ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Making Money with a Slingshot

Updated on December 17, 2011

In today's market you definitely want to be nimble.  At the time of this writing the stock market is definitely in an uptrend, but at the same time is definitely overbought.  Just last week we had a strong pull back and could be looking at another real soon.  So how does one trade?

Personally, I am looking for one base hits instead of home runs right now.  The risk of the market turning against you, in my opinion, is very high so I don't want to have a lot of exposure to this.  Therefore, I am looking for the best setups then taking my profits early.  My other strategy is get into free trades.  I explain two of these strategies in the links to my other Hubs:

The Slingshot Trade

What is the Slingshot trade?  It's a trade where we are bullish on a stock, but we don't want to have a lot of money exposed.  We are going to get in and out of the market, but still have the opportunity to profit from the stock increasing in value.

In this trade we want a stock that is in an uptrend and has a larger ATR (Average True Range).  The ATR is the average range of the stock in a given day over a specified period of time.  This average range is what the stock moves (on average) in a given day. 

We will use 3M as our example in this Hub which is definitely in an uptrend at the time of this writing and has an ATR of $1.20.  Click on the link below to see a chart of this stock.

Making the Trade Work

The price at today's close is $86.05 and we are going to place an order to purchase 100 share while at the same time place an order to purchase two May 90 Call Options.  The Call options can presently be purchased for .63. 

Our goal is to collect one ATR of the stock, so we are looking at being in the stock for a very short period of time.  Our cost going into the trade will look like this:

Buy 100 Shares MMM @ 86.05 = $8,605.00

Buy 2 May 90 Calls for .63        = $   126.00

Total cost to enter the trade     =  $8,731.00

Once the trade is fill we are going to place a limit order to sell our stock for $87.25 which will give us $8,725.00 and we are left with two 90 Call options that won't expire for 4 weeks.  Technically speaking we are into this trade for free.  However, specifically on this particular trade we have a total risk of $6.00 plus whatever we paid in commissions.

At this point we can enjoy a theoretical unlimited profit should this stock continue in it's strong uptrend.  However, time is strongly against us on our long calls since they will expire in about four weeks.  Therefore, if we would like to neutralize the negative time affect on us we can simply sell two further out of the money Call Options turning our long calls into a Bull Call Spread.  This will also take our theoretically free trade and give us a small profit.  Now we can profit two ways.  We can make money if the spread expires worthless or we will make money should the stock continue rise.

The bottom line point is that in today's market condition one needs to look for ways to eliminate exposure to risk.  One way of doing that is turning your trades into free trades.


    0 of 8192 characters used
    Post Comment

    • The Rising Glory profile imageAUTHOR

      The Rising Glory 

      8 years ago from California

      Just for the record this trade worked out as described in this HUB :)

    • The Rising Glory profile imageAUTHOR

      The Rising Glory 

      8 years ago from California

      In simple terms you are looking to only make enough money on the stock purchase to pay for the Call options. By using a stock with a higher ATR you can typically do this in a day or two.

    • breakfastpop profile image


      8 years ago

      I am trying to understand this, but honestly, I think I have a mental block. Thanks for the hub. I will read it over and over again until I get a clear understanding.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)