So... still not ready to trade options?
We know traditional stock investing seems like a safer bet. People have been making money that way for decades.
There's nothing wrong with investing in stocks. You will make money. You find the stocks you like, purchase however many shares you can afford, and...
Wait for your profits.
You might collect up to 10% per year, on average. That can add up handsomely over 20 or 30 years, assuming you don't touch your profits along the way.
Follow some Money Morning stock recommendations, and you could double your money on the stronger performers in just a few years.
Again, there is nothing wrong with that. It's simple and comfortable.
But the fastest way to build wealth and retire comfortably - to collect gains and put your money back to work for you multiple times in the same year - is also simple, and it can be done with minimal risk.
You can trade options - and we'll show you how.
You don't have to change your stock-picking approach to make money with options. It's a great way to get extra profits on the shares you like.
For example, on April 18, Money Morning's options trading specialist, Tom Gentile, told us that Yelp Inc. (NYSE: YELP) hit his radar as a rising stock.
The company was approaching its earnings date and had a history of beating earnings expectations. Typically Yelp's share price rose ahead of its earnings date, too. So it looked like a good bet to rise this time around.
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So Tom recommended the May 18 $43 call options on Yelp. They were trading at about $3 per share, while the stock was at $44.83.
Yelp shares did rise from about $44.83 to $47.92 by May 9, Tom's target date to close out the trade. That's a 6.9% gain - not bad for three weeks. But anyone who bought those call options did a lot better than that.
The options were trading around $3 per share, so a contract on 100 shares would have been about $300.
Three weeks later, that option was worth $492 - a 64% gain in three weeks!
And that's a mild case of how profitable options are...
In June 2015, trading was temporarily halted for shares of animal health company Zoetis Inc. (NYSE: ZTS) due to a report of a possible takeover by a major drug company. When trading resumed a little while later, shares quickly spiked from $49.57 to $55.38.
No doubt Zoetis' shareholders were happy with their 11% gain for the day. But that gain translated to a huge payday for one savvy options trader, as Yahoo Finance reported.
This trader snatched up 300 call options, giving him the right to purchase the stock at $50.34 per share by the end of the day. With the window that short and the strike price slightly out of the money (higher than the current price), these options were dirt cheap: $0.34 per share.
The trader spent a total of $10,200 on the trade - 100 shares per option - and within minutes, the stock had shot up beyond the strike price.
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Those options were now worth a total of $144,000 - a profit of 1,300% in a matter of minutes.
Even if you had only bought three of those call options, for $102 total, by the end of the day, you could have pocketed $1,500.
How does that 11% gain for the shareholders look now?
But Aren't Options Risky?
Like all investments, options come with risk. But if you do your homework - which we're here to help you with - options can be low risk and high reward.
For starters, for the most basic options, you can't lose more than you put in. And your potential profits are limitless - much bigger than if you bought the equivalent amount of shares.
If you bought those three Zoetis options above, that $102 is as much as you would risk, with a potential payoff of $1,500.
Also, options are cheap: just pennies on the dollar compared to share prices.
In order to buy one share of Amazon, for example, you need more than $1,500. But you can get AMZN call options for less than $80 per share and profit big time when the stock rises.
Better still, you don't necessarily need a stock to move up to make money with options. You can just as easily trade on a stock on its way down and collect big prices. Options let you profit from any market environment. As long as a stock is moving, you can profit from it.
In fact, you can even use options for risk management. For example, if you're worried about temporary volatility in a stock in your portfolio, you can buy put options for a small premium. If the stock tanks, you can sell your shares at a higher price. If it continues to rise, keep your shares and let them pay for the premium and then some.
In other words, options are only as risky as the trader using them. You decide what level of risk you're comfortable with and trade accordingly.
But Isn't Trading Options Complicated?
The array of options available on any given stock may seem daunting. But it's much easier than it looks.
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You can sort through the jumble when you have a strategy in mind.
To that end, Tom Gentile has created four simple steps for successful options trading...
While the above steps are helpful, of course, the big question left is, "How do you pick the stocksyou want to trade options on?"
There are probably as many ways to find stocks ready to move as there are options traders - if not more. You may develop your own methods as you get more trades under your belt.
In the meantime, Tom Gentile's 25 years of experience have given him multiple winning strategies to find trades that he shares with readers regularly.
Let's take a look at a few of his recent tips...
Look for Share Buybacks: When a company launches a share-buyback program, it generally means that executives are confident about the company's value and see the stock as undervalued. That's a pretty good indication that the share price will be on the rise.
