When is enough, enough?

GoPro (GPRO) is a beautiful thing. Locking in a 65% gain in less than a month is the way to go, I should do that more often.


A great strategy to work on is trading around a core position to maximize your gains. Some people use small percentages to do this, I like to use nice even numbers.

Take GPRO as an example. In my previous posts, one of the rules is to not buy in on a stock that trades more than twice the earnings growth, basically we are using the PEG Ratio as a guide. This is my key to cash out of the position with whatever I have left unless you commit to using the house’s money.

Here is how it works:

I did my research and I want to buy 500 shares of GPRO at $45 a share. One of the rules is to divide up the purchase and never commit everything you have to the first purchase. Ideally, on a large position, I would want to break this up in 25% chunks of my 500 goal. However, we will use two purchases for this exercise.

Lets say that we purchased 250 shares at $45 and the next day we hit the bid on 250 shares at $40 per share. This make an equivalent purchase of 500 shares at $42.50. We have established a position.

Over X amount of time (in this case X = 1 Month, whoo hoo!), GPRO goes up 25%. Using this “trade around a core position” method, we should now sell 25% (125) of our shares, keeping the 375 (75%) as our core position and let it run. Effectively, we are still running even since we are out 25% and we are at this point up 25%.

Now we wait for GPRO to take a 3 or better percent decline (adjust this down for a less volatile stock). If GPRO goes up, we make money in our core position. If it goes down the 3-5% or more (and the reason that we bought in the first place doesn’t change) we commit the money from the 25% (125 shares) cash out to buy back in. When GPRO goes back up 10, 15 or even 25%, we sell the 125 shares (25%) and do it all over again and again. This is a great strategy if you pay attention to your stock and want to make a few extra percentage points.

When enough is enough, either by a multi-day ramp up in your stock (like with GPRO today!), you will need to look at adding more shares to the cash out and reassess whether or not to keep trading around the core position. If you hit the one bagger (100%) mark. I would highly recommend cashing out 50% and play with the houses money letting the remaining 50% ride as a freebie. You can always jump back later.

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