You have in your hands the best guide to making money in the markets you can get.
And that's no accident. You see, my mission in life is simple: share everything I've learned over the past 30 years trading so that you can achieve everything you've ever wanted and set yourself up for a comfortable financial future - the easy way.
Now I grew up in a town outside of Pittsburgh. I didn't come from much and found myself busting my butt working 40, 50, even 60 hours a week just to get ahead. But eventually, I realized I didn't want to live my life on someone else's terms for someone else's bank account - and on someone else's watch. That's when I decided to take control of both of my finances and my future.
So, while working as an information technology (IT) manager at a large hardware chain, I taught myself how to trade options in my spare time. And I guess that IT stuff paid off, because it turns out that I had a knack for it - so much so that I was eventually able to co-found and build (along with three of my business partners and friends) the successful options education company, Optionetics.
To emphasize the importance of the success of our students, our mantra was "Empowering Investors with Knowledge." We were the largest and most respected options education company in the world, teaching students in North America, Europe, Asia, and had offices in the U.S., Australia, and Singapore.
Optionetics became so successful and highly reputable that a large brokerage firm acquired us. At that point, I could have packed my bags and walked off into a very comfortable retirement. But I made it my mission to give back by teaching others how to trade their way to a lifetime of peace and success - using options.
And let's face it, the time's never been better...
We're dealing with an ever-changing market and political landscape that can cause a lot of doubt when it comes to investing and trading. It may even feel like stuffing your money under a mattress is the safest thing to do right now.
But while you certainly won't lose any money this way, you definitely won't make any either. In fact, sitting on the sidelines during times of market uncertainty is actually one of the worst decisions you could make when it comes to your bank account.
Here's why...
Despite that old-school, traditional investment "advice," you can make a killing in the market whether it soars to new all-time highs, plummets to historical lows, or does nothing at all. And you can do it without ever spending a penny of your hard-earned cash buying and holding stocks.
Therein lies the reason behind this guide: to arm you with the tools you need to build a lifetime of wealth.
My goal here is to show you the basics of options, but that's not all. This manual is chock-full of hard-hitting trading tactics and techniques - including some of the secrets I've used to make millions. In no time at all, you'll be learning how to do this on your own.
First, we'll talk about why trading options is the fastest-growing moneymaker in the world, how to predict any stock's next move (yes, you can predict where a stock's price will go), and why 98% of stocks and exchange-traded funds (ETFs) are junk.
Then, we'll go over the basics of options and exactly how to open your account, including how to choose your broker.
Finally, we'll talk about the dos and don'ts of trading options, including how to trade through volatility.
Let's get to work!
To kick things off, I'm going to share a tightly guarded piece of intel the suits on Wall Street don't want you to know.
It's something they've been hiding because it levels the playing field and gives you a real shot at making some serious cash...
The kind of cash that can pay off all your debts, send your kid to a nice four-year college, or cover that dream vacation you've been wanting to go on.
Here it is...
Most stocks and ETFs are trash.
That's right - pure junk.
Now I realize this probably goes against everything you've ever been told. In fact, I'm sure that at some point in your life, you've probably been told to dump your cash into a bunch of different stocks, mutual funds, and annuities to make the most of your portfolio.
But here's the problem...
Right now, there are over 4,000 public companies listed on U.S. exchanges and over 25,000 different stocks to trade worldwide. And the big banks and brokerage firms want you to gamble your money on all of them. The worst part is... they don't actually care which ones you buy and sell, and they definitely aren't trying to help you minimize your costs (and broker fees) and maximize your profits.
Whether you're buying stocks, mutual funds, annuities, or anything else - the Wall Streeters want you to spend your hard-earned cash on investments that'll take 10, 15, or 25 years to give you a mere 10%. Keep in mind that's 10% in a good year - if you're lucky. Most of the time, the returns are far less than that.
