In this post, I’ll walk you through my recent trade on Roku that resulted in a $20,000 gain. I’ll explain my entries, exits, and the rationale behind my decisions. It’s essential to understand that such significant gains come with risk, and these big days don’t happen every day.
Why Roku Was on My Watchlist
Every morning, I go through a set of stocks, including Roku, Apple, Microsoft, Amazon, Netflix, and Facebook. My focus is on stocks with a catalyst, such as earnings, news, upgrades, or downgrades. On this particular day, Roku had a catalyst: Morgan Stanley announced that they believed Roku was overvalued. This news made me watch Roku for potential downside movement.
Understanding the Catalyst
The catalyst for Roku was Morgan Stanley’s announcement before the market opened. They stated that Roku’s valuation was too high, which caused Roku to drop from $150 to $146 in the pre-market. This significant movement indicated that the news was affecting the stock.
My Trading Strategy
I trade options, specifically puts and calls. Puts allow me to profit when the stock goes down, while calls profit when the stock goes up. For this trade, I focused on buying puts.
My Entries and Exits
First Entry:
- Time: 9:33 AM
- Contracts: 50
- Price: $4.40
- I entered as soon as I saw buying pressure diminish and the stock break the critical level of $144.18.
Adding to Position:
- Time: 9:34 AM
- Contracts: 40 more
- Rationale: The stock continued to show weakness, and no buyers stepped in.
First Exit:
- Time: 9:42 AM
- Contracts Sold: 40
- Price: $6.40
- I took some size off as the stock reached my next critical level around $140-$139.
Second Exit:
- Time: 9:43 AM
- Contracts Sold: Remaining 50
- Price: $6.40
- The stock was holding the $139 level, so I decided to exit my entire position.
What I Could Have Done Better
After exiting, I should have looked for a reentry if the stock broke below $139. Mentally, I clocked out after making $20,000, which prevented me from executing further trades.
Key Takeaways
- Eliminate “What If”: Don’t dwell on missed opportunities. Focus on the trades you made and learn from them.
- Understand Option Trading: One contract equals 100 shares. If I buy a contract at $4.40 and it goes to $5.40, with 90 contracts, I’m up $9,000.
- Risk Management: I risked about $4,000 on this trade. You must be comfortable with potential losses if you aim for significant gains.
- Realistic Expectations: A $20,000 day involves substantial risk and capital. If you’re not comfortable with such risks, aim for smaller, consistent gains.
Conclusion
Trading options can yield significant profits, but it comes with high risk. Understand your risk tolerance and focus on executing well-planned trades. If you have any questions, feel free to comment below. Don’t forget to like the video, subscribe to the channel, and check out the Stock Market Lab page for more content and webinars.
FAQs
Q1: What is a catalyst in trading?
A catalyst is an event that can cause a stock to move significantly. It can be earnings reports, news, upgrades, or downgrades.
Q2: How do you determine when to enter and exit trades?
I use critical levels, price action, and confirmation from the tape (level 2 and time and sales) to determine my entries and exits.
Q3: What are options, and how do they work?
Options are financial instruments that give you the right to buy or sell a stock at a specific price. Puts profit when the stock goes down, and calls profit when the stock goes up.
Q4: How much risk should I take when trading?
Your risk tolerance depends on your capital and experience. Start with smaller amounts and gradually increase as you gain confidence and skill.