Our 100% Loophole Trade Was Easy

By now you know that my goal with certain, specific trading methods is to get a 100% return on investment (ROI) with virtually every trade opportunity.

With trading tools and rules I use, I look at the vast array of options available to me so that I can find the ones that show a possible 100% return (or a “doubler”).

And I like to know if it’s possible to double BEFORE I spend my first dollar on a trade.

I like to keep my trades as simple as possible, but sometimes that means I’m looking for an opening others just don’t see.

So rather than give up on a trade I think has great potential, I’ll work a little magic… and in the case of a recent Amazon.com Inc. (Nasdaq:AMZN) trade, it led me to an easy 110% return.

Let’s take a look at my way to make a profitable trade when others see nothing…

The simplest form of options trading is buying call or put options. I like to buy a call or put option and know that over the course of a specific period of time, if the anticipated stock move happens, the option I bought will double in value.

I have trading and options analysis tools that help me figure this all out ahead of time.

But sometimes, buying or going long on an option just simply won’t yield a double.

Rather than just give up entirely on that stock and say there is no options trade available, I look for an opening or a “loophole” in the options chains that can lead me to a double or 100+% return.

A “Loophole” By Any Other Name is Just as Profitable

This “loophole” trade is another name for a Debit or Bull Call Spread.

In either case these are “debit spreads,” because to initiate or take the trade, you are doing so at an upfront cost or debit to the account.

I am going to show you the loophole trade I made on Amazon.com, Inc., but first let me break down the mechanics of how this loophole trade works.

A Bull Call Spread is used when you expect a stock to move higher in price, and is accomplished by buying a call option (one or more) at a specific strike price.

At the same time, you also sell the same number of call options at a different, higher, strike price that shares the same expiration month as the call options you bought.

What needs to happen in order to make the maximum amount of money possible on this trade is for the stock price to go above the sold strike price figure and be there at expiration.

The maximum profit is the difference between the two strike prices, less the amount of the original cost or debit to the account when first taking the trade.

So, with this in mind, let’s review how we doubled our money on this “Bull Call Spread” in AMZN.

On June 15, I was looking at AMZN to make a moderate move higher within a certain time frame, and when I looked to find a call option trade that could double in value when that AMZN move happened, there wasn’t one.

So, the “double” was walled off. It wasn’t there with a straight long call trade. I looked for a “loophole,” an opening in the options where a different options strategy would give me that chance to double.

Voila! I found one in the June15 2015 $430/$435 Call Debit Spread.

Here is what it looked like on my screen, and how I place it:

20150630 PPT AMZN

What this means is that I was trying to simultaneously buy the $430 call and sell the $435 call at a cost of no more than $2.00 per contract, ($200 risk/cost).

It happened at $1.98 or $198 per contract.

The situation was that any time before or at expiration, someone has the right to buy (call options are the “right to buy” options) AMZN from me at $435. If that were to happen, I could then exercise my right to buy AMZN for $430.

The difference in the strike prices is the max profit. In this case $5.00 or $500 would hit the account as if the stocks were bought and sold, but then that $5.00 or $500 would be offset by the debit or cost in doing the trade to begin with, which was -$1.98 or $198.

My goal on these types of trades is to double or get a 100% return, so I set the trade plan to exit or close the trade when the value of the spread got to $4.00.

Now Let’s Take a 110% Profit

In just four days, AMZN made enough of an upward move for the spread to hit that $4 valuation. In fact, the trade went to $4.17, or a value of $417 per contract. The profit, less fees, was +$2.19, or $219 per contract.

  • AMZN June 19, 2015 $430.00 Calls: sell-to-close at $7.42
  • AMZN June 19 $435.00 Strike Calls: buy-to-close at $3.25

That was a double or +100% ROI in just four days!

If all you did was look for a straight option trade to do this, it wasn’t there.

But, by looking for a “loophole” trade that could work, we found one.

Now don’t expect to have a double happen that fast all the time, as this was an exception rather than the rule…

But a double in 30 days?

Oh that is quite doable, and with a loophole trade, it’s just that much more probable!

Until next time,

Tom Gentile
America’s #1 Trader

7 Responses to “Our 100% Loophole Trade Was Easy”

  1. Hyacinth Frankenberg

    Tom, I had no account for me to buy and sell (Spread) so I took the chance to buy some options AMZN but it expired and I got nothing for my contracts. Should I have sold it even though it was asking price for a penny? I might have gotten back something. It was taken of my positions with S/T and I got nothing. I bought the AAPL contracts for 07/24/15 for $130. I need to get out so I do not lose any more. Could you email me as to what I should do? Soon I”ll be getting an account with OX it’s only a matte of days now.
    I would like to understand the last part of AMZN. Most likely I will look at the most recent video to see how I count have gotten $198 per contract. I followed the last AMZN on the OX chart of buy and sell and I think I understand it, but I’m not sure. When I am in the account trading account with OX I will more understand how the amounts turn out. Lost a bit with APPL and AMZN only as options with Scott Trade. I would very much like to follow the videos and understand it more. I follow how to place the buy and sell doing the Xspread with the other menu from video. The amounts I cannot understand.
    Do I still have a chance gettting in with AAPL for 7/24 ? I would like to get in with PCLN and another one you gave. Tom I believe the way you illustrated with the buy and sell and the xspread which is another part (not sure) of the meaning, I will be able to get back some of my losses and eventually receive some funds in hand. Tom thanks a lot for very good information, follow ups and allowing your clients to understand.

  2. 1. I have NO experience with loopholes.
    2. Was there anyway I would have to purhase AMZN at $430($43000) or $435($43500)?
    3. How did you set value of the spread to $4 to close the trade?
    4. Exactly how was the trade closed?
    5. I have downloaded The Power of Options to hopefully get educated but it looks like this is above
    my paygrade and I will have to cancel my subscription.
    6. I started to try the EXC trade but when I checked the portfolio page it was already gone so I cancelled my order. Also I don’t see anywhere an alert was sent to close the trade. I sent message to Customer Service but never received a reply.

  3. Tom, you are over my head on some of your plays. I don’t know if in this example you are placing orders in a Buy and a sell on these options at the same time, to your broker, as a required condition to execute. In my case I can only buy or sell an order one at a time. Does that still work, or am I misinterpreting how you buy the pair? Thanks for the help. Don1

  4. Tom, Alan Scott. I’m 89 (as of this 13th June). Trade commodities for the leverage, similar to options but with largr numbers. Thought it ws time to add options and know it makes no sense to start from scratch, so I signed on with you about 10 days ago. My problem here is that I have no broker for stocks or stock options, so it onloy makes sense, since you are giving u the trades, that I go to your Broker who knows how you trade and thaht lets me start logically here. MY commodit trades can run months, so no more work there and I need to keep my mind busy (at my age). and options through someone who knows them well is the only Tom, I’m 89. Have learned to trade commodities “position’wise’ so no way to exercise my brain on a daily basis. You and Options seem to be logical. Need a broker, can I use yours, please?) Thanks very much. 10:15pm Pac time (Seattle area)

  5. Tom: Hypothetical question; In loophole trade if I buy a call and sell a call higher strike price, and the call at higher price reaches strike price, can that call be called out? If I don’t own the stock and did not want to do that. Should I buy that call back? Would take a loss, but not 100 shares of stock.

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