TIMING AND EXECUTION

The success of is predicated on good timing and execution. As such, when a TOP PICK ALERT is delivered, if it meets your trading criteria and you choose to act on it, prompt execution is often critical to the success of the overall trade. We can’t predict when trades will occur throughout a given day, as with, for example, a pending earnings announcement; so we highly recommend to subscribers that you check your email regularly during the trading day or set up a “you’ve got mail’ alert if you have access to one; and be ready to execute the trades that you may choose to when the TOP PICK ALERTS are delivered. For more on an alternative, click here to read the section on auto-trading.

FREQUENCY OF SELECTIONS

is focused on quality, not quantity. We strive to deliver the highest probability PICK that can result in rewarding results. While it would be nice to have many winning trades every day, the reality is that the markets fluctuate, and there will be times when opportunities are scarce. We never want to ‘chase’ a trade just to be active in the markets. We will look for the best possible PICK with the best probability for high returns in mind.

HIGH RISK/HIGH REWARD INVESTMENT RETURNS

As a subscriber, you must understand that the potential for extraordinary gain is nearly always offset by extraordinary risk. This is at least as true in options trading as it is in any other trading scenario. However, responsible trading, risk management, and reserving a major portion of one’s portfolio can help to protect against losses. We have found that over time, utilizing a higher risk strategy for a smaller portion of a portfolio can enhance overall portfolio returns. Given the high level of risk (total loss, in the case of option trades), a higher payoff relative to the absolute holding period (days or weeks) is typical. So for example, it would not be unexpected to earn triple digit returns for one implemented trade during a short holding period (a week, for instance).

There may be times when our PICK concern out-of-the-money options, where current stock price has not reached level of strike price, so we are buying time premium ONLY; there is no intrinsic value for the option at time of purchase. It’s quite possible that our purchase may be contingent upon an ‘event,’ and that the ‘event’ may ultimately not be in our favor. Thus, the Option we purchased may go down significantly, or even to zero. Conversely, if we are correct in our assessment and timing, enormous gains could be realized (see example below).

HOLDING PERIODS

There is no ‘set’ rule that we follow for holding periods, however, we do want to give each trade ‘time’ to reach an objective. We will generally set a ‘potential’ holding period for a trade, but will send notice of our imminent buy or sell with the strategy we are using on the trade in a separate TOP PICK ALERT. Be mindful that our holding periods could be (set at or extended to) hours, days or weeks.

TOP PICK ALERTS

TThe preferred method of delivery is via email. Two examples below show the TOP PICK ALERT format:

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On September 10th 2006, the following BUY opportunity was generated by our trading system:

WE ARE PREPARING TO PLACE AN ORDER TO BUY AZO Sept 95 CALLS, DAY LIMIT ORDER AT $1.70 “ONLY IF” AZO TRADES ABOVE $90.55 on MONDAY SEPT 11.

AZO reversed Friday Sept 8, closing above the 500d SMA with buy flats. We are looking for a SnapBack Up to retest and break above the Sept 6 High of $92.80 and the 200day SMA; We are prepared to place an order only if our criteria is met early on Monday, or use a Contingent Order. (Our broker supports the ‘contingent order” function. Some do not.)

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On November 30th 2006, the following SELL opportunity was generated by our trading system:

WE ARE PREPARING TO SELL GM Dec 45 PUTS TODAY TO CLOSE. 

We have seen a strong drop in GM over the past several days. Mid day we saw a quick drop, followed by buyers stepping in at about $28.50. GM appears to have found a bottom near the 500d SMA, and it’s time for us to take our significant profits.

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RISK MANAGEMENT – RESPONSIBILITY

One word of caution, which should be emphasized: Options trading is a HIGH RISK STRATEGY; should you trade options under any circumstance, including if you should choose to follow our TOP PICK ALERTS, only a small portion of your portfolio should be allocated to any trade. We recommend that no more than 5-10% of your overall portfolio be dedicated to high-risk trading activity, and no more than 2-4% on your High-Risk allocated capital be risked on any one trade. With any option trade there is potential for total loss.

TOP PICK ALERTS should in no way be construed as recommendations to place any trade. The subscriber understands and agrees that all trading decisions are the sole responsibility of the individual placing the trade, and that WallStreetTeachers.com and its affiliates, operatives, owners, partners, and contractors, cannot be held responsible for any losses that may occur from using the information provided by TOP PICK ALERTS. In addition, the subscriber agrees that he or she will not hold WallStreetTeachers.com nor any of its affiliates, contractors, or service providers responsible for not having received any TOP PICK ALERT due to delivery failure over any transfer medium. does not and cannot offer individual investment advice in regard to buying or selling of its PICKS; will only provide our trade selections; you must determine whether to place a trade and how much to invest in each trade, based on your knowledge of your personal situation and risk tolerance.

As a trader, it is entirely your responsibility to determine your own risk tolerance and position size for each trade you decide to make. Using a consistent number of shares or option contracts for each trade you make is generally NOT considered good risk management. Since each trade you decide to place could be at a different entry price, the risk could be significantly different from trade to trade. Determining and setting Risk Tolerance Rules and using them in conjunction with a Consistent Cost Plan is an example of a more sound risk management practice, since each trade could be a different number of shares or contracts, yet still represent a similar cost, and could therefore be consistent with your own pre-determined risk tolerance criteria.

For example:

If you were to BUY 10 contracts of $.60 PUTS, your cost would = $600 before commissions.
If you were to BUY 10 contracts of $4.80 PUTS, your cost would = $4,800 cost before commissions.

If you then chose to have a stop loss at -50% of the Puts cost, then the loss potential could be $300 vs. $2,400 for these two examples, a significant difference of $1,900.

However, if you determined your Risk Tolerance to be, for example, $1,000 per trade, then for these same two trades, you might decide to do things differently:

16 contracts of $.60 Puts = $960 cost before commissions.
2 contracts of $4.80 Puts = $960 cost before commissions.

Remember, the above are only examples used for illustrating a technique we use ourselves and feel you might employ to your benefit; your Risk Tolerance Rules should reflect your needs and take into account your own situation. This type of cost-based position-sizing strategy can help you to balance the risk of each trade taken, and to better maintain control of your consistent risk from trade to trade.

We encourage sound money management strategies, planning, and discipline. WE DO NOT ENDORSE RECKLESS TRADING BEHAVIOR. It is your responsibility to manage your account to reflect your individual needs, limits, and objectives. Further, we are not responsible for delivering any specific commentary related to a trade; we do not offer, nor is anything we say to be construed as, ‘individual investment advice’. We advocate planning a strategy that takes into account your unique situation, exercising discipline in following that plan, and checking your account frequently to make sure timely trades have been made. Please read our disclaimer at the end of this guide; also please carefully read the online pamphlet, Characteristics and Risks of Standardized Options, produced by the Chicago Board of Options Exchange.

Summary of

Thank you again for subscribing to ! Please remember always to trade responsibly: understand the risk element, and be prepared at all times to execute all your trades flawlessly. We sincerely hope that, by our example, you will learn a great deal from our selections, and that you will be greatly successful in your trading. Please read the Terms of Service on the following page for a detailed summary. As with everything we do at WallStreetTeachers, YOUR success is how we measure ours!