Normally I highlight trades that should take about 30 days to find us a double.
I don’t usually – in fact, I rarely – write about trades expecting them to work faster than that 30-day horizon. However, when a trade works as quickly as the one I’m going to talk about does, I don’t want to ignore it, nor pass up on taking the money, even if it’s not at the “double” I’m normally waiting for.
And by quick I mean three trade days quick! I didn’t anticipate this trade happening so quickly, though I figured it would have to at least happen a bit quicker than normal.
This one worked in one-tenth the usual time.
So instead of waiting, I went for it, trusting in the tools I use to find these moneymaking opportunities.
There’s lesson in all of this, and it’s all about what a 70% gain can teach us about my investment methods… and our ability to generate some serious financial returns.
HAL’s April Set-Up Looked Like a Winner Already
A look at my Money Calendar tool on Haliburton Company (NYSE:HAL) back in April looked very promising, as you can see in the chart below.
Indeed, the grouping pattern shows that the average profit move was around $3. Even if I took out the anomaly big move and small move from the past two years (2013/2014), I expected an average profit move of $2.13.
Even better, the Money Calendar tool showed the moves to be 90% reliable in nine out of the last 10 years. The time frame on average for the move was nine days.
So you can see that my trade length expected from the signal wasn’t that long to begin with, either.
One other thing that focused in on the need for this to be a quick hitter was that earnings for HAL were due to be released around April 20th.
Therefore, I felt I’d likely need to be out of the trade before the announcement, so that I didn’t have that scenario to contend with.
Our next chart shows what HAL looked like on April 10th, with the trade expected to be a nine-day move starting April 13th.
Now, a lot of people will look at a chart like this and say the stock is already at its highs, it has to pull back eventually, and as a result they’ll basically talk themselves out of a trade.
I say trust in the tools and trust in the backtested, proven results of these patterns, and do NOT overthink things!
Build a trade plan to take advantage of what is a high-probability occurrence to come.
In other words, find repeatable, proven patterns and…
Put Your Money in Before the Move!
Here’s how it played out:
The anticipated average profit move was shown as +$2.13 over the nine-day period. The target price on the stock, as written, was $48.39. The profit potential with HAL at that price looked like +$172 per contract.
Now take a look at the HAL chart just three days later!
HAL made the anticipated move in one-third the time expected
As you can see on the chart below, it exceeded the target price on an intraday basis, so if you had a contingent order on your options trade, this would have closed your option trade when the target price on the stock was reached. A contingent order is one that says to sell your option (in this case) if and when the stock hits a specific price… which in this case is exactly what happened.
Looking at pricing intraday on the options trade shows it was filled at $4.50. Take that $4.50 less the case study starting value of $2.65, and you have a profit of +$1.85; better than anticipated.
A 70% Return in Three Days
The ROI on this case study, if you use these prices, is a return basically of +70%. Did I mention this happened in three trade days?!
Even with more time available to me on the trade, the last thing I want to do – and the last thing I want to teach you to do – is to alter your trade plan and get greedy!
The trade worked and it worked in only three trading days.
One thing you have to be cautious of doing on a trade like this, (and it is not uncommon for traders to do this) is to think that, because you have more time in the trade, you should just let it keep working. That doesn’t always work out to your best interest.
Oh sure, there will be times where that mentality works and you do end up making more money, but the market has a funny and consistent way of humbling you if you try and make “hanging on for more” part of your trading process.
As stated, this kind of trade can spoil you real quick. Temper your enthusiasm going forward, and don’t expect them to happen this quickly all the time.
Trust me, I like getting them too, but I need to be real and help you set reasonable expectations.
Even though it is nice to get a little spoiled once in a while, right?
America’s #1 Trader