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There is a very high degree of risk involved in trading. Past results are not indicative of future returns. SirIsaacPublishing.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information.

Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. By downloading this book your information may be shared with our educational partners. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of SirIsaacPublishing.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. 

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Cam White, ChartExperts.com

In my youth, I used to love reading books and watching movies about pirates and buried treasure. Sooner or later, someone would discover the treasure map, leading to a wild adventure to find the buried treasure chest. In most of these swashbuckling tales, the location of the buried gold was marked with an “X” on the map.

How many times have you looked at a major move in a stock, and asked yourself “Wow, what if I had gotten in on that stock early? I would have made a killing!”

You look at the stock and rationalize why the stock moved. Maybe it was based on a strong earnings report. Maybe a new drug got approved, or there was a pending merger or acquisition. Regardless of what caused the move, many investors sit on the sidelines and watch the move happen without pulling the trigger. 

What if there was a way to find out exactly where to capture the lion’s share of a major stock move without guesswork?   

Let’s take a look at Netflix (NFLX) in 2009

As you can see on this chart, NFLX grew from less than $50 per share to $300 over a 3-year period. That’s a 600% return on investment. A $5,000 investment in 100 shares of NFLX would have ballooned to $30,000. 

What was the reason for this move and how many investors were able to capitalize on it? What if I told you that none of that really matters? 

What if the answer was as simple as finding an “X” on the charts?

Look at the indicator at the bottom of the chart. On August 7, 2009 the green line shot up straight through the red line, forming an “X”. That is your signal to buy.

If you bought on August 7, 2009 you would have seen your investment grow 6-fold in two years.  

On August 5, 2011, the red line broke up through the green line, forming another “X”. That is your signal to sell. 

If you didn’t heed the 2nd “X”, the sell signal, you would have seen 65 percent of your gains erased. 

Forget the fundamentals of the stock. Don’t worry about the news. None of this matters. Simply follow these rules: 

- “BUY” when the green line shoots up through the red line, forming an “X”

- “SELL” when the red line shoots up through the green line, forming a second “X”

Let’s take a look at another example:

Growlife, Inc. (PHOT) is a tiny company that has emerged as a big player in the controversial, yet booming medical marijuana industry. The firm supplies medical marijuana growers with hydroponic equipment, lighting, nutrients, and even marketing for this rapidly expanding industry.

On September 11, 2013, the green line shot up through the red line forming the first “X”. Time to buy. Over the next 7 and a half  months, an investment in PHOT gained 1,080%. A $1,000 investment in PHOT would have grown to $10,080 in just over 7 months. 

Knowing when to exit a trade is just as important as knowing when to buy. On April 24, 2014, the redline shot up as the green line fell, forming the second “X”. Time to sell. If you decided to ignore the second “X”, you would have watched 86.6% of your gains erased. 

Now, it's not hard to imagine what could've caused this jump in the price of Growlife. After all, it was a top story during that October and November. 

Colorado and Washington were beginning to accept license applications to sell medical marijuana, and the U.S. Justice Department publicly announced they would not intervene in this formerly illegal industry in these two states. 

This opened up the floodgates for a new legion of customers – all clamoring for Growlife's products. 

And, thanks to this increasing popularity, during a late 2013 announcement, the company revealed its earnings had jumped 278% over the prior year. 

How to Pick Winners

Discovery of Hidden "X"- Pattern: "You will, with 100% certainty, only buy stocks that are going up"

But none of that matters... 

Growlife's stock had entered a state of high velocity before Colorado and Washington began accepting medical marijuana licenses. This state of high velocity also occurred before insider information about this company's financial successes became public knowledge. 

So anybody waiting around for the news would've missed out on a good bit of those 1,080% gains. 

And one final example, this time with a more conventional stock:

CSX Corp. (CSX), the railroad behemoth entered a phase of high momentum on January 7, 2008. The green line shot up through the red line, forming the first “X”. Time to buy.

CSX then shot up 45% over the next eight months. On September 3, the red line shot through the green green line, forming the second “X”. Time to sell. 

If you ignored this signal, you could have lost a considerable chunk of money. 

So, how often does a stock form a BUY “X” Signal?

