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Option trading is one of the greatest games on earth! You can be a two-dollar investor, betting on the action of stocks, the markets, futures and/or commodities, or you can be the casino taking the bets instead of making the bets. You pick the role and have the fun and profit. Options are an excellent investment tool that gives you more flexibility, reduces your risks and increases your profits. Ive been trading options since the first option exchanged opened in 1973 and have seen everything. As an options newsletter writer Ive monitored and talked to hundreds of traders. Today, youre going to have the benefit of all this experience and information. This special report provides important nuggets of knowledge that have worked for me and my Maximum Options subscribers letting us capture profits on 80% of our trades. By incorporating these tired-and-true winning strategies to your trading youre going to become a much more profitable trader. In addition to my favorite 20 options trading secrets I will share with you a hot-off-the-press trading opportunity to get you started.
Options is the buzzword on many investors lips because the potential leverage you can wield and the eye-popping returns you can generate are hard to ignore. Once considered a professional traders game, options trading has entered the radar of many an individual investor. But many people decide to stay away from options because they seem too difficult to master. Because of this, they lose out on their dream cars, vacations, new iGadgets and other things on their wish lists. Dont let this fear get in your way of fulfilling your dreams. I want you to meet and even surpass your financial goals. And Im going to help you do just that by helping you become a more savvy, successful options trader. Ive been doing this for as long as the options markets have been open. And Ive developed consistently successful strategies for selecting top-notch trading opportunities for my subscribers throughout the years. Since 2008 Maximum Options subscribers have had over 400 winning trades and have captured 100% gains on almost half of them. The most important thing Ive found is to keep things simple.
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You have a tremendous opportunity to profit like a full-time trader while only focusing on your trading account part-time. Options give you that freedom. And as for that vacation home, tropical getaway or even that early retirement that you always thought was a great idea but not a possibility? Get prepared to make it a reality, because plenty of options traders have done just that! In Maximum Options, I give my members the type of trading opportunities that will enable you to make professional-grade investments without the need to spend hedge-fund-sized dollars to establish your positions. There is a seemingly endless bounty of stocks, indices and Exchange-Traded Funds that have options available for trading, and more become available for trading practically every week. When a few million contracts are changing hands every single day, its no small feat to sift through seemingly endless layers of rock to find the rare but glorious golden nuggets. Theyre out there and Im finding them every day. And I share them with my Maximum Options subscribers and today youre going to get a peek behind the curtain. To get into the best trades, I have a strict list of criteria when searching for the ideal trade. Im looking only for those that pack a tremendous potential punch I have no use for trades that might only make a 5% or 10% move. That kind of action might satisfy stock investors, but with options you are looking for the home runs. If the potential for a triple-digit return (100%-plus) doesnt exist, move on to find those that can provide you the kind of profits you want to see. How do I achieve institutional-sized returns without making a king-sized investment? Its simple, really. Any option that makes it onto my radar must be:
Inexpensive (i.e., trading below $1, preferably well-below that level). Undervalued (i.e., their potential hasnt yet been priced into them). Thats only part of the story, but its my passion and my lifes work finding high-potential plays that can turn a 50-cent investment into a 500% winner in the space of a few weeks to a couple of months. When you begin trading options or trading them right if you got off to a bumpy start it can seem like being taught to swim by jumping into the deep end of the pool and fighting toward daylight. But once you get a few wins under your belt, your confidence grows and the rush that comes with turning a profit will become nothing short of addictive. Ill be happy to help you start scoring those home runs on a regular basis! Thats my deal with my Maximum Options members I am continually mining for those seemingly elusive yet ever-present bargains in the options markets, and your job is to play them and profit from them. Now if that doesnt sound like a fair trade, then I dont know what else could!
