You’ve probably heard it all before…
“Options are too risky…”
“You can lose all your money trading options…”
“Trading options is a losing game…”
But options are only a losing game for the big guys on Wall Street…
And when you play them right, you can earn an unimaginable amount of money
(In fact, it’s one of the seven million dollar secrets I teach in my cash course. Click here to learn how to access the others…)
That’s why today, I’m kicking off a four-week training series that will show you step by step how to exploit the stock market for the biggest gains.
So, let’s get started…
Increase Your Profits by Playing Options the Right Way
Imagine this – you’re bullish on a stock and you nail it!
You make a 25% return on your investment (ROI) in a month – a nice win for a stock trader.
But what if you could’ve scored 250% for a lot less money and a lot less risk… would you be interested?
Of course you would!
Well, lucky for you, this is very possible with the power of options.
Often classified as “risky” by the misinformed, options were actually created to minimize risk and they’re easy to use, you just have to know how.
In this four-part series, I will be breaking down the world of options and give you simple rules to:
- Spend Less (Leverage More Stock)
- Reduce Risk
- Increase Profits 10-Fold
And although there are many sophisticated option strategies we could talk about, over the next four weeks I’m going to cover the following basic strategies:
- Calls
- Puts
- Call Spreads
- Put Spreads
Let’s start with call basics.
A call option provides you the right to buy a specific stock at a specific price (strike) until a specific date (expiration). When you purchase one call contract, you buy the right (but not obligation) to control 100 shares of stock…
The way you profit is simple – calls increase in value when the underlying stock moves up in price and vice versa…
Now, let’s take a look at an example.
The following chart on Comerica Inc. (NYSE: CMA) came up on 12/20/18 as a buy on my Alpha-9 scan.
If you were to buy 100 shares of
CMA at $66.53 on 12/20/18, you’d spend $6,653.
But I’m not about tying up over $500 in one trade, and definitely not $6,000 – so, here’s how you could have played it with options…
On 12/20/18, a CMA April $70 Call would cost $3.75 per share or $375 to control 100 shares of stock. This call option would expire on the third Friday in April, which is the expiration date. Most options expire on the third Friday of the expiration month.
Point #1: Spend Less (Leverage More Stock)
Options allow you to leverage large amounts of stock for a lot less money. In this case, the calls are $6,278 (94%) cheaper than buying the stock.
Point #2: Reduce Risk
The maximum risk of buying options is the amount you spend (your debit). For instance, the most you could lose on this trade is $375. That’s an acceptable risk seeing how much you could lose if you bought the stock outright and it went south…
Now, let’s see how the two trades did.
On 1/30/19, our Alpha-9 trade signaled an exit.
CMA had risen from $66.53 to $80.92 providing a $14.39 per share profit. 100 shares of stock netted us a $1,439 (21%) profit in just over five weeks, which of course, isn’t a bad profit for an everyday stock trade.
On the other hand, our call option was worth $12.40 netting a profit of $8.65 per share. At 100 shares of stock controlled, that equates to an $865 (230%) profit.
Let’s summarize.
Now, don’t get distracted by the lower profit offered by the long call. You can always buy more than one option.
For example, you could have bought two calls for $750 and doubled your profit to $1,730.
The focus here is on the ROI. The CMA call option produced 230% ROI. That’s over 10X the ROI than the long stock!
Point #3: Increase Profits 10-Fold
Buying options generally increases ROI by 10-times over long stock. In our case, the CMA calls produced over 11X the ROI than the long stock.
To get you started, here are some simple rules to follow:
- Buy call options one-two strikes higher than stock price with…
- Expiration date 90-120 days before expiration
The CMA option table below illustrates these entry rules for the example used above.
You can access option data tables online or with your broker.
One free site to try is the Chicago Board of Options Exchange (CBOE) site.
Now, here are your three exit rules…
- 50% stop loss
- 30 Days to Expiration*
- Technical Exit (e.g. Alpha-9 Sell Signal)
*Note: Options begin to lose more of their value in the last 30 days of life.
And that’s the first way to dive head first into the world of trading options…
But this is just the beginning and next week we’ll put the battery in the other way around and dive into the bearish world of puts as well as layer in some more option basics.
And I’ll continue to give you the facts to end all the mystery around options.
Because trading them is too easy and too lucrative to pass up.
But if you’re ready to start exploiting the power of options trading to make cash fast today – you’ll want to start right here.
In this guide, I’ll demonstrate the absolute fastest way to make money with options, and how you can access a handful of trade recommendations today.
Click here now to learn how it’s done.
Good Trading,
Tom Gentile
America’s #1 Pattern Trader
