Good morning,
According to the motto, the best comes at the end, today I will deal with the very popular Turbo bills, also known as KO bills, in the last part of my little series.
First of all, I would like to say that there are currently none in my portfolio, so I have added the last trade with this class.
I can use this to illustrate my approach very well.
First of all, this class also offers the opportunity to trade on rising or falling prices. The risk and the chances of profit are very high in this product, as they can lead to total loss as well as to 2-3 digit % profits within hours / days. The key figures are very easy to understand, as there is a KO price and a subscription ratio. In the case of the bill below, a short on a falling price, the KO was $350, when I bought it the share was at $325. At the time of purchase, I assumed that the share price would fall. But if it had gone the other way, the bill would have expired worthless at 350$.
I only used KO certificates for short-term trades of a few hours to a few days. The advantage of KO warrants in contrast to normal warrants is primarily that they have an unlimited term and no to minimal premium. This means that there is no time value for these warrants, but they always have an intrinsic value, namely the difference between the current price and the KO. However, the issuer recoups the costs by adjusting the KO price on a weekly basis over time. This is not much, and is not significant if you only hold this product for a short time.
The next thing to note is that the closer the current price is to the KO, the greater the risk and reward.
Now we come to the strategy that I use with KO. First of all, it is important for me that the share has a high volatility (fluctuation). This is the best way to achieve high profits in a short period of time.
Let me explain this using a practical example $UNH (+1,38 %) which I recently traded twice. This share, which is actually one of the blue chips in the American healthcare sector, had already experienced an unprecedented decline when I started trading it. It had fallen from over 600$ to around 325$ within a few months. When it stood at $312 on the Wednesday before last, I took a look at the share and considered a long strategy. Either the 300$ mark would hold until the end of the week, in which case I would have gone long on Monday, or if it didn't hold, it would fall to 250$, was my assumption. When the rumors about the fraud allegations came out the next day, it fell to $250. That was the ideal entry point for me. I chose a long Ko schei with a KO of $244, very close to the current price, with an SL at around $247. The stock turned around in the next 2 days and almost went back up to $325. I held this ticket up to $315 and then sold it after 2 days with a profit of 310%. At that time, however, I already had my trade below in view. I assumed that the rebound of the stock would continue until the beginning of the last sell-off at 325$. After the stock failed on the first attempt exactly at this level, I entered short with the trade below. As I wasn't quite so sure this time whether it wouldn't go above the mark in the short term, I chose a further distance to the KO at 350$. But it went in the right direction for me again and I was able to realize a 50% profit after only 20 hours. My exit scenario was again the 300$. If the share had slipped below this level again on a sustained basis, I would have kept the ticket. Since it didn't, I stuck to my scenario and sold, even though I would have made about 15% more profit in the meantime.
I am not describing this approach in such detail because of the exceptionally high profits, but because it shows the most important rule for me, which I always follow when trading derivatives. If you want to trade successfully, you need a strategy, i.e. fixed entry and exit scenarios and, even more importantly, the discipline and consistency to stick to it, regardless of what others say at the time. Thoughts like it could go up again or I could make a lot more profit usually lead to a worse result. I also set myself fixed limits right from the start as to how much loss I'm prepared to suffer and I stick to them. It is usually between 20/25%. If a trade goes against me right from the start, which also happens, I sell the ticket at a loss. If I am 20% in profit, I raise the stop price to the purchase price. However, everyone has to decide for themselves when to secure profits. Normally, I never use more than 2% of my portfolio value per trade for KO trades.
I would like to emphasize this once again. These products are absolutely unsuitable for beginners and if you want to gain your first experience with derivatives, do not take KO certificates, but start with discounters or warrants that are well in the money. Be satisfied with a 2 or 3 times leverage and not 8 or 12 times like I often do. By the way, leverage means that if the share rises by 1%, for example, the warrant rises by 2.3% or, in my case, by 8 or 12%. The other way around, of course, is also true.
So I hope I have been able to give you a little insight again. Feel free to ask questions at any time. Otherwise I wish you a good trading day.
