Options trading offers two things that everyone wants – lower risk and higher profit potential.
It's simply a matter of finding the right play and building the right strategy. Today, we'll show you an options strategy that can control your risk and maximize your upside.
While it may seem too good to be true, options really can deliver. The low prices of options compared to stocks means you start your trade with less skin in the game. Each options contract controls 100 shares of a stock for a fraction of the price of buying all 100 shares. If the stock moves in the direction you predict, then your gains are multiplied thanks to that leverage.
Let's say you buy a stock for $40 per share and it goes up $1. That's a 2.5% gain. Not bad if you can do that over and over again.
But what if you bought the right option for $1.50? It might go up by $0.75 when the stock goes up $1. That's a 50% gain in the same amount of time.
Even if you're wrong, your risk is limited to the small amount you paid to begin. Compared to the much higher prices for stocks, and you can see how your risk is lower.
There's more to the story though.
You can reduce your risk even more by using the right options strategies.
Today, we'll show you how to avoid one of the biggest mistakes options traders are making right now. It's a simple fix that can save you some cash while giving you even higher profit potential.
Then we'll show you how to use this strategy in our best options trade today…
How to Lower Costs When Trading Options
While options let you profit off of a specific stock, it's easy to forget that they both behave differently and have different markets. A liquid stock, one that trades hands tens of thousands of times a day, may not have many liquid options. The option may only trade a few hundred contracts. That's quite a difference in liquidity.
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That's important for you because it affects not just the price you pay for the option but your ability to cash out with a profit.
The more liquid the stock or option, the more volume changes hands each day. And the more people are trading it. That means there is a robust market for the most liquid stocks or options, which, in turn, means you get good executions and tight bid/ask spreads.
The closer the bid and ask price are, the less you will likely have to pay. For a stock trading at $40 per share, the individual investor might not mind buying at $40.10, instead of $40.
But with options, that $0.10 difference could mean the difference between a good trade and a great one. If you tried to buy that option at $1.50 and your trade is executed at $1.60, you've already lost 13.3% of your potential profit. Remember, we are talking about a stock going up $1 from $41 and an option going up $0.75 from $1.50. That potential 50% gain suddenly turns into less than a 40% gain.
That's still good, but over time, you are just giving away your profits unless you have a strategy to overcome that.
And we do.
Here's how you can reduce your chances of overpaying, which will maximize your upside.
We're showing you exactly how to do it in a specific options trade right now…