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Options trading has existed for a few decades, but it is in recent years that trading volume has exploded. More than 30 years ago, volume for an entire year was a mere 32 million contracts. In 2011 alone, 4.6 billion options contracts traded on the U.S. options exchanges. According to the Options Industry Council, this is a 200% bump above the 1.5 billion that traded in 2005. Weve come a long way, havent we? Despite these huge numbers, youre still among a small but growing group of savvy investors who know that theres a cheaper, easier and more-explosive way to make profits in the markets by trading options. And as a part of that 4%, youre practically a pioneer along this exciting path. Id personally like to welcome you to this sure-to-be-amazing endeavor! No doubt youve either made a few trades by now or you know someone who has tried their hand at trading options. And perhaps those trades might not have turned out very successfully, as there are a lot of rookie mistakes that beginning traders make. If you did try your hands at some options trades that didnt bring you the returns you were dreaming of, dont let go of that dream just yet. Just because things dont go asplanned the first time around, that doesnt mean this type of trading isnt for you. Dont let one negative experience or some second- or third-hand information keep you away from trying your hand at a style of investing that can mean the difference between you remaining in the workforce till you drop or whether you retire early to the remote island, foreign country or life of leisure that youve always dreamed about! You know that theres got to be a right way to do it there are people making money with options every single trading day, no matter how the broader markets are trading, including my Maximum Options members, and there is no reason why you shouldnt be profiting right alongside them. I cant express enough how incredible options are as a vehicle for playing the markets safely and inexpensively. Dont be dissuaded by those who tell you that options are risky perhaps the biggest risk you can take in the options markets is by not participating in them at all!
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Keep in mind that you should only risk as much as you are Free Trade able to lose. Granted, youre in the options trading game to make the spectacular percentage returns that traditional stock investing doesnt provide, but it makes sense to do a reality check and only allot what you are comfortable letting ride in the options markets. Insurance on Your Financial Assets The advantages of options trading dont stop here. Options enable you to buy an insurance policy on your stock portfolio that is not available from any traditional insurance company. You wouldnt buy a house or a car without protecting yourself in case of emergency you should approach your financial assets the same way as your tangible ones! With options, you can design investment strategies that will profit regardless of the markets movement. Besides, you can craft these strategies with extremely attractive risk/reward pictures. The opportunity for spectacular gains of over 100% are relatively easy to attain for options speculators. At Maximum Options subscribers have locked in over 247 trades that have give them 100% profits or better including a whopping 408% from one of our Merrill Lynch trades.
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There was even opportunity for success in the financial meltdown of 2008. It wasnt a good year by any means, but options gave a chance for upside at a time when it didnt exist anywhere else. For example, in September 2008, I bought put options on Boeing (BA) for $1.70. Well, the stock tanked, as so many others did, and we sold those puts for $4.60 a few weeks later for a 170.58% gain. Obviously, there have been many more winners, like 146% in Cirrus Logic (CRUS) Calls, 125% in Amgen (AMGN) Calls, 114% in Unitedhealth Group (UNH) Calls, 145% in Dish Network (DISH) Calls to name just a few of the 422 winning trades. These are gains my Maximum Options members all realized which helped them make money with options and grow their portfolio. But the fact that we have made money in a very difficult environment shows you that options are an extremely valuable risk-reduction, profit-maximizing tool, and investors of all stripes regardless of experience level and risk tolerance can use them.
As you can see on the chart above using options instead of buying the underlying stock not only gave you a larger profit (77% vs. 5%) but you had less of your money at risk ($550 vs. $38,735). Lets take a look at another example in the Target trade we did at Maximum Options. Target Date Bought Purchase Price Invested Amount # of Shares Controlled Date Sold Sold Price Profit Stock July 24 $60.20 $30,100.00 500 August 3 $62.00 2.99% Options July 24 $0.90 $450.00 500 August 3 $1.60 77.77%
Again, you can see that by using options you are able to invest a smaller percentage of your money while capturing a larger profit. Theres no reason to tie up $30,100 to buy 500 shares of Target when an investment of only $450 would control the same number of shares while offering you much larger returns. And thats the simple science of options.
