As I sit here writing this, belatedly celebrating the 15-year birthday of Morpheus Trading Group, I once again find myself waxing nostalgic.
I’m thinking about that awesome day, back in July of 2002, when I created Morpheus (the stock trader dudes, not the Matrix dude).
Specifically, I have four thoughts:
But I digress.
What I really want to share with you today is how the recent addition of simple option trades of the leading stocks has started paying off in a big way for newsletter subscribers.
Specifically, I want to show you how a 2-month holding period led to a +220% gain in $CORT calls.
Continue reading to find out how popular stock trading breakout strategies can be applied to options trading as well!
One of my favorite things about the Morpheus trading strategy is its simplicity.
Other trading systems may promise (and possibly even deliver) highly profitable trading results, but can you easily and consistently follow all the detailed rules of the system?
If not, don’t bother trying to follow it.
Instead, focus on the most simple, yet highly effective methods of trading.
Base, Breakout, Base, Breakout.
Use simple indicators like price, volume, and moving averages to properly time your entry into each breakout.
Rinse and repeat.
That’s the gist of the Morpheus trading strategy in a bull market.
Now, by popular request, we are now applying that same winning trading strategy to an equally simple system for trading options.
By simple, we’re talking about merely Buying a Call or Buying a Put, holding it a few days to weeks, then selling it.
Well, we’ve been listening and we have already begun adding the best swing trading options picks to the Wagner Daily newsletter as well.
To show you how it works, let’s dive into a few charts that walk you from entry to exit in our recent trade in $CORT call options.
In early July, $CORT had formed three valid basing patterns in a row , with each base tightening up over the prior base.
The last base retreated only 15% off the highs and held above the rising 10-week moving average, which is generally a very bullish sign.
Along with solid technical action, $CORT was one of the few stocks in the biotech sector with impressive earnings and revenue growth, making it a top-notch buy candidate:
The tight basing action in July caught our attention, so we dropped down to the daily chart to find a decent low-risk entry point.
Although we liked tight price action on the daily chart in mid-July, we were hesitant to buy the stock with earnings on August 2.
Rather than buying shares of $CORT, we purchased Novemeber 2018 $13 calls at $1.55 on July 14 to limit our risk while holding through earnings:
$CORT chopped around for two weeks following our entry, but gapped up to new highs on big volume in reaction to earnings on August 2.
We added to our position in the model portfolio on August 29 over the prior day’s high, after the price action moved off the 20-day EMA on a pick up in volume.
At this point the call options were too expensive to buy, so we bought shares of $CORT:
After a +50% move from our original entry and the false breakout action on 9/18 and 9/19, we decided to protect profits.
We sold $CORT on 9/20 at $5.00 for a 220% gain in the option (from $1.55 to $5).
The shares we purchased on the add were also sold on 9/20 for a 20% gain (from $14.70 to $17.75).
Total profits from the trade resulted in a $995 gain, or 2% total net gain the 50k model portfolio.
With a simple options strategy like buying calls or puts, you should always consider the potentially negative impact of time decay in options trading.
However, we exclusively focus on option picks that are “far out” (longer expiration dates), which means minimal time decay for the short holding periods we use.
Smaller trading accounts can truly benefit from the increased leverage of options trading, while still employing stop loss techniques that are also used in stock trading.
Subscribe now to see how you too can benefit from our top options trade picks and educational, “no-nonsense” technical analysis delivered to you every night.
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Hi love the article, was surprized that you could get call option in july 2017 for nov 2018, so went internet sniffing and am wondering if you bot nov 2017 @18 (which is around $2.40 now ? could not find nov 2018, could very well be my limited knowledge as may 2018 is furhest out I can find