With inflation starting to soften as we enter Q4 of a midterm election year, it’s time to test an options strategy we call 1K21M . . . meaning $1,000 of investment growing to $1,000,000. With this strategy, one starts with the finish line in mind and works backwards. Sounds confusing? It is! The idea came to mind after watching the TV Series LOST. Nothing made any sense regarding how this plot could ever unfold. The only logical conclusion whatsoever was that the show was actually written backwards, starting with the ending and then fitting all of the puzzle pieces together; again, written in reverse chronological order.
For our 1K21M options strategy using this backwards approach, we’ll make some assumptions about where specific stocks or indices might be over the next 48 months and then, simply play long-term out-of-the-money stock options or LEAPs along a graph toward our end-point vision.
Cathie Wood and ARK-Invest does an excellent job of this with their research on future values of innovative companies such as ROKU and Tesla and why <<READ HERE>>
Follow along on this strategy journey as we’ll make updates to this post as things unfold.
UPDATE: 2-9-2024 Today, I begin a new trading experiment to prove my 1K21M theory. This time, I’m compiling several lessons learned about options trading during the past two years and from many valuable resources as well as my own track record, both recent and distant. Here are the summary bullets for your review. Please keep in mind the inherent risk associated with trading equity options.
- For this experiment, all of the trades will be in the AI artificial intelligence sector.
- The trades will have an approximate 45 DTE (days to expiration) with an approximate Delta of .22.
- We will close-out 80% of the trade when the post commission ROI reaches 643% (unless it’s a single-contract trade, for which we’ll close-out 100% of the trade). I’ll explain more about why I chose 643% in a future post.
- Finally, we’ll close-out the balance of the trade when the post commission ROI reaches 1100% or on day 21, whichever happens first. I’ll explain more about why I chose 1100% in a future post.
Obviously, the odds of reaching such lofty gains are small. However, when irrational exuberance exists in the stock market, such as with a standard deviation 2 move, statistics actually show that another standard deviation 2 move is likely to happen again within two weeks, similar to earthquakes and tsunamis.
Please stay tuned for more updates as I hope to prove my 1K21M theory with five successive trades or less after the next standard deviation 2 move in the AI sector.
UPDATE: 2-16-2024 So far, so good with four successful trades on SMCI returning 7.52X, 5.73X, 9.77X and 4.63X. These were small, short-lived, single-contract trades to help gain more knowledge on this thesis. However, today SMCI tanked nearly 200 points and I’m taking a breather from this run and thankful that I didn’t go all-in on a Friday. The short players are winning today while I’m enjoying my JAFO status.
RISK – Trading options may result in potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options markets. Do NOT trade with money you can’t afford to lose.