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more than you paid for the option. This is not true of some other option strategies, such as option writing. When you sell to open a position without owning the underlying stock or owning a corresponding option to serve as a stock surrogate in case the trade turns against you (known as a spread strategy, which limits your losses but also the upside if the trade goes in your favor), your losses can be substantial. The major error made by option buyers and the reason they might incur big losses is that they pay too much for their options. In fact, many option authorities recommend buying in-the-money options where the stock price is trading above the options strike price. The problem with these options is that they come with high price tags, usually several hundred dollars to a thousand dollars per contract, sometimes more. There is a place for this type of investment strategy, but when youre aiming for high profits, you need a different strategy. In addition, when paying a high price for an option, theres a lot at risk one wrong move of the underlying stock and most of your option premium could vanish. However, if you pay very little for an option and the stock moves the wrong way, you wont lose much. Also, the higher the options price, the smaller its chance of yielding a big-percentage gain. Cheaper options give you a bigger bang for your buck. With cheap options, percentage gains of more than 100% are not unreasonable to expect or even unusual to achieve. You can buy options for as little as $5 per contract the cost of a cup of coffee in the morning which effectively means that youre controlling the underlying stock for just 5 cents a share. In my trading I set a guideline to avoid paying more than $200 for any option contract. That way, I know that I have a chance for a big-percentage gain, and I am getting the biggest bang for my buck. Remember, you can buy as many or as few contracts as you like, so if you buy 10 contracts, your investment would be $2,000. Thats the most you can lose, but if the stock moves in the right direction, you can easily get double or triple that amount in profits. To see this in action lets look at two examples we did at Maximum Options. We got into Cirrus Logic for $1.30 and in three weeks closed the trade for $3.20 giving us a quick 146% profit. Dish Network was a trade we got into at $1.10 and in three weeks closed the trade at $2.70 letting us walk away with 145% profit. Those kind of numbers make that tropical escape youve been wishing for seem a lot more obtainable, dont they? Get into our next trade, click here.
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$25 strike price, it would take a dramatic move for the stock to go up seven points during the life of the option. Such a long shot is always possible, of course, but the likelihood of that trade working out in your favor is very low. I spend a lot of time trying to identify bargain options. When finding such deals, the ability to predict what the underlying stock will do is not as important because the risk/reward picture will be so attractive that even if you are right only 30% of the time you will be a winner. For example, remember when I was talking about my track record in the 1980s and it showed a 1,500% return during two years, but only 20% of the options paid off during those years.
Our objective is to identify options that are both cheap and underpriced or bargain-priced. While were looking to profit as often and as much as possible, its the eye-popping winners that help to offset the sting from the trades that dont work out as planned, so we want to ensure that were going after the home runs and not sitting on the sidelines when those spectacular plays present themselves!
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233% in Silicon Laboratories (SLAB) Then, just to show you how volatility really is an options traders friend, about a week or so later, we banked two big winners on the bullish side with 146% in Cirrus Logic (CRUS) Calls and 125% in Amgen (AMGN) Calls. Thats the magic of home runs. Just one or two can pay for a lot of strikeouts. However, hitting the home runs requires tremendous patience and good trading tactics. But, by putting these trading tips into action youre already ahead of the curve.
This way, you have preserved your original investment and some profits while leaving some money on the table if the stock continues to go in the direction you thought it would. And if the stock turns against you, any loss you would incur is minimal, because it would only impact the remaining half of your trade. This way, youve enjoyed a big win and a small loss, which means youre playing the game smartly and youve preserved your capital so you can keep on trading! 1 |2 |3 |4 |5
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The trailing stop is tremendously effective when the trade is moving in your favor as well. If the stock trades up to $50 and keeps on going, ratchet up your stops accordingly, keeping them 3% to 5% away from the present stock price. That way, if the stock trades down from that higher level, you will have plenty of time to close the position and keep most of your profits intact. However, even if the stop is not hit, you may still exit a position if you think the underlying stock is flattening out or when you believe it has hit some overhead resistance (for call option position) or underlying support (for put positions). Thats the beauty of options trading you always have options!
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I cant emphasize enough how important quick action is when things start turning against you. With options, due to their limited lifespan, you are usually only given one chance to get out. In my Maximum Options trading service every trade sent out has complete instructions on exactly when to get in and out of each trade. To get complete instructions on our next trade and the details you need to begin making money, click here.
One of the rules I trade by in my personal trading as well as in Maximum Options is to set a three-week holding period. After three weeks, I recommend exiting that position because the factors that made the option a good investment might have changed. Never be stuck with a position if it isnt working out in your favor, it can be easily replaced!
