Let’s go back to our Trade tab. We’re going to do four of the August 30s. We’re going to sell one of the July 25s. We have $267 and $62. If we go ahead and put this order in, we have a total cost of $254 on the trade, including the commission, of $6.
Let’s go ahead and put that in. We got filled right away. That’s the thing that I like about these kinds of trades – we get filled right away. Of course, we are paying the market prices, but they are so favorable to us that we really don’t have to worry too much.
There we are. Our maximum loss is going to be about $70, but since we’re actually going to be closing it out before expiration, we just want to hold this through to earnings. That’s all we’re really doing. We want to see this stock pop up. If it goes up a few bucks, we’re going to make some money.
That’s all we’re looking to do. We’re looking to make money on that news item, which is going to be the earnings announcement coming out on the 16th of July.
You can put these on just about any kind of stock that you want. I think they’re very favorable, especially if you’re somewhat bullish or bearish. It doesn’t matter, actually. If you wanted to, you could also play with a scenario in which you do just the opposite. You would buy an August put. Let’s say you wanted to buy a couple of those. You wanted to sell an in the money July put. I want to make sure that I’m buying first, and I’m selling my put second.
Let’s go ahead and analyze this. That’s not a bad scenario either. You have a little bit more downside risk if it doesn’t move, but now you have unlimited potential on the downside, and unlimited potential on the upside.
If you’re looking for a truly huge move in Ebay, you could do that. If we’re doing the August 25 puts, you could look at the August 22s. That’s a little bit more risky. The 25s are a better choice. We’ll go to $27.50. We’re risking $230 if it doesn’t move. On the 25s, we’re risking $150. That’s a very favorable scenario either way.
I think what we have is pretty cool. I’m looking for an upside pop on Ebay, so I’m just going to keep it at that, and look at my commissions. I still have very nice protection on the downside, so I think I’m good. But you can do it with puts as well. It can be done either with calls or with puts.
Like I said, I did it on the XLF with puts. That also worked out very favorably here. It can go down. It doesn’t cost me very much money if it goes up. If it goes down, I make money. These are very favorable kinds of trades that you can put on. You can put these on all day long.
Here’s the Verizon trade. It’s very inexpensive to put these on. You have a lot of upside and downside protection either way. It’s a very favorable way to trade. You’re not going to find this information anywhere else, really. This is very insider stuff. I hate to say that, but it really is true. You could read all kinds of books, and they’re never going to demonstrate exactly how to make these kinds of trades, in these kinds of favorable conditions.
The only caveat is to use these on stocks that you really think are going to move. In other words, you don’t want this thing just to sit there, so that you lose $40. $40 is not a lot, but still. If the price does not move at this point, I’m going to lose $42, and I don’t like losing money at all, believe me. I’m really risk-averse, and I don’t like losing money.
I want a stock that’s really going to move. If I think I hear something on the news, or I know that earnings are going to be coming out relatively soon for a company that I think has the potential to move dramatically, then I am going to put that trade on. It’s very low-risk, and very little money up front, but it has all kind of upside and downside potential, as you set it up.
If you set it up with calls, you have unlimited upside potential. If you set it up with puts, you have unlimited profit potential on the downside, if the stock trades down.
There are many ways to find stocks in the news. You can use the Think or Swim platform for the Earning Alerts. You can go online and look for earning alerts. You can look through CNBC. Pay attention to the stocks that they are talking about, that are potential takeover targets.
They don’t usually happen right away. You usually have to give them a few months, or maybe even a few weeks. Generally, the stocks that everybody is talking about, as potential takeover targets, are perfect for this kind of strategy.
As I mentioned, we only used a few contracts for these. We have very little money into these types of trades. Our margin requirements are very minimal. If you want to trade more contracts, you do increase your risk, so just keep that in mind.
Okay, guys. Trade with confidence. As I mentioned, please send me any questions you have about this particular trade. This is a super dynamic way to trade, up or down markets. You can make unlimited money. You can just set these and forget these. Just make sure that you have a calendar by your desk, or some other way to track the timing of these events.
In other words, if you’re playing the earnings on Ebay, and you expect them on July 16, when they come out, you want to be able to put that on your calendar, to keep an eye on the trade for July 16, after the market close in the next day.
That’s it for today, guys. Trade with confidence.