18 Jul

A Cheaper Way To Trade Large Caps

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Stocks have been choppy the last few sessions, and there’s a looming catalyst…

A new stimulus bill.

Congress reconvenes on Monday to start stimulus debates, and that means there may be a lot of action in the market.

More specifically, large-cap stocks.

Of course, large-cap stocks can be expensive to trade, and in this market environment…

Who knows what can happen — so buying shares outright can be risky.

There is actually a cheaper alternative if you want to get in on the action in large-caps

It’s one that I use on a regular basis and actually helps me stack the odds in my favor.

What strategy am I referring to, and how does it work?

 

Don’t Have A Lot Of Capital For Large-Cap Stocks? Think Again

 

Does this sound familiar?

Large-cap stocks are too expensive for me to trade… and buying deep out of the money options hasn’t worked for me, I just can’t get the move right.

I know it does to me.

I was once a believer I could never actually trade large-cap stocks and participate in the action, and that’s why I stuck to momentum stocks for the most part.

I turned to the options market because it was a cheaper alternative, and I just really knew how to buy calls and puts outright… and that didn’t work out for me.

I almost decided to quit options trading, then I thought to myself…

I was the sucker and someone had to have been gaining off my trades. I mean someone was making money off me.

So I did all the research I could, and found one strategy that helps me stack the odds to my favor.

I developed my Weekly Windfalls strategy, and I finally started to turn the corner trading options.

You see, I’m the one actually selling options to the traders who are buying deep out of the money options in large-caps.

I know what you’re thinking, how does it all work?

I like to think about it as I’m betting where a stock won’t go.

With this strategy, I don’t necessarily have to be right on the direction.

You see, I stand to gain in three different scenarios.

How?

Well, let’s just start with the bullish part of the strategy here.

Since I’m betting where a stock won’t go, I stand to gain if:

  • The stock stays in range.
  • The stock rises.
  • The stock drops a little but stays above a specific level that I select.

In other words, I have a statistical advantage there. In addition, I benefit from time decay and drops in implied volatility.

If this all sounds confusing to you at first, let me show you with an example.

 

Real-Money Case Study

 

For example, Lululemon (LULU) was one large-cap stock on my radar. 

 

Source: StockCharts

 

At more than $300 per share, it would break the bank to get even 1,000 shares.

So the alternative here is to use the Weekly Windfalls strategy.

If you look at the chart above, LULU was in a bull flag pattern on the daily chart, and there were key levels that could act as support.

More specifically, I was looking at the 34-period exponential moving average (EMA) as a key support level.

The 34 EMA has held before, and I figured it would hold again.

I sold the $300 puts, while simultaneously purchasing the $295 puts.

With that specific trade, I was bullish on LULU and believed it could stay above $300.

I didn’t have to break the bank, I spent around $14,000 on the trade… but that’s just for my risk tolerance.

This strategy is scalable, and that means one could trade fewer contracts, or more contracts, depending on their account size.

For example, if a trader doesn’t feel comfortable with trading that size, they could’ve just sold 1 put spread, which would’ve cost around $300 bucks.

LULU actually stayed above $300 and that bet paid off… 

I was able to lock in a 32% winner, or about $4,500 in realized gains in a matter of hours*.

 

 

If you want to learn more about this strategy, and how I’m able to stack the odds to my favor…

Check out my latest eBook Wall Street Bookie.

You’ll learn the ins and outs of my options trading strategy and my number 1 edge in the options market.

Claim your copy here.

 

 

*Results presented are not typical and may vary from person to person. Please see our full disclaimer here: ragingbull.com/disclaimer

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