Calling the Shots

 

Date: 1/25/2023
Author: Chris Hood

 

 


Wow.

The number of new people joining the Trade Command live room is amazing.

It’s something I’ve been striving to build for many years. A bonafide trading community of real options traders – from complete beginners to seasoned veterans.

Sure we’re making winning trades, but I believe the true value is education.

I’ve read hundreds of options books.

And sometimes I wonder if I’ve read several hundred different books or just the same book over and over.

All of them tell you about trade mechanics and theory.

Where they fall short is in trade management.

Anyone can buy a call, but then what?

Where do you take profits?

What happens when the value swings wildly?

How do you stay mechanical and control your emotions?

These are just some of the topics that we covered yesterday.

Here are some key points on long calls that helped out many members yesterday.


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If you’re reading this I assume you understand the basics of a call option. But in case you don’t hear it is in a nutshell.

Buying a call is a bullish strategy. If you anticipate the stock going up then calls let you participate in the upswing for less money than buying a hundred shares of stock it represents.

But if you want guidelines on selecting strike prices and expirations, you’re out of luck.

So, I’ll present you with one simple strategy that has served me well for many years. The 60 delta/60 DTE call option.

This is perfect when you expect a significant upside over the next 1-3 weeks.

A 0.60 delta strike gives you 60.00 for every dollar increase in the stock price and the effect of time decay is minimal.

Simple enough.

Now how do you manage it?

There are many different ways to pick a profit target.

You could choose a specific price level based on Fibonacci or the expected move from the options chain, or you could decide to just ride the trend until it breaks.

The latter is what I typically do.

I set a trailing stop to accrue profits and keep the majority of what I earn should the stock reverse.

Most people do ok with managing winners.

They might need to get over the fear of small pullbacks and early profit-taking that cut them out of the full move, but profits are profits.

Exits are the real issue.

So here are three basic rules for when to get out:

  • A close below the low of the previous candle
  • If the move you predicted hasn’t started within 14 days
  • If the option price is down 50% or more with 32 days or less until expiration

This only scratches the surface of trading long calls, but it should get you started.

If you still have questions take advantage of our new trial offer to Trade Command.

I’ll talk your ear off about them.

Cheers,

Chris Hood

 

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