According to Keith Fitz-Gerald, Chief Investment Strategist at Money Morning, based on a  six-month investigation of winning trades , the first “X”, the “BUY” signal for a chart, has appeared on 2-3 stocks per month, every month, for the past 15 years.

Take a look at even some of the most exceptional gains in the stock market.  As you can see, it’s really as simple as buying on the first “X” and selling on the second “X”.

How does the Red and Green Indicator Work? 

The secret behind the X all comes down to a formula... 

Here it is.

- You take the number of periods for the stock.

- Next, you subtract the number of periods since that stock hit its highest high.

- Then, you divide that by the number of periods again.

- And finally, you multiply that answer by 100.

While that may seem like a mouthful, it is important for you to at least understand the big picture.

So two spots are marked "Number of Periods."

That's simply the adjustable window of time the formula uses to determine the strength of both momentum and gravity. To keep things simple, let's use 100 – meaning 100 days.

We're looking to find the right time frame to base a specific trade on.

Now, I've highlighted part of this formula labeled "Number of Periods Since Highest High."

What this represents is the number of days that have passed since this stock's share price reached its 100-day high point for the green momentum line.

Now, for the red line, it's the same formula – you are just calculating the number of days since this same stock's share price reached its 100-day lowest low point.

So after you crunch the numbers you take these scores and you create trend lines for both the green and red lines.

At two points these two lines will meet – meaning both forces are equal. 

Then, at the first point, the green line will continue shooting straight up as the red line falls. 

The first X will appear. 

When they meet again – the red line will be the one rising, as the green line is falling. 

Their paths will cross, creating the second X. 

Just like you see here.

These two Xs generally signal a 48-hour window for when you should enter and exit a trade.

Does this work for all stocks, or are selected stocks used?

Optimal performance is achieved if we use high-caliber stocks. To screen high-caliber stocks, we take a look at the F-Score.

And if you're not familiar with the F-Score, don't worry. Many legendary investment bankers, traders, and All-Star economists haven't heard of it either. And that's because the F-Score wasn't invented by some hotshot analyst at Goldman Sachs or Merrill Lynch.

It was created by an accountant from the University of Chicago and Stanford. His name is Joseph Piotroski. And his F-Score is an incredibly precise metric for uncovering public companies whose share prices are susceptible to enormous profit spikes.

In other words... high-caliber stocks.

When determining the caliber of a stock's F-Score, Piotroski compares a company's current financial health to where it was the previous year by assigning one point for each of the following nine financial milestones that have been reached:

- A rise in net income.

- A rise in operating cash flow.

- A rise in return on assets.

- A rise in working capital.

- A rise in gross margin.

- Operating cash flow that is greater than the company's net income.

- Its ratio of long-term debt to assets has fallen.

- Its growth rate of sales exceeds that of asset acquisition.

- The company has not diluted the value of its stock by issuing more new shares to the public than it bought back.

Now, let's imagine it's 1976 and you decided to take $1,000 out of the bank.

With this money, you began investing in stocks that achieved an eight-caliber or greater F-Score.

According to independent studies, for the next 20 years, that single $1,000 stake would've grown, on average, 23% a year.

By 1996, it would've transformed into $77,269.36.

Conclusion

Just like the treasure maps in the pirate books, the charts can give the exact locations to find impressive, high velocity moves in almost any stock. When you see the first “X”, it’s time to buy. When the second “X” appears, it’s time to sell.  When you apply this simple trading plan to a basket of stock with F-Scores of 8 or better, you are in a position to achieve consistent profits and possible impressive returns in the stock market.

"X" Marks the Spot!

Market Phenomena Revealed

Wall Street investment strategist discovers a mysterious "X-Patterns" in winning stocks

Keith Fitz-Gerald, Founder of “High Velocity Windfalls”, walks you through multiple examples of this simple, yet powerful strategy. At the end of the presentation you will have the opportunity to take a low cost special offer that will allow you to receive Keith’s invaluable research and start trading this strategy tomorrow!