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course, the decision to stick with or to close a position is up to you, I always give my Maximum Options traders direction in a timely manner so they make the best returns possible. Options buying requires a lot of staying power in the ability to handle losses and still stay in the game. Unrealistic expectations will counter that and cost you years worth of potential profits. I dont want you to get discouraged by a bad day in the markets because there are far too many good ones in store!
Many of the top traders in the world have faced the same crisis when they played in the market, chasing the sure thing. These traders paid a high price for a valuable lesson. You dont have to pay this tuition if you dont plunge. Spread out your purchases over time and positions, and never bet everything on that sure thing.
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You are betting on market volatility, and if the market goes to sleep (and it does sometimes) and all of your money is in options at one time, your portfolio could vanish. Therefore, enter option positions gradually over time, patiently waiting for the market or a stock to explode. Once you see the market stirring, you can increase your option buying activity. A good game plan is to spend a set amount of dollars each year and gradually invest the capital over that period, possibly using seasonal tendencies to maximize your opportunities and gains. That is, if the stock generally trades up in January before it reports Q1 results, you may want to buy January or February call options a few months in advance, so that youre positioned for the upside that its earnings announcement could bring. Or if it tends to slide in the summer when other traders sell in May and go away, buy some puts in the spring and turn the summer doldrums into something to celebrate! Time diversification is also important for when the markets hit a rough patch, because if you have positions in various sectors and with myriad expiration dates, you will give yourself the best chance to weather any market conditions so you can return to play another day.
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Inertia is the greatest enemy of the option buyer. Overcoming fear of loss or hesitation in capturing profit is what separates confident and savvy traders from those who are less successful. When trading options, time is the enemy. As expiration Friday (third Friday in the month) draws near, you need to watch your positions with extra rigor because you may only be given one chance to take a profit or cut a loss. The true value of an option is in the time it has remaining until expiration the longer it has, the more time it has to become profitable. When the clock runs out, youre forced to move on, but its wise to voluntarily get out while the option has as much value as you can capture. Were all in this game to win, but sometimes we have to accept taking a small loss as part of that overall winning strategy. There are always more trades to be made, instead of keeping a dying one alive in the hopes that Lady Luck (see Secret No. 3) will rescue it!
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trading, and that is slippage. Slippage is the difference between an options bid and ask prices. The bid price is what you can sell the option for, and the ask price (also known as the offer) is the price you pay to buy the option. When you want to sell an option, the minimum price you will accept is the bid, while you are offering to pay what the seller is asking you to buy a new position. For example, if the bid and ask prices on an option are $1 and $1.30, respectively, you can sell the option for $1, but must pay $1.30 to buy it. With options, slippage can reflect a good percentage of the price. In our example, 30 cents is the slippage, which can account for as much as 30% of the price of the option. In casino parlance, there is the take, or house advantage, along with the commissions. And in casinos, the take or on roulette is more than 5%. It can be much higher when you are trading options due to slippage.
Profit Gobblers
Slippage is the difference between estimated transaction costs and the amount actually paid. It generally stems from a change in the spread, and it can eat up precious profit. Commission costs will tear into your returns. Dont pay more than $5 per option in commissions and aim for closer to $3 per option.
When trading, do everything possible to reduce slippage. This means reducing the number of trades made because every transaction incurs a slippage cost. Yes, we spoke of diversifying earlier and we fully support entering a variety of positions to expose you to profits from many directions. However, every time you make a transaction, you expose yourself to slippage. This is why I dont like complicated strategies where you enter and exit too many positions. There are a variety of advanced trading maneuvers out there that involve more steps than simply buying or selling a call or put, and not only can you be exposed to more slippage, but also to additional commission costs. Also, when trading cheaper options, slippage is higher because it comprises a higher percentage of the option cost. How can you reduce slippage? By keeping your strategies simple and by trading options with more liquidity that is, the ones moving on good volume that trade more often. This way, the spread between the bid and ask price is not as wide. Because commissions can compound your costs, you should shop around to get the lowest ones possible. Full-service brokers may charge you more but can also offer you more assistance if you need it, while selfservice online brokerages are geared more toward the do-it-yourselfers and can charge less because they dont have the individualized support available. If you are paying more than $5 per option in commissions, you are in real trouble. Try to avoid paying more than $3 per option. At Maximum Options you never pay too much for trades. I analysis each one to make sure youre getting in for the best price. As I said earlier, this helps you capture maximum profits and get the best bang for your buck. You can get a complete list of my current trades and the best price to get into them by clicking here.
