The Jump Trades Strategy – A Free Walkthrough

by | May 23, 2024


Yesterday, before NVDA earnings, I taught the Jump Trades strategy step-by-step the other day to a room full of excited traders.

If you missed it, tune in to this on-demand lesson to get everything you need to know to place your very first Jump Trade.

Mastering the Jump Trade Strategy: A Comprehensive Guide

Hey there, traders! Let’s dive into something pretty exciting — the Jump Trades. This approach can be a game-changer, especially during those high-volatility events like earnings announcements. It lets you trade even the biggest companies with very small amounts of capital — perfect for small accounts!

This guide will walk you through the essentials of this strategy, helping you understand how to set up and execute these trades effectively.

Understanding Credit and Debit Spreads

First off, let’s make sure we understand the basics: credit and debit spreads.

  1. Credit Spreads: This is when you sell a pricier option and buy a cheaper one on the same asset with the same expiration date, resulting in a net credit.

    • Example: If you sell an option for $45 and buy one for $24, you receive a net credit of $21. The difference in strike prices represents the total opportunity. For instance, a $10 difference equals $1,000 in opportunity, because each option controls 100 shares, so $10 x 100 = $1000.
  2. Debit Spreads: In the other direction, a debit spread involves buying a more expensive option and selling a cheaper one on the same asset with the same expiration date, resulting in a net debit.

    • Example: If you buy an option for $113 and sell one for $65, your total cost is $48. The potential gain is the difference between the strike prices minus the debit, which is a straightforward risk calculation.

The Jump Trade: Flipping Traditional Spreads

Now, let’s talk about Jump Trades. We take the usual credit or debit spread and flip it, aiming for big gains by getting the market to move significantly in our favor.

  1. Setting Up Jump Trades: Unlike traditional spreads, which are usually defensive, jump trades are all about offense. You need the price to move a lot in your direction. For instance, if NVIDIA is at $940, instead of a defensive $850 put, a jump trade might need NVIDIA to move above $975, aiming for a higher return.

    • Risk and Reward: Jump trades typically shoot for over 100% returns, sometimes even 200% or more. For example, risking $48 to potentially gain $452 – that’s almost a 1,000% return! High-risk, high-reward, but definitely exciting.
      • I say “high-risk” because the stock has to make a pretty big move, otherwise you lose. But the other way of looking at it is that you can trade stocks that would otherwise be out of reach due to price, with much smaller amounts of money. So take it with a grain of salt when I say “high-risk.”
  2. Practical Example: Consider NVIDIA again. Instead of a defensive $850 put, you sell a $975 put and buy a $970 put, betting on a $35 move. This setup targets a 170% return, flipping the risk/reward dynamic of a typical spread.

Key Benefits of Jump Trades

Jump trades have some cool perks, especially for those with smaller accounts or looking for big returns without big bucks.

  1. Lower Capital Requirement: You can start trades with just $50, making it super accessible.
  2. Defined Risk and Reward: You know upfront what your risk and reward are, which is great for planning.
  3. Leverage Volatility: These trades are ideal for high-volatility events like earnings announcements, Fed meetings, or other significant market-moving events.

Real-World Applications

Jump trades shine during earnings seasons or other big market events. Trading options on major stocks during their earnings announcements can lead to big gains if the market moves as expected.

  • Earnings Announcements: Stocks like NVIDIA often see big price swings during earnings announcements. A jump trade lets you leverage this volatility for potentially high returns.
  • Market Events: Events like Fed announcements can cause market-wide moves. Using jump trades on indices like SPY or QQQ can be super profitable.

By getting the hang of the Jump Trades strategy, you can add a powerful tool to your trading toolkit. Whether you’re a seasoned trader or just starting out, these techniques can help you up your trading game and achieve your goals. Happy trading!

Make sure to watch the video above for full details.

— Nate Tucci

P.S. By the way, the jump in the market we NAILED on NVDA helped pull up QQQ too… Which cashed out our fourth Automated Options winner in a row – Automatically! Click here to check it out!

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