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Jonathan Rose, ActiveDayTrder.com

I have heard it all when it comes to buying out-of-the-money options.   Some of the most common things I hear are…

“I was taught never to buy OTM options, they are too risky” 

“People who buy OTM options always lose money” 

“I only sell options- that way I ‘win’ most of the time” 

When I hear things like this (which is more often than you may think), it validates my affection for these trades.  Why?  I have two particular reasons: 

1. If a large group is afraid to make a certain trade that creates opportunity for others who know how to value these                         instruments.  

2. If the selling of options is commonly seen as the ‘safe,’ ‘reliable,’ or ‘easy’ trade, then it will naturally depress the price of the     options (the crowd prefers to sell rather than buy).  Option market makers know this and price them lower to take advantage     of the crowd’s bias towards selling.

I completely understand this thinking and up until 2011, I was not a consistent buyer of out-of-the-money options either, but then something happened that had a drastic effect on my approach. 

In 2011, I started working as a market-maker on the Chicago Board Options Exchange (CBOE.)  As a market-maker, you’re required to make prices on a minimum number of stocks.  For me, I would make markets on over 100 names and on every strike within those 100 names. 

Some quick ‘back of the napkin math’- 100 stocks, 10 strikes for each stock, calls and puts, and at least 3 expirations…that’s 6,000 active markets all day, every day.    

I think you can see that valuing options to the $.01 is a key element for survival as a professional market-maker.    

The opportunity to be a market maker was special at the time and making money was somewhat ‘easy.’  I do not want you to misunderstand– when I say ‘easy’, I mean in relation to other trades or markets. 

A market-maker’s job is to ensure that all strikes have a market so customers of the exchange can trade freely.  When an option contract is particularly illiquid, the market-makers can price themselves in an extremely wide spread.  By wide, I mean they’re only willing to buy and sell at extremely advantageous levels. 

In 2011, if the last trade in a given strike was at $1.00, the market-makers would be $.60 bid @ $1.40.  At the time, market makers had an implicit understanding (not formal) that we would keep the markets somewhat wide (in this example $.60 @ $1.40).  We knew that if markets were tighter we could lose our edge and thereby cannibalize our business.  It was in everyone’s best interest to protect the wide spreads.  

The table below shows how the bid/ask spreads narrowed over the years.  In the column to the far right you can see who benefits and how the ‘edge’ has shifted from the professional market maker to the retail customer.

Here is another example:  If the last trade in an option is $1.00, and I’m the best bid for $.60 – another market maker could easily be $.65 bid.  If I wanted to be the ‘best bid’ I could go $.70 bid and we could ‘do this dance’ until the markets are $.99 bid at $1.01.    The result of market-makers competing against one another would be destroying the business.

Then something drastic happened – the robots came and they didn’t play fair! 

Who are the robots?   

The robots are automated market-makers that use algorithms to make markets more efficiently than humans. 

The effect is an increase in volume for the exchange and better markets for the retail traders.  The ‘machines’ were content trading for a small ‘EDGE’ in each transaction whereas the humans need wider markets to compensate them for the risk.  All this change is good because the markets were evolving and creating opportunity for those who can properly value options.

So now, what’s a professional option trader do?  

Independent market-making was no longer a viable option because the ‘robots’ were backed by the deep pockets in the industry.  It was time for a change, and if the market-makers were losing edge someone had to be capturing edge.  Do you know who was grabbing that new found edge?  

You, The Retail Trader!   

And now Me, the retail trader. 

In trading, I always follow the edge because if you stick with a bad trade long enough, it’s just a matter of time before Mr. Market wins.  In this business, when trades fundamentally change, you have two choices:  either change and adapt, or, find another market to trade (because those who hang around are doomed to failure). 

As retail gained the edge, I headed in that direction- and here is the reason – as the bid/asks tightened in the options market, names that had wide (untradeable) markets in the past were now TRADEABLE.  Names that used to be $.80 wide on every strike, now had bid/ask spreads that were down to $.20 and sometimes $.10.  And that’s great for the retail trader…and now it’s great for me too! 

Here is an example:  $PACB (Pacific Biosciences of Ca. Inc.).  As you can see, $PACB is an extremely volatile biotech stock.  I’ll speak from personal experience because I would NEVER make a market that’s $.20 wide on a name this volatile.  

Never. Ever. Ever.

