Trading Cycles & Break Outs With

Weekly Options and Futures

Table of Contents

About Larry Gaines ...........................................................3

5 Steps to Let Winning Trades Come to you ....................5

Using a Trading Model for Rules & Discipline .................6

How to Capitalize on Powerful Trend Breakouts .............7

Benefits of Trading Futures ...........................................12

Benefits of Trading WEEKLY Options .............................14

Facts about WEEKLY Options ...............................17

The Basics of WEEKLY Options ............................19
Low Risk WEEKLY Option Strategy .............................24

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About Larry Gaines

I have been trading and brokering commodities and financial
markets for over thirty years. I began trading futures in the early
1980’s, and over twenty years ago, I started trading newly created
option contracts on cargoes of Crude Oil, and traded millions of
barrels of these crude oil options.

For over ten years, I managed the international oil trading and
marketing group for Transworld Oil Bermuda, one of the largest oil
trading companies in the world. My group traded billions of dollars’
worth of oil, foreign exchange and financial market derivatives. It
was not uncommon for us to trade over a billion dollars’ worth of
commodity derivatives in a single day.

During my thirty years of professional trading, I learned techniques

that were not commonly known or used by individual traders. This
led me to develop a simple yet highly accurate price cycle
trading system that individual traders can easily learn and use to
level the playing field with the Wall Street pros. The “Power Cycle
Trading™ Model” gives traders or investors the ability to recognize
and capitalize on the beginning of a trend rather than getting in at
the end.

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I founded the Options On The Open Virtual Trading Room

where individuals could improve their trading skills in a live trading
environment much like the opportunity I had experienced during
my professional career. After members asked me to teach them how
to trade futures, we grew into a more comprehensive trading service,
hence the launch of Power Cycle Trading™ earlier this year.

So let’s get started on this journey to becoming a successful

trader……

It is important to understand that becoming a successful trader or

even a great trader is a journey.

There is no perfect trader or perfect system but when you have a

system that has a proven higher probability of success, and a mentor
with over 30 years of real trading experience, your journey to
creating wealth becomes much quicker and easier.

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5 Steps to Let Winning Trades Come to You

As a professional trader I have spent thousands of hours and

thousands of dollars on trading systems and I was paid well into the
millions to analyze and implement trades for others. I have used,
reviewed and developed many different trading systems, and I saw
that there were 5 key elements that HAD to be in place regardless of
the trading system and I want to share these with you now.

1. Have a plan that governs all of your actions

2. Be disciplined in implementing to that plan
3. Learn to patiently wait for the highest probability trades,
based on the model you have chosen to use
4. Allow the trades to come to you, instead of chasing trades
5. Create structure in your trading with set goals, rules, time
frames, work hours, and risk control

These are all simple guidelines, but sometimes the simplest

things are the most difficult to put into action.

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Using a Trading Model for Rules & Discipline

If you are trading a model, rules are clearly defined, making it easier
to implement them. In the Power Cycle Trading™ Model, our
rules are based around four powerful indicators to signal a price
cycle change by identifying:

• A defined price range

• Price volatility
• Change in price cycle
• Change in price cycle momentum

This provides set guidelines which allow the trades to come to you.
Whatever model you use, know the guidelines and rules, and use
them.

We use 2 to 4 different time frames for all trade set-ups & trigger
entries. This is a trade confirming process which allows for non-
emotional trading. This combination has created a trading system
that has an average winning percentage of over 75%, but it is only
achieved through incorporating the 5 elements I mentioned.

The end result of using these 5 elements in your trading is that you
make decisions based on the model you are using, NOT the
emotions of fear and greed that often sabotage traders leading them
to overtrade and give back profits.

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How to Capitalize on Powerful Trend Breakouts

Incorporate Moving Averages & Trend Lines for Break-Out Trades &
Trade Management.

Trend Line Break-Outs, “A simple strategy when used

correctly”

Trend Lines ~ the correct way to construct

Supply and demand dictate price movement and the use of Trend
Lines. Trend Lines are universally used but the construction of them
can be very dissimilar from one person to the next causing for a very
subjective interpretation.

The difficulty, when creating these lines, involves the specific points
to select and connect (review charts below). Human nature often
interferes in the proper construction of these lines. We are
accustomed to review the historical price activity of a market from
past to present, with the dates reading from left to right. As a result,
the demand and supply lines of a trend line are drawn and extended
from the left side of the chart to the right.
Intuitively, this is incorrect, recent price activity is more significant
than historical movement. So precision and accuracy demand that
the lines be extended from right to left with the most recent date
appearing at the right side of the chart.

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Supply Pivot Points

A supply trend line is the declining price movement as defined by a

down sloping “supply” line as well as the pattern of both lower price
highs and lows.

The Supply Pivot Point is when there is a Price High that is not
exceeded by the Prior Price or the Price immediately after. This is a
Pivot High.

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This was a Trend Line Break-out trade on October 24, 2012,

taken by a member in the Power Cycle virtual trading room.

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Demand Pivot Points

The Demand Pivot Point is when there is a Lower Price that is lower
than the Prior Price and the Price immediately after. This is a Pivot
Low.

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My Two Favorite Trading Tools

 Futures
 Weekly Options

Benefits of Trading Futures

• Significant Tax Benefit

• Lower Margin costs
• Low Commissions
• Highly Liquid Investments
• Huge Volume
• Transparency
• Near 24-Hour Trading (except for a 15 minute period for
settlement)
• Hedging
• Portfolio Diversification
• Lower risk than stocks (reduced overnight gap risk)

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No Day-trading Restrictions. Unlike the stock market where you

must have at least $25,000 in your account to day-trade, there are no
such restrictions in the futures market.