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market-maker will bite. (The market-maker is the one who sets the bid/ask spreads. His or her profit margin is the difference between the bid and the offer prices.) You may be surprised how many times your requested price will be honored (i.e., $1.15) instead of the ask price of $1.30. If your order for $1.15 is not filled after a few minutes, you can modify your order and pay the ask price by entering a market order or limit order at the ask price. Of course, the tactic probably will only work if you are trading online.
the X option at $1) it means that if the option trades at 95 cents before it climbs to $1 while the order is active, then you will get into the trade at 95 cents. However, your trade will not be filled if the option never trades below $1.10 for the life of the order.
When entering an order with your broker, his floor broker is supposed to work to get you the best price. However, honesty is not the best virtue on the floor, and floor brokers can tip off the market-makers to what orders they hold in their hands. Consequently, it is best to maintain control of your order and use the Internet to negotiate your trade.
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We identified historical volatility earlier as something that can be monitored and measured based on how the stock typically behaved at certain times of the year (i.e., after earnings, around holidays, etc.). Implied volatility, then, is based on how it is trading in the current environment. This is one of many factors used in calculating an options premium, so the greater the fear in the markets, the higher the premiums will be. And thats the key determining whether the option premiums are spot-on or whether they are overvalued. Each week I identify a list of undervalued options, I look at the charts of the underlying stocks to make sure they dont face a lot of overhead resistance (for the calls) or underlying support (for the puts). I also analyze whether the underlying security has made the necessary move in the past within the time frame allotted. Then I look at a chart of the implied and historical volatility of the stock to make sure these volatilities are at low ebb on the charts. Finally, I do the probability analysis to ensure that were not betting on a dead horse.
Delta Force
With regard to calls, a delta of 0.3 means that for every $1 the underlying stock increases, the call option will increase by 30 cents. Conversely, put deltas, will be negative, because as the underlying stock increases, the value of the option will decrease. So a put option with a delta of -0.3 will decrease by 30 cents for every $1 the underlying increases in price. As expiration draws closer for an in-themoney call option, it will approach a delta of 1, and as an in-the-money put option nears expiration, it will approach a delta of -1.
This helps me find the best plays for my Maximum Options subscribers. Ensuring that they receive the trade instructions in time to establish a position before the price goes up, because then they get to collect those gains when it does! At Maximum Options we are looking for the undervalued plays that is, those designer names that are on sale for bargain-basement prices! You can find the historical prices of any stock through a variety of financial Web sites and charting services. You can tell from the stock price whether an option was trading in-, at- or out-of-the-money. Then look at a chart of the implied and historical volatility of the stock to make sure these volatilities are at low ebb on the charts. Finally, do a probability analysis to ensure you are not betting on a dead horse. I know it sounds like a lot of work and it can be but your trades will be much more profitable by doing this homework. If you only want the great trades I can do the heavy lifting for you. Thats exactly what I do for my Maximum Options subscribers. Every Thursday and Friday I send them new trades with only the most important details that will help them get into the trades at the best price helping them capture consistent profits. My next trade is coming out soon click here to get into it.
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As I said earlier my favorite strategy for spreads is the credit spread. Every Friday after the market closes I send my Maximum Options subscribers a new credit trade. Its a great way to grow your portfolio and since 2008 we have captured profits on over 247 trades. Take a look at our Eli Lilly trade. Below, is exactly what I told my Maximum Options subscribers: Put Credit Spread to Open Sell the Eli Lilly (LLY) Oct 46 Put and buy the LLY Oct 43 Put for a spread credit of 30 cents or higher. This recommendation is being made as a speculation. LLY is a major pharmaceutical company. The stock has been in a steady uptrend over the past year and has had a very strong past couple months. While a pullback from this recent rally would not be a surprise, as long as it doesn't morph into a larger sell-off this position should be safe. The company is scheduled to report earnings on October 23, which is after this position expires but is also a reason why its put options are expensive enough to provide a playable credit spread.
