Options Trading for Beginners: Exiting Trades

Outline

I. Introduction

  • John introduces himself as the Chief Options Instructor at Top Trading Pros
  • His role is to educate the public on options trading
  • Has over 20 years of experience in institutional and retail trading

Summary: John provides background on his experience and role at Top Trading Pros as an options trading educator.

II. Entering a Trade

  • Saw a potential entry point in Roku when it pulled back to the 50 day moving average
  • Looked for relative outperformance compared to the overall market and sector
  • Entered an options trade and expected a move up to around $90

Summary: John identified an entry point in Roku based on a pullback to a key level and relative strength. He entered an options trade with a price target around $90.

III. Exiting the Trade

  • Roku reached the target price faster than expected, in just a couple of days
  • Market was choppy which was a sign to exit
  • Saw wick forming on the candlestick chart indicating losing momentum
  • Exited the trade early despite more potential upside

Summary: Even though the target was reached faster than expected, John chose to exit early based on overall market weakness and chart patterns showing a loss of upside momentum.

IV. Key Lessons

  • Have a plan for entering and exiting before getting into a trade
  • Consider overall market direction when deciding to exit
  • Take profits quickly if a target is reached faster than expected
  • Don’t try to predict or trade the news

Summary: John emphasizes key lessons like having a trading plan, assessing market conditions, taking quick profits, and avoiding trading the news.

V. Conclusion

  • Over many trades, following this approach can make a big difference
  • Resources available at TopTradingPros.com
  • Thanks viewers and invites them to like and subscribe

Summary: John concludes by noting the long-term benefit of this trading approach and directing viewers to Top Trading Pros for more information and resources.

Transcript

Hey, everybody. How’s it going? John Napolitano here with you from Top Trading Pros. I hope everybody’s having a fantastic day.

If you’re watching this, please follow us on YouTube. By the way, we have plenty of videos like this that we produce.Lots of free content for you guys to get your feet wet.

I am the Chief Options Instructor at Top Trading Pros. My job is only to educate the public on options trading and how the average person can potentially profit from the options market. I have been doing this for well over 20 years.

I have an institutional trading background as well as a retail trading background trading my own capital. So I am working now with Top Trading Pros as the options instructor here to show you and coach you and teach you the ins and outs of the option market. So one of the things that I talk about in my classes and for my traders that we coach on a weekly basis is how to exit a position.

A lot of times it could be very frustrating when you get into a profitable position. And again, this is a great problem to have. If you have a profitable position, you should be happy.

But one of the, I think, stressful things about a trader, whether it be even stocks or options or futures or whatever youtrade, is, when the heck do I get out? I have very specific rules that I use for exiting trades that I’m going to share with you in this video, and hopefully it’ll give you some insight as to some of the strategies you can put together when you’re considering when to exit your position. So I’m going to share my screen with you here. I’m going to give you a live example of something that I traded with my traders a couple of weeks back.

Pretty well known stock here Roku. Basically, as you can see, this was Roku recently. It kind of rolled over a little bit with the rest of the market, of course, but basically I want to talk about what went on back here.

As you can see, it had a really nice surge, and it pulled back right to the 50 day moving average, and it stopped in its tracks. So to me, right around here, I was saying to my fellow traders, the people that I coach every single week, I Was saying this looks like a pretty valid entry point. At the time, the market was somewhat choppy, but Roku is holding steady, so that’s always a good sign.

One of the main things I look for an entry is, am I seeing relative outperformance compared to its sector and its peers and the market itself? So I put an option strategy together. I shared it with my students, and I said to them,listen, this thing moves fast. As you can see back here, it can move easily $10 in just a couple of days, which is a very fast moving stock, obviously.

And sure enough, that’s exactly what happens. So as you can see here, just a couple of short days that we were into this trade, Roku actually reached our target. I had about a $90 price target on this.