It doesn't matter if your trade is a winner or a loser, your broker gets paid in fees and commissions. And let's say your investments actually make you some money, the big investment banks are taking those thousands of dollars you've worked your entire life to save and are spending it on risky speculative investments for the sole purpose of enriching themselves.
That's how they rig the game against you.
They're not looking out for your financial interests or your financial future. And that's exactly why it's time for you to take back control.
But with 25,000 stocks... where do you begin?
Tom Gentile has lined up 10 stock patterns – including tickers and projected surges – that you can trade today. Readers have already won big from his custom-built system, scoring 63% in eight days… 76% in six days… 90% in just over a week, and more. Learn more.
It starts with getting rid of the junk - you know, the 98% of stocks and ETFs out there that simply aren't worth a single penny. Even that latest initial public offering (IPO) that's getting everyone's attention, that hot stock tip from your friend, and that company you've spent hours researching and are convinced is a sure bet most likely belong in the junk pile.
So let me show you how to filter out the only stocks worth trading...
How to Find the Top 10 "Movers" to Trade
With so many "junk" stocks and ETFs out there, the last thing I'd ever recommend is trying to sort through all the optionable stocks (stocks that offer options) one by one - that will eventually drive you crazy. Fortunately, I've developed a great method to whittle it down to the 10 best stocks at any given time.
Now I use my proprietary tools to run a scan that searches for what I call my "Top Movers." First, I look for only the stocks with options that trade in penny increments, typically within a $0.05 bid/ask spread. That narrows it down to around 250 stocks in total.
You can find that list of stocks without your own software by looking at the Options Penny Pilot list on the Miami International Securities Exchange (MIAX) website and clicking on the "CSV" file under "Classes in Options Penny Pilot Program on the MIAX Emerald Exchange."
But even though you know exactly where to go, sifting through 250 stock charts to look for the most volatile ones is still a lot of work.
Here are the three parameters to cut that number down even further:
This is a snapshot of the stocks that meet the criteria above and have been on the move over the previous seven days. Keep in mind that this list changes daily, so these results could be different from what you're looking at when you open it:
You'll often see ETFs in a few of the top spots, but we've got a solid collection of stocks here, including Apple Inc. (NASDAQ: AAPL), AbbVie Inc. (NYSE: ABBV), and Amazon.com Inc. (NASDAQ: AMZN).
The two most important numbers to use in combination with this list are the stock's percentage move over the last seven days and how well the stock correlates to the SPDR S&P 500 (NYSE: SPY). Using those two numbers allows you to figure out how well a stock moves and if it's moving with or against the markets.
Once you have this list of stocks, you can run any number of screens and filters to assess which of these "Top Movers" would make the best option play.
And in Part 2, I'll debunk another one of the biggest financial myths out there today: you can't predict a stock's next move.
You can - and I'm going to show you exactly how.
At some point in your life, I'm sure you've heard the following "conventional wisdom" from the financial pundits on TV, your spouse, a friend - heck even your broker:
You can't predict the stock market.
Now, it's true that markets themselves are fickle beasts and are often driven more by emotion than by sheer logic and reason.
The same goes for stocks, which is why you'll often hear traders and analysts talk about "sentiment," or how the markets "feel" about a particular stock.
But while it's true that there's no (literal) crystal ball out there to tell you exactly what will happen in the stock market, you can predict where a stock or ETF is moving.
Ten hot stocks with massive upside potential: Tom Gentile has found a way to squeeze profits out of Wall Street’s biggest names – giving folks the chance to make 25%, 75%, even 100+% on any given trade within a few days’ time.
That's right.
With the right tools, you can determine what a stock's price will look like tomorrow, next week, next month, and beyond.
And it all boils down to these two little charts...
1. Open, High, Low, Close (OHLC): This tracks a stock's or ETF's open, high, low, and closing price of each trading day. This is the most import type of chart that exists because it reveals the patterns that identify trends, such as reversals and inversions. In fact, every other chart out there comes from this one:
What you're looking at above is an example of an OHLC chart that I pulled using my proprietary tools. The bars can represent different time increments (one minute, one month, one year, etc.); however, the standard time frame for this type of chart is one day. Regardless of the time increment the bar reflects, each bar will represent the open, high, low, and closing price of that time frame.
