My Partner in Crime

I have to start with my usual explanation. Yes, you’ve no doubt read/heard this countless times, but it’s important to set the stage… 

A few years ago, I hired a young man with a finance degree to be my assistant on my Wealth Advisory newsletter. The relationship has gone better than I could’ve hoped. We are sporting a 67% average gain. And Jason Williams has elevated himself to full partner on the newsletter…

Jason came in with a great head for numbers. As a mentor, my “job” was to help hone his strategic thinking. That basically means sorting through the BS to find the “truth” of which stocks are actually gonna run and which ones are gonna just sit on the porch. 

Jason has embraced the lessons, bringing us Leidos (NYSE: LDOS), up 80%; Qualcomm (NASDAQ: QCOM), up 63%; and a cannabis REIT that’s up 300%. 

I think I speak for all Wealth Advisory subscribers when I say: well done, Jason.  

Like anybody with some years of investing success, Jason is now exploring options trading. And it’s because when your analysis is on the mark, options are the single best way to leverage your insight into fat percentage gains.

Now, the first options I ever traded were Nokia back in 1999. Made a lot of loot, thought I was smart, lost a lot of loot, and got busy learning how to be consistently profitable trading calls and puts…

How I Learned to Stop Hating and Love BAC Call Options

I’ve been running the Real Income Trader Options Trading Pit service for three years. In 2017, I averaged 14.60% on 25 trades. Last year it was 17.6% on 50 trades. So far this year, I’m averaging 18.8% on 25 trades. 

Yes, consistently profitable is good. But getting better every year is where it’s at. I can tell you straight out: There is never a time when I will say, “That’s it, I got this.” Markets change, and if you aren’t learning and refining your methods, you simply can’t consistently make money. 

I knew Jason dabbled in options when we started working together. But he never asked me anything about them, and I never offered anything up. At least until about a year ago…

Best guess: He saw the consistent gains I’ve been racking up in Real Income Trader Options Trading Pit, and he also saw how much I like trading calls on a stock we both like very much: Bank of America (NYSE: BAC). 

Now, let’s take a quick moment to talk strategy…

Three things: I want to trade options on a company I can say is undervalued, I want a chart and trading action that is easy to get a good read on, and I don’t want to overpay for the options. 

Bank of America fits the bill on every count. It is the cheapest major bank out there. It consistently trades at a ~35% discount to J.P. Morgan.

I’m not going to get in to a detailed discussion about options pricing when a conceptual discussion works better. Options are priced according to expectations for how much a stock will move. If everyone thinks a stock is the greatest thing ever, does nothing but rally, and is gonna double in the next month, well, you can bet the call options (which are the upside trade) will be very expensive. 

What are your thoughts on BAC? Are you wildly bullish? Think the stock is gonna double in the next month? 

Exactly. 

Nobody is wildly bullish on BAC. So its options are among the cheapest out there. Pro Tip: Bank of America options are also the most heavily traded options in the world. In this case, the smart money is actually smart. 

My goal as an options trader is to catch a 10% move on a stock. If you have a good stock with reasonably priced options, a 5% move will double your money; 10% can be worth 300–500%.

Let’s Go to the Charts…

I’m gonna share a conversation I had with Jason (Dubs) this morning…
 

It’s a general rule of thumb for me that you gotta buy options before the news hits. Like this morning’s earnings report from BAC. That “smart” money got in the upside trade for BAC a week ago. Here’s a bigger version of that same chart:

I drew those horizontal lines months ago. They still define the action today. And according to this chart and my lines, the move for BAC has a good chance of being over. A downside play with puts looks like the better bet (but I don’t trade puts on BAC much because I think the stock is fundamentally undervalued). 

Finally, who said BAC doesn’t move much? A solid 10% move every month or so will make you a lot of money…

Oh, and I didn’t end up going with GILD, either. Instead, I am LOVING the stock that is also the Feature Recommendation for the October issue of The Wealth Advisory, which goes out today.

Obviously, I can’t tell you the stock here, before paid subscribers get it. But I can tell you we bought the calls for $0.60 at 10:30 this morning. By noon they were trading for $0.75. That’s how you do it…

If you want to get in on this stock with the rest of our Wealth Advisory subscribers, join us here.

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.