On my $500,000 margin account, thus far, I’ve realized more than $65,000. Now, I put $250,000 in cash into this, and since it is a margin account I got $500,000 in buying power.
Today I want to show you my three-step process of how I find the best trades, and I want to show you two very specific examples of trades that I took today (at the time of this writing on April 15th, 2021). So let’s take a look at how I found and executed these trades with this three-step approach.
Step Number One: Find The Right Stocks
Step number one is where I use the tool, the PowerX Optimizer, and the Wheel Scanner. I want to show you exactly what this does, because the strategy that I use is called The Wheel Strategy.
This strategy means that you are first selling puts to collect premium. The second part of this strategy is, you may or may not get assigned the stock. If you do get assigned, you move on to the third step where you sell covered calls.
If you are not familiar with the Wheel Strategy, here’s a link to a PLAYLIST containing videos where I explain it in detail. We also have a book that you can get on my website for $4.95 that explains all of this in detail HERE.
So here is exactly what I do, and what I did this morning. The scanner within the PowerX Software updates every two minutes, and it shows me a list of stocks that meet my criteria.
What criteria am I’m looking for? I want to make at least 30 percent annualized in premium that I would collect.
So here’s what I do. First of all, I know that the stocks the scanner pulls up already meet my criteria. Then I look at the charts to identify support and resistance, mainly support, which is step number two.
Step Number Two: Look For Support
I look to see if there is any support. This helps me figure out if I want to own the stock at the strike price that comes up on the scanner.
For example, American Airlines came up with a strike price of 20, or 20.5. The key question here is, “Do I want to own AA at the price of $20.5?” Well, looking back at American Airlines to pre-pandemic levels in 2019, I see that American Airlines has been trading very solidly between $26 and $38.
So it seems to be a good company to buy at $20.50. Again, this is my main criteria here, deciding if I want to own the stock at the strike price. However, in the short run, I believe with all of the uncertainty that is going on with the pandemic right now, that the airlines might be hurt.
I mean, you might have heard a few days ago that Johnson and Johnson’s vaccine was labeled as potentially dangerous, and therefore it is paused right now.
It also seems that around the United States the outbreaks are flaring up. It seems to be under control, but worldwide there’s a problem.
So do I really want to own American Airlines? They dropped down as low as $8. Now, is this a good price to own them? This is where I can flag them as saying yes, no, or maybe.
Now let’s talk about the two stocks that came up this morning (April 15th, 2021) that I liked. The first one was PLAY. PLAY, Dave and Busters, came up with a strike price of 41.50. This is where I thought, “Do I want to own PLAY at $41.50?”
I looked back and zoomed out a little bit to pre-pandemic times before the coronavirus hit. They have traded solidly around $38. They’ve been trading as high as $64. I thought about if I’d be OK owning PLAY at $41.50.
This is where I sold puts that expire next Friday. The idea here is that we are staying above $41.50 by next Friday. So here is what happens if I’m right. I sold 24 contracts and I sold them at 50 cents each. Since options come in hundred packs, that’s $50. The premium collected for 24 contracts, times $50, is $1,200.
$1,200 for a little bit over a week, with today being April the 15th, and it expires on April 23rd. So in 8 days, this is not bad at all. This means that I’m making $150 a day.
Now, if it closes below $41.50 I get assigned, and I am okay with this because this is where I decided I want to own the stock at $41.50.
The other one that popped up this morning was Schwab (SCHW). Schwab reported earnings, and as a result of this they plummeted down. There was some really good premium in there, so I sold the 63.50. I sold 16 contracts for 14 cents. Now, this is expiring tomorrow, so this is a different play, right?
The premium I collected here was $224, obviously way less than the premium that I collected for PLAY, but this is a play that expires tomorrow.
We want to make sure that tomorrow, April 16th, if Schwab closes above $63.50 I just collect the premium and have nothing else to do. If Schwab goes below 63.50 by tomorrow, this is when I get assigned.
The important criteria here for the Wheel Scanner is the so-called premium per day, or PPD. In order for my account size to make 30 percent annualized in premium, I want to see at least $100 per day.
So with PLAY, I’ll collect $1,200 in 8 days when it expires next Friday. This means that we are looking at $150 per day. Then we had Schwab, and we collected $224. If we count today, this makes 2 days, so this brings our PPD to $112.
My goal is to collect $100 per day, and I want to be in 5 positions at any given time. If we can do this, this would be $500 per day. $500 per day (this includes weekends), for 365 days, comes to over $180,000 per year, and I’m doing this on a $250,000 cash account, which is a $500,000 margin account.
As you can see, this is a little bit more than the 30 percent annualized.
If we divide $180,000 by $500,000, then we see it is 36 percent. Sometimes I achieve the goal, sometimes I don’t. So far this year, in 4.5 months, I’ve realized $65,000 in profits. Now, I do have unrealized profits and losses, and we’ll see how this turns out.
I’m currently on track to make a little bit more than the 36 percent here that I have as a goal. I’m on track to make probably around $200,000 for the year.
Step Number 3: Any Negative News?
This step involves checking to see if there is any negative news. Here’s how I do this. I Google the stock and click on “News.” When you click on “News,” it shows you the Google searched for news articles, and you can scan these for any negative news.
What I’m mainly concerned about here are lawsuits, clinical trials and bankruptcy. When they have a clinical trial, they can either go very well or very badly. So these are the key things that I’m looking for when I look for negative news.
How do I find the best trades? My three-step process is I like to make my life simple and easy by using the PowerX Optimizer and running the Wheel Scanner, because I want to make, on a $250,000 cash account, around $180,000 per year.
That would be $15,000 dollars per month. For me, this is trading for a living. I can cover my living expenses with $15,000 per month.
Step number one is where I get the technical criteria.
Step number two is where you look for support and decide if you want to own the stock at the strike price, this is where you simply go through the scanner and say, “yes, no, or maybe.”
Finally, step number three is, is there any negative news? Because if it’s too good to be true, it is. You should definitely look up stocks on Google, click on “News.” There you can read through this fairly quickly and make an informed decision.
Read Next: My Planning Process Revealed