If you're like lots of regular investors, you've probably heard options called "risky," "tricky," or "challenging" to trade.
That's a lie. And one that's keeping millions of people from tapping billions in profits.
The truth is, options were created to simplify things and help slash risk. They can help investors control huge positions in the biggest, most profitable companies in the world for pennies on the dollar. And the profits can be fast, too, as you'll see.
Sure, you can lose money if you try and trade without a plan or knowledge of the risks, but you could say the same thing about regular old stocks, too.
With just a little preparation and a quick brokerage approval, anyone can start trading options profitably.
I know this because, over the past ten years, I've taught more than 300,000 people exactly how to do it, and do it quite profitably.
And today, I'm going to show you everything you need to begin using the fastest-growing moneymaker in the markets...
The Questions on Everyone's Mind
As I said, I'm a trading instructor and have been for a while now. Three times a week, I publish my free Power Profit Trades service that's chock full of trading lessons, profit recommendations, and ideas.
I also have two fun, fast-paced trading research services, Money Calendar Pro and Weekly Money Call, where I target specific plays on the strength of back-tested data and proprietary software, then issue exact, easy-to-execute trade recommendations that hit my subscribers' inboxes in minutes.
So, you can imagine I get a lot of questions from folks...
I think these questions - and their answers, of course - would help anyone start out with options, no matter their short- or long-term financial goals - whether they want the regular monthly income payments they can provide, or they want to reduce their risk profile to a fraction of what it would otherwise be, or play for the kinds of triple- and quadruple-digit windfall gains that can potentially come in just four days.
So, let's start at the beginning...
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Q: What is an option?
A: A contract to buy or sell a specific underlying instrument, such as a stock or exchange-traded fund.
Q: What is a call option?
A: A call option, or simply a "call," gives you the right, but not the obligation, to buy the underlying stock at its strike price up until expiration.
Q: What is a put option?
A: A put option, or simply, a "put," gives you the right, but not the obligation, to sell the underlying stock at its strike price up until expiration.
Q: What's an option "made of?"
A: There are four main components of options:
- The premium: the amount you pay for the option.
- The underlying security, or "the underlying": the stock or ETF that the option allows you to buy or sell.
- The expiration date: the date by which the option can be exercised. Upon expiration, the option expires; it can't be used.
- The strike price, or "strike": the agreed-upon price at which the underlying stock can be bought or sold.
These are all essential terms to know as you begin trading options, but in my paid research services, I cover all these pertinent details in every recommendation.
Q: What can you do with an option?
A: You can buy or sell call or put options. In my Weekly Money Call, for instance, we're always buying options.
Now, remember...
Call buyers have the right, but not the obligation, to buy the underlying stock at its strike price up until expiration.
Put buyers have the right, but not the obligation, to sell the underlying stock at its strike price up until expiration.
It's certainly possible, and in some cases preferable, to own shares of the the stock "underlying" the option, but in fast-moving services like Weekly Money Call, where we're in Monday and out by Friday, there's never a need to own stock.
Q: What does "in the money" (ITM) mean?
A: A call option is in the money, or simply, "ITM," when the underlying stock price is higher than the exercise price. A put option is ITM when the stock price is lower than the exercise price. In other words, an option is ITM when you can make money by exercising it.
Q: What does "at the money" (ATM) mean?
A: This is when the underlying stock price is the same as the exercise price of the option.
Q: What does "out the money" (OTM) mean?
A: A call option is OTM when the underlying stock price is lower than the exercise price. A put option is OTM when the underlying stock price is higher than the exercise price.
Q: What do "bullish" and "bearish" mean?
A: A trade is bullish when the stock is expected to move up in price. A trade is bearish when the stock is expected to move down in price.
Q: How do I read an options symbol?
A: An option symbol is actually very easy to read - it (helpfully) contains everything you need to know about any one particular option. It's broken down into the stock, year, month, day, call or put, and the strike price.
Here's an example of an actual options symbol...
CAT171006C00126000
Here's how you can read it easily...
CAT 17 10 06 C 00126000
From this we get...
Stock: Caterpillar Inc. (NYSE: CAT)
Year: 2017
Month: October
Day: the 6th
Option type: Call
Strike: $126
So, buying this option would give you the right to buy 100 shares of Caterpillar on or before Oct. 6, 2017, for $126.
Q: How can I look up an options symbol?
A: In every profit alert I send, I include the option symbol with detailed trading instructions so that you can easily get in on and track our trades.
But if you're not a subscriber, you can contact your broker, use your trading platform, or search financial websites, such as Yahoo Finance, to look up an options symbol. Simply enter the ticker symbol of the stock, then go to the "Options" tab (on Yahoo Finance) to see the options chain of available, tradable options. It's not hard at all.
The next step I suggest is calling your broker to get options trading approval. It's really easy, it can be done in mere minutes over the phone or e-mail, and you can check out how to get the ball rolling on that right here.
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.