The high is marked by the extreme top part of the vertical bar. The low is marked by the extreme low of the vertical bar. A small horizontal line connected to the left part of the vertical bar represents the opening price. A small horizontal lined connected to the right part of the vertical bar represents the closing price:
Here's an example of a bullish and bearish chart:
2. Candlestick: this chart not only tracks a stock's or ETF's opening, high, low, and closing prices - it also shows the range between the opening and closing prices as well as the highs and lows of the day. This is my favorite type of chart because it gives you an even better picture of trends that are forming or reversing in the markets.
Here's an example of a candlestick chart that I pulled using my proprietary tools:
The distance between the opening and closing price is called the candle's "real body." The wick is the high above and the low below the opening and closing prices. If the opening price is higher than the closing price, then the real body of the candle is drawn in red or black. On the other hand, if the closing price is higher, as we like to see in an uptrending (bullish) market, then the real body is usually clear or white. Keep in mind that these colors can vary from chart to chart.
You'll also see that, in addition to the real body, most candles have upper and lower shadows, which are drawn in as a single thin line from the top or bottom of the candle. These lines reflect a stock's or ETF's highs and lows. The upper shadows reveal the highest price achieved during the trading period while the lower shadows reveal the lowest price achieved during the trading period:
The last hour of the trading day is the most important one because it gives you clear clues as to where a stock (and the overall market) is heading next.
Now there's a wide variety of patterns you can spot using candlestick charts, but these are the only two you need to know right now:
The most important thing to remember is to trade what you see - not what you feel. You probably know or have heard of plenty of people who trade on emotion and the fear of missing out (FOMO) instead of facts and numbers. These are the ones who put their entire life savings into Enron back in 2001 before the scandal broke because it "felt right."
But I know from my 34 years of trading experience that it's not the only one...
In fact, there's one mistake investors and traders alike make each and every day in the stock market -and it's a big one.
And in Part 3, I'll tell you exactly what it is...
When I asked some of my readers to share what they thought was the number one mistake people make in the stock market each and every day, these were a handful of the answers I received:
And I agree! These are some pretty bad mistakes...
But if you've fallen victim to any of these, too - it's not your fault. You're simply trying your best to follow the "advice" you're getting from Wall Street and the pundits on the news networks, such as dollar-cost averaging your way into the big-name stocks.
Here's the real problem...
The people giving that advice don't care about your bottom dollar at the end of the day - they care about lining their pockets with your hard-earned cash. And in the cases above, these investors lost a lot of money that will take a long time to get back through any traditional form of investing (if at all).
Tom Gentile has found to beat Wall Street bigwigs at their own game – giving folks the chance to win big. He’s lined up 10 stock patterns, including the stock names, how much they could increase, and when he believes it’ll happen. Just follow his instructions step-by-step.
Traditional forms of investing like this old buy-and-hold method Wall Street wants you to use will get you nowhere - and fast. We covered a couple of other examples of this already.
So it's time we talk about trading options - or what I like to call "flipping" stocks - INSTEAD of buying and holding them.
What most of the billionaires and hedge fund managers on Wall Street want you to believe is that options are too risky, too complicated, and simply not worth your time. They'd rather have you dump hundreds of thousands of dollars on the most expensive stocks out there - so they can take the profits. And they're counting on the misinformation they've put out there about options to keep it that way.
The truth is... the entire reason listed, exchange-traded options first launched in 1973 was to mitigate risk in the stock market and give you leverage. When you buy a stock, you're at the mercy of the markets, which could cost you big time. In fact, U.S. stocks are more expensive now than ever before. So, for example, if you want to buy one share of Amazon.com, Inc. (NASDAQ: AMZN), you would have to spend well over $1,500 dollars... for a single share. And more often than not, people want to own more than a single share of stock in their portfolios.
