At the end of the day, our number one goal is to help you secure a double on your trade.
The Breakout Multiplier system (BOx) is a success when we sell lots of doubles. Period.
Think of flipping a double as securing a free ride. In bull markets, these free rides tend to turn into multi-baggers. That’s all we’re trying to do—put ourselves in the position to win big, consistently.
Once you get that double, it’s on you to decide the next steps.
We will provide suggestions and always discuss how we are trading out of the remainder, but because everyone's risk tolerance and objectives are different, this is a decision you need to make personally.
And it should come with a great deal of thought.
Consider the following:
How much capital do you have in your account?
How much and how often can you stomach losing?
How greedy are you -- can you let your winners ride?
Did you oversize the position in question?
What is the broader market environment?
What does your aggregate exposure look like? What’s going on in your other accounts?
Do you have other (non-BOx) positions open that might overlap significantly and increase your exposure to a theme?
What are your goals and objectives with BOx?
The Breakout Multiplier system is not designed to be your complete investment strategy. This is a kicker system—something juicy we layer on top.
It’s an offensive strategy that thrives in bull markets. We do more of it when times are good, and less of it when they’re not.
Breakout Multiplier is what people in the biz refer to as a sleeve. It’s the cherry on top. It’s for the real risk-takers.
If this is you, congratulations, you are in the right place. Keep reading.
The main reason we advocate selling at a double is to bring our cost basis to zero. When done correctly, we are positioned in a trade with unlimited upside at zero cost.
Our goal is to earn ourselves this kind of “free ride” over and over again. It sets us up for outsized profits without the risk of losing.
You can sell the entire position at the double if you’d like, but that would defeat the purpose of our strategy.
Since inception, 59.5% of our BOx trades have doubled, and they’ve gone on to earn an average excess return of 225%. This is in addition to the initial 100%.
This makes sense if we think about it in the simplest of terms: momentum begets momentum, new highs beget new highs.
Asset prices trend, and this system is designed to benefit in a big way from riding those trends.
Let’s walk through some common questions and considerations.
How We Think About “The Greeks”
Plenty keeps me up at night, but options Greeks are not one of those things. I genuinely don’t think about them. This doesn’t mean we don’t look at them or care about what the market is pricing in; we simply use it as information and keep it subordinate to price action.
Our edge with Breakout Multiplier has nothing to do with being experienced options strategists. We’re not trying to game Vega, Rho, or Theta. So, forget about Vanna and Charm flows. The use of options here is solely for the juice.
We are price-takers in this endeavor. If something seems expensive or implied volatility is at an extreme, we presume there is a good reason for it. Nvidia doesn’t trade at 100x earnings for no reason, right? It’s the same thing with options.
30-Day Theta Decay
There are two main factors that the market uses to price an options contract: moneyness and time.
Moneyness simply refers to how close an option is to its strike price. Thus, the deeper in-the-money, the more expensive an option should be.
Theta is one of the "Greeks" in options trading, representing the rate at which an option's value declines due to the passage of time, assuming all other factors remain constant.
Thus, as an option approaches its expiration date, its time value also decreases. And this decay isn’t linear, it’s exponential. It accelerates as the deadline comes closer.
We call this “theta decay,” and we try to avoid it once we enter the 30-day window to expiration.
In these scenarios, if our options aren’t in the money (or close), and we still want to be in the trade, we will look to roll the calls to a further expiration.
Our system is designed to capture big and fast moves, often before they happen.
We always try to give ourselves enough time, but sometimes we’ll be too early. In cases where we’re too early or we continue to find the setup attractive after a profit, we typically roll the contracts a month or two out (e.g., GE, RKT, SOUN).
Some trades may take several weeks, and occasionally a month, to double. There are times when these trades can feel lost, with losses as steep as 75%, only to make a comeback and give us a double. While it’s not unusual for an options contract to swing from -70% to +100%, it’s certainly not an ideal scenario to find yourself in.
Zeros Will Happen… Deal with it…
Sometimes we’ll have contracts that have lost close to all of their value—think -70% or more. Psychologically, you’ll need to manage your emotions throughout the process. Zeros will happen—more often than you might expect. Sometimes trades turn against you too quickly. Let them go. This is just the price of doing business.
