Written by Ophir Gottlieb
Intel Corporation, Short Puts and Stop Losses
Selling a put during a bull market is usually one of the best performing trades but it wasn't for Intel Intel Corporation (NASDAQ:INTC) -- until it was fixed. That is what everyone else knows -- and this is what they do not.
If we look at selling the 25 delta (out of the money) put in Intel every week for three-years we got these results:
Yep, a 8.8% loss, even though we are in the middle of a bull market and Intel is a pretty low risk tech stock. Everyone else who has looked at this strategy has walked away believing it's a loser -- and that's great because that means those of us using less luck and more analysis have a window.
Here is how that exact same strategy in Intel Corporation (NASDAQ:INTC) looked, but we used a 50% stop loss -- that is, every time the weekly option hit a 50% loss, we simply closed it, and waited for the next week to trade.
Yeah, that's not a typo. A 8.8% losing trade in Intel Corporation puts turned into a 105% winning trade by using stops appropriately. And this isn't cherry picking. If we did this same side-by-side comparison for short puts in Intel Corporation (NASDAQ:INTC) for two-years using weekly options, we got these results:
What was a 15% losing trade to most of the world, was in fact a 54% winning trade to those using proper stops.
Now this article actually isn't about evangelizing the use of stop losses -- not at all. This article is a window into the world of successful option trading. This is why...
We've just seen an explicit demonstration of the fact that there's a lot less 'luck' and a lot more planning in successful option trading than many people realize. Here is a quick 4-minute demonstration video that will change your option trading life forever:
Tap here to see the demo movie
The author has no position in Intel Corporation (NASDAQ:INTC) at the time of this writing.
Thanks for reading, friends.
Risk Disclosure
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
