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Selecting Option Trades

If you can identify a stock moving up in price, you can profit from purchasing call options. This allows us to profit from the tremendous leverage that options provide. Actual option trades will be used to demonstrate the ability of the three-step trade selection process to select profitable option trades.

The video below will show you how the three-step trade selection process will allow you to identify stocks and options with the best profit potential and profit in any type of market condition.

Prime Trade Select Part 2

The video below will explore three trade management rules:

  1. Exit losing trades quickly before they turn into large losses.
  2. Don’t exit winning trades with a small gain.
  3. Use options to protect profits with winning trades

Using these rules, we will demonstrate using actual trades examples how to profit even if you win on only 1 out of 8 trades.

Prime Trade Select

Prime Trade Select allows us to identify stocks and options with good profit potential with low risk. In this video, we will learn how Prime Trade Select produced $1.2 in open trade profits with an average return of 177.5% and no losing trades.

 

Directional Option Trades

Options are derivatives that derive their value from the price of the underlying stock. Option profits are determined by the price movement of the underlying stock. If you can identify a stock moving up in price, you can profit from purchasing call options.

Conversely, if you can identify a stock moving down in price you can profit from purchasing put options.

The first step of Prime Trade Select allows us to quickly determine if a stock is on a ‘buy’ signal or ‘sell’ signal. We purchase call options on stocks that are on a ‘buy’ signal and put options on stocks on a ‘sell’ signal.

The second step of Prime Trade Select allows us to select a low risk entry point for our option trade.

A low risk entry point helps prevent being stopped out of a trade and increases the accuracy of our option trading. Actual option trades will be used to demonstrate how low risk entry points can help you become a more profitable option trader.
 

Identifying Options with the Best Profit Potential

This week’s video we will learn how the three-step trade selection process allows you to identify options with the best profit potential and identify a low risk entry point for your option trades.

We will also learn how to select an option strike price that only requires a 1% price move in the underlying stock to break even and start profiting on our option trade.

A 1% price movement in the stock to start profiting has a much higher probability of being profitable compared to option strike prices that require a 10% to 15% price move in the stock to break even which may not happen before option expiration.

Of course, if the expected price move does not happen before option expiration you may incur a 100% loss on your option trade. Actual option trades will be used as examples to demonstrate the ability of the three-step trade selection process to select profitable option trades.

Sector Spread Trading

In our last video we looked at a simple technique for selecting ETF options with high profit potential.

In this video learn the advantages of ETF option spreads over ETF option directional trades.

ETF option spreads have a long position and a short position. The long position profits as the underlying ETF moves up in price. The short position profits as the underlying ETF moves down in price. The short position provides downside protection if the market moves against the long position.

It’s possible for ETF spreads to profit if the underlying ETF increases in price, remains flat or declines in price.

Directional ETF call option trades can only profit if the underlying ETF increases in price above the strike price of the call option. For example, the Utilities ETF is trading at 50.96 The Utilities ETF one month 51-Strike call is trading at 1.20. The Utilities ETF must trade above 51 at option expiration or this option will expire worthless resulting in a 100% loss of the option premium paid.

Chuck Hughes currently has a Utilities ETF option spread trade that will produce a 111.3% profit if the Utilities ETF is flat or increases at option expiration. The spread will still profit 36.1% if the Utilities ETF declines 10% at option expiration. Learn how to set up ETF option spreads that can profit if the underlying ETF increases in price, remains flat or declines in price.
 

Selecting ETF Option Trades with the Best Profit Potential

This video will explore the three ETF option money management rules: 

1) Exit losing trades quickly
2) Don’t exit winning trades with a small gain
3) Use options to protect profits with winning trades

These rules allow you to hold on to winning trades and cut short your losing trades which is the key to successful ETF option portfolio management.

The overall goal of these Strategies is to maintain at least a 3 to 1 profit to loss ratio. This ratio is calculated by dividing your total profits by your total losses and is a good overall measure of reward versus risk.

In order to achieve at least a 3 to 1 profit to loss ratio you must practice sound money management by closing out your losing trades before they develop into large losses and by not limiting your profits by selling winning trades with a small profit.