Another important thing when exiting a trade is you have to have a target in mind before you actually enter the trade completely. You have to know when you’re getting in, when you’re getting out, and what your plan is for the trade before you even get into the trade. And that’s something that new traders tend to not think about.

They just jump in headfirst. It’s kind of like jumping into the shallow end of a pool and not knowing how deep it is.You got to really have a game plan ahead of time and that’s something we teach at top trading pros.

Basically how to get in, how to get out, how to set up a trade properly is really important. But either way, I had about a $90 target on this thing and sure enough, I expected it to take about a week. It took only about a day or two.

And look at this crazy day that it had. I’m just pointing out I’m going to make this screen a little bit bigger. I’m going to zoom into this one candle this day here.

Basically, Roku, I believe, announced the 10% layoff in their workforce and then market actually perceived that as a positive because they wanted to save money and it was going to be good for future revenue and blah, blah, blah. SoI don’t pay too much attention to the details of the news. To me, trading the news is a little bit of a fool’s, Aaron,because when you trade the news, you don’t know what the reaction to the news is going to be and you don’t really know the news is already happening when you’re trading.

So it’s very difficult to profit by guessing what’s going to happen next. That’s just not a good game to play. But while it’s going on and while people were piling into the stock, what I did was I exited the trade early.

Now, a lot of people might say, you know what, that’s a dumb idea, John, because look, Roku could reach up to 98 right when it was trading here. Keep in mind all the excitement that was going on, right? But when I started to see this intraday wick forming, when I started to see it kind of pulling back a little bit, I used multiple time frame analysis to say to myself, okay, it’s running out of steam a little bit. And I exited the trade early.

Even though I expected this to be in the trade for about a week or two, I exited the trade within just two or three short days. Now, some traders stayed in the trade and some traders did what I did and bailed out of the trade a little bit early. And the question was in our coaching sessions that we have every week, why did you choose to leave the trade early? You can’t predict that it was going to do that.

Keep in mind, I didn’t know it was going to do this. I didn’t know it was going to go lower. But one of the things that Isaid was, listen, what is the overall market giving you? Okay, what is the overall market telling you? The overall market was, don’t forget choppy and a little bit to the downside.

Roku was actually behaving in opposite fashion of what the market was doing. Roku was outperforming. So that’s a good thing.

Obviously, those are the kind of stocks you want to be in when you’re going long, even in a choppy to down market.But because the market wasn’t behind it, that was the main reason why I chose to exit. So you have to ask yourself the question, forget about the stock itself.

What is the overall market doing? Is it surging? Is it going sideways? Is the market boring? Is it going down? Is it going up? Right? Those are things you have to consider when you’re putting together an exit strategy ahead of time before you get even into the trade to begin with. That’s number one. And then basically, how fast did it arrive? Itarrived a lot faster than what I expected.

So one of the things I tell my students is fast money makes money. And that means that if you are lucky enough for it to reach your target faster than what you expected, guess what? Take your money and get the heck out because you only have a little bit of upside left. You got all this upside here in just a couple of days.

And it doesn’t make sense to stay in the trade for just a whole other week just to get another extra dollar or two out of the stock. So to me, take your money, redeploy it somewhere else, have your watch list ready, come up with other ideas. End of story.

So this is what I teach my students at Top Trading Pros. We talk about strategy, we talk about game plans, how to exit, how to enter this kind of stuff over the course of 100 trades, over the course of a thousand trades, really makes a difference. And that’s something I want to try to implore with you guys.

So listen, I hope this video is helpful. I like to keep these videos fairly short. Just giving little tidbits here and there about what we do.

Check out our website on Toptradingpros.com. You can sign up for our newsletter. You can sign up for our education program.

And if you’d like, if you’re serious about option trading, we have weekly coaching and annual membership as well.So please check it all out. It’s on our website.

And please like and subscribe to this channel if you want to get little tidbits and little content here and there to help you improve your game. Okay? So have a wonderful day, everybody. Please be careful out there and enjoy the rest of your week.

Take care, everybody. Bye.

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