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Help me turn $200 into $1,000,000 with options!

post #1 of 38
Thread Starter 
OK, I'm going to do this, but I need your help!

The potential returns on options are just sick and I have to at least try. A 50% move (or better) not only can happen, it does happen, every day, all the time!. Just a couple percent move in the underlying can give you that kind of profit on your option, and stocks are always moving two, three percent, often more.

The secret, of course, is patience. (Duh!) My job is not to try and guess the direction of a stock. My job is to wait until the odds are heavily in my favor. I let the chart come to me and I do what it tells me to, whether that be to buy calls or puts. I don't care what direction we're going, as long as we're going.

Now, is $200 to $1,000,000 really possible? Absolutely. How hard it is and how long it will take is something that remains to be seen, but I believe that by playing the odds in your favor each and every time, one could do this in less than a year. I'm being conservative with my estimation, in fact. I think that if one were very lucky, it could actually be done in a month. (But I'm not very lucky at all, so I'm not hoping to do this in that kind of time frame! LOL)

The math that makes it possible is compounding. I'm sure everyone has seen me write about this before. Taking $200 and averaging 33% per trade, by compounding, would give you $1m in just 30 trades. If you got lucky and nailed one or two for 100% or 200% (not far-fetched), it could happen in as little as 20 trades.

However, nothing is guaranteed to go the way you want, so it's extremely important to have an exit strategy. As long as the option is significantly MORE likely to get to +33% than it is to dive to -25%, it's a risk worth taking. Taking this tack, you don't need to hit a homer every time. You just need to win 30 more times than you lose, no matter how many trades it takes.

If the odds are on your side for each trade, success is an inevitability!

The reason I need your help is because I simply don't have the resources or the time to track every mover out there. No one does. The more eyes out there looking, the more opportunities there are.

What kind of charts? Charts that put those odds right in our pocket. I'm looking for gorgeous chart patterns and resistance (or support) breakouts (or breakdowns). These can be daily, or intraday, doesn't matter.

Help me find only the best of the best of developing chart patterns, post them here, and hopefully I can catch it before it breaks! Since there will (hopefully) be several people keeping an eye out and contributing to the thread with great, GREAT, picks, it's important to keep it to only the best looking charts. No iffy ones, no maybe this'll go's, none of that uncertainty. We're looking for charts where you are 80% sure of a successful breakout.

Even if there are only 4 or 5 good picks a day, that has the potential of making this experiment a success within just a few weeks!

So, what's in it for you to help me? Bragging rights! LOL Seriously though, I would like to reward everyone that helps make this work. This is my promise to you.

I will reward $5,000 each to the 10 people that helped me the most in achieving this seemingly-impossible goal.


I will also throw a wicked party in Vegas so that I can meet everyone that helped me make a successful trade!

"Helped me the most" means the top 10 people whose picks I used for successful trades. (So be careful. If you start posting a bunch of crap picks in the hopes of me trading it, I'll just put that person on ignore and they'll never get into the top 10.)

Unfortunately, it's not going to be as simply as just posting a nice breakout/breakdown formation. I also need the options to be worth trading. That means that the options MUST be liquid, with a tight spread. None of that crap that trades two contracts a day with the bid at $1.00 and the ask at $1.40.
post #2 of 38
Thread Starter 
So, a summary of the rules for those wanting to help:

- must be a beautiful chart pattern with a clear breakout/breakdown forming

- must be going with the trend (I don't try to catch bottoms or tops)

- the option must be liquid and have a tight spread (less than 5%)

- not absolutely necessary, but would be better if it's going with the indices, rather than against them

- also optional, but might be better if there was good news moving the stock

I don't care about expiry dates because I don't intend to hold on overnight. A 5% move in the opposite direction by the next day's open could wipe out my position! Liquidity does tend to dwindle the closer you get to the expiry, so it's probably not wise to buy options less than a week to expiry.



My trading rules:

- if the option starts to tank immediately after I buy it, I will get out at -25% MAX. If there are other clear reasons for getting out earlier, I will do so. (This is why I need liquidity and a tight spread - so that I don't get horrendous slippage making my what should be a 25% loss into a 35% loss.)

