If I show you a chart, you can easily tell me when you should have bought and sold based on what the price has already done.
You’ll always buy at a low point and then sell high. It’s a no brainer.
But, what if I showed you a chart and asked you what to do from this point forward?
Trying to predict in real-time when to buy and sell is much more difficult. To make the right call on a consistent basis, you need a steady approach.
That’s the key.
A strategy that has been tested through various market environments, while still producing the gains you are looking for, takes the guesswork out of what to do. Once a trade is triggered, you know exactly what to do.
I‘ll use the social media giant Facebook Inc. (Nasdaq: FB) as a great example.
Take a look at the chart below, running from March 2020 through the end of July.
Facebook’s 80% Rally
You can see the benefits of buying low and selling high here, as the stock surged 80% in just a few months.
But at the end of the chart, would you buy or sell the stock?
Shares soared 80% out of the pandemic driven sell-off, and the company had just reported earnings that crushed analyst expectations.
As a result, investors drove the shares up another 5% that day.
When you add it all up, this is one heck of a run for the stock.
So what’s next? Do you buy or sell here?
Trading Strategy: Buy or Sell the Big Run-Up?
I think too many people look at a chart like this; they look at the huge run-up and surge on earnings as an opportunity to exit — happy with whatever gains they accumulated over the last few months.
But they are missing the bigger picture.
Here’s what happened over the next few weeks…
The stock popped nearly 20% in the month following the big jump on earnings, bringing their gains from the March lows to 117%.
I turned that near 20% push for the stock into more than a 200% profit on half of my Facebook position.
Even though I missed out on the rally from the lows and caught the stock after a big jump on earnings, I was still able to generate a massive triple-digit gain in less than a month.
That’s because I didn’t simply buy the stock. I purchased a call option on the stock instead.
And by following a proven system, I was confident jumping in right after earnings to capture what turned out to be a 200% winner.
While most investors think they missed their chance on Facebook after the stock’s earnings surge, I knew it had further to climb.
Since I trade options, I can turn smaller moves in a stock into huge returns.
And now, I want to share the power of options with you. So, you don’t have to worry about catching the absolute bottom of the stock or timing a top perfectly to make big gains.
With options, we’re not reaching for the fences on the expectations for the stock. We just need modest 2%, 5% or 10% moves in a stock to hand us quick double- and triple-digit returns.
That’s the real power of trading options — capitalizing on short-term mispricing.
I’ve put together a free weekly newsletter to cover everything you need to know to profit with options.
No matter where your starting point is, we will add to your knowledge options so that you’ll have the same confidence as a pro when it comes to placing trades.
Chad Shoop, CMT
Editor, Quick Hit Profits