Most traders do just the opposite and take a quick profit as soon as possible and hang on to losing trades. This results in a portfolio with limited upside profit potential and unlimited downside profit potential.

Once we have our option position established, we will exit trades before they develop into big losses. Cutting losses short is essential to your trading success as it is very difficult to recover from a large loss.

If you take a 75% loss on a trade, your next trade requires a gain of 300% for you to just break even!

This video will explore the simple money management rules for managing ETF option trades.

Discovering the Strongest Market Sectors

In this video let’s explore trading ETF call options in the strongest market sectors. ETF options are derivatives that derive their value from the price of the underlying ETF. If we can identify an ETF moving up in price, we can profit from purchasing call options. Learn how our Sector Option Trade Selection process allows us to identify ETF options with the best profit potential.

Actual option trades will be used to demonstrate the ability of our Sector Option Trade Selection process to select profitable option trades.

Let’s also take a look at how to identify the weakest market sectors so we can initiate short ETF option positions allowing us to profit in both bull and bear markets. This strategy has been performing well during the current market conditions as well as the two severe bear markets in 2008 and 2001 when we were heavily short most global equity markets.

Sector Trading

The video below will look at a simple indicator that will allow you to quickly and easily discover the strongest market sectors so you can initiate long ETF and ETF Option positions with a high probability of success.

You will also learn how to identify the weakest market sectors so you can initiate short positions. Sector trading allows you to profit in both bull and bear markets. This strategy has been performing well during the current market conditions as well as the two severe bear markets in 2008 and 2001 when we were heavily short most global equity markets.

Let’s look at actual sector trades that were taken recently that demonstrate the profitability of this simple strategy.

 

 

Discovering Super Stocks

Let’s explore a strategy for discovering Super Stocks. Super Stocks have a long history of producing returns that far exceed the returns of most growth stocks and market sectors with significantly less volatility and risk.

For example, the monthly price chart below for Reynolds American shows very consistent price appreciation with low price volatility. Reynolds American has produced a ten-year total return of 530% versus a total return for the S&P 500 Index of 101%.

If you can identify a stock moving up in price, you can also profit from purchasing call options, which allows you to harness the leverage options provide. Learn how to identify stocks and options with the best profit potential and profit in any type of market condition.

  

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Trading Options for High Returns

This week we will explore the advantages of option spread spreads over option directional trades.

Option spreads have a long position and a short position. The long position profits as the underlying stock/ETF moves up in price. The short position profits as the underlying stock/ETF moves down in price.

It’s possible for spreads to profit if the underlying stock increases in price, remains flat or declines in price. It’s also possible for spreads to guarantee a profit for your option trade.

Directional call option trades can only profit if the underlying stock increases in price above the strike price of the call option. For example, the stock of American International Group symbol AIG is trading at 54.82. The AIG August 55-Strike call is trading at 2.08. AIG stock must trade above 55 at option expiration or this option will expire worthless resulting in a 100% loss of the option premium paid.

Chuck Hughes currently has an AIG August option spread trade that will profit regardless of the price movement of AIG stock. In fact, this spread trade has a guaranteed minimum profit of 115.4% regardless of the price movement of AIG stock at option expiration. In this video you will learn how to set up spread trades that cannot lose.

 

 

Selecting Option Trades with the Best Profit Potential

Prime Trade Select trade selection process is used to select option trades with the best profit potential. Brokerage account Profit/Loss Reports show that there has been more than $1.3 million in closed trade profits over the last year using Prime Trade Select.

This week let's explore a simple technique for selecting an option strike price that helps prevent getting stopped out of your option trade.

We will also look at a money management rule for exiting losing trades. This rule allows you to hold on to winning trades and cut short your losing trades which is the key to successful option portfolio management.

The overall goal is to maintain at least a 3 to 1 profit to loss ratio. This ratio is calculated by dividing your total profits by your total losses and is a good overall measure of reward versus risk.

In order to achieve at least a 3 to 1 profit to loss ratio you must practice sound money management by closing out your losing trades before they develop into large losses and by not limiting your profits by selling winning trades with a small profit.

