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:
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.
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.
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…
Streaming media was one of the biggest success stories of 2020, and that trend is shaping up to carry right on through 2021 too.
This is why I'm focusing on a newly public streaming company that has found a niche that Apple (NASDAQ: AAPL), Disney (NYSE: DIS) and Netflix haven't captured, making it one of the best streaming stocks of 2021.
Here's the hottest streaming stock of 2021...
Traders have been zeroing in on the stocks hit hardest by the coronavirus pandemic and breakout candidates once the virus is contained.
Options traders have been buying calls on stocks in travel and entertainment all year, waiting to scoop up their potentially explosive upsides.
But you won't find the best call options on these popular bounce back stocks.
Instead, we'll show you how to comb through the rubble and find stocks with not just a real chance to breakout once the vaccine is fully rolled out, but are flying under the radar.
These are the real best call options to buy now.
You might think of put options as something to trade when markets are dropping, like they did in March.
But the reality is there are opportunities to profit from weak stocks everyday.
In fact, some of the best put options to buy can be found in bull markets.
The coming year is shaping up to be an explosive one for the stock market.
Between vaccines and economic aid, pent up demand is going to be unleashed like we haven't see in a long time.
That's especially good news for options traders.
The potential movement in the stock market form this rally could make for some very profitable traders.
And to help you uncover exactly how to play them, we're showing you the best call and put options to trade right now.
The secret to profitable options trading is to avoid going with the crowd.
When everyone is doing the same thing, chances are the crowd could be stampeding over a cliff.
Right now, with stocks trading at record highs, you don't want to fall for the hype and ignore all the signs that maybe a bump in the road is coming.
It's near the end of the year and one of those bumps comes from money managers and investors looking to harvest tax losses to reduce their overall tax bite before the new year.
That's fueling our best put options to buy now...
Pandemic or not, remote work is here to stay.
And there are several factors pointing to why more and more businesses will be adopting the trend.
Plus, this shift to a remote work environment is more significant than you think.
It could impact your portfolio in a big way, when you use this easy play to cash in….
Many people fear volatility in the market.
It's no wonder because the media constantly harps on how volatility is bad for your investments.
What they don't tell you is that volatility cuts both ways.
If there were no volatility then there would be no movement in the market.
Everything would just sit still.
That means no gains.
The truth is we need volatility.
And that's doubly true for options trades.
Volatility is where the paydays come from.
In fact, Money Morning Quantitative Specialist Chris Johnson says volatility is a trader's best friend and right now one of his best options trades could help you reap the most of a December volatility spike.
With all the hype in the market these days as the economy recovers, the vaccines are rolled out and more stimulus from Washington seems to be just over the horizon, you've likely noticed options contracts are getting very expensive.
Those high prices for contracts take the wind out of sails when it comes to trading options.
For one, higher prices means more risk since you have more to lose.
And when you start at a high price, there may not be as much room for the trade to profit.
We have a solution for that problem, and it's making for our best call options to trade right now.
The market’s about to get bumpy as we head into year-end trading, so the VIX has turned on the “fasten your seat belt” light in response.
But you shouldn’t fear volatility.
Find out why “Volatility is a trader’s best friend” and how it can hand you a 52% profit opportunity….
Some traders think it's too late to trade retail stocks this holiday season.
With retailers generally booking the bulk of their yearly profits during the holiday shopping season, you would think that those gains are already baked into the cake.
Those traders are wrong and they're missing out on very profitable trading opportunities.
But you won't be.
Today we're showing you one trade with plenty of juice left this year, and it's fueling our best call options to trade now.
The FAANG stocks are giving us an excellent opportunity to "sell the news," as the old adage goes. But selling your stock isn't nearly as profitable as this "sell the news" AMZN options trade I'll show you how to execute right now...
It's the time of year when investors expect Santa to come to town, stuffing their stockings with profits.
Over the years, there has been an upward bias in December dubbed "the Santa Claus Rally" and it has been a reliable tendency to spread holiday cheer.
Since 1945, December has had an upward bias - nearly 1.5% on average - with about a three in four chance of producing winning trades.
This year is shaping up to be no different.
And we're going to help you make the most of it with the best call options to trade right now.
This was no ordinary year.
And that means traders can't rely on ordinary strategies to make money.
In a typical year, traders could count on certain stocks to perform well during the holiday season.
Call them Christmas stocks or what you like, but some companies make their year during the holiday shopping season.
This year that formula it adds up to a disappointing winter for some of the most popular Christmas and holiday stocks.
But there is still money to be made here.
You just have to dig a little deeper.
You'd have to be living under a rock not to know about the incredible year Tesla Inc.
(NASDAQ: TSLA) is having.
You could've picked up shares for a mere $73 at the March low.
As of Dec.
2, they were over $559 per share.
That's a 665.8% gain in just over eight months.
It's not stopping there.
Tesla is slated to be included in the S&P 500 this month, meaning index funds will have to buy up more shares of the stock, while Tesla will be thrust onto the radar of even the most conservative investors.
That has traders salivating at the opportunity to make money on Tesla.
Today, we'll show you exactly how to trade options on Tesla stock to make the biggest gains over the next few months.
With three COVID-19 vaccines getting close to approval and production, there truly is an end in sight to this year's virus and lockdown nightmare.
The question for traders is what to buy as the economy roars back to life.
After getting smacked down in 2020, you can bet that the public is itching to get back to normal.
That means unleashing huge pent up demand for goods, services, business upgrades and travel.
And our experts can help you find the biggest opportunities right now.
Today, we'll show you the best call and put options trades our experts have uncovered.
