Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)

Email this Article

Send with mail | ahoo instead.
Required Needs to be a valid email
Required Needs to be a valid email
How to Trade Nokia and the Meme Stocks for Profits in Five Days or Less
https://moneymorning.com/?p=1182827
Required Please enter the correct value.
Twitter
Stocks: GME, NOK

How to Trade Nokia and the Meme Stocks for Profits in Five Days or Less

By Tom Gentile, America's No. 1 Pattern Trader, Money Morning • @powerproftrades • July 14, 2021

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

Tom GentileTom Gentile

We all know the story by now: Back in January, when the "WallStreetBets" Reddit community first came on the scene, GameStop Corp. (NYSE: GME) was trading in the mid-teens. Then the online community's guerilla day traders gave it the viral treatment.

A few weeks later, GME hit $483. On that exact same day, it posted a low of $112.25 - a $370.75 daily range. Crazy!

And of course, a few weeks after that, it was trading down around $50. It's gone through quite a few cycles by this point. Yesterday, at midday, it was trading above $183.

So, clearly this "all-out viral blitz" strategy is very effective at driving stocks up to meteoric levels. Thing is, like a game of musical chairs, the last person standing is going to get hammered as the buyers are exhausted and these high-fliers come crashing down.

(Just imagine being a buyer at $483 and unloading your position at $50. Mommy!)

To say that meme stocks are "volatile" is like calling the Gulf of Mexico "a lake" - an understatement. These stocks move at the whim and fancy of a largely inexperienced community that doesn't exactly have a traditional appreciation for risk.

Volatility isn't always a good thing for stock buyers, but it's bread and butter for options traders. There's always a limited-risk way to grab easy profits with options.

That's where a strategy like the one I'm about to show you comes into play. You can bring it to bear on Nokia Oyj (NYSE: NOK) - a stock that went up double digits on Tuesday - or any other meme stock you hear about.

Anyone can join in the meme-stock fun and make some profits of their own without worrying about walking into a buzz saw...

My Low-Risk, Five-Day Profit Meme Stock Strategy

Here's one of my favorite strategies for profiting on meme stocks. The basic strategy is to sell option spreads where I don't expect the stock to be in a handful of days.

  • Short-term credit spreads (with less than one week to expiration).
  • Sell credit spreads 30% out of the money at support and resistance.

Here's an example:

On June 21, 2021, after shooting up from the mid-teens to $72.62 in a heartbeat, AMC had formed two-week channel between $40 support and $70 resistance.

Given two weeks of channeling and with option premium elevated, the idea is to sell credit spreads roughly 30% away from the stock price and preferably at support and resistance. If the stock doesn't reach the credit spread, the spread expires worthless, securing the credit received.

Both $40 support and $70 resistance are about 30% away from AMC trading at $55.

Tom Gentile's Trading E-Book

You can learn how to start using artificial intelligence to predict the movement of stocks with up to 95% historical accuracy.

Click Here

Tom Gentile's Trading E-Book

You can learn how to start using artificial intelligence to predict the movement of stocks with up to 95% historical accuracy.

Click Here

There are two different kinds of credit spreads - bearish credit spreads and bullish credit spreads, built with calls and puts, respectively. Often you see them referred to simply as "bear call spreads" or "bull put spreads."

To build a bear call spread, you...

  • Buy a higher-strike call.
  • Sell a lower-strike call.

And to build a bull put spread, you...

  • Sell a higher-strike put.
  • Buy a lower-strike put.

As the word "credit" implies, these trades bring in a credit. The risk is calculated by subtracting the credit from the width of the spread. They have lower return on investment (ROI) potential in exchange for high probability.

Given the stock can move quickly, we don't want to be in these trades very long. So, use options that expire within a week.

Following these rules, here are two trades you could have done on Monday, June 21:

Trade No. 1: AMC June 24 $40/$35 Bull Put Spread

This trade brought in $33 on $467 of risk, a 7.07% ROI within five days. At first, that doesn't sound like a lot of ROI, but when you consider it's realized in five days and you have a 99.1% statistical probability of banking it, it's a fantastic trade.

Where do I get the probability? My tools calculate it.

Trade No. 2: AMC June 24 $70/$75 Bear Call Spread

This trade brought in $56 on $444 of risk, a five-day ROI of 12.61% ROI. Again, a nice profit for a five-day trade, especially considering 95% statistical probability of profit.

Now for the cool part: You could've done both of these credit spread trades in a move the pros call the "Iron Condor." You read that right.

Options Trading Guide

There's a surprising secret that separates trading masters from the folks fighting over Wall Street's table scraps.

Learn More

Options Trading Guide

There's a surprising secret that separates trading masters from the folks fighting over Wall Street's table scraps.

Learn More

Pro Trade: AMC June 24 $35/$40/$70/$75 Iron Condor

This AMC iron condor brings in $89 credit on $411 of risk with a 94.6% statistical probability of profit in five days.

In all cases above, if the stock doesn't cross the short strike, the spread you sold expires worthless and yields max profit.

On June 25 - expiration day - AMC closed at $54.06, and each of these trades expired worthless.

Now, to be clear, AMC could have crashed to $20 or rocketed up to $100 leaving you at max risk on the losing trade (or losing side of the iron condor).

So, you've absolutely got to be ready to exit should the stock break out. Don't form an emotional attachment to your trade - that's good advice for any trade. And while I'm at it, be sure you're aware of and comfortable with the risks when making trades like these. Use sensible position sizing and allocations.

Like I said, that's always a smart call, but especially when you're playing the meme stocks.

You can deal with this by following a simple exit rule: To avoid maximum risk, exit the losing credit spread if and when the stock breaks above or below the short strike.

  • For bull put spreads, this means that you close the spread should the stock break below the short put strike.
  • For bear call spreads, exit should the stock break above the short call strike.

It's tough to overstate how big of an impact these hordes of new, inexperienced, and, shall we say, risk-friendly investors have made on the markets in 2021. I mean, at one point, these folks were bringing $672 million into the market every minute.

All of this speculative cash thrown at stocks - with close to zero strategy, I might add - has created intense volatility surges that my BRUTUS "brute-force" algorithm has identified as potential profit opportunities. BRUTUS has uncovered chances for 300% returns in three days... 650% in eight days... even 2,500% in 16 days during the backtesting period. You can take a peek under the hood right here and see how it works.

Follow Money Morning on Facebook and Twitter.

Join the conversation. Click here to jump to comments…

Tom GentileTom Gentile

About the Author

Browse Tom's articles | View Tom's research services

Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.

… Read full bio

Login
guest
guest
0 Comments
Inline Feedbacks
View all comments
LIVE
Visit Money Morning Live


Latest News

January 19, 2023 • By Money Morning Stock Research Team

These Stocks Could Go To $0

January 9, 2023 • By Money Morning Stock Research Team

The Government Is Pouring $391 Billion Into These Stocks - Buy Now

December 27, 2022 • By Money Morning Staff Reports

6 IPOs in 2023 You Can’t Afford to Miss
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover This Is VWAP Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Warlock's World Penny Nation Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Vega Burst Trader Flashpoint Trader Darknet Hyper Momentum Trader

Ā© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell My Info

wpDiscuz