Dear Reader.
Welcome to the world of profiting with options.
Every year, more and more traders are joining the world of option trading as they become more accessible.
And I understand why…
Over the past few years option trading volumes have broken records. And thanks to zero-commission trading and the rise of free and accessible trading apps, even young investors have joined the option and equity markets.
The trend is growing and hasn’t shown signs of going away as the markets are becoming a form of entertainment and excitement.
One popular reason for the increase in traders is due to the huge benefit of “good” leverage.
Options have the kind of leverage we like to use to our advantage.
Let me show you how:
The chart below illustrates a time when Apple, Inc. (AAPL) was trading at $150 per share. So buying 100 shares would be a $15,000 investment. Then, just two weeks later, Apple was trading at $178.
The highlighted, two-week move would have given you a nice 19% return as Apple climbed from $150 to $178.
As an option trader, you could have traded a call option instead of the stock itself. The result…
211% RETURN on a call option trade.
This is what I mean when I say “good” leverage.
What would have required a $15,000 stock investment to get a 19% return only required a $900 option investment and yielded 211%.
This is the kind of leverage that gets me excited.
Profiting Begins with The Basics
Over the past few decades I’ve watched the continued growth of the options market and I know options can be daunting for some, but that’s one of the reasons I’ve dedicated my career to training individuals how to trade options the smart way.
So, let me introduce you to some of the basics of options trading and I’ll provide you with my Basic Options 101 Guide and tell you how you can join me in additional discussions about option strategies that I use.
The Option Contract
To begin with, let’s just talk about what options are…
In the simplest form, think of options as a contract written on a piece of paper – a paper with a market value.
The contract gives the buyer a right and the seller an obligation.
To keep it straight, call option buyers have the right to buy shares of stock, while call option sellers have the obligation to sell shares of stock.
And, traders who buy calls typically have a bullish bias, which means the call seller has a bearish bias.
Put buyers, on the other hand, have a right to sell shares of stock, while their counterpart, the put seller, has the obligation to buy shares of stock.
So, put buyers expect the stock’s price to drop, while put sellers expect the underlying security to rise.
Although there are very few times my option trading strategies end up exchanging shares of stock, our main objective is to buy and sell the option contract for profits.
Option Terminology
As you begin your option trading journey you’ll soon be ready to place your first trade. Of course you’ll check with your broker for questions about the trading platform you’re using, but here are a couple of reminders for you.
Whether you are buying or selling your option to initiate the trade, you will be “opening” up the trade, which means if you’re buying a call, the order will be placed as “buy to open,” or “sell to open” if you’re selling the call to initiate the trade.
The opening trade gets you into your position, so when you’re ready to exit the position, you will do the opposite: “sell to close,” or “buy to close.”
And here’s a quick note: when you’re buying an option, look to the Ask quote, and when selling, look to the Bid quote.
You may also want to keep in mind that the option quote format may look different from broker to broker, but the information is essentially the same.
So, no matter how it’s laid out for you, you can identify the option strike price, premium (bid/ask) and expiration and have confidence you’re trading the intended option.
Let’s take a look at the example in the image below.
Under the Option Symbol column on the left, you can see the stock symbol, AAPL in this case, followed by the expiration – 230210, which is the year, month and date.
In the center column, Expire, you can see the year, month and day for the expiration as well.
Finally, you should easily be able to see your strike price ($155) and whether it’s a call or put in the Type column – our example here is a call.
Now that you’ve had a quick overview of what options are and why they are increasingly popular, I want to give you my free guide to trading options brochure, which will provide even more details about option trading.
Just click below to receive it.
Special Reports (powerprofittrades.com)
Finally, your next step you can take is to join me on Money Morning LIVE this coming Monday at 12:00 ET where I’ll be discussing more about option strategies and their profitability potential.
I’ll see you soon,
Tom Gentile
America’s #1 Pattern Trader
Learn About Trading with the Money Morning Live Professionals!
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