Case Study of the Week

This case study is a call to action using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

 

Case Study

 

This is the case study of managing and profiting from the Yo-Yo effect.  We know one thing for sure…the market cycles up and down sometimes in a smaller saw tooth effect and at other times in a more dramatic Yo-Yo effect. Let’s look at the most recent 4 trading days for the SPX index. Last Thursday the SPX had a daily decline of 30 points. Our investors were able to profit from that move downward because of the presence of a strategy that provides profits when the index declines. This is not “taming and profiting from a bear market,” this is simply taking advantage of short term downward cycles which invariably occur.

What happened next…?

The next day on Friday, the SPX had a daily increase of 40 points! What a difference a day makes. Are we now in a bull market? No, we just experienced what is sometimes called a “retracement” effect when the market rebounds or “Yo-Yos” back up after a significant decline. Our investors were able to take advantage of this move because of a second segment of a combination strategy that provides profits when the index increases.

What Happened Next…?

Over the course of the next two trading days the SPX declined again by a total of 35 points. In summary, the SPX went down 30 points, up 40 and down 35 over 4 trading days. How well did you do over the past week? Do you know how to structure a combination strategy that accomplishes the following?

  • If the market stays rather stable, time value will allow you to close the entire position for a profit.
  • If the market increases, you can close the upward bias side of the combination position for a profit.
  • If the market decreases, you can close the downward bias side of the combination position for a profit.
  • If point two or three happens rapidly, you might be able to re-open a position and wait for another profitable cycle up or down.

 

Our investors know how to do this and are profiting every week by mimicking the Masters, but more importantly, learning to think like a trader and control their own destiny.

What is keeping you from taking action?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Case Study

Many of our investors recently held a Call Credit Spread for SPX at 2080/2085 with an expiration date that expired in 5 days. The average credit was $1.30 and the index was trading at 2080. This is a downward bias position and our investors wanted the index to trade below 2080 and create a profit through the time decay of the options. With 4 trading days to expiration, the speed of time decay accelerates and the position could be closed for a small profit of $.20.  Most of our investors held the position one more day to gain a larger profit.  This seemed like a good approach given the technical chart indicators still showed a downward bias.  A little patience and one more day of time decay would likely create a much better profit.

What happened next…?

Despite our best effort to predict what the market will do, we cannot be guaranteed to be correct all of the time.  The next day, rather than the index continuing to decline, it actually rose by 23 points with a closing price of 2103.   This increased the value of the credit from $1.00 to $3.00 turning a small paper profit to a significant paper loss. Our total risk in this $5 spread was $3.70 so a plan with multiple options needed to be developed to protect against a possible loss.

What Happened Next…?

We had undesirable answers to our 3 key questions used to evaluate a position…

Did we have time pressure? Yes.

Did we have price pressure? Yes.

Did we have a profit? No.

Options included rolling out the position to gain additional time, rolling up the position to a higher strike price to enhance chances of a profit, or to wait another day or two to see if the index declined.  Those investors who chose to do nothing were rewarded. Over the next two days the SPX declined by 53 points which allowed them to close the position for a profit of $.80. What a difference a day or two makes! Moving from a paper loss of $1.70 to a profit of $.80 was a very desirable reward for a little patience.  Why would investors be willing to do nothing and hope for a significant decline in the index? Because they knew that if that did not occur that they could still execute the other management techniques mentioned above. Would you have known what to do? How would you have managed this situation?

What is Keeping You From Taking Action?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

 

Case Study

Two distinctly different characters in history came to the same conclusion but verbalized it differently. Yogi Berra stated, “It’s Déjà vu all over again.”  Albert Einstein stated, “The definition of insanity is to keep doing the same thing and expect different results.”  How have you been doing with your own investing?  Take action now by engaging the expert team from Options Money Maker to create a new strategy with different outcomes.

                     

Let’s take the example of an Iron Condor that we used to our investor group’s advantage this past week. This position was initiated using the RUT index when it was trading at 1170. We established a Put Credit Spread (upward bias position) with 3 weeks to installation at strikes of 1145/1150 and received a credit of $1.50.  We added a Call Credit Spread (downward bias position) with the same expiration at strikes of 1200/1205 and received a credit of $1.40.

