The Loophole Trade and Priceline: A Potent Combination

Loophole trades are well suited for the market volatility we’ve been experiencing these past few weeks, as financial and geopolitical uncertainties generate anxiety among investors.

In the previous issue of Power Profit Trades, I explained why Implied Volatility (IV) is a strong incentive for options traders to consider a loophole trade.

This issue, I focus on another compelling reason for the loophole trade: reduced cost and risk.  I also recommend a specific loophole trade and explain its details in a training video embedded below.

When teaching my students, I run scenarios with them simulating a $25,000 account of which no more than 2% of the $25,000 is risked in any one trade.  The math works out so that no more than $500 is risked on any one trade.  In this scenario, $500 risk translates into a $5.00 option.  One contract = the right to buy or sell 100 shares of stock, which means a $5.00 option equates to $500.

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The Power of the Loophole Trade

My goal is to not only make you a wealthier investor, but a wiser one as well.  That’s why in Power Profit Trades, I will occasionally run an article of explanatory information – think of it as a basic education that will hold you in good stead not just today or this week but throughout your investing life.

This issue, I examine in granular detail a moneymaking tool called the loophole trade. Next issue of Power Profit Trades, I’ll recommend a specific loophole trade that’s coming up on my radar screen.

First, any discussion of the loophole trade must involve volatility.  Over the past few weeks, as the Greek crisis unfolds and the Chinese stock market plummets, we’ve witnessed wild intraday swings in the market.  One day it is down a couple of hundred points closing at or near its lows of the day; the next day it rallies back that 200 points or more, closing at or near its highs for the day.  It’s enough for a trader to get whiplash.

This market volatility can also cause a great deal of volatility in the pricing of options.  For traders looking to buy calls or puts, this makes it challenging in obtaining profits, if for no other reason options are more expensive than usual due to this volatility.

So how does one avoid this volatility?  One choice is to simply not trade and wait until the markets settle down – but that’s not acceptable to me.  My mission is to make you money, regardless of market conditions.  I want to play in the game, not sit on the bench.

What’s another choice?  Consider the loophole trade.  Below, I drill down and comprehensibly discuss why certain market conditions would compel me to recommend one.  Remember: through familiarity that’s gained by the proper application of financial knowledge, you can overcome fear of volatility and risk.  I want you to confidently embrace the power of the loophole trade.

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