Good morning, traders…
Ben here.
I often see students struggling to make profits trading stocks and think, “Why don’t these traders try options?”
I’ve said it before and I’ll say it again: Options trading is the most effective way to grow a small account quickly.
Yet still, so many market participants don’t understand the power of options trading (or refuse to believe in it)…
You might be afraid to try options after hearing stories of undisciplined Reddit traders losing their capital on far-out-of-the-money calls…
Man
byu/ccael inwallstreetbets
$MSFT call lol
byu/Ethericl inwallstreetbets
Or, maybe you simply don’t know enough about different options trading strategies to realize how beneficial they are.
But today, we’re going to clear all of this up…
When I think about what makes me a winning options trader, it all comes down to the “3 S’s”…
Let’s explore what the “3 S’s” of options trading are (and how they can potentially help you WIN)…
Speculation
One of the biggest advantages of options trading is that it gives you more ways to speculate than common-share trading.
When you own shares, your potential profit depends entirely on the stock price going up.
If the share price doesn’t rise, you either make less profit or face a loss.
In other words, you’re stuck in one direction, like a car with a broken gear shift.
This can be limiting, as it only allows you to benefit from one direction of the stock’s movement — up.
Unless you have a huge account with which you can short-sell shares, it will be nearly impossible for you to make profits on deep red days.
But options offer much more flexibility, allowing you to profit from up, down, and sideways moves equally.
Beyond just buying calls and puts, options traders can use various strategies like spreads, straddles, and iron condors to speculate on different market conditions.
Take last Friday, for example…
The major indexes were getting obliterated in the morning, with the Nasdaq down as much as 1.7% intraday.
If you’re simply holding common shares through a day like that, you have no “options” (excuse the pun)…
You’re forced to watch your shares lose value. Your only move is to sell at a loss or “hold and hope.”
But if you understand different options trading strategies, a labyrinth of “pathways to profit” can open up, even on super red days.
Example: On a day like last Friday, you could buy SPY or QQQ puts to hedge your common shares, allowing you to break even (or get close).
Speed
Aside from speculation, options give you the flexibility to choose the speed of your trades.
When trading stocks, you often wait long periods for the stock to hit your target price. This can be frustrating as it ties up your capital in opportunity cost for extended periods.
But with options, you can tailor the speed of your trades to your market outlook. This is because every option contract has an expiration date.
Weekly Options: If you’re confident in a near-term move, you can buy options that expire within a week. These are known as weekly options. They can offer quick (and big) returns if the stock moves as you predicted. On the flip side, these contracts will lose value faster if the stock moves in the wrong direction.
Monthly Options: There are several benefits to trading monthly options (which expire every third Friday of the month). In widely traded names, these contracts generally have more liquidity than weekly options, giving you a better bid-ask spread. Additionally, you can choose any month you want, depending on the speed at which you expect the move to happen.
Long-Dated Options: If you’re a bit more risk-averse — or think you need more time for the stock to hit your price target — you can buy long-dated options, expiring in several months (or even years). These contracts are perfect for creating a “synthetic long” position, similar to owning shares, especially if you go deep in the money (ITM).
By choosing the expiration date that matches your market outlook, you can decide how volatile you want the contracts to be.
This flexibility allows you to adapt to different market conditions and timeframes, making options a far more versatile tool than trading common shares.
For traders who want to manage the speed of their trades with the utmost precision, options are the way to go.
Size
Last but not least, options trading gives you flexibility with position size.
When you trade common shares, you must buy a lot of shares to make substantial gains, which requires a lot of money.
Options, however, provide leverage, meaning you can risk less money and still make a lot of profit.
Each options contract typically represents 100 shares of the underlying stock, allowing you to control a large number of shares with a relatively small amount of money.
For example, let’s say you have $1,000 to trade with…
If you were to buy shares of a stock priced at $50 per share, you could buy 20 shares. If the stock price increases by $5, your profit would be $100.
Wow, $100. How exciting, right?! Not really…
However, with $1,000, you could buy multiple options contracts. If each contract costs $200, you could buy 5 contracts, controlling 500 shares.
If the stock price increases by $5, the value of your options could increase significantly — potentially 100%-500% above where you purchased — leading to much bigger profits than owning the shares directly.
This leverage can amplify your gains, but it can also amplify your losses.
That’s why it’s important to choose the appropriate position size based on your account value, risk tolerance, and market conditions.
Remember: Smaller options trades can help limit potential losses while still giving you plenty of room to profit.
Now, before we go, let’s look at:
💰The Biggest Smart-Money Bets of the Day💰
- $3.59 million bullish bet on AI 07/19/2024 $27.50 calls @ $2.90 avg. (seen on 5/31)
- $2.14 million bullish bet on HPE 08/16/2024 $19 calls @ $0.90 avg. (seen on 5/31)
- $1.53 million bullish bet on MU 07/19/2024 $125 calls @ $7.65 avg. (seen on 5/31)
Happy trading,
Ben Sturgill
P.S. If you’re still wondering how to find the best trades in the options market…
There’s only one place to start…
TODAY, June 3 at 8:30 a.m. EST, I’m hosting a LIVE WEBINAR for the Daily Strike Alliance where I’ll be breaking down the most promising trade ideas I’m seeing in the options market right now, like…
170% on CVNA in ~2.5 hours*
1,080% on PANW in ~24 minutes*
336% on LYFT in ~4 hours*
191% on UBER in ~6 hours*
265% on CME in ~20 minutes*
466% on SHOP ~40 minutes*
955% on PLTR in ~5 hours*
Stop missing great opportunities — CLICK HERE NOW TO RESERVE YOUR
*Past performance does not indicate future results