What is the logic behind this process…?

The Iron Condor creates a “sweet spot” that takes advantage of the time decay of positions that are out-of-the-money.  It is possible to make a profit on both spreads, create a profit by closing one side of the Iron Condor at a time based on market movement and there are also opportunities to re-establish closed positions at different strikes.

What Happened Next…?

Two days later RUT moved down sharply from 1170 to 1145. This movement created a profit on the Call Credit Spread. Many of our investors closed the position for $.90 which was a $.50 profit.  We chose to advise our investors to keep the Put Credit Spread in place even though the position was at-the-money.  There was adequate time to expiration so there was no need to close the position for a loss.  There was a reasonable chance of a retracement pull back which would eventually create a profit in that position as well. In addition, there could be an opportunity to re-open the Call Credit Spread at lower strikes to lock in profits and create additional premium. It is great to have multiple options.

What is Keeping You From Taking Action?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Case Study

Our experts at Options Money Maker would like to offer to be your personal trading coach.  We use our experience and proven techniques to make consistent profits regardless of market direction.  In the past 45 days the market has consistently been moving upward but we know with 100% certainty that the market cycles up and down. We just don’t always know when that will happen. In personal trading, it is not important to always but right immediately, but we strive to be correct eventually by building time and buffer into our trades. Many of our investors have opened downward bias positions over the past few weeks. They have not been able to close those positions because of the consistent upward movement of the market. Our experts have coached them on how to “roll out” their positions and keep them in play until the market has an inevitable “pullback.”

What is the logic behind this process…?

The logic of a personal coach is obvious. We hire personal trainers, dietary advisors, golf professionals and any number of experts to improve our chances of success. Why not a personal trading coach?  Access to proven techniques, advice on opening, closing and adjusting trades to increase your profits combined with advice on things such as confidence, patience and trusting your technical analysis are all important aspects of a trading coach. What we have recently advised our traders to do is roll out certain positions to buy more time for the market to move down and create a profit. What does the average trader do? They get impatient, don’t know how to manage the positions and close them for losses.  An example was an NDX Call Credit Spread at 4670/4675 with the index trading 4620 with 10 days to expiration. We received a credit of $1.50 for this trade. This is a downward bias trade that is 50 points out-of-the-money with a high likelihood of making a quick profit.

What Happened Next…?

Despite all of the technical indicators that suggested a downward bias, the index moved up strongly over the next few days to 4720 placing our position under pressure from our three key questions. Is there a profit…no. Is there price pressure…yes. Is there time pressure…yes.  We instructed our clients to buy more time by rolling the position out an additional week.  We actually received a $.20 credit for that move, taking our total credit to $1.70.

Over the next few days the market reacted to some news regarding raising interest rates and the steady upward movement hit some areas of anticipated resistance and lost momentum.  There was an inevitable movement down of 60 points over two days that allowed out investors who had managed their positions using our expert advice to close positions for a profit. How well would they have managed this on their own? The vast majority would not have performed well with this scenario. Understandably, there are always a select few that would have done just fine on their own. Remember, even the highest achieving people in any profession benefit best from the support and collective wisdom of a great team around them. What about you?

What is Keeping You From Taking Action…?

If you agree with the basic thoughts presented in this case study, what is keeping you from taking action? We help you learn how to think like a trader versus just following a set of rules.  Want to make a profit on a high percentage of trades and manage unfavorable trades from a loss to break-even or an eventual profit? We sure do! How about you?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Case Study

Not every trade goes as planned and every investor needs to be positioned with a set of management strategies to successfully manage their portfolio.  The difference between Options Money Maker investors and the rest of the investment world is that we have consolidated and simplified an arsenal of management strategies that are logical to understand and have been proven to work. This creates confidence and peace of mind in a market place that no one can totally predict. One of those strategies is called a “Seed Iron Condor.” An Iron Condor by definition contains four legs, one Put Credit Spread and one Call Credit Spread. The spreads are on the same underlying index, have the same expiration, with the same spread but with different strike prices. We call this a Seed Iron Condor because we construct it in a manner that allows us to “harvest” profits off of the various spreads as the natural cycling movement of the underlying index occurs over time.  This provides a management technique to secure profits to cover other underperforming positions and “retire” them from the portfolio.

