What kind of option traders are you? What is your trading style?

There are many ways to trade options. We are directional traders. We find stocks in trends or that are trading through support or resistance, and we play option strategies in the direction of the trend. It’s actually pretty simple. We’re aware of volatility and all the greeks, and there’s nothing wrong with a trading strategy which is geared toward capitalizing on changes in the greeks; but we don’t employ those strategies. We look to play the trends.

So what kind of set ups can I expect?

Most of our set ups are simple in-the-money long calls and long puts. More specifically, if we find a great looking pattern with resistance at 50, we’d look to buy the 45 or 47.5 long calls when the stock breaks out. When the stock moves up to 55, we’ll typically double up on our investment. If however the stock goes up to 51 or so and just sits there, we’re usually able to get out with a small loss or small gain. We do the exact opposite with downtrends. We look for stocks getting turned back by resistance or breaking support, and we look to buy in-the-money put options. Since we primarily play in-the-money options, time decay is less of an issue for us. When a stock moves 5 points, we’ll typically make 4.

Do you announce your trades?

No. We do not announce any of our own trades. The purpose of the site is to save you a lot of research time by narrowing the universe of stocks to a short list of candidates we feel have the best odds of making you money, not so you can follow us.

If we wanted to trade your money, we'd shut the site down and open a hedge fund.

What is your typical holding time?

We like enter positions which expire in 3-6 weeks. If it’s the beginning or middle of Aug, we’ll most likely play the Sep cycle, but towards the end of Aug, we’ll start looking at Oct unless the trade is meant to be very quick.

Our typical hold time is 1-3 weeks. We don’t need instant gratification, but since we’re playing stocks that are breaking out into trends, we do expect the trade to either work or not work relatively early. We typically are not interested staying in positions when the stock is just sitting there.

How many set ups do you post each day/week/month?

In any given week, we tend to have 2-5 new set ups. Typically we’ll post a couple over the weekend and then 1 or 2 more during the week as necessary and appropriate. The number might be slightly higher or lower depending on where we are in a given expiration cycle.

What about slightly more exotic set ups such as spreads, straddles etc.?

We occasionally play set ups other than straight long calls and long puts but not often. It is true that a spread allows you to lock in your max loss at a more favorable level, but in exchange for that, you must lock in your max gain. We’d prefer to not cap our potential gain. Sometimes it’s better to play spreads, but then you miss out on 15-20 point moves. There’s nothing worse than locking in profits at 3 points and then watching your stock gallop 20 points higher.

We don’t play straddles, strangles, condors or butterflies much because they are more volatility-based than trend-based. There’s nothing wrong with employing these strategies; we prefer to stick with simple trades in the direction of the trend.

So how exactly should the Leavitt Brothers options service be used?

We are a source of trading ideas. We don’t play all our set ups, and we do not expect or recommend you do. Our #1 goal is to save you time by narrowing the universe of stocks to a small workable number. Instead of spending many hours/week trying to find good set ups to trade, we’ll do that for you.

Having said this, here’s how we suggest using the service. Look over our set ups, and based on your trading style, risk tolerance, the spread, volume etc, pick the ones that suit you best. Again, you can’t play all of them. Some weeks, you’ll have a hard time narrowing the list because they all look good while other weeks may not offer anything that interests you.

Our entries are based on the stock price, not the option price. In most cases we are looking for the stock to trade through support or resistance or to be turned back by support or resistance. When this happens – and many traders will not trade the first 20 min of a day and will wait 15-20 min after the stock trades through a trendline to ensure it can hold the level – place your order. If the spread is small, we’ll just hit the ask (assuming you are buying), but if the spread is big (we know this is a relative term), we’ll place it in the middle of the bid/ask. Whether you chase or not depends on the potential profit and risk. If there’s big upside potential, chasing a little is okay – it’s worth the extra dime or so. But if the upside potential isn’t great, you’re not going to want to chase it too much.

Like the entries, our stops are based on the stock price, not the option price. We typically want to give trades a little time and space to play out, but that doesn’t mean we’ll hold until expiration day if the stop or target isn’t hit. We want to enter positions 3-6 weeks prior to expiration, and ideally we’d like to exit them about halfway through the cycle. But if the stock hasn’t moved much after a couple weeks, we consider dumping the position before time decay kicks in.

What if I have a question regarding a position I’m in or a stock I’m considering playing?

We are not investment advisors and cannot technically give you advice, but we’re more than happy to give you our opinion. If you have a question, we prefer you ask it on the message board. That way everyone can see the Q&A. If you’re not comfortable with that, go ahead and shoot us an email.

I trade both stocks and options. Should I join both?

The two services share many features (reports, market window, access to both message boards); in fact the only unique feature of each relative to the other is the actual stock and options picks. Everything else is shared. Because of this, we do not recommend joining both. One is sufficient. Between the two, we’d recommend joining the stocks service. If you want to trade options, you can always convert some of our stock set ups to options trades.

When in doubt…

If you have any questions, email us using the Contact Us link which can be found at the bottom of every page. But we prefer trading related questions be asked on the message board. That way everyone can see the answers, and we can answer a question once instead of 10 different times via email.

--- The Staff at Leavitt Brothers