Mark Sebastian has found three stocks to watch for big profits this week, plus cheap trades to make on two of those stocks.
Best Options to Buy This Week
More people than ever are learning how to trade options. But knowing the basics of options trading is only half the battle: You need to know how to find the best options trades to make money.
That's exactly what you'll find here.
We'll show you the simple steps you can take to find profitable options trades.
Plus, we'll also show you the best options trades you can make right now, courtesy of the options experts here at Money Morning.
Speaking of experts, here's Money Morning's options trading specialist, Tom Gentile, with a brief overview on what makes options trading so phenomenal, plus why this is one of the best places to learn the ropes:
Why Options Trading?
Options are exploding in popularity because retail traders have seen their profit potential.
Stock options give you the right to buy or sell shares of a stock by a certain date. Since you don't actually own the stock, just the right to buy or sell it, you can control many more shares of the stock for a fraction of the price of owning them outright. That's called leverage. And it lets you amplify the profit potential of stock trades far beyond what you would see from simply buying and selling shares.
For even more detail on how this works, make sure you check out our guide on how to trade options.
What many new traders have found out the hard way is that there's more to making money with options than buying a call on a stock you like and waiting.
You need to find the right combination of a stock, the strike price of the option, the expiration date, and the cost of the contract to consistently find profitable options trades.
Here's how you can do it.
Finding the Best Options Trades
While there are a nearly limitless combination of options traders can use to create a strategy for any situation, we want to focus on finding trades using simple calls and puts.
There are three elements to key in on to take your trading to the next level.
Find the Right Strikes and Expirations
There are many variations of strike prices and expiration dates for every stock with options. A one-sized rule is nearly impossible.
But a few guidelines can help you find the best options.
First, look for strike prices just out of the money.
Options already in the money will be very expensive and that will cut into your potential gain.
Options far out of the money will be much cheaper, but the stock will have to move dramatically in order for you to make any money.
The best idea is to look for options one or two strikes out from the stock's trading price. This will give you the best combination of affordability and potential to hit.
Second, look for expiration dates three to six months out.
This is a broad rule since six months can be a lot of time, but you likely don't want to tie up your money any longer than that. And plenty of traders make good money with weekly options, but you'll want expert help before you dive in.
Similar to finding the right strike price, expiration dates nearer the current date will be cheaper if the options are out of the money. But you have little time for the stock to move, raising your chances of losing money. And if the option is in the money, close expiration dates will be very expensive.
Options with expiration dates far away will be more expensive since the stock has more time to get in the money too.
But an expiration date three to six months out is the sweet spot between giving the trade time to work – the stock moving into the money – and affordability, lowering your risk and maximizing your upside.
Trade Liquid Options
One of the most important factors new options traders overlook is liquidity in the options market. Liquidity simply means there are many buyers and sellers for a particular options contract. That means prices are accurate, and most importantly, you'll be able to sell your options contract when the time comes.
When the market for the specific options you're looking at isn't liquid enough, it means the price you see on you trading screen might not be the price you end up paying. It may even mean there are no sellers at all for the contract, meaning you can't enter the trade.
It also means that when you buy the contract, you may not be able to sell it. Imagine buying a call option on a stock that soars higher, seeing a profit on your trading screen, and not being able to sell the option for a profit.
The way to find options with liquidity is to look at the bid-ask spread. Options with close spreads are typically liquid enough to trade. If you see a wide range, or a range that includes $0, then the option is unlikely to be liquid.
That may eliminate little-known stocks from your plans, but that's all for the better. As Money Morning's options trading specialist, Tom Gentile, says, "98% of stocks and ETFs out there simply aren't worth a single penny."
But "the big banks and brokerage firms want you to gamble your money on all of them," says Tom.
That's why looking for liquid trades can go a long way toward making your moves more profitable.
Manage Your Risk
Options are great at helping you trade while lowering your risk, but that can go out the window if you aren't careful.
First, make sure you use limit orders when buying and selling options.
The options market can be fast-moving, and using a market order could mean you end up paying more for a trade than you initially expected. It may also mean you sell your contracts for less than you hoped. But using a limit order can make sure you get into and out of trades at the price you want.
Second, don't chase trades.
You may be dying to open a position on a particular option and see that your limit order isn't filling. Stay disciplined, and don't change your entry point just because the market isn't cooperating.
"If you do, you could end up buying at the high or near the high of the day only to see the markets calm down and the option prices start coming down," Tom tells us.