As you can see we are able to isolate the two currencies that actually predicted the best trade to identify based on our theory, as they are the two most divergent in this particular period in time. In this case we theorized that the EUR would weaken against the NZD currency, (or that the “Kiwi” was going to strengthen against the EUR).

What was the result? 42 pips equivalent to $272.00 on one (1) Standard Lot. You can see that we had Sold the EURNZD pair because our proprietary indicator the Phoenix Radar II identified that both these currencies were out of balance and that they were going to rebalance against one another.

Here is what the FULL chart looked like at the time the trade was executed:

Thanks to automated market-making, we can now pick our side on high flying stocks like $PACB.  Let’s look at the 12.5 strike:  $.50 @ $.60.  That’s a great market for the retail community.  It is fair and it is tradable (we can transact if we choose).  The 7.5 Puts look good too.  Notice how the markets get wider further from strike ($15 strike:  $.15 @ $.40) – this makes sense to me because even automated market makers have no interest in selling little out-of-the-money options on an extremely volatile Biotech stock.  Maybe in a few years (if we’re lucky) those will also be $.10 wide …

Over the last couple of years, I have become laser focused on finding out-of-the-money options that the market has priced inefficiently.  By inefficiently I mean the option prices are too low for how much movement there is- or the options are priced in a way that is too disconnected with how the stock historically behaves.

I no longer have an obligation to make markets on 100’s of stocks.   I now have my ‘pick of the litter’ and can trade any option I choose.  Here’s what I like to do:  I sift through 100’s of stocks, 1000’s of strikes using the skill-set I learned as a market-maker and apply that to finding out-of-the-money options on speculative stocks.  This is where the automated market makers are making poor markets and this is the area I try to exploit. 

Let me walk you through an example using $ABC stock: 

What do we know about $ABC stock from its chart?

1. $ABC is trading at its highest level of the year.

2. $ABC’s range of the last 3 months:  High Trade $45, and a low trade of $18 – so the range in the first 3 months of the year is     $27.  

3. This stock is extremely volatile based on the 3 months of data in the chart.   $ABC actually doubled in price in the last 14           days of trading.

Let’s look at $ABC again but this time instead of looking at the last 2 months of data, let’s dig deeper and answer these important questions.   

1. How much does $ABC move per month?  

2. How much does $ABC move every 10 days?  

3. How much does $ABC move per day?

The above chart breaks $ABC into different time-frames.  It is the same as the previous chart but it provides more data.  From this data we know the range (the difference between each month’s high and each month’s low):

Let’s analyze further, what’s the movement if we look at $ABC in 10 day increments?

We have an idea of how $ABC has behaved over the last 60 days and we’re going dig further but we need to cover straddles because that’s going to be the key to how we value $ABC’s options.

STRADDLES 

The first thing when looking at a new options chain is to value the straddle. 

Definition:  Purchase or Sale of an equal number of puts and calls with the same terms at the same time.  A straddle buyer would buy at-the-money calls and at-the-money puts on the same stock.  If the underlying stock significantly increases or decreases and the new value of the call or put is more than the cost to purchase the original two positions- you profit.  The opposite of the buyer is the straddle seller.  The seller shorts the at-the-money call and the at-the-money put. 

Why does someone buy straddles?  Here are a few reasons: 

1. In anticipation of an implied volatility increase.

2. Betting that either the call or the put goes far enough in the money to make it intrinsically worth more than the call and the         puts originally cost.

3. You can never lose more than the cost of your straddle and your upside is unlimited.

4. Time (theta) hurts the trader that’s long the straddle.   They need movement and they need it NOW!   

5. When the underlying moves, long straddle holders get long stock on the rally and short stock on the break.

If everything is held constant, then the option will lose value has time moves closer to maturity.  This rate of decline is known as THETA, it’s also referred to as ‘time decay.’ 

Example: $ADT stock is trading $10.  The closest month expiration is 5 days away and the $ADT at-the-money straddle is trading $1.00 (the 10 strike calls are trading for $.50, and the 10 strike puts are trading at $.50).

In this example, the market is telling us that $ADT is priced to move $1.00 in the next 5 days.  If we buy the straddle for $1.00, we are betting that $ADT moves more than $1.01, either up or down before these options expire in 5 days.  The seller of the straddle is betting on no movement.