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Here is the information you need to know to open the Eli Lilly put credit spread: Underlying Stock: Eli Lilly (LLY) Current Stock Price: $48.23 Trade Type: Put credit spread This position generates a 10% return on margin (120% annualized) for a two-week holding period. Your maximum risk is $270 per contract. Making the Trade: Use a spread order to Sell to Open the Eli Lilly (LLY) Oct 46 Put (LLY121020P00046000), and Buy to Open the Eli Lilly (LLY) Oct 43 Put (LLY121020P00043000), for a spread credit of 30 cents or higher. A put credit spread is a bullish position in which you want the stock price to stay above the upper strike price of the spread. Use an auto-stop order to close this position if LLY trades below $46 prior to October options expiration and you do not want to buy the stock. If you do not close the position and the LLY Oct 46 Put expires in the money you will be obligated to buy 100 shares of the stock at $46 per share for each credit spread contract you open. Guidelines to getting into the best credit spreads 1. 2. 3. 4. 5. 6. 7. Use index spreads Sell (write) a far-out-of-the-money index option. Buy an index option that is 5, 10, or 15 points further out-of-the-money. Make certain to get a credit or at least .30. Enter spreads with less than three weeks before expiration. Set a stop-loss that is out-of-the-money for the option you have written. Set a stop-loss where there is an 85% chance of not touching the stop-loss.
Every Friday I send out a new credit spread. Click here to get into the next one. Well, there you have it, 20 tried-and-true, winning options trading secrets (dont forget about the free trade below) which will help you become a more successful options trader and build your wealth.
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LEAPS can cost up to $374 a share ($37,400 a contract). And while that might be a good trading opportunity for someone with that much cash to invest, Im not interested in that type of play because even a good move wont be anything dramatic. But what lights my fire is seeing a 75-cent option ($75 a contract) turn into $1.50 (100%), $2.25 (200%), $3 (300%), $3.75 (400%), $4.50 (500%) and so on.
3/25/13
This position generates a 15% return on margin (180% annualized) for a four-week holding period. Your maximum risk is $170 per contract. Making the Trade: Use a spread order to Sell to Open the CurrencyShares Japanese Yen Trust (FXY) Apr 106 Call (FXY130420C00106000), and Buy to Open the CurrencyShares Japanese Yen Trust (FXY) Apr 108 Call (FXY130420C00108000), for a spread credit of 30 cents or higher. A call credit spread is a bearish position in which you want the stock price to stay below the lower strike price of the spread. Because of the narrow spread involved with this position we are not recommending a stop price. Conservative traders who want to use a stop price can place on at $106.50. A credit spread involves writing (selling to open) an option and purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade. Decide how much of your portfolio you want to allocate to options trading (some investors set aside 10%, for example) and, in turn, how much money or how big of a position you are comfortable having in each recommendation. Beginning investors can choose to start out with two, three or five contracts before moving up to 10, 15 or 20, or they may decide that they will allocate up to $300 or $500 on any given trade again, managing your account is a personal matter, but consistency is key. When we issue recommendations at Maximum Options, we will aim for them to keep for a few days. That is, if you miss your email for a day or two, you can still get in if the recommended price is still obtainable. We understand that you have work and life commitments so we want you to be able to get into the trades at your earliest convenience and not feel like you missed out because you didnt jump in immediately. That said, however, the instructions and updates we provide are meant to help you generate and preserve profits and limit your losses as much as possible. If we recommend closing a trade, you may choose to keep it open, but you do so at your own risk. Similarly, if a trade performs so well that you are tempted to take some of your profits off of the table but we havent (yet) recommended to do so, you have to do what is right for you personally. Thank you for taking the time to learn about how I trade options. If you incorporate these 20 Lucrative But little-Known Options Trading Secrets into your trading I promise you will see an improvement in your profits. I also hope you'll join us at Maximum Options and take the next steps in your options trading journey! Yours for Maximum Options,
Ken Trester 1 |2 |3 |4 |5
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