TSLA , but using the dynamics of the stock to our favor has created an option winner with superior returns and less risk. TSLA has unique stock dynamics. Here is a three year stock chart via Yahoo! What we can see is that the stock drops abruptly quite often, but also recovers equally abruptly and equally as often. This means there are two critical elements to trading options in Tesla Inc we need to address.
The first is a stop loss — but this alone will not be good enough. That is a ton of risk for not very much additional return. Now, we can address the risk by putting a stop loss in, like this:.
What we have done is employed a risk reduction strategy which attempts to limit the downside of a short put gone wrong. Here are the results:. Unfortunately, employing that stop loss has turned a We have limited the downside, but we have not addressed the abrupt recoveries.
In English, in this test, when the stop loss is triggered, we buy back the losing put, but immediately sell the new near the money put at the same time.
This idea has worked over time, not just over three-years. Here is the result of normal short put trading versus the stop loss with immediate re-entry over two-years:. We see a 5. And all we have done is take what we can plainly see in the stock chart, and turn that into a trading plan. Options are derivatives — which simply means their underling price is derived from the stock price.
To see how to do this for any stock, index or ETF and for any strategy, with just the click of a few buttons, we welcome you to watch this 4-minute demonstration video:. Tap Here to See the Tools at Work. You should read the Characteristics and Risks of Standardized Options. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options.
Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Sign up for the free Opening Print newsletter.More...