There are countless ways to make money with options, but profiting from options doesn't have to be complicated. In fact, it is possible to make top-dollar returns with fairly low risk using strategies like the put option spread.
And you won't need an army of Wall Street mathematicians to do it either.
The secret is really not a secret. You can start small, and if you consistently follow your plan, you can slowly build the nest egg you've always dreamed about by using options.
Money Morning Chief Investment Strategist Keith Fitz-Gerald lays it all out in just a few simple steps:
- Trade regularly. No, that doesn't mean trade all day. Rather, it means set aside a routine time to do your homework and then execute your plan.
- Limit your risk. This is the holy grail that professionals seek and many individuals need to master. Know how much you could lose before you hit the trade button.
- Keep at it. Nobody is a master trader when they first start out. Don't quit when a trade doesn't work out. If you follow a solid plan, then the next one will work.
- Understand the market's general bias. Over time, the stock market wants to move higher. There may be rough times, but the stock market has consistently moved higher for more than a century.
- Remember that options trading is just a piece of your investment puzzle. It's not all or nothing.
And to help you get started with options trading, we're going to add an important tool to your toolbox.
It's a great way to limit your risk without sacrificing upside. The best part is it's easy to execute...
Our Best Options Trading Strategy
If you're bullish on a stock, the easiest options trade is simply buying a call option. But buying a call option comes with some risk.
If you're right and the stock price moves higher, you can make a lot of money. But if you're wrong about the stock, your option could lose all of its value. That's a huge variability of returns and not really suitable for everyone.
What if you could protect yourself from the downside while still having the potential to make money on the upside? Too good to be true?
Well, there is no free lunch, as they say, but you can trade the downside risk for a little less upside potential. That is a whole bunch more attractive to most investors.
Here's how to do it with a bull put spread...
A Bullish Put Spread May Be Just Right
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In options trading, a spread is a trade where you both buy and sell similar options on the same stock. Typically, you buy two options with the same expiration date but with different strike prices. The sale of the cheaper option partially offsets the price you pay to buy the more expensive option. This is called a debit spread because you have to put up money to do it.
But there is a way to sell the more expensive option and buy the cheaper option. You collect the difference between the two as a credit in your account. That's why this is also called a "credit spread."
If you are bullish on the underlying stock, you use a bullish put spread, also known as a credit put spread.
Remember, you are selling puts, which means you're bullish. It is the same as buying a debit spread with calls but with puts; you are essentially getting paid to trade.
To do a bull put spread, you buy a put with a strike price slightly in the money. That means the strike price is below the current price of the stock.
At the same time, you sell a put with a higher strike price, usually very close to the current price of the stock.
The idea is that you want both options to expire worthless so you can keep the credit in your account. This will happen if your stock does indeed move up in price.
If your stock doesn't move higher, your risk is limited to the difference between the two strike prices minus the net credit you received. You see, you will know in advance exactly how much you can lose and how much you can make.
Here is a chart showing your potential profit and loss.
No matter how low the price of the stock may fall, you can only lose a fixed amount. And of course, no matter how high the stock may rally, you can only make a fixed amount.
The beauty of this trade is that you can do it over and over again and always sleep at night knowing your risk is controlled.
But don't stop there. There are even more ways to play options for regular paydays.
You Can Collect Four Separate Paydays in Under a Minute with This Options Trading Secret
Live on camera, America's No. 1 Pattern Trader is showing you the secret behind some of his biggest trades to date.
Watch as he uses this special tool to collect four separate paydays in under a minute - all from enormous companies like Netflix, Apple, Facebook, even Amazon.
While it may have taken Tom years to invent this moneymaking "machine," it's super easy to understand and utilize.
All it takes is a few simple mouse clicks, and you could be hundreds, even thousands, richer.
This is an opportunity you won't want to miss out on.