Most traders do just the opposite and take a quick profit as soon as possible and hang on to losing trades. This results in a portfolio with limited upside profit potential and unlimited downside profit potential.

Once we have our option position established, we will exit trades before they develop into big losses. Cutting losses short is essential to your trading success as it is very difficult to recover from a large loss.

If you take a 75% loss on a trade, your next trade requires a gain of 300% for you to just break even!

In this video we will explore a simple money management rule for exiting losing trades.

 

 

Option Debit Spread Strategy

This week let's look at the Option Debit Spread strategy that can profit in up, down or flat markets. Brokerage account statements presented in this video show that there is currently $625,197.03 in open trade profits with no losing trades utilizing the Option Debit Spread strategy.

The table below lists the current Option Debit Spread open trade profit results for Chuck's advisory service. There is $183,980 in open trade profits and an average return of 190.8%. Learn how this option spread strategy is the ideal strategy for profiting in any type of market condition.

Discovering Profitable Option Trades

Chuck Hughes’ Prime Trade Select program for discovering profitable option trades has produced a lot of winning option trades. Whenever you have a winning option trade you face a dilemma. You must decide whether to hold the trade for further upside profit potential or to take profits in case the underlying stock declines in price with the possibility of the option trade turning into a loss. Market volatility can quickly turn a winning trade into a losing trade.

In this video let’s explore an option spread strategy that allows you to ‘lock in’ profits for a winning trade and at the same time allows you to participate in any further upside profit potential if the underlying stock continues to move up in price. Learn how to set up these option spreads that can profit in any type of market condition.

 

A Winning Strategy in any type of Market

In the following video we will look at a Relative Strength indicator that helps us find the strongest sectors so we can initiate long option trades and the weakest sectors for initiating short option trades.

This strategy has been performing well during the current bull market that began in 2009 as well as the two severe bear markets in 2008 and 2001 when we were heavily short most global equity markets.

Let's take a look at actual sector option trades that Chuck took this year that demonstrate the profitability of this simple strategy.

 

Lock In Profits for a Winning Trade

Prime Trade Select has produced a lot of winning option trades. Whenever you have a winning option trade you face a dilemma. You must decide whether to hold the trade for further upside profit potential or to take the profits in case the underlying stock declines in price with possibility of the option trade turning into a loss. Market volatility can quickly turn a winning trade into a losing trade.

In the following video we will look at an option spread strategy that allows you to 'lock in' profits for a winning trade and at the same time allows you to participate in any further upside profit potential if the underlying stock continues to move up in price. Learn how to set up these option spreads that can profit in any type of market condition.

 

How to Profit in any type of Market

In the following video we will take a look at an option strategy that can profit if a stock or ETF goes up or down. The option trade calculator below displays the profit potential for one of Chuck's actual ETF option trades. This NASDAQ ETF option trade will profuce a 67% return if the NASDAQ ETF is up, flat or even down 20% at option expiration.

Learn how to set up these trades that can profit in any type of market.

 

 

 

Trade Management Techniques

The following video will look at a simple trade management techinque that allows us to reduce the cost basis and risk of option trades and compound returns.

This trade management technique has led to $ 872,023.17 in actual open trade option profits with an average return of 275.5%. The compounding effect of this trade management technique contributed to the high average return of 275.5%

 

Finding Profitable Options using the '1% Rule'

In this video we will look at using the '1% Rule' for finding profitable options. When you use the 1% Rule to select a call option, the underlying stock only has to increase 1% in price in order for the trade to breakeven and start making money.

An option with a 1% breakeven has a much higher probability of success than an option that requires a stock price move of let's say 10-15% to breakeven. Learn how the 1% Rule contributes to Chuck's current open trade profits of $872,023.17 and average return of 275%.

 

High Accuracy Option Trading

In the following video Chuck will discuss an indicator that will help find low risk entry points for option trades. Chuck has used this indicator for many years with good success.

When purchasing call options, the goal of this indicator is to select an entry point when the underlying stock is oversold and does not retrace lower from the entry point.

