BigTrends.
com
In The Money Options
User Guide
Welcome to BigTrends.com’s In The Money Option Service! We look forward to helping you
achieve potentially tremendous returns by using the power of options.
As the name implies, the risk and volatility typically associated with options trading is
minimized with this service by using options that are two strike prices 'in the money'. We also
tend to buy intermediate-term options for this revamped service, looking from 5 to 8 months
out....not that we'll hold them that long - we just want to have the choice.
The additional advantage to owning in the money options with plenty of time is that there's
minimal time decay - almost all of the premium is intrinsic value.
Simultaneously, we've created brand new strategies to use in our trade selection. While the
criteria are proprietary, we can tell you both the bearish/put and the bullish/call systems have
been tested in 'all weather' environments, and were developed independently of each other. The
end result is a set of trade signals designed to find the very beginning of the biggest moves being
started by optionable stocks....without relying on the news or media to generate the idea.
The rest of this guidebook will explain how the service works, and how you can get the most out
of it.
Sample Alert
New trade instruction will be explicit, complete with a suggested entry limit, target price, and stop
price. To the greatest extent possible, we’ll also explain our rationale – and a chart - with the
trade. You’ll find an example on the next page. As you can see in the example, the buy limit,
target, and stop are clear. All trade recommendations will have the same parameters. Once a
trade is established, that same data and position progress appears on a table in the nightly e-
mail.
In The Money Options
10/25/07
Trade Recommendation(s):
Buy Cache (CACH) December 17.50 puts (FQKXW) at 1.80 or lower - good till cancelled. Target 4.80,
with an intra-day stop of 1.25 (based on ask). We're still not filled on this order. The recommendation and
rationale still stand though - we saw the last thing we needed to see...a break under a key support line.
We're planning on a revisit near July's low. This isn't as deep in the money as we'd normally choose, but the
20 puts had no open interest and/or volume.
Open Option Positions:
Cache (CACH) - Daily
Logistics
Though you are free to use the recommendation service however you like, there are a few details
about our strategy that you may want to consider:
• Our holding periods are usually measured in weeks, and perhaps months if the trend is
going well
• Our options usually cost somewhere between $4 and $11.
• We suggest allocating 10% of your portfolio to each new trade. On occasion we will trade
a ‘half’ position, which would be 5% of your total portfolio’s value.
• We will occasionally ‘split’ a trade up into two halves, selling one half, and holding the
other. For this reason, where feasible, it would be helpful to trade an even number of
contracts.
• Our target number of holdings at any one time is between 4 and 7.
• The end-of-day alert will arrive by e-mail, usually between 4 Pm EST and 6 PM EST.
Expectations
Our In The Money service is largely system-based. That just means we’ve custom-built trading
signals to generate our trade ideas. That does not mean we’ve turned the service over to a
computer to run the service for us. Our analytical team always has oversight and authority of all
trades.
Like all discretionary traders, a trading system will have hot and cold streaks. Over time though,
we expect our In The Money strategies to yield the same results they historically have. As
mentioned above, we’ve refined four specifically-different systems to select these trades…two
bearish, two bullish, two momentum-oriented, and two reversal-oriented. This allows the
recommendation service to be an all-weather source for good trading ideas.
The other advantage to system-based trades is that our software can find stocks most investors
would have never found on their own. Large cap, household name stocks tend to be batted
around by the media, which makes them difficult to trade. Smaller, off the radar names tend to
make longer, drawn out moves – both bearish and bullish. That’s the ‘sweet spot’ for this service.
Nevertheless, not every trade will be a winner. Over time though, we’re certain that consistent
application of our rules will lead to strong bottom line results.
Frequently Asked Questions
Q. How many trades will the system put out a month?
A: Probably between 2 and 4. Ideally, we'll hold between 5 to 7 trades at a time, so how many
new trades we can enter will depend on how much room we have. Based on the systems' history,
we think that will mean between 2 and 4 trades per month. Bear in mind though that we seek
quality trades over a high quantity. If we
Q. What will be our stop lost on the system?
A: A flat 30%-35% stop loss.
Q. Can the system be traded with 10K?
A: Yes, though not with much less than that. The average option we bought was priced between
$7 and $11. That means you'd need between $700 and $1100 to make the purchase. At 8 'open'
trades, you're getting maxed out...but it could be done.
Q. Will there be a nightly update?
A: Yes.
Q. When will new trade instructions be sent?
A: Though we ‘never say never’, most if not all of our trades will be sent outside of market hours.
That will eliminate the need to wait by your computer all day long. As long as you can retrieve
your e-mail sometime before the next trading day begins, you can successfully implement the
trade.
Last Word
Again, welcome to BigTrends.com’s In The Money Options service. If you have other questions or
concerns, please contact us at 1-800-244-2736, or by e-mail: [email protected].