Here is a trick I use when looking at a new options chain and it’s actually the first thing I do.  Figure out the value of the straddle and use that information as a 50/50 bet of the underlying expected movement until expiration.  Let’s look at the example below.

Above is the option chain for Facebook stock – last trade in $FB is $101.00

What can we learn? 

1. Options expire in 338 days:  Jan 20, 2017

2. The expected movement within 338 days is roughly $29.50 –

     a. $100 straddle:  $16.00 for $100 calls and $13.50 for $100 puts.

3. Buyers of the straddle need $FB to move $29.50 higher or $29.50 lower.

     a. Time passing hurts (theta)

     b. Stock movement helps (volatility)

4. Sellers of the straddle need $FB to stay within the straddles range:  $70.50 - $129.50.  

     a. Time passing helps (theta)

     b. Stock movement hurts (volatility)

What about delta?  

Delta shows the amount of movement we get in the option if the underlying moves $1.00.  The $110 calls have a delta of .4926 – if $FB rallies $1.00, $110 calls rally $.49. 

Here’s a trick for delta – it can be used as the percentage chance the option has to expire in-the-money.  For the $110 calls, these options have a 49% likelihood of landing in-the-money and the $85 puts have a 25% chance to expire ITM.

Now that we have an understanding of straddles, let’s go back to our example of $ABC stock.   

Earlier we established the 10-day range for the last 60 days was: 

$10, $11, $13, $10, $14 and 9:  The average for these periods = $11.17. 

Next, using those 10 day increments we broke the movement down into average daily movement of $ABC.   And here’s the average daily movement numbers:  $1.00, $1.10, $1.30, $1.00, $1.40 and $.90:  The average daily move using this data = $1.12. 

So our findings show us this: 

Using the last 60 days of data from the $ABC chart, the average 10-day range:  $11.17 

Using the last 60 days, the average daily range was:  $1.12 

Now for the fun part… Let us look at $ABC’s straddle (last trade $45) …

Straddle = $6.00 $3.00 for the 45 calls + $3.00 for the 45 puts

Straddle seller needs $ABC between $39 and $51 

Straddle buyer needs $ABC higher than $51 or lower than $31 

Do we think $ABC will trade over $51 or under $39 in the next 10 days?   

We know this: 

- Over the last 60 days $ABC’s average daily range = $1.12

- The Average move for each 10-day period for the past 60 days is $11.17

If $ABC continues its $1.00 range and it goes up $1.00 every day for 10 days…that’s a $10 move. 

If $ABC moves up $.50 every day for 10 days…that’s a $5.00 move.  

So, moving $6.00 in 10 days when the stock only moves $1.12 a day does not seem very likely.  It doesn’t seem like its 50% likely either, which is what the straddle is suggesting. 

This information tells me $ABC’s straddle is excessively expensive.  Stocks gyrate back and forth even when making big moves.  If $ABC moves $1.00 a day, then a $3.00 straddle would be a much more appropriate value for the straddle. 

If presented with this trade:  I would aggressively sell straddles in ABC.

THE MOVIE

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Preston James, TradersEdgeNetwork.com

Before we begin, here are some important facts about stocks pretty much from Day One:

• In general, stocks go up over time 

• Stocks don’t go up in a straight line 

• Stocks aren’t very logical 

• There are always too many damn stocks 

• Penny stocks suck, so do utility, teen-themed apparel, restaurant, and grocery store stocks 

• It sucks to watch stocks too closely, like every 5 minutes And finally, and probably most important: 

• The biggest, most salivating stock moves (the moves that truly make a difference in your life – like a doubling or tripling of the share price)most often come from stocks you only hear about when it’s too late. 

These stocks are seldom brought up on CNBC or pointed out in newsletters. Why? Because in both cases, they’re too busy blubbering on about what lower oil prices may mean to the economy, and whether it’s a safe time to buy some more Cisco. 

So the question is: 

How do you saddle up to the biggest stock moves in the land and catch some of the biggest moves of your trading career? (Especially using option leverage to carve out King-Sized home runs while tying up far less capital and risk than buying the stock). 

