, but you can make an option bet on whether or not technophiles will like the new release and if the stock will suffer their wrath.
Everybody knows BlackBerry as a stock that got knocked off of its pedestal. Depending on your stance, you either think BlackBerry is making a comeback or it’s dying a slow death.
The truth is, I can’t tell you where BBRY is going to be long term but in the summer of 2014, with the stock at $8.30, I started getting signals that BlackBerry could provide a short-term surprise in its quarterly earnings on June 19.
Of course, another disappointing quarter would be another nail in the company’s coffin. However, I thought the risk/reward was attractive, as the options I identified — the BBRY August 9 calls — were cheap enough to play a run past $9. We entered the calls on June 18 at $0.45, or $45 per contract, with BBRY stock trading at $8.30.
(The inexpensive price of the BBRY calls was important because we entered this trade against a backdrop of a range-bound market. Remember, earlier I said that I target cheaper options when the market is in a trading range.)
The very next day, on June 19, after reporting results, BBRY traded to a high of $9.52 on a 14% jump. The BBRY August 9 calls zoomed from $0.45 to a high of $0.94 for an overnight money-doubler.
click image to view full size
That’s always my goal with each trade — a 100% return — but my research showed that there was still more upside to BBRY post-earnings. For that reason, we held the calls for a few more days, until June 23, took partial profits at $1.40 and then exited the rest at $1.05 for an average gain of 113% on the trade.
It’s important to start training yourself to view company announcements — even on companies you may not personally like or support — and world events as possible trading opportunities.
3. Plan the Trade, Trade the Plan
There’s a reason that I’ve been able to consistently rake in big profits year over year — I make sure I always have a plan before I initiate a trade, and I stick to it.
Emotions are the enemy of every options trader and, along with the distractions broadcast by pundits in the 24/7 circus that is the financial media, are largely responsible for many of the bad trading decisions investors make every day. In order to combat these two major issues, I spend over 100 hours every week performing technical and fundamental analysis on the underlying stocks for each option I recommend. This kind of stock analysis is essential in making sure that you’ve chosen the right side of the trade to take a position on.
Having a detailed trading plan is extremely helpful in making sure that you reap the greatest possible profit from each trade you make, and the first step towards that goal is to analyze the charts. Charting gives you the confidence to stick to each trade with conviction through the ups and downs of the market while ignoring the so-called experts on CNBC that don’t care if you’re actually making money or not.
Once I’ve done the technical analysis, eliminated any irrelevant market news from my investing perspective and identified the objective signs that the stock charts are showing me, I set entry and exit points for each of my trades. These are designed to lock in profits when they appear and protect portfolios against sudden trend reversals.
For example, when I recommend a trade, I often set it up to sell a fraction of a given position at my initial target price. Then, after entering the trade, I evaluate each position’s trends every day, and adjust targets and stops accordingly. Once the first target price hits and I close a portion for profit, I adjust the next target and stop so the rest of the position can ride. This way, you can protect some of your profits while playing with only a slice of your original position on the back end of the trade.
If all goes as planned, each successive portion will reap bigger and better gains. If not, at least you have stops in place to ensure that you still make a profit, even if the trade — or the market as a whole — reverses direction. That happened to be the case with the World Wrestling Entertainment (WWE) calls that I traded. As the stock climbed higher, I locked in profits on the first half of a call trade, then reset the target and stop on the remainder to ensure we’d make a profit on the whole trade, no matter what.
We purchased the WWE March 30 calls at $0.40 on Feb. 18 when the shares were trading in the $23 range. The chart work I had performed was showing that a breakout to blue-sky territory was in store and a run to $30 was possible if the company reported solid earnings numbers. The stock was looking very promising at the time, and I set my first exit target for the calls at $0.80, which would provide a 100% return.
Some traders would have taken their profits at the first signs of a gain, meaning they’d close their whole position at what I considered to be a first target price. So, for example, although some traders would have banked that 100% total gain in the WWE calls on March 5 and called it a day, my strategy of booking partial profits and letting the rest ride would ultimately provide you with a much greater profit. After selling half of the position at the initial $0.80 target, I instructed my readers to take profits in another quarter of the trade at $1.80 for a massive 350% gain as the stock approached the $30 level. I also set a hard stop on the remaining portion at $1.45 to ensure that we would close the final quarter of the trade for a profit of no less than 262%. Eventually, sellers began to take profits when the stock made new 52-week highs, and the last quarter of the trade tripped my $1.45 stop.
So, although we were stopped out when the stock began to fall back down, we were able to bank a much greater overall return of 203%, compared to the 100% gain we would have made had we sold the entire position at my initial target.
4. Stick with Options Under $2
As a general rule of thumb, you should try to only buy options that cost under $2.00 ($200 per contract). Options that trade for under $2.00 provide a greater amount of leverage; can earn you higher percentage returns and limit the amount of risk your portfolio is exposed to. I mentioned previously that I like to keep my options trading as simple as possible, and buying undervalued options is one way to do that. When you pay too much for an option, the odds of earning a substantial return are already stacked against you.
