This is a rebroadcast of OICs webinar panel. In this deep dive discussion, Frank Fahey (representing...
The Anatomy of a 1,000% Options Trading Gain
09/03/2014 8:00 am EST
Bob Lang of ExplosiveOptions.net shares an example of an options trade that rewarded him with a whopping 1,000% gain and the four crucial things for options traders to remember to not miss out on the next one.
As options traders, we constantly search for the Holy Grail that will show us what will happen on the right edge of the chart. Naturally, we cannot see the future, but we can set ourselves up for a big payday, the kind that puts us on another level financially, mentally, and emotionally. There is no better feeling than nailing a monster winner and banking a 1,000% options trading gain. This is the story of what that looks like.
I’m often told General Electric (GE) is one of the most boring names out there. It is a stodgy old industrial stock that does not have much beta beyond the market (it moves slower than the market does, whether it’s going up or down). The stock currently trades in the mid $20s and has gone virtually nowhere over the last year or so. Stocks like Netflix, Apple, and Boeing have soared since 2012, while GE is barely up 25%.
But, if your timing is right, GE could provide you with some great short-term returns. All you need are charts and technicals, powerful tools when it comes to options trading and as close as we can get to the Holy Grail.
A couple years back, I had one of my biggest gains in a GE option trade. It was just before an expiration week (about seven days out). The stock’s chart was looking fine. Indicators were just starting to turn bullish. The out-of-the-money strike was selling at 13 cents. There was a small risk in taking this trade and just waiting it out, but I felt confident in the technicals.
Well, some news hit the following day, and the stock ran through the strike, going up 55 cents. By the end of day, the option was at 50 cents, a robust gain—but there was more time left to wait out.
During the next week, GE went up about 85 cents in price, a very strong move for the stock. The option ended that expiration Friday at $1.35—it was up more than 1,000% from the previous Thursday. The stock rose about 9% that week. Boring? Think again.
This is just one story of a successful trade where we got a bit lucky, but I like to say that luck is where preparation meets opportunity. It would take ten lifetimes to achieve a 1,000% return in GE stock, yet the options trade yielded that much in about seven days. We were at the right place at the right time.
Of course, monster trades are not likely to happen. In fact, you will probably lose 99% of the time trying to get a big winner. The great thing about options trading is that it gives you tremendous leverage if you find yourself on the right side of the trade. You cannot just guess and make random trades. Instead, you have to read the charts, be prepared to change your strategy, have the patience to wait out a trade, and manage your risk. Without those four things, a 1,000% gain will remain a pipe dream.
By Bob Lang of ExplosiveOptions.net
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