But with options, you can actually control 100 shares of expensive stocks, like AMZN, for less than $500. So while Wall Street wants you to shell out over $150,000 for 100 shares of AMZN, you don't have to. You could pay $500 or less to essentially "rent" 100 shares of the stock instead. And since you can control shares of a specific stock, you can also increase your leverage without tying up a large amount of capital in your trading account. In fact, most brokerages only require a deposit of $2,000 or less to get started.
The Wall Street guys don't want you to know this.
In fact, here are eight reasons you should be trading options right now:
1. Options Can Easily Double - or Triple - Your Money
Options offer an amazing versatility that you can use in a variety of ways to profit from a rise or fall in the underlying market. Call options let you profit from rising stocks, whereas put options let you profit from falling ones - all without risking any more money than you put in at the beginning. And in times of high market volatility, options are a welcome relief from the uncertainties of traditional investing methods.
2. Options Safely Provide You with Leverage
With the current price tag on U.S. stocks, most investors have to dump thousands of dollars buying a single share of stock - and hoping that stock soars.
But with options, you can actually control 100 shares of an expensive stock like AMZN for as low as even $500. Just imagine the kind of money you could make controlling 100 shares of stock at $500 compared to trading just one share of stock at over $700.
3. Options Reduce Your Risk
I'm willing to bet that you have insurance on your car or house because it's the responsible - and safe - thing to do. Think of options in the same way. They can provide you with that same kind of safety net for your investments and trades.
Options are extremely flexible and offer strategies you can use to boost your profits while minimizing your risk... a luxury that basic stock positions simply don't offer.
4. Options Allow You to Trade All Markets
With options, you're not limited by market direction. Whether the market moves up, down, or sideways, there's always a way for you to profit using options.
5. Options Aren't Just Tools for the Elite Anymore
Options used to be reserved for the elite few. Not anymore. Now options are accessible to all people, and virtually any discount broker provides access to them. That's why you're seeing more and more commercials about them on TV compared to even a few years ago.
6. Options Let You Start with Very Little Money
One of the best benefits of trading options is that you don't need much money to start. While the minimum amounts to start trading vary from broker to broker, most brokerages only require a deposit of $2,000 or less.
7. Options Have Never Been Easier to Trade
When people first started trading options, they mainly had to rely on newspapers and brokers to find, place, and track their trades. Nowadays, you can search for and place your trades online. And you can track your trades in a matter of seconds - and free of charge - using financial websites like www.cboe.com or finance.yahoo.com.
8. Options Let You Create a Constant Stream of Income
And maybe best of all, simply by adding options to your portfolio, you can quickly - and easily - create a potentially unlimited stream of income.
With all these benefits in mind, let's take a look at what, exactly, options are...
In its most basic form, an option is a contract between a buyer and seller. There are two types of options: calls and puts.
A call option gives you the right to buy a stock at a particular price (strike) until a particular date (expiration). Buying a call is bullish. If the underlying stock (the stock that an option gives you control over) goes up, calls increase in price.
That means, if you buy a call, you gain the right to buy 100 shares of the underlying security at a predetermined price. If instead you buy a put, you gain the right to sell 100 shares of the underlying security at a predetermined price.
Below is an example of what a call trade looks like on an options order form using SPDR Gold Shares (NYSE: GLD). Depending on the broker you use, your order form could look slightly different - but all of the information is the same:
Now let's look at a put...
A put option gives you the right to sell a stock at a particular price (strike) until a particular date (expiration). Buying a put is bearish. If the underlying stock drops, puts increase in price.
That means, if you buy a put, you gain the right to sell 100 shares of the underlying security at a predetermined price.
Here's an example of what a put trade looks like on an options order form:
Let's talk about what all of this means...
Strike Price
The predetermined price (agreed upon by both the buyer and the seller of the option) at which the call buyer can buy his shares, and the put buyer can sell his shares, is also called the strike price.
