MM40 - Modify Yes, New Trade, No

Hi everyone. I want to expand on something I shared in a Rapid Fire post in the Options Goddess community recently. This is a concept that comes up constantly, and I think once you see the math, it will change the way you evaluate every single trade going forward.

Here was my original trade. I bought a Tesla June $400 call for $13. It was at least a 3X trade from day one. How did I know? My price target was $450. If Tesla hit $450, my $400 call would have $50 of intrinsic value. Buy it for $13, sell it for $50. That is just shy of 300%.

This checks off the box I require for myself before taking any trade. If I cannot make 300%, I am simply not doing the trade. Why? Because it does a lot of heavy lifting for the bad trades in my portfolio. I need trades that make me three, four, or 500% because I am going to have trades that lose also.

Newer traders do not generally win half the time. They just do not. So you have got to have those winners that make three, four, or 500% to offset those losses. I covered this concept in depth in MM34 (Why New Option Traders Lose Money) and it is the foundation of long term survival in this business.

My first choice when Tesla hit $450 was to implement a vertical roll. This is my first line of defense and my favorite strategy for letting a winner keep running. The plan was to take my $400 call, sell it, and buy the June $410 call for roughly an $8 credit, then keep rolling up $10 at a time, locking in profits as we go.