How do you find them? 

How do you get the confidence to buy them? 

Is it easy? 

Do you stand to lose your mind and your wits? 

Can you still work the same amount of hours in your career? Or do you need to “put in the time” spending hundreds of hours becoming an expert in bio-science patents, or a pseudo expert in the new 3-D printing space? 

Enter in the “CrowBar”! 

So what is this… and why the weird name?  The visual here is to imagine this: 

Picture a 400-year old sunken treasure chest that’s finally been hauled up to the surface. Its latches are locked and all crusted over. But a trusty CrowBar is just the leverage tool to jam in there to bust it open . . . and feel the glow on your face as all that shiny treasure stares back at you! 

I’ve done many, many CrowBars in my time. They’ve always existed, and always will. And once you study up on the CrowBar, you’ll have a whole new world opened up to you. I want to say one final thing before revealing this to you. And that is, the reason I’m even writing this down and making this available so cheap. 

After all, if this is “soooo compelling” and such a big money maker, why share it or sell it? Why not just keep quiet about it? 

I have 2 reasons for this: 

1. We live in the “80/20” world. What’s this? According to TrimTabs Research and Jupiter Research (as well as appearing several times on the TV program “60 Minutes”), fully 80% of the stock market volume today is done by institutional investors. That means approximately 20% of the market participants are YOU and ME. Fact is, it doesn’t matter a wink how many of you’s and me’s there are…we’re out-numbered by the big-money players. 

2. I’ve learned everything I know by getting to know others, asking them questions, being curious, and sharing what I’ve learned with others. Fact is, if you’re reading this, you’re in the 20% with me, and it’s time we stuck together (we’re just not each other’s competition anymore!). 

The Essentials 

So now that I’ve got your attention, let’s continue. At this point I strongly urge you to become “unavailable.” That is, don’t check your email, return a text or take a phone call for the next little while. I give you permission to “unplug” so you can devour everything I’m about to share with you. 

Okay, good. I seem to have your full attention (ain’t it a miracle in this day and age?!). Let’s roll up our sleeves! 

The magic of the CrowBar is to get you and me involved in a stock when a huge EDGE sets-up for us… 

This edge is: hopping on board a stock when normal growth turns into warp-speed-like growth, then hopping off when normal growth returns. 

When we started, I mentioned some facts about stocks. #2 on the list was, “Stocks don’t go up in a straight line.” What I mean is . . . the most compelling growth stories out there do a lot of their growing in bunches, not in boring straight, ascending lines. 

This is what’s known as. . . “S-Curves” Certain periods of growth can be downright explosive, and that’s what the term “S-Curve” is all about. This is a growth spurt that looks like the letter “S”

S-Curve growth usually happens to newer companies feverishly growing and executing.

As you can tell, this is rapid, warp-speed-like action. And frequently, it’s a never-to-be-repeated phase of a company’s history. 

Ok. Now that I’ve explained the “edge” of what we’re trying to accomplish as traders here, it’s now time to unfurl the rules for an official CrowBar Set-Up. 

Each rule is critical. In fact, you need to find all of the following, or you don’t have a true CrowBar Set-Up! Here are the hard-won nuggets from the real-world trading trenches: 

CrowBar Set-Up Rules: 

1. The stock MUST hit a new 52-week high

2. The stock MUST have doubled during the past year (For example, if the 52-week low is 50 we would want to see the stock       at or above 100)

3. The stock MUST also be making a new, ALL-TIME high.

4. The stock must have an Earnings Per Share (EPS) ranking of 80 or above.

5. The stock MUST have a Relative Strength (RS) rating of 80 or above. (Both the EPS and RS rankings can be found on IBD’s     website, under the “Stock Checkup” section)

These are the essentials! 

However, you should take a look at these additional considerations and clarifications: 

- You want to buy within 10% of the “double” high. For example, if the 52 week low is 50 we would want to buy when the        stock is in the 100-110 range – not much more than $110. You don’t want to chase something, you’re buying into something      red hot, we don’t want to buy white-hot!

- The Crow Bar set-up uncovers stocks that are drastically growing. We’re jumping on board with the anticipation (and          expectation) this stock will cover A LOT OF GROUND over the next year.

