Capturing Big Gains with Growth Stocks
Why I am letting winners run and when I plan to sell covered calls again.
This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
Another great week of trading in the books with market indices moving up and growth stocks moving even higher!
Last week DKNG was the focus of the newsletter and if you got in on the big gains I want to hear about it. Shares were up 14.63% on the week after the set up for a breakout was realized.
If you missed it, you can check out all of the details discussed last week here. If you enjoyed the post, maybe even got in on a solid trade and would like to share A Trader’s Education Newsletter with others, please do!
In addition to the big gains for DKNG, I entered a contest on Savvy Trader for the month of July and at the halfway point I am leading both the portfolio performance and new subscribers categories!
So far, the portfolio is up 18.51% in July. Huge gains!
I’ve also seen a total of 178 new subscribers join in on the fun we are having with the Covered Call Strategy Portfolio.
A great feature of Savvy Trader is I can and do send out comments on the portfolio to all of the subscribers. I highlight when I let the portfolio run and when I’m selling calls against it. Good stuff!
You can subscribe for free and follow along with over 300 other traders to see the moves I make for this portfolio that is up 37.17% over the past 30 days.
I am hoping to get to 500 subscribers but more so, I want to win these competitions!
And I also thought this would be a good time to talk about how I construct my covered call portfolio full of growth stocks (which is different than any other strategy you’ve seen) and how I manage it.
In short, this week we are looking at when to let your winners run and when it is time to start selling covered calls again.
Selecting Growth Stocks
The unusual or unique characteristic of the Covered Call Strategy that I utilize is the use of growth stocks for the entire portfolio.
Most shy away from this idea because growth stocks can move quickly and you can lose your shares when they get called away. This misses a very important point.
Most stocks present another opportunity to buy in, often at the same or lower levels as the strike price your original shares were called away at.
Sometimes this opportunity never comes, but often that is following a long consolidation period of moving sideways which allows for selling a lot of covered calls and collecting piles of cash before the move.
There is also the less discussed protection you’re giving yourself by selling covered calls. If the stock moves the wrong direction, you’ve offset some of those losses by the premiums collected.
The premiums people must pay to buy options for growth stocks are elevated because of the potential for quick, large moves. This presents an opportunity to sell covered calls and collect large amounts of cash when the stock is moving sideways.
We had a recent example of this with MARA, which allowed for months of covered call selling opportunities before breaking out of its range.
The ability to collect 1-2% every week in options premiums by selling covered calls is unique to growth stocks. You will not be able to collect these percentages with blue chip stock options, they simply do not move enough to warrant the higher price.
When a growth stock breaks out of its range, your last covered call trade will cause you to lose your shares, this is true. However, you will be selling for a profit plus all of the cash collected along the way and with the potential to buy back in.
One last and important note on covered calls with growth stocks.
If you are trading correctly, you are selling covered calls at the top of the range and closing them out at the bottom of the range. This is very, very important.
In the example above, you would have closed out the MARA covered calls as they dipped to the bottom of the range to end the week on June 16th.
The next time shares entered the upper end of the range, where you would normally consider selling covered calls, the candle was very strong and blasted right through upper resistance.
This strength is a reason to pause on the idea of selling covered calls, waiting to see if there is a follow through for a break out or if there is a reversal back into the range.
And because of this powerful move, which is often seen on a breakout of a range, the shares of MARA are free and clear to run higher and WOW have they run higher!
Sometimes you have sold the covered calls and miss the opportunity to get back into the trade, and that is the risk you take. It seems like a small risk for all of the upside involved with this strategy.
Trading This Week
The trend is up despite the brief selling on Friday to close a very strong week. I am not looking to sell covered calls in this environment but am tracking multiple stocks for those opportunities.
There is no reason to force a trade. It is a recipe for regret every time.
I do like the current break outs for DKNG and HOOD to continue. MARA is going to be Bitcoin dependent, but so far the rally does not show any signs of slowing.
I added PLUG to the Savvy Trader portfolio and it has really taken off! I’ll post more on potential entries for this and many more trades on Twitter where I will be more active this week. Summer break is over!
Be sure to follow me @tradernatehere and join over 13,000 other traders as we push to build our trading accounts and talk about it all on Twitter.
The Trading Triangle - Live on YouTube!
If you are looking to sharpen your chart analysis skills further while hearing about what traders are looking at for possible trade ideas, be sure to also tune into A Trader’s Education podcast.
Streaming live on YouTube, I host The Trading Triangle to provide a more robust analysis complete with video. Be sure to subscribe and tune in every Sunday!
You will still also be able to find recordings of the stream on the A Trader’s Education podcast, which you can find on both iTunes and Spotify.
It is packed with value and always an all around great time!
Shaun Clarke - @ShaunClarke_ and Kaye @InvestKaye join me every week. You don’t want to miss it!
Thank you again for reading and have a great week!
Nate