Now, again, you could just buy shares in the stock. But by now we know that we can make more money - for less risk - by purchasing call options instead.
Tom highlighted a great example in May: Fiber optic company Amephenol Corp. (NYSE: APH) was coming off a great earnings report and had just started a $2 billion stock-buyback program to boot.
Tom recommended the Oct. 19, 2018, call - not quite six months out - with a strike price of $85. That's pretty close to the $88.28 share price at the time.
Buying one of those options would have cost $640 and gave buyers the rights on 100 shares. Buying those shares outright, by comparison, would have cost $8,828.
Here's the important part: Tom recommended locking in a 100% gain on this trade. The share price only has to rise 10.7% higher, to $97.80, to double the money for those options.
So if you're holding those options, you close out once it hits that mark. You might end up leaving some money on the table, but you don't expose yourself to unnecessary risk either. Remember, we take emotion out of the equation when trading.
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There are more opportunities where that one came from...
"Flip" Stocks: You can target stocks with long-term options, called LEAPS, the same way you would choose stocks to buy the old-fashioned way. Only, instead of buying them outright, you're "flipping" them over a period of a year or two to get the most out of their share rise.
Once again, options give you access to many more shares for much less money upfront. And especially with highly traded stocks, even if the trade doesn't go your way, you'll likely be able to close out your position without losing too much.
Tom found a stock he liked in late April: Netflix Inc. (Nasdaq: NFLX) went through a rough patch late last year, but has been surging in 2018. It was up 60% on the year when Tom wrote about it. Especially after the company's impressive earnings report, he expected that growth to continue.
NFLX is a pricey stock: $337.20 at the time. An in-the-money ($330 per share) LEAPS call option expiring in January 2019, on the other hand, was selling for just $50.45 per share.
Since an option comes in a 100-share bundle, you're still putting up a good chunk of change. But 1) you get more bang for your buck when the stock rises, and 2) you're already in the money: The risk is relatively low. As it turns out, a little more than a month later, that same contract was worth $889 more - an 18% gain.
You can "flip" any stock on the market in this way. So there's no need to change the way you already look for stocks to buy. Just pick a company you think is due for a rise and get more out of it by using options instead.
Use the Straddle: Some stocks have a history of moving sharply up or down at certain moments, particularly during earnings season. Sometimes the direction of the movement is unpredictable - a stock might actually drop when the report is positive - but the movement itself is predictable.
This is where an options trick called the straddle comes in handy.
To straddle a stock, you buy both call and put options, in equal amounts, as close to the current price as possible. That way you win if the stock goes up or down.
Of course, only one of your options can be a winner, so you need the movement to be big enough to pay off the losing option. But as we've already seen, options pay off in a big way on relatively modest changes in a stock's share price.
You can also spread out the strike prices - a higher strike price on the call and a lower one on the put - to make it a "strangle." This option is cheaper, but you need a bigger movement for it to pay off.
You can do a straddle or a strangle any time, of course. But earnings season is the easiest time to find a trove of stocks ready to move. Look for stocks that have a history of big movements during earnings season or stocks that seem particularly prone to surprise investors.
You'll notice when you look at stock charts that sometimes stocks move sharply in the week or two before their earnings reports come out, and then immediately reverse course after the earnings date. Make sure to set your exit point and don't get caught holding an option that was a winner a week ago and has now turned stale.
If you're still hesitant to make your first trade, that's okay. You worked hard to earn that money, and you shouldn't make moves that you aren't confident about.
That's why we're here to help you get a feel for the options market. We'll help you get your footing so you can get to a place where you're 100% certain that you're ready to dive in.
Even if you are ready to start making trades right now, we've got the tips and strategies that will help you make stronger and stronger moves every time.
You'll probably want to get acquainted with reading a risk chart, for example. Tom can help you with that here.
And you'll want to know how to calculate which stocks have the lowest "percent to double" - meaning they have the least distance to move in share price before your option doubles in value. Tom explains that here.
There's plenty more where that came from. Follow along with Tom on Money Morning, or sign up for Tom's Fast Fortune Club, and stop waiting for years to earn the kind of profits you could be earning today.
Tom Gentile’s seven-day Cash Course covers all the essential trading ideas you need to know to get the most out of your potential profits in 2019.
And not only will Tom review the basics, he’ll share dozens of his most lucrative secrets to potentially start collecting anywhere from $1,190, $1,313, and even $2,830 in consistent income – each and every week.
All of this and more can be yours for only $1.
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