- if my trade goes to beyond +15% and starts coming down, I will attempt to trade out before it hits 0%.

- if my trade hits the high 20s and low 30s, I will watch extremely carefully to exit on even the slightest signs of weakness

- if the trade shoots past 35%, I'll watch and play it by ear, setting a stop at 30% to start and moving it up from there

- these are the basics, but other technical indicators, news and market movements may influence my decision to get out. Nothing is set in stone and mistakes are likely to happen. My result is what determines whether or not you 'helped' me in my trade. If I got out at 5% and the option went on to a 400% gain, sorry, you don't get to include that trade in your total. A winning trade where you get a point added to your total is one that I actually realized a profit of 35% or greater, whether that be by accident or on purpose.


Now, let's make me a millionaire!
post #3 of 38
Definitely/Defiantly an Optimist!

Good Luck...
post #4 of 38
Thread Starter 
By the way, if anyone with experience has ideas or suggestions on how to refine my strategy, please speak up!
post #5 of 38
>>>>>>>>The math that makes it possible is compounding. I'm sure everyone has seen me write about this before. Taking $200 and averaging 33% per trade, by compounding, would give you $1m in just 30 trades.


The problem with the theory is the odds of making 30 successful trades in a row with no losers is probably in the neighborhood of 1000 to 1 assuming your were good enough to make picks that had an 80% chance of success. If you could get your success rate near 80%, it would probably take you well over 100 trades (I did not do the math, too early to think about it). Patience is the key, which is one trait I lack. One day I will learn.
post #6 of 38
Of course, with options expiration coming there are high risk opportunities for huge gains to get a kick start. There was a 70 bagger last month in RIG, where the expiring options went from 0.05 to 3.70 in one day. Unfortunately, I bought them for $0.95 the week before though and had just expected them to expire worthless.

But here is why this month's options expiration week is interesting.

1. We have had massive declines the last two weeks, creating an oversold condition that could pop anytime.
2. With the economy weakening, the fed could step in early and announce a surprise 1/2 point cut which would really stimulate a pop.

Of course that is a total gamble. If you recall though, when Ben did his first surprise rate cut, it was on option expiration day (Aug 17th), which really screwed over shorts. I am about 20-80 on whether Ben will cut early or not. I think Ben would like to step in to stop the markets from further collapse, but Ben has shown he likes take every other stimulus step prior to doing a cut. It is a last resort for Ben, which leads me to think he will wait.
post #7 of 38
Thread Starter 
Quote:
Originally Posted by LuckyOne View Post
>>>>>>>>The math that makes it possible is compounding. I'm sure everyone has seen me write about this before. Taking $200 and averaging 33% per trade, by compounding, would give you $1m in just 30 trades.


The problem with the theory is the odds of making 30 successful trades in a row with no losers is probably in the neighborhood of 1000 to 1 assuming your were good enough to make picks that had an 80% chance of success. If you could get your success rate near 80%, it would probably take you well over 100 trades (I did not do the math, too early to think about it). Patience is the key, which is one trait I lack. One day I will learn.

Thanks for the reply LuckyOne. I didn't go into the details in this thread's original post because I have in other posts, but I guess not everyone has seen those. You don't need to have 30 in a row.

The way it works is, you set yourself an exit target of either +33% or -25%. (I am also playing with the idea of a ratio of +25% to -20% because it seems more consistently achievable, but I'm not sure yet.)

Basically, with this exit strategy, one win equals exactly one loss. If you lose 20% on one trade, you need a 25% gain to make up for it.

$100 - 20% = $80
$80 + 25% = $100

Since one exactly replaces the other, (excluding commissions), then you could go 1000 trades and as long as you have 520 winners vs. 480 losers, you've attained your goal.

So, if you can find (and be patient for) the trades that are more likely to reach +25% than they are to go to -20%, then like I said, success is an eventual CERTAINTY. Even if you need to place 10,000 trades, the $20,000 or $30,000 in commissions would be negligible when you've reached your $1m.