Buying undervalued, low-priced options is advantageous to the individual investor for a few important reasons. First, you are able to decrease the amount of risk involved because you are putting less money into each trade. It is much easier to swallow and bounce back from a loss on a cheap option than it is on an option above $2.00. You are also increasing your upside potential. If the price of a certain stock moves above the strike price of the recommended option, the percentage gain reaped from that position will likely be substantially higher than if you purchased a more expensive option.
However, before looking for undervalued options, you’ll need to find a stock with relatively high volatility. After you’ve targeted a stock that looks as though it’s ready to make a 5%-10% move, your next task is to choose a cheap option that has the potential to make an upside surprise. This coincides with my goal to earn a return of 100% on each trade, as undervalued options are more likely to make a big move than ones that are more expensive.
Finding underpriced options is simple in theory but, in the real world, it takes a huge amount of work, which is why I spend hours upon hours analyzing stock charts and options chains to find trades that have a high probability of returning a profit.
5. Set an Exit Target Before You ever Place the Trade
I’ve learned over the years that not every trade will play out according to the plan — something you’ve probably realized, too. That’s why one of my top trading rules is to set entry and exit parameters for each trade before I get into it. I know exactly what I’m expecting for each trade so that if it doesn’t go according to plan, I take the cue to get out.
Getting out of a trade sometimes means taking a loss, but most of the time it means exiting with your profits intact.
While targets are hypothetical and profits are real, one of the ways to keep yourself honest as a trader is to have your profit targets set before entering a trade. Once you see a positive return, it’s easy to get irrationally greedy and think that an option’s value will keep going up to infinity. If you know what you’re aiming for before you get in, it’ll be easier to stick to your plan and take the money when your targets are hit.
I said “targets” with an ‘s’ because, as I mentioned previously, what’s worked for me is to close out a half or a third of the contracts when my first target is hit in order to lock in the gains, and then setting additional targets for the remaining contracts. The goal for each trade is a return of 100% or greater. Once the 100% mark is reached, it may be prudent to sell half of a position, set that cash aside and then simply play with the house’s money.
Whether you close out the trade at once or in stages, it’s important to protect the profits you have on the table at any given time. This is why stop targets can come in handy, too. Stops can be designed to take you out of a winning position with a solid gain, even if the trade turns south after a brisk run-up. They also serve to protect losing trades from incurring excessive losses.
For example, let’s say that you are in a trade that has returned 125% since it was initiated. You may want to set a stop slightly below current prices to ensure that the position will close with a return of at least 100%. I’ve seen many traders get greedy if they see a return of 200%, for example, and give back a major portion of their gains by not having a stop in place — I don’t want you to fall into the same trap.
There you have it… my 5 Golden Rules for securing big, consistent profits from momentum stocks with less risk no matter which way the market is going.
I hope you put these trading rules to work for you in the weeks ahead. They are sure to help you become a more confident, more successful trader. But these trading rules are just one part of my momentum-focused approach.
The complete, proven strategy I’ve used since 2008 has delivered an amazing 919 winning trades — including 517 double- and 280 triple-digit winners — by pinpointing stocks on the move and profiting from the “pop” or “drop” before the rest of the crowd jumps in!
P.S. Rest assured, there’s absolutely no obligation on your part whatsoever. By alerting me of your interest now, you’ll simply continue to receive more valuable trading tips and be the first to hear about the chance to trade alongside me.
You have nothing to lose and so much to gain by discovering how to nab extraordinary profits — like the 147% we pocketed in Exact Sciences, the 130% profit we walked away with from Blackberry calls, the 183% win in Apollo Group puts or the 108% profit in IMAX calls… all wins captured this year, all in just a few weeks and all using simple techniques that you can apply to your trading strategy, too.
Add your name to the list to learn more before it’s too late!
Earnings for the Week
The market shrugged off the "bullish" overseas news of the France election with the bears controlling today's first half of action. Of course, it is not how you start but how you finish, and there is still another half of trading to go. While there was Wall Street hope higher highs would continue into play on the headlines from the weekend, the top end of the current trading range is still intact.
There are still economic and earnings news that could help with market action this week and I wanted to cover the latter for possible trade setups.
Pandora Media (P), Hertz Global Holdings (HTZ) and MeetMe (MEET) will announce numbers after today's closing bell.
Tuesday's earnings include Dean Foods (DF), Electronic Arts (ERTS), Wayfair (W), Walt Disney (DIS), and Yelp (YELP).
21st Century Fox (FOX), Hologic (HOLX), Mazor Robotics (MZOR), SodaStream International (SODA) and Whole Foods Market (WFM) will announce quarterly results on Wednesday.
The retail sector highlights Thursday's action with Macy's (M), Nordstrom (JWN), and Kohl's (KSS) scheduled to report. Other companies include Teva Pharmaceuticals (TEVA), Toyota Motor (TM), and Trade Desk (TTD).
Amaya (AYA) and JC Penney (JCP) will announce ahead of Friday's opening bell.
The Dow is lower by 13 points to 20,993 while the S&P 500 is off 2 points to 2,397. The Nasdaq is down 10 points to 6,089 and the Russell 2000 is sliding 8 points to 1,388.
I have updated our current trades so let's go check the tape. I'm also working on 1-2 new trades ahead of the close so stay locked-and-loaded.