With that said, we want to get long for approximately one year. 

I LOVE doing this with a long-term call option, or a LEAP. These are normally January options. In choosing a strike price, I’m almost always going for an in-the-money option. This way, for each $1 move in the stock we’re getting a pretty decent move in the call options. I search for a strike price where the premium paid is comprised of approximately half in-the-money (or intrinsic) value and half time value. 

So when do you sell the CrowBar? 

I sell if any one (or a combination) of the following happens: 

- If the Relative Strength rating drops below 75 

- If the stock drops suddenly below the 50 day moving average on big volume 

- If the value of the call option (LEAP) drops below 50% of what I paid for it 

- If any kind of fraud, government investigation or other weird event of news happens

Additional considerations to keep in mind are: 

- If you keep finding CrowBar set-ups, it means the market is healthy and robust (bullish). If you’re only able to find a few (or none at all), it means market conditions are shaky and dicey (bearish). You can still trade them, but waiting for a more opportune market may be necessary. 

- I never consider or look for CrowBars in the pink sheet or penny stock arena. No penny stocks allowed here! 

- I also don’t like stocks tied heavily into a commodity (i.e., oil, gold, crops, lumber, precious metals, other materials like paper, and specialty chemicals). Too many outside factors can quickly kill your edge with commodity related stocks. Things like elections, wars, weather, politics, etc. 

- Bill O’Neill (founder of IBD) stands by this rule: If a stock has a breakout, and it gains 20% or more within the first 2-3 weeks of the breakout, the stock is extraordinary and likely gains MORE ground. In this case, Bill says to hold the stock at least 8 weeks from the breakout. If you witness one of your CrowBars being extraordinary like this right out of the gate…this will only give you an extra dose of confidence for this position! 

- You could just buy stock (although this is too capital intensive, and far too much risk for my taste) 

- You could also trade bullish option spreads (for example a bull put credit spread, or money press) 

How Do You Find Crow Bars? 

New high list. Try to find the daily list of stocks that are hitting new 52-week highs. This is pretty much the only thing you need! I subscribe to Investor’s Business Daily and these new 52-week highs are listed in both the print and digital editions (the eIBD). 

The ultimate resource is to check each stock that’s making a new 52-week high that day. Plain and simple! 

Now let’s take a look at a couple of real world CrowBar examples: 

Crow Bar Example: JAZZ 

Here’s a real-world successful CrowBar trade. It was done inside an IRA account to boot! Here you can see a screen capture showing you the security name (JAZZ), the date I entered the trade, and the purchase price of the call options:

As you can see, on November 25th, 2013 it cost me $2,320 (plus commissions) to enter this trade. I bought one contract of the January 2015 $110 Calls at $23.20.

Now let’s look at a screen capture of the date and price where I exited this CrowBar trade:

From the above screen capture you can see that I closed the trade on March 5th, 2014. When I closed the trade, the same January 2015 $110 Call was worth $54… or $5,392 (after commissions).

I profited $3,072 on a $2,320 investment. A cool 132% return on investment. Here’s what this same CrowBar trade looks like on a stock chart:

Let’s look at another example:

Crow Bar Example: REGN Here’s another CrowBar trade done in the same IRA account. Again, here’s a screen capture where you can see the security name, the April 9, 2013 entry date, and the purchase price of $35 for the January 2014 $175 Call options:

Next, here’s a screen capture of the date and price I chose to exit the CrowBar – selling the calls:

If you did a double-take… I don’t blame you! Because yes, you read it right – a single call option contract was sold for over $11,600 bucks! It cost me $3,500 to enter the trade… and when I exited they were worth $11,630.

A stunning 231.3% return on investment! 

Here’s what this CrowBar trade looks like on a stock chart:

Crow Bar Example: QLYS

Now let’s look at another CrowBar trade done in a different account of mine. This next screen capture shows where I purchased the June 2015 $30 Calls on 11/7/2014. And you can see I paid $7.70 per contract for these call options:

Next, here’s what this CrowBar set-up looked like on a 1-year chart:

And here’s the “all-time” view of QLYS:

**Note on this example. . . There is no sell date yet as QLYS is a brand new CrowBar I recently got into!

CrowBar “Enhancer” Strategy – Selling Weekly Options For Opportune Income 

Owning a long term call option (LEAP) is a lot like owning the stock itself. In fact, the technical term in the options world is a “synthetic long” position. 

