One of the most important elements of a good trade is time. When you combine time and leverage you enter the realm of some of the greatest trades ever made. While it may seem like a fantasy world, there are simple ways to put time and leverage to work on your own account.

Take Disney for example. It is trading around 138. To buy 100 shares would cost $13,800. If it drops 1% to 136 you just lost $148. We all know a 1% move could happen in a split second and most of the time we expect some level of drawdown as a trade plays out. But start asking yourself what your risk tolerance is. Would you bail at 3%? That is a loss of $444. 5%? That is a $740 haircut. It may be in your risk tolerance but it will definitely sting.

The idea is that if you bought it at 138, you expect it to go up. If it did shoot up to 160, a nice run, you would grab $2200 on your 100 shares. Who complains about a 16% win?

But don’t forget about time. 16% in a week is nice and feels good. If you had to wait 6 months for that it isn’t as much fun.

With the right strategy, you could lock your risk at $383 and have the control of 100 shares of that 138 DIS stock. If it drops 5% you only give up $383. Drops 10%, still only $383. Seems like the way to go, right? Take a look at the chart:

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It has found support above its 10 day moving average and has the potential to make a run to the recent high just below 160. By buying a longer term call option at 160, you increase the amount of time you have for this to play out. Currently the Sept 16th 160 call is at about 3.83. The best news is the stock doesn’t even have to go all the way up to 160. If it starts a strong run up, the call option could increase in value dramatically, possibly double. That 16% gain wasn’t much fun when you had to wait 6 months. But a 100% potential gain makes it a bit easier to wait patiently.

The key is that longer term options give you the leverage of options trading and the time for the stock to make the move you are expecting it to. And, they greatly reduce your risk while you are watching it work its way toward the strike price.

Andy Chambers has laid all of this out in an approach that makes it easy to trade with this kind of advantage and not be tied to a computer. He built it for real world people who are trying to get the most out of their hard earned money. You can check it out here and start using it now.

Keep learning and trade wisely,

John Boyer


Market Wealth Daily