You don't have to be a professional trader to grow your wealth using options. In fact, trading options can be quiet simple with the right guidance.
The real problem for individual investors is knowing what to trade, so it is a good idea to have a trusted mentor to guide you. That's why we're here. Our experts sift through mountains of data to find options trades that have high probabilities for success and are still easy to do.
And when you trade options on free platforms like Robinhood, you'll be on your way to big paydays without adding too much risk.
Today's options trade takes advantage of one of the weakest sectors of the market today. Financial stocks have been lagging the S&P 500 all year, even before the COVID-19 bear market. Even worse, since the March market low, financial stocks continued to underperform.
Just look at the Financial Select Sector SPDR ETF (NYSEArca: XLF), which holds such stocks as banks, insurance companies, and credit card issuers. It fell 43% from its highs when markets fell in March, 7% worse than the S&P 500. Then, on the rebound, it could only regain about half its March losses before selling off again. In contrast, the S&P 500 itself already gained back 60% of its losses and scored a fresh recovery high Monday.
If stocks stay firm for a while longer, it is very unlikely that lagging financials will suddenly start to lead. And if the market faces another big sell-off before finding its ultimate bottom - which we think is the case - chances are that the weakest stocks are going to get hurt the most.
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And our experts have uncovered the weakest stock in the sector.
It's one barely treading water right now despite the latest rally. When the latest round of optimism wanes and stocks sell down again, this one will take the brunt of the blow.
Here's how to use an options trade on Robinhood to turn that movement into a quick 300% gain...
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Money Morning Quantitative Specialist Chris Johnson has a great trade to make money as the financial sector falters. He suggests a simple put option trade on one of the big banks. The target is Bank of America Corp. (NYSE: BAC).
Trading BAC has two advantages for us.
First, it's our least favorite financial sector stock right now, and it hasn't endured the shutdown crisis well at all.
Second, because it's a widely traded stock, options are liquid. That's important, because you'll be able to get in and out of this trade with relative ease and at the price you want.
Here's the trade:
Buy to open BAC Aug. 21, 2020 $22 puts (BAC200821P00022000) using a Good Til Canceled limit order of $2.25.
That means pay no more than $2.25 for the option - but thanks to Monday's big market-wide rally, this put closed at $1.76. The risk/reward is rather strong right here.
Chris thinks that Bank of America stock will fall to about $18 per share from its Monday close of $22.93. That's a 21.5% profit, if you sold the stock short. Of course, selling stocks short is too risky for most people, and that's why a put option is so attractive. You are limited by the price you pay for the options, unlike the unlimited risk for short selling.
The best part is that if the stock drops that 21.5%, the option contract could easily quadruple in price for a 300% or more gain.
Lower risk, bigger profit potential. And it is still a simple trade to make.
If you want to buy low and sell high in today's market, there's only one rule you need to follow.
Today, Tom Gentile is sharing everything - including the exact formula that could magnify your profits faster than you could ever believe.
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