What this means is: having the “right to buy the stock” gives you some of the same privileges. One big plus is the ability to sell calls against your position – the same as if you owned the stock itself! 

With a CrowBar position, however, my main goal is intense capital appreciation from the stock going up and simply owning the long-term call (LEAP) options. 

But it’s still fun to enhance profits by selling calls, especially weekly calls (if available) along the way! 

Not all crowbar trades will have weekly options traded on them, but that’s ok. Even with the traditional monthly options, you can sell them, say, two weeks before they expire and still collect some additional premium (profits) along the way.

So when do I become an opportune call seller on a CrowBar position? 

First of all, all future earnings dates need to be mapped out and known. This is oh, so very important! You don’t want to sell an option – unknowingly – over the earnings date! 

Repeat After Me... “Know Thy Earnings Dates!” 

The most important thing (besides the date of the next earnings announcement), is to take note how the stock has behaved during the last 2-3 earnings announcement periods. 

Since we’re talking about a stock with pumped-up momentum, I specifically take a look at the stock’s behavior during the 1-month period of time leading up to its past two or three earnings announcement periods. (Finding past earnings announcement dates is not hard. You can always google them!) 

Perhaps the stock really gets excited and likes to rally during this 30-day period before earnings. If that’s been the trend, then let the stock price run (and hence the value of your LEAPs!). 

If you notice more random behavior in the stock (during the 1-month period before the earnings announcement), perhaps you more aggressively sell call options for income during that time. 

Always, always be careful when you sell a weekly call for income purposes! I always try to evaluate how much a stock typically moves (up and down) in a given week, then try to choose a strike price outside of this range to sell (for the week). 

It’s not uncommon to see premiums of $1.00, 3-4 strike prices OUT OF THE MONEY . . . for a SINGLE WEEK OF TIME! (52 weeks X $1.00 equals a lot of money over a year’s time…chances are, way more than the cost of your CrowBar!) 

Finally, it’s not uncommon for CrowBar type stocks to get mentioned in the news often while you own them. Here’s a little tip that helps me when surprise news hits the stock. I call it the 3-Day rule. 

For example, if the stock suddenly gets an upgrade, it will probably bolt up higher on day one. Perhaps it trades up some more on day two, then succumbs to profit taking on day three. The point is, the stock is probably done reacting to the sudden news after 3 days. 

For selling calls (collecting income) purposes, I like to sell out of the money call options AFTER a scenario like this – to rake in some additional income along the way (I’ll often sell one or two strike prices out of the money to give the stock even more cushion to run higher) 

To repeat, you don’t ever have to sell any calls against your CrowBar! The above ideas help define when I do so. And finally . . . 

Here are some other things I look for while I’m in a CrowBar trade. Every few days I’ll note things like: 

- How the underlying stock moves in its trend (when the stock pulls back, does it do so on lower volume? When it surges       higher, is this higher than normal volume for these moves? And how does it track along with the overall market?)

- If it’s been upgraded or downgraded by the analyst cartel

- How it’s industry seems to be progressing along

- I check in to see if there’s any upcoming industry conferences, analyst day events, or company presentations. (You     can Google these and also check www.Briefing.com for these kinds of events)

- Weigh any other kinds of weird market-wide events/news

What’s important to keep in mind is the uniqueness of a CrowBar situation. These are often triple-digit stocks that are hot and bothered and active. Big institutional money is either funneling money into them and/or watching them like a hawk. 

Your intuition will also kick in after a while. You will OWN this intuition. 

Why? Because that’s what happens when you OWN something instead of paper trade something! 

You’ll get to see how your stock does on poor market days (if it’s attached or detached from the overall market). You’ll get to see the volume come in every day. If it’s traveling lower (in its uptrend), you can notice if volume is picking up there or decreasing, etc. 

Conclusion 

Happy CrowBar hunting! And remember, weekly options are an enhancer along the way. I don’t want this to blow your mind – but it really IS a mind blower!!! 

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