Now we will talk about trades with an unrealistically high ratio of risk to profit: 1 to 50, 1 to 100 and higher. Yes, there are such… And Yes, any private trader can trade such opportunities. I think it’s worth mentioning right away that with a fairly high probability of a positive outcome, such opportunities do not come across often.
Of course, if you are aiming to hit the jackpot, you are unlikely to be able to avoid the procedure for determining the direction of the asset’s movement in the future. And, moreover, the potential for movement in one direction should significantly exceed (by 50, 100 or more times) the potential for movement in the other. At first glance, the task seems impossible, but… Let me give you a hint: the price does not fall below zero!
Pump
Imagine a company whose shares on the stock exchange are worth somewhere between 0.5 and 1 dollar. The company itself is engaged in some kind of development of something. But then she developed something, thanks to which her shares soared to 30-35 dollars. Or somewhere there was a rumor that this company is about to invent, for example, a cure for all diseases. I am sure that you are also familiar with the example of Bitcoin
Pump and Dump how to trade Pump and Dump bitcoin bitcoin
It remains to choose from all the abundance of negligibly cheap stocks that are about to begin to gain momentum …
In principle, you can do the following: take all the shares worth up to 4-5 dollars, put them on the list and start sorting them out as soon as the market opens … And so every day. Naturally, it is not realistic to collect data on 700+ stocks manually, and even in a few minutes until everything has flown away. And in order to use the filter, you need to set a certain parameter (or parameters) to this filter. The first sign that a company’s stocks are about to take off is internal news from that company (for example, the passage of a drug through the third stage of the FDA, for pharmaceutical companies). Typically, such news is accompanied by a sharp increase in activity in the stock: the amount of traded volume increases by tens and hundreds of times, accompanied by increased volatility of the stock itself. And it can happen even in a still closed market. Those. without even going into detailed summaries of each company, you can find the one you need by a good burst of activity.
find Pump and Dump
In some cases, there may not be a sharp increase in volumes, but the stock will still go up. You can find it by the percentage change in price. However, do not forget that you still have to get acquainted, even briefly, with the activities of the company and the reasons for the activity of its shares.
Important!!! You should not short the stock after such ups. Someone Timothy Sykes has already dealt with such nonsense, it did not lead to good things.
Buying Volatility
I have already posted information on the topic “Volatility Trading through ETFs”. In this case, you need to take a “direct” ETF for volatility and work only through its purchase. The view of the chart will somehow look like a Pump, only you need to find trading situations in a different way.
uvxy trade uvxy trade
The chart on a dark background is the same UVXY, just since the moment of this situation (August 20, 2015), the ETF has experienced another split, and in the process of gluing the charts, such large numbers turned out. On the white background, the same situation is presented in which it was necessary to form a position on UVXY.
Options “far out of the money”
In the article “Options. Directional trading, I mentioned that far out of the money options are very cheap, and with the right direction and a sharp increase in volatility, their value can increase tens or even hundreds of times.
profit on options
A Call option on Brent crude with a strike of 60 and maturity on Sep 30, 2016 can currently be bought for $0.06 (even if you buy “on the market”). Imagine that in a few days oil will cost $60, and it can… The option we have chosen in this case will already cost more than $3.00-3.50 (taking into account the increased volatility), which is 50-60 times more starting price. Just imagine how much money people raised who bought Puts with strikes of 30-40 when oil cost 110-120 dollars!!! And there were such people… It was on these strikes that anomalous activity was observed throughout the entire fall in oil prices…
The determining factor here is a sharp directed and long-term movement of the underlying asset. However, unlike the previous examples, the direction of this movement may not be known in advance; it is enough to buy Call and Put options “far out of the money” at the same time (the Strangle design). It remains only to find an asset that will make this sharp directional and long-term movement …
The examples presented above are not the only ones of their kind. I have described only those ideas in which I myself have great experience. It’s sad for those who hear about such opportunities for the first time, because trading, which the majority of people talk about on the network, cannot achieve such risk-to-reward ratios. And these ratios VERY warm the soul and pocket