This can help prevent being stopped out of your call option position and lead to high accuracy option trading.

This video will look at actual trade examples that demonstrate how this indicator helped Chuck select profitable option trades. Chuck currently has $872,023.17 in actual open trades with an average return of 275.5%

 

Prime Trade Select

In the following video we will learn about Prime Trade Select which is a 3 step high accuracy trade selection process Chuck uses to select option trades with the best profit potential. Options are derivatives that derive their value from the price of the underlying stock. Option profits are determined by the price movement of the underlying stock.

If you can identify a stock moving up in price, you can profit from purchasing call options. Conversely, if you can identify a stock moving down in price you can profit from purchasing put options. Prime Trade Select allows us to identify socks and option with the best profit potential and select a low risk entry point. Lean how Chuck's Prime Trade Select has produced $872,023.17 in actual profits with an average return of 275.5%.

 

Option Spread Strategy

In the following video Chuck will discuss an option spread strategy that can profit in an up, down or flat market. The Market Neutral Spread Analysis below displays an actual spread trade Chuck took recently for Home Depot. Chuck purchased the Home Depot 55-strike call at 12.79 and bought the Home Depot 75-strike put at 1.78.

Below the Market Neutral Spread Analysis displays the potential for profit assuming the various price changes in the Home Depot Stock at option expiration from a 30% increase to a 30% decrease in price.

The analysis reveals that if Home Depot stock increases in price 10%, this spread will produce a $1,910 profit and 131% return. If the Home Depot stock stays flat a$1,104 profit and a 75% return will be realized and if the stock declines 30% it will produce a $543 profit and 37% return before commissions.

One advantage of this strategy is that Chuck's profit potential is not capped. The profit potential for the trade increases as the Home Depot stock moves up in price. These is no worry about protective stops, bad earning reports or a big down moves in the Home Depot stock.

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Earning a Profit in a Flat Market

In the following video Chuck will discuss an option spread strategy that can profit in an up, sown or flat market. The Option Spread Analysis below shows an actual spread trade Chuck took  recently on the leveraged Financial ETF symbol FAS. Chuck purchased the 50-Strike call at 41.91 and simultaneously sold the 90-Strike call at 18.48.

The call option spread analysis below displays the profit potential for this spread trade assuming various price changes in the FAS ETF at option expiration from a 10% increase in price to a 10% decline in price.

The analysis reveals that if FAS increases in price, remains flat of decreases 10% at option expiration, Chuck will see a $1657 profit and a 70.7% return before commissions.

Chuck's brokerage account statements presented in this video show that he currently has $656,126.93 in open trade profits with no losing trades utilizing option spread trades. Learn how this option spread strategy is the ideal strategy for any type of market condition.

 

Selecting ETF Options with a High Probability

In the following video we will explore a simple 3- step Relative Strength strategy to select ETF Options with a high probability of success.

  1. Select a Sector with High Relative Strength and good liquidity
  2. Use the Keltner Channels to select a low risk entry point
  3. Use the '1% Rule' to select an option strike price with a high probability of success

Chuck's brokerage account Profit/Loss statements presented in this video show that he currently has $440,983.38 in ETF and ETF option profits using this Relative Strength sector strategy in his two retirement accounts.

 

Option Trade Management

Chuck uses his Prime Trade Select program in combination with the '1% Rule' to select options with the best profit potential. In most cases the underlying stock only has to increase 0.2 to 0.3 points in order for the option trade to break even and start profiting. This greatly increases the probability that the trade with be profitable.

This trade selection  process has produced a lot of winning trades. When your option trade becomes profitable you are faced with a dilemma. Do you sell your option to lock in profits in case the underlying stock decreases in price and your option profit turns into a loss? Or do you hold the option for further upside gains if the stock continues to rally?

In the following video we will learn an option trade management technique that allows us to lock in profits with a profitable trade and at the same time participate in any further upside potential if the underlying stock continues to rally.

With this trade management technique you do not have to worry if the underlying stock has a bad earnings report, large price declines or placing protective stops resulting in stress less investing.

