Stocks Soar… Now What???

I hope you took my advice earlier this week and didn’t pound the sell button over some election jitters…

Now that the drama is (almost) over, let’s get back to business and dig into the reader mailbag:

“Hi Alan,

Do you recommend using a stop loss on your trade recommendations?”

Thanks,

James L.”

This is a question I get asked all the time.

When you enter into a trade, it’s smart to have an exit strategy.

You clearly want to know when to exit a winning trade for gains.

But it’s smart to have a plan for possible downside, too.

This could mean using a stop loss, just in case the trade doesn’t go the way you had planned. There are some things worth considering before you use a stop loss, however…

For instance, weekly options can oscillate quite a bit.

But they have limited downside risk — and unlimited upside potential.

Even if one of your positions is in the red by a fair amount, there’s often plenty of time for that to turn around.

If you use a stop loss, you may end up closing out too soon for a loss on a trade that’s got plenty of time to turn into a win. And even if a trade doesn’t go your way, you’re out significantly less money than if you were to own shares of the company.

That’s why you won’t see me offer any official stop loss recommendations to my premium readers.

Our limited risk options allow us to trade profit opportunities with greater flexibility — and much higher potential gains than buying stocks outright.

As a trader, you ultimately decide what’s best for you. If you prefer setting a stop loss on these trades, you certainly can…

Just keep in mind your results will differ from what I’m tracking.

Now, I can’t give out personalized financial advice, so I can’t tell you exactly where to set your stop loss if you decide to do so. But what I can tell you is that the percentage you set the stop loss depends on how much risk you would like to take on.

That could mean a stop loss of 25%, 50%… or even 75%.

If you plan on using stop losses, I would try different levels and see which one you are most comfortable with…

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: A post-election rally for the ages…

Greg Guenthner
Strap in – we might be dealing with court cases and recounts once Biden is declared the winner of this election. Common sense would say that’s bad for stocks. But as usual, common sense is wrong — at least for now.

The averages continue to power higher this week. It appears that our guess from earlier this week was correct… Investor angst about the election peaked in the two weeks BEFORE the vote. Now that it’s over, a sense of relief is washing over the markets and traders are buying with both hands.

spx

It’s pretty remarkable. The election, earnings — none of this is derailing the markets at the moment. It feels like we’re already in the end-of-year melt-up phase.

Another important aspect of this post-election rally, I believe, is the calm we’re seeing across the country despite the delay in reporting results. The media has been warning for weeks that we would see riots, looting, and chaos no matter who won. But that’s simply not the case…

That’s why it’s so important to step back and look at the charts in a vacuum sometimes. Yes, the narratives and stories that make up our world are important. But the price can give us clues as to which ones we should believe. Money doesn’t lie…

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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