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Risk Rewarded Blog August 26, 2024

How We Bagged a 134% Gain in Our Latest Options Trade –And You Can Too

We don’t just throw darts at a board and hope for the best. Our approach to stock picking and options trading is a well-oiled machine built on decades of institutional experience. It’s like building a house—start with a solid foundation, layer by layer, ...

We don’t just throw darts at a board and hope for the best. Our approach to stock picking and options trading is a well-oiled machine built on decades of institutional experience. It’s like building a house—start with a solid foundation, layer by layer, until you’ve got something that can stand the test of time.

Most funds and hedge funds use a top-down approach, and so do we. We begin with a macroeconomic view—think of it as the roof over our heads. The twists and turns of the global economy tell us where to look next. From there, we drill down into the fundamentals of companies that fit the narrative, ensuring they’re solid enough to support the weight of our expectations.

But here’s the kicker: even with all that, timing is everything. If you don’t get the timing right, all the research in the world won’t save you. That’s where our proprietary technical indicators come in. These tools give us a high probability of knowing whether a stock is about to break out, break down, or reverse course altogether. It’s like having a crystal ball—one that actually works.

Take our recent trade in McDonald’s, Which resulted in a 134% gain, for example. We started by observing a slowdown in key leading indicators like the US ISM Manufacturing PMI. The Fed’s been slow to react, raising rates when they should have paused, and now they’re risking a recession. But McDonald’s isn’t a luxury—it’s a staple. People aren’t going to stop eating there just because the economy is wobbling. That’s our edge.

 

 

When you layer in the fundamentals—like McDonald’s forward-looking earnings outlook—it gets even better. They missed earnings last quarter, but they’re seeing solid traction with their $5 meal deal, and EPS growth is expected to accelerate. It’s all about whether things are likely to get better or worse, and in this case, the scales are tipping toward better.

 

I'm not going to divulge details about our proprietary technical tools, that said it’s easy to see the breakout from the 2-month trading range and I will let the chart do the talking.

Our technical indicators showed a breakout from a two-month trading range. The chart doesn’t lie. As for the option chain, we only play where there’s plenty of liquidity and tight bid/ask spreads. For McDonald’s, that meant buying out-of-the-money calls, where we’re just paying for time value. With this setup, the stock needed to move quickly in our direction, and when it did, it was a beautiful thing.

That’s how we do it. It’s not magic—it’s methodical, it’s disciplined, and most importantly, it works.

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- McDonalds: +134%

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