Much Lower Margin Requirements. Day-trading margins for the

E Mini S&P go as low as $500 per contract giving traders much more
access to buying power than in the stock market.

It is important to remember however that leverage is a sword that

cuts both ways, meaning that just as you can increase profit
potential through the use of leverage this also increases your loss
potential, something which we manage by using the Power Cycle
Trading™ Model for high accuracy trade entries.

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Benefits of Trading WEEKLY Options

When day trading or swing trading stocks I use Weekly Options

which offer some exceptional trading benefits. One primary
benefits is leverage at an extremely low cost.

The performance tables below illustrate the exceptional

returns that WEEKLY Options offer. These trades are
unaudited and there is no guarantee of future results. 1 option
contract represents 100 shares of stock. Performance
numbers based on 1 option contract:

Table 1: October 26, 2012 Trades

AAPL 10/26/2012 Oct 600 Calls $4.80 $5.20 $40.00 8.33%

AAPL 10/26/2012 Oct 605 Calls $6.95 $7.45 $50.00 7.19%
AAPL 10/26/2012 Oct 605 Calls $6.45 $6.65 $20.00 3.10%
AAPL 10/26/2012 Oct 610 Puts $4.05 $4.60 $55.00 13.58%
AAPL 10/26/2012 Oct 600 Puts -$1.30 $1.02 $28.00 27.45%
AAPL 10/26/2012 Oct 605 Calls $5.35 $6.55 $120.00 22.40%
Total $313.00 82.05%
Avg. Per Trade Profit 13.67%

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Table 2: October 18, 2012 Trade

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“These are unaudited trading results of actual trades taken by

me and called out to members in the virtual trading room at
Options On The Open.”

The above chart shows the trades taken as per the Weekly Day Trade
Results table 2.

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Facts about WEEKLY Options

WEEKLY options now account for nearly 12% of the 300+

MILLION option contracts traded every month.

WEEKLYS are still a relatively new contract but should not be

overlooked for they offer huge trading benefits, if you know how to
use them.

For some of the more exciting stocks like Apple and Google,
WEEKLYs now make up a whopping 40% of all option volume
traded!

New options are available each Thursday and expire the next
Friday, 8 days later….

• Weeklys are cheap... since expiration is within days, and

often hours, you can purchase At-The-Money Weeklys for
as little as $5 or $10 per contract...
• Weeklys have unlimited profit potential... They can
move 500%, 800%, 1,000% or more on a very regular basis.
Contrast that with regular options….
• Weeklys are easily traded securities... They trade just
like stocks. And volume is very high so liquidity has never
been a problem.
• Weeklys bring in 333% more low-risk income... Weekly
options give you 52 times a year to profit from low-risk,
non-directional & directional income strategies... 40 more
opportunities every year.

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WEEKLYS are for everyone - not just the pros.

Options have managed to get a bad rep over the years - despite
being used by practically every professional investor out there.

This is because most education offered on options is so difficult and

complex that new traders are simply overwhelmed.

I use what I call the “Practical Way of Trading Options” to teach

option trading ~ this approach is focused on Option Delta & Market
Timing…

Market Timing is the single most important factor in

assessing a stock's likely price movement. Traders realize the
importance of market timing, but just don't have what they need to
get this information quickly and accurately. I kid our members that
we have an almost ‘unfair’ advantage because we have both a High
Probability Timing System and knowledge of how to use WEEKLY
options giving us a great trading advantage.

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The Basics of WEEKLY Options

The value of an option is determined by:

Time Value X Implied Volatility X Intrinsic/Extrinsic Value

By using Weekly Option’s for day trading & swing trading we have
been able to better utilize their beneficial factors of; time decay,
volatility and option delta, creating a forceful triple win trading
formula…and

Then by combining our highly accurate directional price cycles ~

break-out system we have created one really great High Probability
Trading Methodology….

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The above chart illustrates the steep fall in time value of a WEEKLY
Option.

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This table is a numerical illustration of the impact of time decay on
WEEKLY Option.

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The top table is the WEEKLY Option Chain for Apple with 5 day
until expiration. Notice the value of the $640 call strike is at
$5.00 bid & $5.05 ask. Remember 1 option contract equals 100
shares of stock so this value is $500 per contract bid & $505 ask.

The lower table is the Monthly Option Chain for Apple with 12
days until expiration. The value for the $640 call strike is $1,050
bid & $1,060 ask per contract.

The main difference in value is due to time value.

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This table lays out the difference in return on capital based

on; (1) buying Apple stock, (2) buying the Apple $640 WEEKLY
Calls with an option delta of +.50 and (3) buying the Apple
$640 Monthly Calls with an option delta of +.50.

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Low Risk Directional Trade Strategy Using

WEEKLY Options

Trade Example of Leverage at an extreme low cost Advanced

Directional Strategy NFLX ~ Day Trade

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NFLX Trade Set-up March 16, 2012

Bought to open on 3/16/12 ~ Friday expiration, the $110 calls at

$11/contract.

$110 calls hit an intra-day high at $174/contract/ and closed at

$127/contract.

Net gain ~ $127/contract - $11/contract = $116/contract

This is a 1,055% Return on Capital!

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In summary, the dynamics of these short duration WEEKLYs

offer exceptional trading benefits:

• The ability to make money with lower risk

• Low capital requirements
• Shortened time frame for trading
• Higher profits
• Higher return on capital
• Weekly trading opportunities

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