“The Grasshopper Field” is Open for Business
I started a section in Main Street beats Wall Street called “The Grasshopper Field” a few years ago. While the market was moving nicely the last few years I was not very enthusiastic. I was making some trades, and made good money, but I was not very involved with the Main Street beats Wall Street site. I was not enthusiastic about the market or the direction the country was moving. I found it very depressing! I do feel better after the election, however, I do feel the new administration has its work cut out for itself and I don’t think all the campaign promises will be able to be answered.
I feel the country spoke, and spoke loudly! The popular vote is not as important as the Electoral College to win the presidency but having the popular vote along with the Electoral College speaks volumes. It makes it clear, in a democracy, the people, as a whole, were not happy. The last administration had both the popular vote and the Electoral College but they were not doing what the people wanted, or what they campaigned on. The liberal train was traveling to the left too fast and the people started jumping off along the way.
I am enthusiastic about the country and the market again. I’m sorry I dropped the ball! I’m gonna try to find the time to get back to what I love, trading and teaching stock options. With that I just opened The Grasshopper Field. You will see it in the main menu. All trades I feel are a good example of Grasshopper Trades will be posted on the page Grasshopper Trades. For those new to Main Street beats Wall Street, Grasshopper Trades are trades I feel are good examples of trades for beginning traders. There will be less money involved with both money laid out and money as profit. But remember, it’s not how much money you bring in, it’s the Return on Investment (ROI).
Please read the pages of The Grasshopper Field: Grasshopper Intro, and Grasshopper. I hope you find this section helpful. If you have any questions send me an email any time.
Now let’s get into a trade I closed today to start the week off nicely.
On Friday I posted a trade I made with Palantir (PLTR). I bought a two contract Call long option. I do not think a Grasshopper should be buying Call option but if you do I think you should follow some strict rules. Let’s take a look at this trade and the rules I used.
PLTR is a very hot stock with a good earnings report, and of course, the election. With the stock at $57.19 I bought two Call options. I bought 2 PLTR 12/27/24 $57.00 Calls for a premium of $3.96. For the two Calls I paid $792. When I buy a Call I like to go out a bit with the Expiration Date. This is an important rule. When I sell a Call I like to use an Expiration Date that is out a week or two. The reason for these two rules is I want Time Decay on my side. Time Decay is very important and to trade options you must understand how an option premium decays with time. So, when I sell an option I want the premium to decay down to 0. When I buy an option I want the premium to go higher because this is my profit. I go out a few months with my Expiration Date so the stock has time to move up. The quicker the stock moves up the faster you make profit and the premium does not have time to decay away because not much time has passed.
With the trade I’m writing about I bought the option on Friday and I already sold it today. Basically it’s one trading day. This was a perfect trade! The premium was not subject to Time Decay because I held the option one trading day. I only go out with the Expiration Date a few months just in case the stock doesn’t go up as fast as I want. This time to Expiration gives me protection against Time Decay. Please read my Time Decay page. It’s very important to understand, however, it’s also hard to understand.
With this trade the premium I paid was $3.96. This morning the stock was up and in turn so was the premium. With the premium at $6.50 I decided to get out. Yes in one day! With a lot of time remaining on the contract.
11/8/24 – Buy to Open 2 PLTR 12/27/24 $57.00 C @ $3.96
11/11/24 – Sell to Close 2 PLTR 12/27/24 $57.00 C @ $6.50
Profit +$508
With the premium at $6.50 my profit was $508. For this position I laid out $792 and sold for $1300 for the profit of $508. When you pay $792 and sell for $1300 the Return on Investment (ROI) is +64.1%. This is the power of buying options if done correctly. Since I was only in this position for one trading day I didn’t have to go out to December with the Expiration Date. I could have gone out a week or two and invested a lot less money because time cost money. And my ROI would have been much higher. BUT, I have rules for buying options, and you better also or you will lose money.
I hope this real trade example shows you the power of options and, if careful, you can make a lot of money.
Any questions on this trade send me an email.
Successful trading,
Steve
The Options Coach