“Grasshopper Trades,” I’m really starting to love them! I just made another one with RH. If you’re not sure what a Grasshopper is please hit the link.
The reason I’m liking these Grasshopper Trades is, #1, I’m teaching options with these trades. I’m dealing with smaller amounts of money where beginners will be able to test the waters. #2, I’m starting to like the idea of making a higher number of small trades as opposed to one larger one. It keeps me diversified, so if I have a loser, it’s easier to hold a smaller position while I wait for it to recover. With larger trades, sometimes you have to keep a lot of money on the sidelines for a while which lowers your trading funds.
My goal with Grasshopper Trades is the same; get the Rate of Return I desire. Most readers know I like to get a return of 1% of my money invested in 1 week. Please read my page “1 Week/1%.”
Today I bought 100 shares of RH at $105.50. At that price I didn’t like the premiums of the options I was looking at, but I felt the stock was going up today. With this in mind I placed an order to sell one RH 106 Call. Clearly I was happy with making just 50¢ on the stock with a Strike Price of $106 when buying the stock at $105.50. In this order I used the Expiration Date of 4/26/19, which is this coming Friday, 2 days away. I decided for this trade I wanted a 2% return, so I placed the premium price at $2.25. If the stock went up and I was filled on this order the return for the “premium only” would be 2.1% of the money I laid out for the stock. I paid 105.50 per shares ($10,550) for 100 shares and I received 2.25 premium ($225). That’s 2.1% for a 2 day trade. If I get assigned, which I hope I do, it would add another $50 for a total return of $275 or 2.6% return. This might not excite you but it definitely excites me. If you’re not happy with a return of 2.6% in a few days you better pick a different game. And I assure you, that new game will come with much, much more risk. Maybe the $275 doesn’t thrill you. Well, if you have the money you can buy 1000 shares for $105,500 and your return will be $2750. Still 2.6%! I lot more money but a lot more at risk with 1 trade. This is what I like about the Grasshopper Trades. The key is not the amount of money you bring in, it’s the Rate of Return!
Here are my trades for this RH Covered Call which I was filled on:
Buy 100 shares of RH @ $105.50
Sell to Open 1 RH 4/26/19 $106.00 C @ $2.25 (+$225)
I remember my father locking up $10,000 in a bank CD. He would deposit the $10,000 for 6 months, a year, or ever a few years. The longer he locked it up for the higher the interest rate. I remember rates like 2%, 3%, maybe ever 5% for a longer term CD. This is annual interest! You’re not getting anything like that now! With my deals I’m talking weekly interest. We must reprogram our brains for weekly or monthly rate of returns! With my deal above, if I did this once a week my annual return would be 135.2%.
Get into these Grasshopper Trades and get rich with low risk. Slow and steady, steady and slow. The tortoise wins the race!
Steve
The Options Coach