Shares of JC Penney (JCP, $10.30, down $1.60) are at 12-year lows following today’s 12% plunge and our subscribers couldn’t be happier. We often remind investors that have never shorted a stock or bought put options that the strategy is no different than buying a stock in hopes of it going up to make a profit. When you go short or use put options, you are looking for a stock to go DOWN.
If you only invest in a stock you want to go up then you limit the playing field. We also remind our readers that a 5% move, up or down, in a stock can mean a 100% return with the right options. It’s that simple.
The beauty with options is that you also use less cash AND the returns are so much more powerful. Trading options is THE most lucrative investment you can make but by no means is it easy. There are risks, of course, but if you do your homework and chart work every week and every day like we do, opportunities exist and it’s why we love playing the game.
If a stock drops 10% or more, the right options can make you 200%, 300% and even 500%. And this may sound strange, but the most you can lose is 100% on an option. Of course, we try to limit our losses to 50% but it is also important to remember it doesn’t make sense to do this on an option that is at 40 cents as the price swings in a high beta stock can be erratic. On options over $1, it makes more sense to limit losses to 50% but if you trust your chart work, then good things usually happen.
We hit a massive winner today when we closed our JC Penney October 12 puts (JCP131019P00012000, $2.10, up $1.30). We recommended the options at 28 cents just 2 weeks ago and as you can see, they have tripped $2. We could have made a 650% return but we closed half of the trade on Monday when the options traded up to 50 cents.
So how powerful are options?
Well, a 10-contract option trade would have cost $280 and with an average closing price of $1.30 ($2.10 + $0.50/ 2) your position would now be worth $1,300. A 50 contract trade would have turned $1,400 into $6,500 for over a $5,000 profit!
If you made bank on this trade, congratulations and send us an email. We love hearing about how much money our traders made.
As far as the market, the indexes have traded in a tight range with mixed results. Currently, the Dow is up 12 points to 13,346 while the S&P 500 is advancing 3 points to 1,700. The Nasdaq is higher by a 12-pack to 3,780.
We have another New Trade we are getting into so we have to roll. We have been mentioning for over a month that NOW is the best times to trade options as we see a ton of opportunities for possible triple-digit winners.
Subscribers, hit the Members Area for our latest recommendation and stay locked-and-loaded for the rest of the session in case we have additional new trades or profit alerts.