How to Trade Options in Under 10 Minutes
Introduction
Hey investors! I’m going to teach you how to trade options in under 10 minutes. Get ready for a lot of knowledge in a short amount of time. I started trading options with $2,000 almost a decade ago. However, I did not use the entire amount because I wasn’t willing to lose my full investment. Instead, I only traded a small portion.
The Importance of Risk Management
If you’re just starting, you should only trade what you’re willing to lose. For me, that was $500 out of my $2,000 portfolio back in 2014. At the time, I was learning a lot from my options trading internship at 19, but I still struggled with consistency. Working on the New York Stock Exchange was tough, and no one had the time to teach me how to trade options—I had to figure it out myself.
My Early Challenges and Lessons
I had a rough three years despite having a mentor who had been featured on CNBC multiple times. My biggest mistake was being too aggressive and chasing fast gains. I didn’t fully understand the game of options trading. However, once I figured it out, I turned my $2,000 into $17,000, then into $70,000, and the rest was history.
Understanding Stock Momentum
I make quick money by analyzing daily stock charts. If a stock is rising, it has positive momentum; if it’s falling, it has negative momentum.
For example, Amazon had positive momentum when its previous close was $103.81, and it gapped up to $106.96 the next day. This type of setup is something I always look for because I can ride the trend depending on its direction.
The Power of Call Options
A mentor once told me to “keep it simple and stupid.” He advised me to check the chart and identify stock momentum. When positive momentum starts, I enter a call option and ride the price action higher.
Call options are significantly cheaper than owning shares. For instance, buying 100 shares of Apple stock costs around $14,561. Instead, purchasing a call option allows you to control 100 shares without needing to invest that much capital. This is why options trading is an excellent small account strategy.
Maximizing Returns with Earnings Plays
If you want the largest returns in the shortest time, consider buying call options before earnings reports. During my time at Goldman Sachs, I researched that buying call options before earnings, in a specific way, can double your money in a short period.
For example, let’s analyze an Apple $145 call option with a delta of 0.54. This means your chances of success are slightly above 50%. In contrast, buying out-of-the-money options with a 1% delta significantly reduces your success rate. The most successful traders buy in-the-money options because they offer a higher probability of profit.
Choosing the Right Expiration Date
When selecting an expiration date, I usually go for at least one month out unless the stock has upcoming earnings. If earnings are involved, ensure your option expires after the earnings report to capitalize on the potential price movement.
For instance, if I buy a $145 call option for $870, my maximum loss is $870, but my potential gains are unlimited if the stock rises significantly. If Apple climbs to $200 per share, my option would be in the money by $55 per share.
Profiting from Falling Stocks with Put Options
You can also profit when a stock declines by buying put options. Spotting negative momentum is key. For example, I predicted a drop in Airbnb stock before earnings, bought a put option, and turned $1,200 into $2,200 in just three days.
Put options can be highly profitable, but they come with risk. You can lose 100% of your premium, so always limit your capital per trade and practice proper risk management.
Key Takeaways
- Trade only what you’re willing to lose – risk management is crucial.
- Look for momentum – positive for calls, negative for puts.
- Use options instead of stocks – leverage allows for higher gains with less capital.
- Buy in-the-money options – they provide a higher probability of profit.
- Consider earnings plays – buying calls before earnings can lead to rapid gains.
- Manage risk carefully – always limit capital per trade.
Final Thoughts
You don’t have to buy low and sell high; your job is to spot opportunities. You can also make money by selling high and buying low. The key is to put in the work to learn this skill. If you want more guidance, I have a Discord community where I teach these strategies and share my trades.
Be safe and stay consistent, my friends!
Options trading can be a lucrative strategy for investors looking to capitalize on market movements, regardless of whether the market is trending up, down, or sideways. Unlike traditional stock trading, options provide flexibility and leverage, allowing traders to manage risk and enhance potential returns. This article explores the various ways to profit from options trading in any market condition.
Understanding Options Trading
Options are financial derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price before a specific expiration date. There are two types of options:
- Call Options: These give the buyer the right to purchase an asset at a set price before expiration. They are typically used when traders anticipate a price increase.
- Put Options: These give the buyer the right to sell an asset at a set price before expiration. They are useful when traders expect a price decrease.
By leveraging these contracts, traders can profit in various market conditions.
Profiting in a Bull Market
When the market is trending upwards, traders can employ the following strategies:
1. Buying Call Options
One of the simplest ways to profit in a bullish market is to purchase call options. If the underlying stock price increases above the strike price before expiration, the trader can sell the option at a profit or exercise it to buy the stock at a lower price.
2. Bull Call Spread
This strategy reduces the cost of entry while capping the maximum profit potential.
3. Selling Put Options
Selling put options (cash-secured puts) can be an effective way to generate income in a rising market. Traders collect premiums by selling puts on stocks they are willing to buy at a lower price.
Profiting in a Bear Market
During a downtrend, options traders can use the following strategies:
1. Buying Put Options
Buying put options allows traders to profit from declining stock prices. If the asset price drops below the strike price, the option gains value and can be sold for a profit.
2. Bear Put Spread
A bear put spread consists of buying a put option at a higher strike price while selling another put option at a lower strike price. This strategy limits both risk and reward, making it a cost-effective bearish trade.
3. Selling Call Options
Traders can generate income in a bearish market by selling call options, collecting premiums. If the stock does not rise above the strike price, the seller retains the premium as profit.
Profiting in a Sideways Market
When the market moves within a range without a clear trend, options traders can implement neutral strategies:
1. Iron Condor
An iron condor involves selling both a lower and a higher strike price put and call while simultaneously buying further out-of-the-money puts and calls. This strategy profits from low volatility as long as the underlying asset remains within a certain price range.
2. Straddle
A straddle is executed by purchasing both a call and a put option with the same strike price and expiration date. This approach is profitable when a stock makes a significant move in either direction.
3. Strangle
This strategy is used when traders anticipate a big price movement but are unsure of the direction.
Risk Management in Options Trading
While options trading offers significant profit potential, it also carries inherent risks. Traders should employ proper risk management techniques, including:
- Position Sizing: Avoid overexposure by allocating only a small percentage of capital per trade.
- Stop-Loss Orders: Set predefined exit points to limit losses in case the market moves unfavorably.
- Diversification: Trade multiple options strategies to spread risk across different market conditions.
- Understanding Implied Volatility: Be mindful of volatility levels, as they impact option pricing and profitability.
Conclusion
Options trading presents numerous opportunities for profit in any market condition. By understanding the different strategies and implementing effective risk management techniques, traders can maximize their potential gains while minimizing risks. Whether the market is bullish, bearish, or neutral, there are options strategies designed to help traders succeed in all environments.