Chances are you already know that people are making big money with options. Maybe you have made a few trades yourself but haven't quite brought home the bacon.
That's where we come in. We help traders just like you find profitable options trades and start taking control of your financial future.
Today we've got another potential winner that you can trade right on the Robinhood platform.
Before we lay out the trade, let's first talk about why it makes sense and how we come up with our options trading strategy based on what the market is doing.
Sound good? Then here we go!
The Worst Isn't Over Yet
As much as we'd like to think that recent planning to reopen the economy will put everyone back to work and play, that's just not the case. The market has made a stunning 30% recovery from the depths of the February-March decline. But that's false hope.
We're as optimistic on the economy as anyone, but there are a lot of things that still have to be worked out, like if schools will reopen this year or if restaurants and retailers will make it through to the other side at all.
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Wall Street has gotten way ahead of itself, and a lot of people have talked themselves into believing the worst is over. But we don't know the true extent of the economic damage yet. Even what little information we've gotten has been devastating. Over 22 million Americans have filed for unemployment, meaning the real unemployment rate is over 14%. Yet stocks have rallied in the wake of this distressing news.
Even when lockdowns end and businesses reopen, they'll be operating at a fraction of their capacity because people will continue to avoid crowds. A vaccine is a year away at best, and we still don't have the capacity to test and trace coronavirus cases. That means the risk of a resurgent outbreak is high, especially in the fall, when the normal flu season returns.
The signs we see point to some kind of downside reaction in the market as it realizes that it's been going up on technical corrections and short covering and not due to fundamental reasons. Basically, we expect some more selling to happen before it is all washed out.
And we're going to make some money on it with options.
Here's our options trade that cashes in on Wall Street's overconfidence...
Our Best Robinhood Options Trade for This Week
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We're still bearish on some of the hardest-hit companies. Some of them have gotten a little bit of momentum lately, but they're really skating on thin ice. The current relief rally in the market is taking most stocks along for the ride, but when the news turns sour again, these coattail riders will be the first to be sold.
Our options play is a put option on casino operator Las Vegas Sands Corp. (NYSE: LVS). The idea that people are going to pack into planes and fly to their resorts in Vegas, Macau, and Singapore doesn't sound enticing without a vaccine, and the people who will do it are probably not the high rollers they feast on.
That didn't stop Wall Street from pumping this stock higher, however. Casinos like LVS led the market higher Monday on word that state and local governments were starting to plan the reopening of the economy. Homebuilding, banks, and even retail had their best day in quite some time.
But that's what everyone wants to believe. Again, letting Hobby Lobby sell you a paint-by-the-numbers kit with contactless curbside delivery is a lot different than packing into a casino with a lot of strangers.
We are looking at the Sept. 18 $40 put. It closed Monday at $4.35, or $435 per contract. This is a simple trade that anyone can do on commission-free platforms like Robinhood. It's not a fancy strategy, just a play that Las Vegas Sands stock will drop to back below last week's lows from its current $46.38 per share.
But looking for a drop back to last week's lows is peanuts. If LVS tests its March low at $33.30, it will soar to $6.70, or $670 per contract, for a return of 54%. And if it happens before Sept. 18, the option should rally even further, and you can sell it early to cash in.
Note that we did not look for the lowest-priced options. If we wanted to put up only a tiny amount of money, we could have bought a put option with a much lower strike price for half or even a quarter of our price.
Don't fall into that trap.
With options that are extremely far out of the money, meaning a put option in this case with a very low strike price, you may not see any profit at all, even if the underlying stock falls significantly.
The reason is that far out-of-the-money options move very slowly relative to the underlying stock price. Trading near the money is usually a better way to go. It's like buying quality vs. junk. In the end, your money is usually better spent on quality.
If you want a better price on this one, you could wait till the end of the week, after the major tech stocks report earnings. It's possible they'll lift stocks higher across the board, making this option just a bit cheaper.
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