 

Selecting an Option Strike Price

Regardless of which indicators you use to select option trades, selecting an option strike price is an important part of the trade selection process. Depending on the underlying stock there can be hundreds or even thousands of strike prices to choose from.

When you buy an option, you are buying a decaying asset. Due to the time decay characteristics of options:

  • When purchasing an option, we want to minimize time value
  • And maximize intrinsic value

In this video we will learn a simple technique that allows you to minimize time value and maximize intrinsic value which dramatically improves the probability of a successful trade.

 

High Accuracy Option Trading

In this video we will explore the 3 step high accuracy trade selection process Chuck Hughes uses to select option trades with the best profit potential. This process has produced over $1.8 million in actual profits over the past 5 years in all types of market conditions.

Chuck’s brokerage account Profit/Loss Reports presented in this video show:

  • 1.824 Million in Option Profit
  • An Average Return of 85%
  • 183 Winning Trades and 17 Losing Trades = 91.5% Accuracy
 

Stress Less Option Investing

In this video we will explore the Married Put Strategy for trading stocks. The Married Put Strategy is a spread strategy which greatly reduces the risk of stock trading and at the same time does not limit the profit potential of a stock purchase.

The Married Put calculator below shows the profit/loss potential of an actual Financial ETF (symbol FAS) married put trade Chuck currently owns assuming various price changes in the Financial ETF at option expiration from a 150% increase to a 100% decline.

The minimum profit on the trade is 72.8%. Chuck’s profit potential is not capped and if the Financial ETF moves up in price, his profit increases. If the Financial ETF stock declines at option expiration Chuck still profits. The Financial ETF is currently trading at 70.58 and Chuck has a 74.2% return for this spread trade.

Chuck Hughes doesn’t have to worry about protective stops, bad earnings reports or big down moves in the ETF resulting in Stress Less Investing.

 

Stress Less Option Investing With Market Neutral Spreads

In this video we will explore the Market Neutral Strategy for trading options. The Market Neutral Strategy is a spread strategy which greatly reduces the risk of option trading and at the same time does not limit the profit potential of an option purchase.

The Market Neutral calculator below shows the profit/loss potential of an actual CIGNA market neutral trade took assuming various price changes in CIGNA stock at option expiration from a 30% increase to a 60% decline.

The minimum profit on the trade is 22.1%. Chuck’s profit potential in not capped and if CIGNA stock moves up in price, His profit increases. If CIGNA stock declines at option expiration he will still profit. If the stock is flat at option expiration he will realize a 43.1% return. A 10% increase in Stock Price = 84.6% Return.

Chuck Hughes doesn’t have to worry about protective stops, bad earnings reports or big down moves in the stock resulting in Stress Less Investing.

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Option Spread Trade Selection Produces 475.1% Average Return

Chuck’s option spread trade selection process utilizes both fundamental and technical indicators to select spread trades with the best profit potential. Technical Indicators 3-Step Trade Selection Process

  • Step 1 - Use Trend Following Systems to determine the price trend
  • Step 2 - Confirm price trend
  • Step 3 - Use Keltner Channels to determine entry point

Company Fundamental Indicators

  • Good balance sheets with low debt levels
  • Are not dependent on the price of oil or commodities in a deflationary environment
  • Have stable equity, retained earnings and dividend growth rates in a slow growing US economy
  • Pay a dividend which can help act as a floor during market declines
  • Have little or no correlation to European debt crisis

In this video we will learn how the option spread trade selection process has produced a $169,407 open trade profit with an average return of 475.1%.

Option Spread Portfolio

Selecting an Option Strike Price

When you trade options there can be as many as 700 to 800 strike prices available for a stock. With so many strike prices available, selecting a strike price becomes just as important as stock selection. In this video we will learn a simple rule to help you select an option strike price with the best profit potential.

Selecting Options with a High Probability of Success

The option selection process can be challenging due to the sheer number of options being traded. For example, if you decide to trade a BIDU option there are over 750 BIDU options to choose from. How can you effectively select an option with good profit potential with so many choices? Learn how historical price data can help us select an option trade with up to 90%+ accuracy.