What is the logic behind this trade…?

The following is an example of a recent Seed Iron Condor created on NDX. Our investors opened two spreads with 5 weeks to expiration when the index was trading at 4357. One was a 4345/4350 Put Credit Spread (rising bias position) and the second was a 4375/4380 Call Credit Spread (declining bias position) with a total credit for both positions of $4.50.  This brought money into our accounts immediately. There are several ways to harvest profits off of this seed condor. If the index simply remains flat over the course of the next several days or weeks, and the price remains in the middle or “sweet spot” of your range (in this case between 4350 and 4375) time decay will occur on both spreads. This will allow the investor to take profits on both sides and theoretically gain maximum profits if both spreads remain out-of-the-money at expiration. We usually don’t manage our positions all the way to expiration but rather harvest profits sooner along the way. In most cases there is enough cycling up and down to create profits on one side or the other prior to expiration…sometimes multiple times.

What Happened Next…?

Over the course of the next week, the NDX made a move upward to 4430. This move favored the Put Credit Spread side of the iron condor and allowed us to harvest $1.00 by closing that spread.  The Call Credit Spread was unfavorable at the moment so we left it in place.  With 4 weeks remaining to expiration, there are a number of situations that may occur to create additional profits.

It’s Great to Have Choices…

Next we go into a monitoring mode to determine what to do depending on the movement in the index. If the NDX moves down significantly, we may be able to exit the Call Credit Spread for a profit and be totally out of the position. If there is a moderate downward movement that takes the Call Credit Spread out-of-the-money we may leave that position alone and take advantage of adding a Put Credit Spread back in to create a complete Iron Condor again. If the NDX continues to move upward, we may choose to reposition the Call Spread to a higher strike price.  This can be accomplished while maintaining a reasonable credit in the position and being at a strike price that provides for a better chance to make a profit. In addition to repositioning, we may also choose to add a Put Credit Spread back in at a higher strike price than the original position to have a complete Iron Condor once again. The multiple management options provide real peace of mind to the investor looking to harvest profits.   Do you know what to do when the market is not cooperating with a trade and you are looking to harvest profits?

There was no one right answer in this case. There are many management techniques that can be employed.  The decision each trader makes is based on their personal views and attitude towards risk.  This case study points out the need to learn how to think like a trader versus just following a set of rules.  Want to make a profit on a high percentage of trades and manage unfavorable trades from a loss to break-even or an eventual profit? We sure do! How about you?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Case Study

We at Options Money Maker often deploy a vertical Call Credit Spread under certain market conditions. This is a downward bias position. This case study involves SPX when it was trading at 2010. Our traders opened a 2030/2035 Call Credit Spread and received $1.75 credit.

What is the logic behind this trade…?

This type of downward bias position realizes its maximum profit when the position is out-of-the-money at the time of expiration. In this case we wanted the index to remain below 2030. We built buffer into the position by opening it 20 points out-of-the-money in the event that the index moved upward. We normally don’t wait until expiration to close the position. We take reasonable profits of 10-20% when available and reinvest the cash in a new position. Taking profits is always a good thing and so is using the power of compounding. We built plenty of time into the position (so we thought).  The problem is that the market does not always follow the identified bias in a predictable time frame. We know with 100% certainty that this index will eventually go down, we just don’t know when.

What Happened Next…?

With one week to expiration the SPX had continued to increase and was now trading at 2070.  We suggested to our traders that they should roll the position out to create more time and to roll it up to a higher strike price to increase the likelihood for a profit. Many of our traders added 4 weeks of time to the position and increased the strike prices to 2055/2060. When factoring in the cost of this change which was $.75, we now were still left with a reasonable credit of $1.00. We increased the probability of making a profit because our strike prices were only 15 points out of the money.

It’s Great to Have Choices…

We are now monitoring this trade and will close it for a profit in the event that the index moves down as anticipated. If it does not move down and we need to buy additional time, we could very likely roll the position out farther in time and still maintain a small credit.  The idea is to keep the position alive and well positioned while waiting for the market to eventually move as anticipated. Do you know what to do when the market is not cooperating with a trade?

