Today, we're showing you the best options trade to make right now. With markets moving up and down each day, this is a great time to be trading options. The more volatility means more chances at making money. But it also means there are more chances to get burned, especially if you're just jumping into a trade without doing your homework.
That's why we don't just want to show you our best trade - we want to help you become a better trader overall.
By now you likely know that trading options can increase your profit potential and lower your risk. By investing small amounts of money in options, rather than larger amounts in the underlying stock, your risk is automatically lower.
Since options prices can move many multiples of times faster than stocks do, you can rack up nice gains in a relatively short period of time.
But because you can use options to lower your risk doesn't mean they aren't risky. As fast as options can move higher, so, too, can they move lower. Many new traders have found that out the hard way.
Since there are a few more moving parts to an option than there are to a stock, you need a little training to be sure you get off on the right foot. That's why we are here!
We want to focus on two things that will make your options trading safer and more profitable.
First, you need to start with the right underlying stock. This is where most new options traders begin and end. They find a stock they think is going up or down, buy a call or a put, and call it a day.
No wonder they aren't making money.
Finding the right stock to trade options on is definitely important, but it's only the start.
Second, you need to set up your trade in a way that gives you the best chance of success.
Each stock comes with a smorgasbord of strike prices, expiration dates, premium costs, and a nearly limitless combination of all of the above.
A few simple strategies we like to use are to look for options expiring in about six months with strike prices just out of the money. That will help keep your costs lower than buying in-the-money options and gives your trade time to work with the expiration date being far enough away, but not so far that you have to pay more for the trade.
But one tool we want to focus on today is the limit order.
Beginning options traders are often so eager to get into a trade that they accept any price to do it, which means they enter a market order and often pay the highest price of the day. We can maximize our profits by using a limit order instead.
Now, we're going to combine our strategy with a stock we see moving higher over the next six months into our best options trade to make right now...
How to Make the Best Options Trades
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While the stock market still works through its September volatility and pullback, not everything is feeling the heat. Big Tech stocks are falling hard. Banks are dead in the water. And traditional petroleum-based energy stocks have been falling for months. While the technicals are starting to get a bit oversold - meaning the market moved a little too far lower, too fast - there are no real signs that it is ending right now.
However, Money Morning Quantitative Specialist Chris Johnson sees one sector that is bucking that trend. Alternative energy is not only holding up, but it is even producing some big winners.
Chris has liked this area a while now, not just because of its short- to mid-term profitability, but also because this is a developing technology that has some real legs. Even if we see another wave of COVID-19 and the presidential election battle gets nasty, this is one of those big trends we like to hop on a ride for all it is worth.
You already know some of these names, with Tesla Inc. (NASDAQ: TSLA) being the most famous. But there is much more to alternative energy than electric cars, and even the political climate is moving in that direction. From lower overall emissions to zero carbon footprints, any technology that can grab a foothold and become the power source for transportation, buildings, and industry is going to clean up, so to speak.
Today's stock has already proven that it can move. Back in March, at the market's low, it traded just under $3 per share. Today, it is above $10, and that is after pulling back 15% from its September high.
That's right; it has already had quite a correction, yet the trend here is still to the upside. That is actually what you want to see when a stock gets as overbought as this one was a few weeks ago. Whatever frothiness was there has been mostly wrung out, leaving the stock in the hands of savvy investors, not nervous traders.
So, even after such a mighty gain, Chris sees it reaching $13 over the next three or four months following this pullback. That's another 30%.
That does not mean you should just throw your money at it. Getting in at the right price is half the battle, so be sure to use the limit order he suggests. That means you will only buy the option at or below a specified price for maximum gain.
What is this super stock? It's SunPower Corp. (NASDAQ: SPWR), a manufacturer of solar panels and battery storage systems for homes, businesses, schools, utilities, and governments. Unlike other solar-related companies, SunPower has been around for more than 15 years, so it's got a lot of experience under its belt.
Here are the trade details:
Buy to open SPWR March 19, 2021 $11 call (SPWR210319C00011000) using a limit order of $2.
This option expired in March, which is six months away, giving the trade plenty of time to work. The $11 strike price is just above the stock's current price, so it keeps the price of the option down. And finally, the $2 limit means you should pay no more than $200 for the option contract.
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