Many investors shy away from using options to grow their wealth, believing stories they've seen in the movies about fast money traders making - and losing - millions. There's just one problem: It's not true.
Sure, there are some people who take unnecessary risks, but using options can actually be a way to control your risk.
Too often, people think trading options is like gambling. They see an event coming up, like an earnings report, and lay money on one side or another, hoping they're right. That's not how to make money with options.
Real money, big money, is made by sticking to a plan informed by reliable research.
That's the way Money Morning's options trading specialist, Tom Gentile, does it. He uses some of the best research in the business to find reliable patterns behind stock movements that he uses to find profitable trades.
And we'll show one of them to you today...
How to Use Patterns to Unlock Profitable Options Trades
Stock patterns can be based on seasonal tendencies, technical formations, or fundamentals. But they all have one thing in common - they are time-tested ways to get a handle on what the market is telling us and what we should do about it. The best part is that they happen over and over again.
If you have access to these patterns, you can then turn them in to profits.
Tom's software scans the universe of stocks looking for these patterns. Early this year, he found there were a good deal of stocks showing bullish patterns. That's good because a lot of bullish patterns mean the overall market is in good shape. And a strong market makes it easier to make money.
One thing that makes this even easier is using options to turn these bullish moves into much bigger profits.
Here's how it works. The first step is finding opportunities using these patterns. They are objective. They are rules-based. They use quantifiable data. In other words, the software finds them without relying on hunches or hot tips.
Next, we create a plan for a low-risk, high-probability trade. That's why we use options. They control your risk while at the same time offering the ability to multiply the gains from a simple stock trade. We can decide if any given trade is too expensive for us, or too risky, or not risky enough. It's up to us, and that puts us in control.
Finally, we plan our exit. We know in advance where we get in, when we get out, and what has to happen to cause us to sell and collect our profits or prevent losses.
Now that we've got our options strategy mapped out, here's the stock flashing on Tom's radar...
The Best Options Trade to Make Right Now
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Today's stock is Netflix Inc. (NASDAQ: NFLX), the streaming giant and one of the big tech stocks that have driven the market higher during its historic bull run. While Netflix fell out of favor over the last year, it's back on the upswing.
For starters, Tom's software found this stock as being in the right place at the right time for a great options trade. It has already proven it can rally, since it has been rising since September, gaining more than 30% and handily outperforming the S&P 500.
When you look at what happened before it hit its bottom, you can see that 30% is not that much for this stock. It lost more than that from its July peak to its September low. In other words, this stock can move when it gets going.
This week, it broke through resistance at about $337-$338 per share. Its next level of resistance, where sellers are likely to get more active, is not until $380-$381.
Keep in mind Tom's setups are usually good for a few weeks, so that means buying a call option that expires in February - or March at the latest - is the best strategy.
Remember, with options, you know how much you are risking, and you know the maximum amount of time you will be in the trade. And if Netflix follows its pattern, you will multiply the gains the stock sees over the next two months.
But this is just a taste of what Tom's research has to offer...
This Fast Money Move Could Make You $4,238
America's No.1 Pattern Trader is going live on camera to show readers how they can make hundreds, even thousands, of dollars in extra income.
You see, he's found a way to predict the future buying patterns of nearly every stock on the market. And with this trick, he's lining up major payday appointments left and right.
We're talking about cashing in on some of the biggest stocks on the market: Netflix, Apple, Facebook, even Amazon.
The best part is this options trading strategy is super easy to understand and even easier to put into action.
All it takes is three simple steps and a few clicks of your mouse, and you're on your way to what could be life-changing wealth...