Calm Before the Next Big Breakout!

July 29, 2020

It’s another busy week of earnings with the tech “big boys” Apple, Google, and Amazon today and tomorrow.

Nearly 80% of S&P companies that have reported have beat, but that is because expectations have been severely lowered.

This has lifted the S&P 500, while the Nasdaq continues to trade flat.

That can change after the big three reports and fuel another buyer frenzy higher.

The market has already priced in that the Fed will maintain its current policy on today’s announcement and will not deviate.

Volatility continues to be elevated with the fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX) is holding at 25.

  • On Monday, we added our newest position:

    Buy-To-Open the IQIYI INC ADR (NASDAQ: IQ) Aug. 28, 2020, $22 call (IQ200828C00022000) up to $0.98 per contract or better, for the day.

Right now, we’re holding:

  • Nordic Amer Tankers (NYSE: NAT) Oct. 16, 2020, $5 call (NAT201016C00005000)

  • China Mobile LTD ADR (NYSE: CHL) Aug. 21, 2020, $40 call (CHL200821C00040000)

  • Box Inc. (NYSE: BOX) Aug. 21, 2020, $20 call (BOX200821C00020000)

  • IQIYI INC ADR (NASDAQ: IQ) Aug. 28, 2020, $22 call (IQ200828C00022000)

Now we wait and let the market come to us.

And I’ll be keeping you updated every step of the way.

Your Questions, Answered!

The mailbag is full, so let’s get to your most pressing questions.

“Some of your recent recommendations are in the red, what do you think about setting a stop loss on your trade recommendations? Adam P.”

It comes down to risk tolerance and account size.

When entering a trade, we always want to know what's the most we can lose.

The best stop loss is knowing your full loss before putting on a position.

That’s what I mean when I say every trade is won before it’s ever put on.

We also want to know when to exit a winning trade for gains.

But we want to have a plan for the possible downside, too.

When using options, there’s a lot of choices with strikes and expirations.

That is why it’s essential to have the same approach for every trade.

Everyone's risk tolerance, account size, and reaction to losses are different.

With today’s volatility and getting whipped around at times, I can’t blame you for wanting the extra protection.

This could mean using a stop loss, but I often say reduce your position size.

There are some things worth considering before you use a stop loss when using options contracts.

Our shorter-term option contracts do oscillate quite a bit.

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

Even if one of our 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 has plenty of time to turn into a win.

This will create even more frustration, and not only does it drain your account, but also your emotional capital.

Often a trade doesn’t go our direction right away.

And even if a trade doesn’t go our way, you’re out less money than if you were to own shares.

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

Options allow us more massive profit opportunities with greater flexibility — and much higher potential gains than buying stocks outright.

And they’ve fared well for us, even in today’s conditions.

Every investors’ risk tolerance is different, and you must decide what’s best for you.

If you prefer setting a stop loss on these trades, you can.

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, from my back-testing results, I can provide the optimal stop-loss amount.

My back-testing results measured against millions of situations found that a 60% stop-loss was the most optimal.

That means if you pay $1.00 per contract, then the stop-loss would be at $0.40 per contract.

If you plan on using stop losses, your results will differ from what we’re tracking.

Here’s the next question in the queue:

Why do you recommend selling half of our positions instead of selling them all at once? -Jack W.”

Like the question above, there's more than one way to skin a cat.

I love to take big, fast profits where we can on our winning option trades.

But when I was a professional, that is not how we manage our positions.


It can be frustrating in locking gains only to see the prices of those contracts go higher the next day.

But, if the prices drop the next day, you feel like a genius.

To create consistency in the financial market, you must have a consistent process.

These types of targets seem to be a common practice with other services.

Every investors’ risk tolerance is different, and you must decide what’s best for you.

If you're worried about missing out on more potential profits, you can sell half of your position.

That way, you can take profits and reduce risk.

But they could drop in value before hitting your next target.

Once the profit target hits, no matter what happens, you’ll make gains on at least half of the trade.

I found success in keeping things simple and why we don't do anything too fancy.

Great questions this week!

With that said, I look forward to answering more next week.

If you want your questions answered next week, make sure you email it in today at [email protected]

I’ll keep you updated if any of our positions swing higher and it’s time to lock in our profits.

Talk with you on Friday.


Joshua M. Belanger

Joshua M. Belanger
Joshua Belanger is founder of CounterVest and the editor of Hot Money Trader. He has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%