This setup was so nice that we bought the calls twice.
As it turns out, it was the right move. We sold the double yesterday.
But, we’ve got a lot of questions about this one along the way. And the truth is, nothing we did here was out of the ordinary. This sort of scenario will happen a lot with the Breakout Multiplier system, so it’s important we discuss it.
I put on trades that go to zero all the time.
I am unaffected by these losers. In fact, when I see zeros stacking up, I get excited. I know I’m that much closer to a big winner.
It’s a game of numbers. I’ve been doing this for a long time.
But the way I lose is even more blatant sometimes.
I will put on the same exact trade over and over again, until it works, or the setup is invalidated.
This almost always boils down to a matter of timing. When I find myself putting on the same trade, it’s usually because I did not “buy enough time.”
This conversation is about options trading, but I do the same thing trading common stock in certain situations.
If I’m waiting for an upside move out of a consolidation, and I put on an oversized position, I will keep my stop super tight, knowing I run the risk of being shaken out.
And I will get shaken out… sometimes 2,3, even 4 times, before I get the move I am patiently waiting for.
When I do get it, the profits should more than pay for all those small losses. And this is something I expect at the onset of trading this plan. In the event I win, the risk/reward equation is so favorable, I’m happy to pay for a couple losers along the way. It’s the cost of business.
In options trading, I don’t just have to get the direction right… If I’m going to book a big winner, I also have to nail the timing.
And there is a direct relationship between my initial risk capital and the time I have to work with.
When you buy an options contract, you are literally paying for a certain amount of time.
If I want to go out another week or month in terms of options expiration, I’m going to pay more for that.
More time = more money.
Our initial SOUN calls were the 10/18 $6s and we paid $0.40 for them back in August. Let's say we bought 10 of them. It cost $400.
Another option would have been to go out an extra month and buy the 11/15 $6s. These calls probably would have cost twice as much. So a 10 lot would have come with a cost basis of $800 instead of $400.
Now, if we got the move we were looking for right away, we would want to own the shorter-duration calls. It’s a better risk/reward. There was no need to buy that extra time.
Another way to do it, is just to buy the short-duration calls with the intention of buying more calls further out in the event you need more time.
This will end up with a similar result as if you just bought the longer-duration calls right off the bat.
However, it gives you the chance for a better risk/reward outcome in the case the trade works right away… and you don’t need the extra time.
In other words, if the first SOUN trade worked for us, we never would have bought this second batch of calls. The trade would be over.
It didn’t work out that way this time, but I still like having the optionality.
For now, we have secured the double in SOUN and we have until mid January for the stock to make a big move out of this triangle pattern.
If it does, the profits on the remaining half will more than pay for that $400 that was lost on the first trade.