Going further, if you could really get 80% of your trades right, that would mean two losses for every eight wins, giving you a surplus of 6 winners for every 10 trades you make. Bingo. 50 trades to a million bucks!

Even a ratio of 6 wins to 4 losses would mean you could get there in 150 trades total. Place five trades a day, three winners, two losers, that's one surplus good trade on average per day. That's less than TWO months to the goal.

The only thing in all of this is that when I get to over $50k or so, I think it's going to be hard to find options liquid enough to absorb all of it in one trade. I might have to start trading GOOG options or BRK.A options.
post #8 of 38
Thread Starter 
Quote:
Originally Posted by LuckyOne View Post
Of course, with options expiration coming there are high risk opportunities for huge gains to get a kick start. There was a 70 bagger last month in RIG, where the expiring options went from 0.05 to 3.70 in one day. Unfortunately, I bought them for $0.95 the week before though and had just expected them to expire worthless.

But here is why this month's options expiration week is interesting.

1. We have had massive declines the last two weeks, creating an oversold condition that could pop anytime.
2. With the economy weakening, the fed could step in early and announce a surprise 1/2 point cut which would really stimulate a pop.

Of course that is a total gamble. If you recall though, when Ben did his first surprise rate cut, it was on option expiration day (Aug 17th), which really screwed over shorts. I am about 20-80 on whether Ben will cut early or not. I think Ben would like to step in to stop the markets from further collapse, but Ben has shown he likes take every other stimulus step prior to doing a cut. It is a last resort for Ben, which leads me to think he will wait.
Hey, you read my mind! I've been thinking about checking out how options play out on expiration day. I was wondering if they have NO premium?

So basically, a stock is trading at $50.20, what would the $50 strike calls go for? $0.20? $0.25? What kind of premium are we talking about on the last day? Maybe I'm dreaming to think that the premium would be 0... If it were, or close to it, you could really, seriously bank. That $50.20 stock, if you could get the option at 0.20 and it went the underlying goes to $52, that's a bloody 10 bagger...

By the way, I think you meant RIGL, not RIG...
post #9 of 38
Thread Starter 
I just checked a couple of stocks... (gonna have to look at many more)... but RIGL is trading at $27.40 and $25 calls, still 5 days away from expiration, are trading at $2.85 (mid-way between bid/ask), only a 0.30 premium, while the $30 puts' b/a is 2.90/3.10, which is a 0.40 premium.

Since the premium should depreciate even more over the coming days, is my original thinking right?
post #10 of 38
The premium can be 0 nearby to expiry, but this usually happens only with OM calls. It happened to me with MDT. I wrote some covered calls on the 50's which were rick on the neck line at the time. After news broke out that they could not sell any inhibitors, the stock took a 14% tumble and those 50 calls when down the drain in the option chain, basically making them worthless(Bid 0.00 X Ask $0.05). Here my covered calls made a 100% return because not one was able to sell those calls, so there 100% loss became my 100% gain.
post #11 of 38
It was RIG. They shot up $7 on expiration Friday last month.
post #12 of 38
iam trying to learn calls, so if you buy 1 year call options say the stock is at 1 buck and the strike price of 2.50 for jan 09
if that stocks breaks 3.00 bucks over 6 months with 6 months to go youll make a huge % return correct? I see the 5.00 strike price for the same option is getting more action , why would the 5.00 strike price be getting all the action when it would have to move 5 times the current price compared to the 2.50 strike price? bigger return? wouldnt the 2.50 call price be a great return?
post #13 of 38
Ok

Well quite determined are we, I am not going to say this is not possible, but through my determintion in finding a better system I have to add a few things.

Criteria must be drwan up to involve the trading, IE what makes you enter a trade eacha dn everytime

Gains can not be limited to 30%, I am going with 30% also on my trades but what i found is you need broker that allows trailing stops on options, basically when your target is hit you MUST apply a trailing stop, but in doing this you may get so,me super charged trades that run thus you get more than 30%

You must limit your stock exposure daily , IE find 5 stocks for the trading day, with trade plan on each, dont worry about runnners, be ready with a plan on 5 stocks, and wait for one of them to meet your entry criteria.

