Rolling With The Punches

April 15, 2024

A few weeks ago, I posted a survey asking for feedback on some of the articles I’ve been writing for you.

Today I want to cover one of the questions I got, because it’s probably one of those most common — and important — questions I get.

Here’s the question:

I liked the covered call piece but I have a question on your Weekly Options Profit recommendations. Sometimes by the time I get to look at the alert, the premiums are that you list no longer work. How do I address this?

As I said before, this is a very common question and it has a fairly simple answer:

The trade I send is more of a guideline than an exact science.

And while it’s great if you can get the exact strike prices and the exact premium I list in the alert, it’s not always the case.

Especially when the market is moving fast or being volatile.

In trading, I like to say that you have to roll with the punches.

Here’s what I mean by that:

Let’s say you’re doing a bull put spread. If you’ve never done one, or you need a refresher on how they work, you can read this tutorial I wrote.

Let’s use the exact trade from that article as an example:

Sell to open AVGO 1265 Put (Expires Friday).
Buy to open AVGO 1260 Put (Expires Friday).

Suggested net credit .25 or more.

At the time this trade was issued, AVGO was trading somewhere around 1350.

Let’s say an hour after I issued that trade alert, you log onto your trading platform and attempt to place the trade.

But by that time, maybe AVGO has jumped up to 1360.

Because the stock price has moved further away from the strikes I listed in my alert, you might only be able to get .22 or .20.

It’s just the way options work.

At that point, you’d have two options:

The first option is to move the spread up a little closer to the current price.

For example, you might sell the 1275 Put and buy the 1270.

That could get you close to the same net credit that I mentioned in my original alert.

The important thing to know here is that if you move the spread closer to the current price, it is also more likely that your spread will go in-the-money if the stock price drops enough.

So that’s something you have to weigh when you’re making this decision.
The second option is to keep the spread as it is, using the same strikes from my alert, but accept a lower premium.

In this scenario, you’d do the spread exactly the way I list it in the original alert…

But instead of getting .25 for it, you’ll maybe get .20, or whatever the going premium is.

In this case, you’re basically taking a lower risk in exchange for a lower premium.

In both cases, the key thing to understand is that it’s about being flexible and willing to work with the market.

The market doesn’t stand still for anyone.

If you’re not able to be flexible and roll with the punches, you could miss out on a lot of great opportunities.

Don’t Forget Your Exit

One last thing I want to say, because it’s probably the most important part of this whole thing.

Before you place a single trade — especially with these spreads — make sure you know what your exit plan is.

There’s nothing worse than being caught off guard because the market did something you didn’t expect and then you’re left making an emotional decision under the gun.

I go into more detail about exits here in the 2nd spreads article I wrote.