There was no one right answer in this case. There are other management techniques that can be employed.  The decision each trader makes is based on their personal views and attitude towards risk.  This case study points out the need to learn how to think like a trader versus just following a set of rules.  Want to make a profit on a high percentage of trades and manage unfavorable trades from a loss to break-even or an eventual profit? We sure do! How about you?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Click Here to Learn More and Take Action

Case Study

We at Options Money Maker often deploy a vertical credit spread under certain market conditions. This case study involves the index RUT with expiration dates that were 6 weeks into the future. RUT was trading at 1160 when we chose to open a call vertical spread with the short Call at 1200 and the long Call at 1205. We received a credit of $1.30 on this trade. This is a downward bias position with the index trading at a defined point of resistance.  Our goal is to have the index continue to trade below 1200 and wait for the time decay to create a profit. Rarely do we allow these positions to go all the way to expiration but rather, take reasonable profits as soon as they are available. 

What is the logic behind this trade…?

We don’t just establish a downward bias position and “hope” that the market goes down.  That would be hoping for luck or speculation. This trade was established for multiple reasons. A careful review of the chart revealed multiple indicators that favor a downward bias.  Reading the charts correctly is an important skill to learn. We teach you how to read charts like the masters. RUT also has a tendency to be a “leading” indicator which means that it may experience a move downward before other indices such as SPX or NDX. We also established positions that were 6 weeks out so that we had different “waves” of positions creating profits at various times. The significant time to expiration as well as the buffer created in the strike price to balance a move upward, also allows for adequate forgiveness to manage the position in the event that the market moves contrary to the anticipated bias.

What Happened Next…?

Over the next week, RUT declined to 1140 which lowered the credit on the position to $.50. This allowed our investors to buy back the position and close it out for an $.80 profit.

Closing a trade for a profit is never wrong…

Some of our investors chose to remain in the position longer and close out for a profit of $1.00 because of the expected downward bias of the index.  It is never wrong to close out a position a little sooner for a profit. Not only does this increase your “winning percentage” it puts capital back in your hands again to reinvest sooner than later.

There was no one right answer in this case.  The decision each trader makes is based on their personal views and attitude towards risk.  This case study points out the need to learn how to think like a trader versus just following a set of rules.  Want to make a profit on a high percentage of trades and manage unfavorable trades from a loss to break-even or an eventual profit? We sure do! How about you?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Case Study

We at Options Money Maker deploy a variety of tested and proven techniques that have produced consistent returns for us over time.  The specific techniques utilized often depend on the status of the current market. When we have studied the charts and are not sure exactly which way the market might move and the volatility index is reasonable, we often utilize a technique that combines two diagonal spreads, one PUT spread and one CALL spread to realize profits regardless of the directional movement.

What Happened…?

We established two diagonal spreads on SPX with the index trading at 1970. We chose the 1950 Put Spread with expirations of September week 4 for the short leg and October week 1 for the long leg. The Call Spread was established at 1990 with the same expirations as the Put Spread creating a “sweet spot” of 40 points between the two spreads. Ideally we would like the index to stay within that 40 point range which would allow most or all of the credit on the two short legs to expire. The amount of credit received on the two legs was $18.55 all of which was set to decay away over the next 7 trading days. The net debit (what we paid) for the position was $17.30.

What Happened Next…?

The long Put and Call were selected with similar delta values so that they would largely balance each other out regardless of the movement in the market. Over the next week the SPX bounced up and down as usual without any dramatic movements that took the price outside of the “sweet spot” of our position. We had placed a Good-til-Canceled order to close the position at $20.80 which represented a $3.50 profit or 20%.  With only 3 days left to expiration, the short Put and Call went into a rapid decay mode and the long Put and Call canceled each other out fairly well creating the expected 20% profit when our automated trade was executed.

Some Investors Play the See-Saw Game…

Our techniques are not speculative but some investors may choose to close out one of the spreads on a move up or down and then close out the remaining spread when the market reverses. This may make sense if there is enough time buffer built into the position to respond if the market does not move in the desired direction. The more conservative approach is to not “over manage” the positions; leave both spreads in place and make the profit on the natural time decay of the short legs.