We’re not in the lottery game. We build a portfolio using our strategy so that it doesn’t matter if one of our trades fails because we have another 10-20+ open positions at any given time. Netted out, the zeros we experience will be more than offset by the doubles and triples we get.
BOx Exit Strategies
Then there's the ongoing debate: should you let it breathe or not? On average, our trades take about 16 days to double, but our best trades often start working right away. Whether you personally decide to let a trade “breathe” or not is up to you. I typically air on the former side of that debate but you might have different objectives and risk tolerance.
Why 25 Delta?
Having the Delta on our options at or around 25 consistently not only helps simplify our process, it has an actual practical application.
I’ve found that for the types of patterns we trade at BOx, where we look for breakouts in price after volatility contractions, the 25 delta gives us just enough juice to double when you get a decisive breakout.
What should I pay?
Some of the most common questions are:
“What should I pay?
How much is too much?
Am I chasing?”
The truth is, it's tough to say. I would happily pay a premium for one that is already working if I could guarantee it keeps working. The problem is, that’s not reality. Those are the ones that will either be big winners or immediate losers. A few days of follow-through in this instance should almost always earn a double. However, the risk of a failed breakout and a quick zero looms larger.
So, who are you? Is that what you're looking for? If so, then you should pay up for these all day. Unfortunately, you will also have to get overly comfortable with taking zeros if that’s your style. This suits some far better than others. It’s important to know yourself as a trader. That’s on you.
Should I avoid binary catalysts?
Perhaps you dislike the binary nature of market events such as earnings, Fed announcements, and elections. The market doesn’t like this uncertainty either and often ends up pricing-in all types of negative scenarios. People are easily frightened, and markets are no different.
When trading options with a strategy like ours, these events can be useful. Beyond that, I would add that many times they’ve saved us before the bell. It’s important to be aware of them. In many cases, if I’ve already lost the majority of my initial capital and I know a catalyzing event is upon us, I’ll let it ride. Over the years, the money I’ve made getting bailed out has far outstripped the incremental losses on these already-losing positions.
In summary, should you cut a loser?
Consider the following:
Theta Decay: How much time do you have left?
Remaining Value: How much is left? Is it even worth it to take my $10 back on a $100 contract?
Potential Catalysts: If I need a 20% move to get in the money, what are the odds of it?
Are earnings coming up?
Is there a big Fed meeting?
Will an economic data release get me there?
Is there an election before expiration?
Underlying Price Trend: Ultimately we only bought options on a stock because of how the underlying security’s set up. So ask yourself
Did the pattern fail?
Are we below my key risk levels?
Has momentum rolled over?
All Star Options vs. Breakout Multiplier
Our Chief Options Strategist, Sean McLaughlin, has a rule whereby on most of his trades he will close a position if it loses 50% of its value. However, Sean usually trades spreads and/or longer-dated strategies.
At BOx, we’re being tactical, taking advantage of volatility compression to catch those big moves before they happen. Shakeouts, fake-outs, and failed breakdowns are common with our strategy. If we were to close our trades immediately after any small loss, then we would miss many of those big winners.
Closing Thoughts
This system we’ve developed for BOx will continue to evolve. Our mission is to not only help you make money but also teach you along the way.
After we secure the double, it’s on you to decide what to do with the rest of your position. Be it to close it entirely or let it ride, when it comes to risk tolerance we’re all different. What works for you might not work for me. And that’s not a bad thing; it’s just a function of your unique psychology and personality.
Here’s what I am trying to do…
Have you ever bought a stock with the perfect chart setup? It went exactly the way you imagined, but after it did, you thought to yourself, “Wow, I got that so right; I should have done better.” With Breakout Multiplier, you will never feel that way again.
My goal is to set us up for the most lucrative outcome in the event our technical analysis is right. In other words, I’m leveraging the idea that a pattern breaks out in my mind’s eye. When we are served the optimal setup, we make the right entry, and if it goes our way, we make monster profits. Not 20%. Not 50%. Doubles don’t even excite us—they just get our money back. We’re here for the 10x’s.