Third, stick with your plan.
Set aside a percentage of your portfolio you'd like to use for options trading and stick to it. It's tempting for traders, especially new traders, to make a ton of trades and chase bad money with good. That's only increasing your risk.
Tom tells us a simple strategy to managing your risk is to keep your risk the same on each trade. Even if you feel like the trade is going to be a home run, don't be tempted to increase the money you're putting in. Stick to your plan.
And never trade with money you can't afford to lose.
Best Options to Buy Right Now
Options trading is fast-paced, so you'll need to act quickly when you find the right trade. Not only do options change price as the expiration date nears, but changes in the underlying stock price can cause options prices to shoot higher or lower.
That means if you're looking for options trading recommendations, you can't rely on an idea that's out of date, even if it's just a few weeks.
Here at Money Morning, we publish options trade ideas multiple times a week.
You can find our latest trades right here…
- Three Stocks to Watch for Big-Profit Moves Right Now
- Watch List: Four Stocks Moving Right Now
- How to Play a Bull Market That Won’t Quit
- Two Options Trades to Make Before the Market Closes Today
- Score Fast Profits on My New Clean Energy Stock Trade
- The Delta Variant Won't Take Down This Grocer Stock
- Pocket 500% with This "Delta Variant" Volatility Trade
- Two Earnings Season Trades to Make Before July 23
- How to Trade Nokia and the Meme Stocks for Profits in Five Days or Less
- $23 Could Get You Fast 50%-Plus Gains on These Two Small-Cap Plays
- The Top Retail Stock to Trade This Summer
- How to Trade Amazon Stock Today
- The No. 1 Stock Trade to Make Tomorrow Morning
- How to Pocket a 30-Day 100% Gain on Silver
- Here’s a Look at My Earnings Season Stock Watch List
- How to Profit from the Market's Huge "IV Surges"
Plenty of traders will risk $1 for the chance to make $1, and that can be okay if the stock moves your way.
But, Mark Sebastian is going after high-reward, low-risk “asymmetrical returns” – cheap trades with tons of profit potential on four stocks moving right now.
The S&P 500 has doubled from its March, 2020 lows in the fastest, strongest bull run since World War II.
That’s got some people feeling nervous, but what everyone should be doing now is looking at ways to play an unstoppable bull market – Tom Gentile and his Money Calendar are seeing nothing but green for the foreseeable future.
Tom Gentile trades patterns in stocks that have a history of paying off – 90% of the time, in fact.
He uses his powerful Money Calendar to show him just which tickers to trade, and when to enter and exit, too.
He’s picked these two trades to make that’ll pay off by mid-September.
Clean energy is one of the best areas to make money right now, with its political support and fundamentally strong companies to choose from.
This clean energy stock is one of the best to buy today, with a 20% rise pending and a solid technical picture supporting even more gains beyond that.
This grocer stock thrived during the last pandemic, and no matter what the Delta variant throws at us next, we're expecting another rally by year's end.
So whether we're staring down the barrel of another lockdown, or we officially leave COVID-19 behind us, this is a prime trade to make now.
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While nobody knows if the surge in cases will return to 2020 peak levels, even the prospect of it is enough to move the markets.
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The VIX surged above 19.5 amid the roughest day for stocks in months.
Savvy traders, though, saw the VIX move as a clear signal that it was time to play some weakness in small-caps for big, fast profits.
Chris Johnson has the stock to buy and the trade to make...
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Mark Sebastian’s showing us the right way to trade Amazon stock today to make big profits at low risk.
The markets are closed today, which means there’s still a little time to get ready to put on Tom Gentile’s first recommended stock trade of the week.
This has everything you need to put the trade on at 9:30 AM Eastern tomorrow at market open.
Mark’s all about asymmetrical returns.
While every trade has its risk-reward profile, you get asymmetrical returns when you turn that profile radically toward “reward.” So today, Mark put together the perfect trade with asymmetrical return potential – the iShares Silver Trust ETF, where he’s seeing some activity that’s uncovered a promising options play….
It's not too hard to pick winners in a market like this one.
But the serious profits go to folks that know the data and use it to trade stocks to juice those profits.
They understand and trade the patterns - the way stocks move.
This knowledge becomes even more critical during earnings season.
That's why Tom's showing you a "trick" the pros use, plus the stocks he's looking at that could be big movers when they report....