There was no one right answer in this case.  The decision each trader makes is based on their personal views and attitude towards risk.  This case study points out the need to learn how to think like a trader versus just following a set of rules.  Want to make a profit on a high percentage of trades and manage unfavorable trades from a loss to break-even or an eventual profit? We sure do! How about you?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Case Study

We at Options Money Maker are not speculators or day traders. When you have a sharp movement in the market one direction or the other there is a natural tendency to expect a rebound or a “retracement.”  Speculators might buy a call or a put depending on the anticipated direction to leverage the anticipated move and make a quick and dramatic profit.  That works if you are sure you can predict what the market will do. We don’t attempt to do that. We take what the market gives us in a defined, methodical approach to investing that includes multiple options and management scenarios. When the market had decreased sharply, we chose to initiate a Put Credit Spread on RUT for two reasons. We felt that the next significant move could be upward and this is an upward bias positions and RUT has a tendency to be a leading indicator and might move in that direction in advance of some of the other indices. We opened an 1145/1150 Put Credit Spread on RUT with the index trading at 1160.

What Happened…?

All indications were that the RUT would rebound or increase but instead the global selloff resulted in another significant decline to around 1100.  If we had bought a speculative Call as opposed to establishing a Put Credit Spread we would have experienced a significant paper “draw down” on that position. Because we hedged our bet by using a tried and true Put Credit Spread with significant time buffer built in, we experienced minimal draw down, did not panic and waited for the next move.

What Happened Next…?

The market did not cooperate for the speculative day traders. Rather than conduct the anticipated retracement, the index continued down to just above 1100 but our investors had a position that “hedged” their draw down with built in time to wait for a correction. Three days later, the index had rebounded to 1155 which created a profit in the position. We closed the position for a profit and had the peace of mind of not being enticed to create speculative positions.

Greed is the Downfall of Many Investors…

Our techniques are not speculative and we do not have a “get rich quick “mentality. We establish solid positions based on directional bias and build in strike prices and expiration dates that allow for forgiveness.

There was no one right answer in this case.  The decision each trader makes is based on their personal views and attitude towards risk.  This case study points out the need to learn how to think like a trader versus just following a set of rules.  Want to make a profit on a high percentage of trades and manage unfavorable trades from a loss to break-even or an eventual profit? We sure do! How about you?

Click Here to Learn How to Trade Like the Masters

Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

Case Study

A number of our previous case studies have focused on the use of credit spreads; either Put or Call spreads depending on the anticipated bias of the market. This is a great strategy that brings cash into your account and provides a defined maximum gain as well as risk. This case describes the use of a debit spread which the investor buys as opposed to selling the credit spread.  Debit spreads use different expiration dates for the long and short legs and requires expending cash from your account.  A Put Debit Spread was opened on SPX at a time when the directional bias was down. We opened a long put with 4 weeks to expiration at 1190 and opened a short put with 2 weeks to expiration at 1160. The net debit was $19.50 which represented a cash expenditure.

 

What Happened…?

Over the next week the SPX drifted downward and we began to see a profit on the Put debit spread.  Now that the market was moving in the anticipated direction, the next question was, when do we decide to close the position for a profit?  We used the Good-til-Closed process (GTC) to establish an automated order. A 20% profit on $19.50 is roughly $4.00. We therefore placed our order to sell to close the position at $23.50.

What Happened Next…?

As SPX continued to decline, we observed that we could sell to close the position one morning at $22.50 which represented a $3.00 profit on the position or a 15% gain in less than a week.  Since there were some technical indicators showing a point of support for SPX, there was a high likelihood that the index would begin to retrace to a higher level.  If this were to occur, this would wipe out our current profit and make the position more difficult to manage. Many of our investors chose to cancel the GTC order and close the position for a great 15% gain.

Greed is the Downfall of Many Investors…

Some of our investors decided to hold the position because there was still plenty of time prior to the expiration periods for SPX to cycle up and back down creating an even greater profit.

There was no one right answer in this case.  The decision each trader makes is based on their personal views and attitude towards risk.  This case study points out the need to learn how to think like a trader versus just following a set of rules.  Want to make a profit on a high percentage of trades and manage unfavorable trades from a loss to break-even or an eventual profit? We sure do! How about you?

Click Here to Learn How to Trade Like the Masters