Being a Home Run Hitter

This morning, we had the legendary turtle trader, Jerry Parker on the Morning Show. Watch the replay here.

He emphasized the importance of outliers in a system. The core idea is simple: let winners run and keep losers tight.

Outliers are the difference-maker in any sound trend following strategy.

At one point, Jerry likened his trading approach to “being a home run hitter.”

It’s the same thing we’re doing here with Breakout Multiplier. We’re shooting for outsized gains. When managed correctly, they take care of all the losers.

We really nailed a perfect entry last week with Square, and I think it’s setting up to be our next big hit.

Last Friday, we bought this failed move in $SQ, paying $1.80 for the 12/20 $77.50 calls.

In a matter of days, those calls not only doubled, but reached a peak value of $13.50. That represents a 7.5x return.

We bought the 77.50s instead of a higher strike to be conservative. We wanted to get in-the-money fast in the event we were right. 

What this really does is give us more leeway in managing the remaining position. 

The calls now have a delta of roughly 80 so we can almost think of them as a synthetic common stock position. 

We’re well in-the-money already so we don’t have to worry much about theta decay. 

And now we have 5 weeks to let them run just as SQ is on the cusp of completing a massive rounding bottom pattern. 

Here’s what that looks like:

This is a winner we want to let ride.

Just imagine a theoretical scenario where SQ resolves this base higher over the course of the next few weeks. 

For the sake of this exercise, let's say it embarks on a reaction leg that sends it about 20% higher. This is a conservative forecast.

Based on the current price, that puts SQ north of 100, which sends our calls to at least $23. We’re talking about a 13x from what we paid. 

And if it doesn’t happen that way… oh well. These calls can go to zero from here and we still make money since we sold half at 3x.

Friendly reminder that to maximize your return potential it's best to participate in the Weekly Strategy Sessions live every Thursday at 11 a.m. ET.

It’s also a great forum to ask any questions you have so that we can all discuss important topics and learn together. We do a Q&A at the end of each call.

To join us next week, click here and sign up for Breakout Multiplier risk free.

 Cheers,

Steve