Trading Options with Chris Verhaegh’s PULSE System

TradingPub Admin | February 6, 2015

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At the TradingPub we strive to create an environment where you can connect with the top professional traders in the industry and learn from their trading education.  Yesterday’s event with Chris Verhaegh did not fall short of meeting this commitment. We had a lot of you ask about Chris's presentation and wanted to share the video along with a brief summary of the class here.

The focus of Chris Verhaegh's trading activities is on trading weekly options. To assist in trading weekly options, Chris has developed the PULSE Trading System, a white box, transparent trading methodology that uses mathematical  probabilities to help find the most promising stock options to trade.  PULSE is also an acrostic developed by Chris as a teaching tool to help traders remember the most basic elements of what the system incorporates, and what should be considered prior to each trade:

P - Profit Potential

As often happens in trading, it is easy to look at a set of facts and come to a conclusion, that you change later, even though the underlying information has not changed.  This is where a system can be a big held to traders, especially if it is designed to consistently compare factual data against predetermined and tested criteria to help draw the right conclusions. This is what the PULSE Trading System does, and not only does it help with data analysis, it takes the pressure off trying to find the right stock and market move. However, the big question on everyone's mind is "How to pick the right stock?". There is a universe of more than 10,000 stocks to choose from and more than 3,000 of them offer options. The PULSE Trading System allows you to sift through all available opportunities, and focus on the ones that offer the greatest potential.

U - Upside Reward

Here the trade setups are positioned to make at least 100% return. Just as with any other trading system there will be losing trades, but the beauty of options is that you will not lose more than 100% (or what you put in each trade), where the upside potential is unlimited. That is why returns of at least 100% are preferred when trading with the PULSE, so if there is a loser the very next trade's return can make-up for the loss.

L - Low Risk

Many of the trades risk only pennies per share and of you are wrong that is all you can lose, pennies. However, if you are right you can earn a lot more than what you risk. The mathematical method used in the system helps with accepting or rejecting given risks and trades.

S - Setup Strategies

There are two types of setups: stock-specific and market-wide. The first one can be derived by using a technical analysis, reading the statistics behind the company and evaluating the stock. Based on how strong those readings are, some stocks can be added to the watch list or enter the top 5 area, where they are closely monitored for movement and then possibly traded.

Market-Wide setups are, of course, those that affect the whole market, despite of individual technical analysis. Further, the strategies are directional and non-directional. With a directional strategy a move up or down is expected and then either a call or a put is purchased. When a big move is expected, but there is no certainty of the direction then a non-directional strategy is deployed.

E - Events, Entry, Exit

Events can be stock-specific, with earnings announcement, being a most common example. The PULSE system does not trade any options before an earnings announcement, those options are much more expensive, but rather waits till after the announcement and then trading of a given option is resumed. There are also market-wide events, and those, just like the market-wide setups are such that affect the whole market. Of course, examples here are the Federal Open Market Committee meetings, 8 per year, and the release of the meeting's minutes. Other examples include the jobs report, officially known as the non-farm pay report (NFP), the unemployment rate report and others. When those reports come out there is more volatility in the market and more volatility means more opportunity to earn when trading options.

This is where E, which also stands for entry, comes in play. Entry includes both time and price. Entry can be best near the close of the day when big volatility is expected, with the hope to gap at the open the following day. Or you can enter near the open of the day and hope that if the market is shocked, it will not be a flat line and you can capture that big shock move.

Finally, also stands for exits. You can exit by placing a target order. You can calculate what the option should be worth and know if it passes that point you can place a limit order, exit and be satisfied with that. Another way to exit is to place a stop order. Stop order here is not a stop loss order, but rather a trailing stop order. For example if a stock is moving in the direction expected you can raise your stop and make more money that way.

In summary, the PULSE Trading System has been designed to look for compelling reasons to trade a stock. Once a high potential stock has been identified and confirmed (such as a stock-specific or a market-wide setup event) , then if there is a directional bias a call or a put is bought.  And if there is no directional bias, then a straddle or a strangle is bought.  It is also important to note that the PULSE Trading System does not require precision in the execution of a trade.  If a trading system requires precision to be effective, Chris contends that this is unrealistic and is a system that should be avoided. He feels that even "sloppy trades" should earn a return as long as the PULSE Trading System has identified  potential in the stock.

Get your PULSE Trading System and receive:

  • Video Course Library
  • Bonus Video on "The Polarity Trading Technique"
  • Chris' Weekly Newsletter, a great educational source that will allow you to also keep up with his:

                  -Stock Watch List
                 - Top 5 Stocks to Watch or Avoid
                  -Weekly Review Session



Cheers the Trading Pub Team!