Jack Carter Trading

Hey traders,

If you read my series last week on two big events early in my trading career that turned

Maybe now you’ve decided to sell options. Good call.

But just like any other strategy, there’s a right way and a wrong way to do it.

Over the years, I’ve seen countless people try their hand at selling options, only to mess up and get burned.

Why? Because they didn’t avoid some of the biggest mistakes I see traders make when selling options.

Mistake #1: Selling Options Without Considering the Trend

This is a huge one.

One of the things I preach over and over is to never sell options on a stock that isn’t trending. I don’t care how juicy the premium looks — if that stock is moving sideways or lacks a clear direction, you’re better off just walking away.

A trending stock gives you an edge, plain and simple. It’s like having the wind at your back. If the stock is on a solid uptrend, selling puts has a better chance of success. If it’s trending down, covered calls make more sense. But if it’s just chopping around with no direction? Forget about it.

So always make sure you’re selling options on a stock that’s in a clear, strong trend. It’s a simple rule, but it’ll save you a lot of headaches.

Mistake #2: Picking Stocks That Aren’t Volatile Enough

Another rookie mistake I see all the time is traders picking boring, slow-moving stocks. You know, the kind that barely move up or down each day? Well, guess what? Those stocks usually come with measly premiums on their options.

If you’re not collecting enough premium, what’s the point?

I like to go after stocks that have a beta above 1. Why? Because these stocks move. They might have bigger swings, but that’s what pumps up those option premiums and puts more money in your pocket.

A stock with a beta below 1 means you’re likely dealing with a turtle that’ll barely move. And when a stock barely moves, the premiums are tiny, making the trade hardly worth your time and risk.

Remember, volatility is your friend when it comes to selling options. Without it, you’re selling yourself short (pun intended).

Mistake #3: Setting Strike Prices Too Close to the Stock Price

I get it. You want to collect more premium. But don’t let greed get the best of you.

A lot of traders make the mistake of setting strike prices way too close to the stock’s current price. Sure, you collect a bigger premium, but you’re also exposing yourself to a lot more risk.

You have less of a buffer if the stock drops unexpectedly, and you might find yourself getting assigned or closing out at a loss.

Give yourself some room to breathe. When I sell puts, I like to set my strike price 7-10% below the current stock price. That way, I have a little cushion in case the stock pulls back.

Bottom Line

Selling options is a great strategy when done right.

But like any trading strategy, there are pitfalls you have to avoid.

Pay attention to these common mistakes or you’ll end up frustrated and wondering why your account isn’t growing.

Remember, selling options and “becoming the house” is all about stacking the odds in your favor and playing it smart.

Trade well,

Jack Carter

P.S. My fellow trader Geof Smith has been crushing it with a strategy focused on energy stocks. With election season heating up, he’s got a unique way to profit from all the buzz — while keeping the odds stacked in your favor. Check it out here!

This Week’s Stocks

Two of the three major indexes (SPY and DIA) are within 2% of their all time highs, which they hit in the last 10 days.

As has been the case the last few months, QQQ is lagging — almost 5% below all time highs which it hit all the way back in July.

While the major indexes aren’t surging confidently forward, remember what I always say: There’s always a bull market somewhere.

Here are this week’s 3 strongly trending stocks:

ADMA

AFL

SFM

And don’t forget about our previous list, which you can find here.

This week’s stocks show a strong trend and could still be in play for the next few weeks.

What can you do with these stocks?

Well, there are a couple of things you could consider — after doing your own research, of course:

You could just buy the stock. This is probably the simplest thing you could do. Then just wait for it to go up and sell when you hit a profit target you’re comfortable with. This is only for stocks we’re long on. For stocks we’re short on, you can short them.

You could buy an option. You know I’m not a fan of speculative plays, but every once in a while it doesn’t hurt to throw a little cash at a speculative option. Of course, while options can move bigtime if the stock goes up… the downside of options is that you have a time limit on how quickly you need the stock to make that move. So think about your risk tolerance and consider buying calls or puts depending on the stock recommendations above.

You could do an income play. If you’ve been following me for any length of time, you know that I’m a big fan of income plays, because they increase your odds of winning. We do this by SELLING options instead of buying them. If you haven’t tried your hand at income trading yet, I urge you to try this exercise for yourself.

Without risking any money, it will really let you see the power of income trading and why it’s my favorite method.

Whether you end up doing naked puts, covered calls or some kind of spread (like this bull put spread example), income plays like these are really my preferred method to use when I’ve found a great trending stock like the ones on this week’s list.

Because even if the trend comes to an end, you don’t have to be exactly right. With a direction play like buying a call, you have to be exactly right. But an income play gives you a lot more “leeway”, where the stock can move against you and you still have room to breathe and win the trade.

That’s it for now.

Stay tuned, because I’ll be sending you a new list of TrendPoint Best Trending Stocks every week! (usually Mondays)