Trading options is simply one of the best ways to profit from volatility and uncertainty. If there ever were a time of volatility and uncertainty, it's right now. And traders of all skill levels can get in on the profitable action by trading options. Today, we'll show you the best options trade to make right now. It's one you can set up right on a free trading platform like Robinhood.
A "triple-digit" move on the Dow Jones Industrial Average used to be a big change in a single day, in the past few weeks we have seen quadruple-digit moves both higher and lower.
As long as COVID-19 remains the dominant story in the news and nobody really knows when the economy will return to normal, volatility is likely to stay with us. Not only that, bear markets do not usually end with a quick turnaround - a "V" bottom - and that means plenty of ups and downs lie ahead.
Given we've just seen a 24.7% rally since the March 23 closing low, the odds are stacking up on a downside move from here. We simply haven't seen the end of the crisis. And with 6.6 million people filing for unemployment this week and a wave of earnings reports coming out in the weeks ahead, there's going to be plenty of downside risk ahead.
Options 101: It's never been easier to learn how to trade options, especially with our free guide from top trading expert Tom Gentile. Click here to get it.
That's why we are looking at a bearish trade today while everyone else is getting faked out by the rebound rally.
Money Morning's options trading specialist, Tom Gentile, is looking at a trade right now that anyone can do using the free Robinhood platform. And he gives you three choices on how to do it.
The best part is this options trade could make you a tidy 327% profit in a matter of days...
The Best Robinhood Options Trade to Make Today
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
One thing you've likely noticed about options right now is that they're expensive. One way to help with that is to look for options on ETFs, which are typically very liquid compared to individual stocks.
But Tom is going even more contrarian here.
Tom is looking at an ETF that actually will go up in value when the stock market falls. These are called inverse ETFs, and they're designed to mimic the market's moves, only in reverse.
The first one we're looking at today inverses the S&P 500. It's called the ProShares Short S&P 500 ETF (NYSEArca: SH), and it is one of the more liquid ETFs out there. When the S&P 500 falls by 1%, this ETF rises by 1%. And when the S&P 500 rises by 0.5%, this ETF falls by the very same percentage.
It's truly a mirror image of the market, so if we are bearish for the short term, then buying this ETF is a great way to profit without having to short stocks, which can be risky.
But we can make this even better by using a leveraged ETF, such as the ProShares UltraShort S&P 500 ETF (NYSEArca: SDS). It's designed to move twice as fast as the S&P 500, so if the market drops by 1%, the UltraShort ETF will rise by 2%.
That sounds even better, but nothing is without risk. Leveraged ETFs can turn against you quickly. You have to keep an eye on these and sell them if the markets rally. It's absolutely worth adding a trailing stop to these.
But Tom has one more way to kick up your returns. You can buy a call option on the UltraShort ETF. You get the profit potential of options but with a lower up-front cost. That means lower risk.
Tom is looking the ProShares UltraShort S&P 500 June 19, 2020 $28 call (SDS200619C00028000) for no more than $3.75. If we are right and the market weakens, the ETF, which closed Wednesday at $26.17, could reach $44. In that case, the option will be worth around $16 - a 327% return on investment.
Compare that to the UltraShort ETF itself, which would earn a respectable, but not spectacular, 68.1%. The "regular" inverse SH ETF would earn about 24.2%.
There is something for everyone here.
But you can get even more trades straight from Tom.
Tom just revealed his biggest options trading secret yet. And thanks to him, some of his readers were able to grab lightning-quick payouts of $9,000... $18,000... even $44,000. Learn more...