Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
I’m a huge advocate of efficiency…making the most with the least.
It’s a common thread that ties together two great passions in my life – jiu-jitsu and trading.
On the mat, you only have so much strength and endurance. Once you’re completely exhausted, it doesn’t matter what you know…you’re going to lose.
Every movement should be precise, calculated, and intentional. Use just enough power to get the job done – no more, no less.
It’s the same in the market.
Unless you’re blessed with unlimited funds, your goal should be to earn maximal profits with minimal capital.
Sniper-like precision is always preferable to an artillery barrage.
But what I want to tell you about is another little trick I use to let the market pay for my trades.
Here’s how it works.
Buying strategies like long calls and bull call spreads cost you money. This is because you’re purchasing options or spreads to profit from the sale as they increase in value.
It’s a lot like buying a stock and waiting for it to go up.
Last week I placed the following debit trade on MAXN.
BOT +1 VERTICAL MAXN 100 18 MAR 22 15/30 CALL @4.13
I went into this bull call debit spread on the back powerful technical signals across several time frames. I think it has potential for a run-up into earnings.
As this is a debit trade, I had to spend $413.00 to buy the spread.
That’s $413.00 taken removed from my allocated trading fund – money I cannot deploy elsewhere if another great opportunity arises.
However, I really like the setup for this trade.
Based on my own historical performance, I know there’s a great chance of making a profit. In fact, I’m so confident that I paired it with another trade on the credit side to help pay for it.
SOLD -5 VERTICAL MAXN 100 18 MAR 22 17.5/15 PUT @1.18
I sold these bull put spreads to put money back into my account. For these five spreads, I collected $590.00 in premium.
The debit trade cost minus the credit trade premium means my capital usage for the pair was -$177.00. How’s that for efficient trading?
But there is one caveat…
No matter perfect a trade seems, you can’t just assume you’ll win. That’s just the way trading works.
Adding a second trade does entail adding more risk…I could lose on both.
Only time will tell.
So I only use this technique on a single ticker when I feel super confident about the setup. Never double down on a directional trade when you have any reservations.
But even if you don’t use this technique on a single stock, you can utilize the concept across your portfolio.
Too many debit transactions like long calls or long puts will rapidly tie up trading capital, so find opportunities to balance debit and credit transactions.
Maintain your liquidity, and you’ll never have to pass on what could be the trade of a lifetime.
Always strive to do more with less.
It’s the key to turning a smaller account into big money.
P.S. My colleague, Dr. Kent Moors, has refined his own options trading strategy for some exceptional profits.
In fact, just this month, he closed a 278% gain on COIN after holding for 8 days.
How this breakthrough system works is fully revealed at this link right here.