One of the most important things a trader can and should use in the stock market is a risk management strategy… I preach this constantly because that’s how important it is.
We’re all here to make monster returns, and one of the first rules of investing and trading is don’t lose more money than you make.
But there’s one risk management strategy that’s highly overrated when trading options, it’s the stop-loss order.
They’re such a commonplace and blunt instrument that the big market-moving players and institutions can and will sell their positions just to try and chase out other investors’ stops, driving the stock even lower.
It’s just one of the legal dirty tricks the big boys use to put themselves in a better position to dips and sell rips.
But whether the market makers force our hand, or a stock keeps dipping lower until it stops out, there are better risk management strategies that can help traders move a few of those losses into the win column…
And I’m more than 4,500% certain it works, because I saw it happen this morning!
There’s More Than 1 Risk Management Strategy
All the way back on Aug. 31, the bulls came after Dollar Tree Inc. (Nasdaq: DLTR) for a little post-earnings dip buying.
My scanners picked up on some heavy long-dated options activity in the DLTR October monthly expiration $95 strike calls trading around $1.60 a few minutes into the Aug. 31 Daily Profits War Room live trading session.
I booked a trade in front of War Room members with a goal of taking profits within three days — a detail I included in that day’s Daily Biltz — and did just that, selling half of the position for a solid 22% gain and letting the rest ride.
Then for the next three, the trade did nothing but lose momentum. Just look at the chart…
By Sept. 24, those calls dropped from $1.97 down to $0.04. Most traders would have stopped out or given up long before that point…
So, imagine their surprise when the options gapped up Wednesday morning on positive DLTR news.
Dollar Tree announced it’s moving away from the “everything for $1” pricing model. While it does make them a little less unique, it’s a business move Wall Street thinks puts it in position for big returns.
Shares gained 15% on the day and broke above the 50-day moving average for the first time since DLTR reported earnings…
As a result, those calls went from $0.15 to $1.17 overnight, rocketing all the way up to $7.00 highs (that’s $700 per contract) Wednesday — that’s a gain of over 4,500% in less than 24 hours!
Now, if you guessed that Lance sold early again, you’d be right — but the big takeaway here is that the War Room walked away with a win that yesterday almost everyone would have skipped out on weeks ago.
And the reason we were able to do that is because we managed our risk with our position sizing.
Check out the video below and let’s talk about risk management strategies and this monster move for Dollar Tree!
P.S. Every week, millions of traders both on and off Wall Street grind it out Monday through Friday…
But what they don’t know is there are hundreds and even thousands of dollars in easy profits up for grabs every single weekend.
Anyone who knows what to look for on Friday afternoon can place a simple trade just before the market closes…
And wake up the very next Monday morning with potential gains like 95% on UAA… 486% on BIIB… and even 610% on CRSR.
Now I’m revealing this rinse-and-repeat strategy that anyone with a cell phone and brokerage account can use.