Hey traders,
Monday we looked at the charts for 8 stocks that held their ground and even made gains during last week’s chaos.
Today I want to look at one of those stocks, GDDY.
I’ll show you how you could have placed a simple trade last week while markets were melting down and ended up with a winning trade while other traders were licking their wounds.
If you’ve read the piece I wrote a few months back on spreads, this might sound familiar.
A spread is a type of options trade where we sell one option and buy another at a different strike price — both with the same expiration.
This strategy lets us limit our risk while still giving us the chance to profit. It’s a powerful way to trade, especially in unpredictable markets.
I really like spreads because they increase my chances of winning a trade.
See, a spread lets me draw a “line in the sand” and as long as the price of the stock doesn’t cross that line by the expiration date, it’s a winning trade. Even if the stock goes up, down or sideways.
In the cash of GDDY, let’s say on Tuesday the 6th, with the stock trading at $150, we sold the 140 Put and bought the 139 Put — both expiring Friday the 9th.
The $1 difference in strike prices means each contract gives us $100 of risk. (each contract controls 100 shares of stock, so we multiply everything by 100)
And because we’re selling the 140 Put for 48¢ and buying the 139 Put for 42¢, that means we collect a 6¢ net credit.
Multiply that by 100, that gives us $6 profit for every $100 worth of risk, or 6%.
And best of all, because the options expire Friday, that means we’d only be in the trade for 3 days.
So how’d it work out?
Well, we already know that. The broad market mostly recovered and GDDY was super strong.
So the trade expired out of the money and we kept the full credit.
When I say the trade expired ‘out of the money,’ it means that GDDY’s stock price stayed above our 140 strike price by the time the options expired.
Since the stock didn’t drop below $140, the options we sold were never exercised, so we got to keep the full 6% we collected up front.
Now 6% might not sound like much, but some people wait almost a whole year for that kind of growth in their portfolios.
6% in 3 days — in on Tuesday, out on Friday — is really good.
I won’t even tell you how much that is if you annualize those results.
For now, I just want you to see the power of combining trending stocks with income trades that increase your chances of winning.
To sum it up, by trading a spread on a strong, trending stock like GDDY, we were able to turn a quick 6% profit in just a few days.
In this case, GDDY basically went straight up, but the beauty of using spreads is that even if GDDY had gone sideways or a little bit down, we would have kept the full profit that we collected up front.
This strategy is a great way to navigate volatile markets while limiting risk.
Remember, the key is to focus on stocks that are holding strong trends, even when the broader market is shaky.
Trade well,
Jack Carter
P.S. Last week’s scare left a lot of traders shaken. But not me. Because of trades like the one I just covered, I’ve got a plan. Check out what I’m calling my Recession Roadmap.
