Stocks put in their best weekly showing since November 2020 last week, with the S&P 500 gaining more than 6%. It was a welcome relief to investors, as the market seems to be absorbing elevated commodity prices, geopolitical tensions and tighter monetary policy.
Yet, with plenty of uncertainty, I would encourage traders to play things close to the vest and avoid being greedy.
At Options Income Blueprint, we’ve been quick to close profitable positions. I’d much rather take cash off the table than risk it to wring out the last few cents of premium from a trade.
For example, we closed another fast winner on Micron Technology (MU) last week.
The morning after we put on the trade, the stock shot up more than 6% and the value of the put we sold dropped to less than a nickel. We exited the position with a profit of $28 per contract for a 0.4% return in two days, or 82% on an annualized basis.
As I mentioned last week, all of this month’s winners have been trades on semiconductor stocks.
This was our third trade on MU in March alone. As you can see in the table below, we’ve closed all three of this month’s MU positions after just two days each, booking excellent annualized rates of return.
While some of you may think it’s boring to trade the same stocks over and over again, I’d say there’s nothing boring about generating cash.
For instance, so far this year, we’ve traded:
I call trading the trends and companies you know, “trading the familiar,” and there is value to this strategy, especially in a difficult market.
When you are intimately familiar with the underlying company, you are better prepared to ride out potential downturns in the stock with confidence. In other words, you know that shares of the fundamentally sound company you are trading will almost certainly bounce back eventually.
And when you’re intimately familiar with a stock, you can use its support and resistance levels to help time your trades and capture the maximum amount of premium when selling options.
So, my advice to you is to focus on a handful of stocks you know you trade well rather than trying to pick new names each week just to keep things interesting.
Also, stay light on your feet out there and remember that no one ever went broke taking profits!
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