As the gains get larger and you roll that money in emotion will become higher, IE when u put 30k into a option you will be limited by the options that can be played, and you will become deeper in the money on the trades to keep commission affordable, but by goin deeper in the money gains will also become less but safer. So a strategy needs to be developed for this.

The stop loss of 25% i feel may be too much, I know you don't want to get out early but IMO if u lose more than 15% you did not enter the trade correctly option wise, you did not look at your play or analyze the trade properly, or the trade just didn't go your way, To succeed you need to limit losses as much as possible

Tim
post #14 of 38
I would never try to use this strategy, but it would make an interesting experiment to for a paper trading account. I am not willing to risk 1/2 of my account to double it, especially once it gets above 20k. I've also never met anyone with that kind of winning track record when it comes to playing options. Go visit the CBOE floor traders and watch what they are playing and you will see that most every trade they make is some type of spread, rarely a straight call or put. Even while these MM's have the advantage over the retail market, they use these strategies.

Most people try to use options to make huge gains on every play. In my limited experience with options I have found that you can wipe out an account very quickly going for the big bangs. Playing higher probability plays will increase your account slower,but will increase your chance of a winning trade. Always be prepared to hedge if you chose to play directional (straight calls or puts), when the trade goes against you. Managing profits is only a small part of the options game, it is far more important to protect capitol.


Options should be played played further out than the nearest expiry date and the further you go out, the less the option moves in regard to the stock price. Playing the fast moves just before expiry is great when the trades go your way but awful when they dont (25% losses are not always achievable in these circumstances, either).

Anyway, best of luck with your project. Keep us updated.
post #15 of 38
Quote:
Originally Posted by LTDI Lover View Post
iam trying to learn calls, so if you buy 1 year call options say the stock is at 1 buck and the strike price of 2.50 for jan 09
if that stocks breaks 3.00 bucks over 6 months with 6 months to go youll make a huge % return correct? I see the 5.00 strike price for the same option is getting more action , why would the 5.00 strike price be getting all the action when it would have to move 5 times the current price compared to the 2.50 strike price? bigger return? wouldnt the 2.50 call price be a great return?
It depends on the move. A big enough move and the $5 strike could have a far greater return. Say if the $5 strikes were selling for a nickel, if the stock moves to $6 those options are worth over $1 or more than 20x the investment. Meanwhile those $2.50 strike options that cost $1 are now worth a bit maybe $5 for a 5x gain.
post #16 of 38
Ok but if you bought 20k worth of a nickel each to strike at 2.50 and the stock is at 1 buck now and in 6 months the stock is at 6 bucks you could write them and cash in for a few hundered k correct by selling the stock at the gain ?
post #17 of 38
I thought the 2.50's were $1, not a nickel? If the calls were $1, yes you could write/sell those calls for $100K or more.
post #18 of 38
no the 2.50 is a nickel and the 5 moved to .15 friday afternoon, so so if i beleive the stock will be at 3 or more from jan 08 to jan 09 i should dump heavy on the 2.50 calls at a nickel each? if it breaks 5 bucks this year i could make a huge return
post #19 of 38
Quote:
Originally Posted by Blooey View Post
The only thing in all of this is that when I get to over $50k or so, I think it's going to be hard to find options liquid enough to absorb all of it in one trade. I might have to start trading GOOG options or BRK.A options.
Not necessarily! RIMM/AAPL/GRMN/FCX among others have good liquidity for stocks between $70-$200!

I've put in $15-$20k on one or two out of the money before when I saw a major drop that was due for a bounce and came away with 50% in 10-15 minutes.

One key to success is playing stocks that are ready to breakout out of a stellar chart pattern as you have noted or that have dropped/gained so rapidly that they are due for a bounce and the options for the reversal side are cheap due to inefficiencies in the pricing model (Black Scholes).
post #20 of 38
The real problem will begin when your account gets larger. Over 20k, you will start to feel a little more uneasy in each trade.

Imagine throwing down 100k on one option play. At that point, you probably wont try to find an "out of the money" bargain in hopes for a bounce - you should be getting "in the money" puts/calls with a lot of time left before decay.
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