Hello, Power Profit Traders!
The entire reason listed exchange-traded options first launched in
1973 was to mitigate risk in the stock market and give you leverage.
U.S. stocks are more expensive now than ever before. There are stocks that may cost you over $10,000 to buy 100 shares of, but you can be control 100 shares instead with a single option for $500 or less!
Buying shares of a company is no longer necessary, but instead you can control shares by utilizing options.
5 BIG Reasons to Utilize Options
Let me offer you five Big Reasons traders will utilize options:
- Great return potential
It’s not unreasonable to achieve double, triple or even greater returns on option trades!
Options provide you with Leverage. If a stock investment gives y 00% return.
Options can be used as an insurance policy for investment portfolios. You probably have fire or flood insurance on your cars and homes, and pay a small premium each month for that insurance. Purchasing low-cost puts on stocks can reap profits in the case of a downturn.
- Up, Down, Sideways Markets
Profitable trading opportunities are available in up, down and even sideways market conditions by using options.
- Low-cost trades
Get this! Options let you participate in market trading with very little money! While you can put as much money as you’d like into option trades, you can also trade contracts for UNDER $100!
Now that you know there are a variety of reasons to utilize options, let’s talk about some of the basics. Below, you’ll find some definitions that every option trader must know.
|Call/Put Option Contract
||A contract between a buyer and seller to exchange shares of an underlying security at a fixed price on or before a fixed date.
||A pre-established price that allows buyers and sellers to exchange shares of an underlying security at a guaranteed price.
||The per share dollar amount, not including broker fees, the buyer pays (ask price) and the seller receives (bid price) for the option contract. Per share premiums are ordinarily multiplied by 100 for each individual contract bought or sold.
||Although options have official expiration dates, consider the last trading day for the option as the critical time to exit open option positions.
||Exercising options refers to buying or selling actual shares of the underlying security (Fulfilling the terms of the contract). Option buyers have the right to exercise options. Option sellers have an obligation to the buyer. Options that are In the Money on the last trading session of their expiration will automatically be exercised by the broker if the holder did not close out the option position.
|Buy/Sell to Open
||The initial transaction to get into an option is considered opening the contract. If buying is the initial transaction, the trader is “Buying to Open” the contract. If selling is the initial transaction, the trader is “Selling to Open” the contract.
|Sell/Buy to Close
||The second transaction, therefore, is considered closing the contract. You can buy or sell to close option contracts that still have value and are still in your account, before they expire.
The image below is an example of what a call option on GLD may look like. Since brokers use different software, option order forms will look different from each other. Be sure to contact your individual broker for guidance.
(Example of Call Option Order Form)
In the example above, the trade is to Buy a Call to Open – which is a bullish trade.
Otherwise, if the option type is changed to Put, then the trader would be Buying to Open a Put – which is a bearish trade.
Traders ‘buy calls to open’ when they expect a bullish movement in the underlying security, and traders ‘buy puts to open’ when they expect a bearish movement in the underlying security.
Although brokerage houses software differs from each other, many of them use similar formats to display available options. The graphic below illustrates a common options chain.
(Call/Put Option Chain Example)
In the chain above, Calls option premiums are listed on the left, while the expiration of the options is noted at the top, center. You’ll find the Strike Prices in the center, and the Put premiums listed on the right.
From the example above, a trader may Buy to Open the 15-Nov $240 Put for a premium of $6.85.
Since option contracts typically “control” 100 shares of stock, the cost of the put would be $685 in this example ($6.85 x 100).
Now that you have some definitions, along with examples of order entry and an options chain, let me put it together for you.
After some evaluation, a trader decides a stock is going to rise in the near term. The trader Buys to Open a $245 (strike price) Call option for a $4.55 (premium). The cost of the trade is $455 ($4.55 x 100). The call is set to expire on November 15 (expiration), but the buyer plans to get out of the call as soon as the price hits an upside target.
After only three trading days the stock has risen and the option’s new value is $6.50/share. The trader decides to Sell to Close the $245 Call (strike price) and is filled at a Bid price of $7.50 (premium).
Since the trader received $750 ($7.50 x 100) after paying $455 for the Call originally, the profit on this trade is the difference – $295, resulting in a 64.8% return on the original investment.
While there are many reasons to trade options, the leverage illustrated in the example above is just one of those reasons.
As your knowledge about options increases you will find there are many other ways to utilize and benefit from option trading!
Find out more about my programs where we utilize options!
Click here to learn how Quantum Data Scripts was able to produce 11 winning trades in a row using options – trades that lasted anywhere from one to 14 days!
(Quantum Data Profits 11-win streak trade results)
And that’s not all. Click and find out more about Operation Surge Strike, which is currently trading corporate earnings reporting!
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Don’t be intimidated by the market. Now is your time to find success regardless of market conditions!
I can’t wait to talk soon,
America’s #1 Pattern Trader