Letting SOFI Runners Run & Reasons Why
There are trading rules that apply to every style, strategy, and stock.
I took SOFI $9.50 strike call options on the open Monday because of the momentum behind the stock.
This turned out to be a really nice trade.
Within minutes the option price doubled, and I was able to sell half of my position.
It happened really quickly because of SOFI’s solid earnings report that kicked the week off. And now I have the rest of the week for more potential upside.
But this is much less about SOFI and 100% about taking profits early so you can give yourself a shot at a huge gain later.
That might sound a little backwards, but it is true. Taking profits early on is how you set yourself up to consistently hit home runs with your trades.
It is rarely a single buy followed by a single sale that creates the big winners.
Instead, you should expect to be scaling in and out, playing mental chess against yourself, and dealing with risk and the stress that comes with it.
All of this becomes easier if you already have profits in hand which is one of the reasons why it is so important.
I wasted no time selling half of my position in SOFI when they exploded higher to start Monday and the week.
Yes, the options contracts doubled but they looked ready to go up 400-500% which makes selling harder to do than it might seem.
But risking 100% to go after the 400-500% requires the right mindset and a risk tolerance that most simply do not have.
And that is why you take profits and leave runners.
Even if the pop was 30%, I was going to take profits before leaving runners. I might have sold more than half, probably closer to 60-65%.
This is the key to being able to stay in a trade for much bigger gains.
Your initial gains could disappear quickly if shares pull back.
If shares then start to grind back up to make new highs the options contracts might not get back to their previous levels and you’ve missed out while maintaining a higher level of risk.
But if you have taken profits you can withstand a bigger drawdown before hitting break even, which is a much better way to manage risk.
This is especially true if the options you are trading expire in the very near term.
If you held on to all of your position instead of taking those initial profits, you are now waiting for the options to recover back to those prior levels.
Don’t put yourself in a spot to think about what could have been.
Add in that while you wait for those prior highs to be reached again,there are dips back to break even and possibly below. Each one testing your patience.
That is exactly what happened with the SOFI $9.50 strike calls on Monday.
Do you hang on after this roller coaster and risk taking heavy losses, or would you more likely get out and preserve your capital?
If you held on to your entire position your frustration level would probably push you out of the trade. I know mine would.
Now consider the position I am currently in.
I sold half of my position on the first big shove higher for SOFI after getting a great buy on the open and was able to bring in .42 per contract after buying at .19.
From this point forward I have zero risk of losing money in the trade because I’ve already sold enough to earn a return of 100%.
The rest of the day Monday could have gone better but I did not worry at all about the price action other than to note SOFI held most of its gains.
I like this set up for a move higher this week and if shares push back above 10.50 the remaining calls will bring in over $1.00 per contract.
I have four more days to make it happen and am already guaranteed to have made money in the trade.
I will take this scenario every time.
If you are a work from home (WFH) trader like I am, it is an ideal situation. You can simply set alerts at resistance levels and let the runners run.
When you already have profits in hand you can more easily digest volatility without feeling the need to close the trade out or monitor it every minute of every day.
If you are free rolling (trading with profits, no risk of loss) you can tolerate a lot more risk and this is how you can stay in trades that turn into grand slams!
This is a far better situation than if you had not taken profits and allowed your entire position to go from +100% back to even.
Nobody likes the feeling that comes with seeing unrealized profits turn into nothing more than missed potential.
Take those profits early and give yourself a real shot at making homerun trades.
We have some great trades already in work with CAT and DDOG moving higher while OXY and VNOM also start to get going.
I’ve got my eyes on MARA, PLTR, SBUX, META, XOM, and Z for potential next trades. Be sure to upgrade so you don’t miss a single trade!
Thank you for your support of A Trader’s Education. I could not do this without you!
-Nate
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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.