Let's go back to the chart above on GLD.
In this case, the stripe price is $125 per share. The words "strike price" are usually omitted when describing an option - for example, this "$50 Strike Price Call" option on GLD shares would be called a "$125 GLD call." Similarly, buying a "$125 put" on GLD shares gives you the right (but not the obligation) to sell 100 GLD shares at $125 per share.
This is true regardless of high or low the underlying security goes prior to the expiration of the option.
For example, if you bought the "$125 call" on a stock that rises to $250 per share, you can exercise your option to buy the shares for half their going rate - just $125 a share. If you sell them straight away after exercising, your profit will be $125 per share (minus the cost of the call itself).
On the other hand, the person who sold you the call has to sell you those shares for $125 per share, even if this means they have to first go out to the market and buy them for twice that - $250 per share.
Call options with strike prices below the underlying stock's current price will be more expensive because they are worth more, while call options with strikes above the underlying stock's current price will be cheaper because they are only valuable if the stock rises in price.
Think of it this way: Everyone wants to have the right to buy shares below their current price (which is what a call with a strike price below the stock price gives you the right to do), and few want to pay for the right to buy the same shares at a premium.
Expiration Date
Every option has a set date in which it expires, called the "expiration date." Most options traded in the U.S. expire on the third Friday of their designated expiration month. Using our same GLD example, an "August 2016 $125 call" would expire on the third Friday of August 2016.
However, there are many other kinds of option to choose from:
• LEAPS or Leaps - an acronym for Long-term Equity Anticipation Securities - which have nine or more months to expiration.
• 30-, 60-, 90-, or 120-day options, depending on the cycle in which they trade. This is determined by the Chicago Board Options Exchange (CBOE).
• "Quarterly" options, which expire on the last trading day of the designated quarter.
• Weeklys, which are short-term options that expire in one week or less. These options are quickly growing in popularity among options traders and now represent 20% of the total option volume.
So, once you know where you believe a stock will go - up or down - the first thing you need to do is pick an expiration date and a strike price.
Let's look at another example...
In the option table below on Apple Inc. (NASDAQ: AAPL), the expiration date shown is Nov. 15, with AAPL trading at $240.
You can see that the table has calls on the left and puts on the right. Strike prices are down the middle. For APPL, the strike prices are in $2.50 increments. These increments vary by stock.
The bid is the sales price of the option, and the ask is the purchase price of the option. So, for example, the Nov. 15 AAPL $240 Call would cost you $7.05 - the ask price. If you were to immediately sell the same option, you would get $6.85 - the bid price. The difference between the bid and the ask is called slippage, the amount you essentially need to make back in order to break even on the trade. It's important that you don't put yourself into too big of a hole, so be sure to keep your slippage ≤ 10%.
You can calculate slippage on your own by using the following formula:
In the case above, slippage = ($7.05 - $6.85) / $7.05 = 2.8%, which is well below 10%!
Remember - a successful trader is a rules-based trader. Avoid any options that don't satisfy this rule.
Now, there are a few other terms to know when navigating the option table that will lead to another important rule.
In the option table above, the ATM options are shown with blue text. That's an easy one! With AAPL trading at $240, the ATM strikes for both calls and puts are $240.
The ITM options are shaded in gray. The OTM options are unshaded. Notice that ITM options cost more than OTM options and get costlier as you go deeper ITM. The inverse is true for OTM options.
Now that we've established some terminology, I can reveal a secret only known by the pros...
OTM options double faster than ATM or ITM options.
Furthermore, the doubling "sweet spot" is generally just a few strike prices OTM, which leads me to an important rule for maximizing your profits when selecting options:
Fastest Double Rule: Buy options 1-2 strikes OTM
Now that you know how to spike the best strike price in an option table, you need to know which expiration date to pick.
This one's simple:
Expiration Date Rule: Buy 60-90 Day Options
The reason for this has to do with time decay - but we'll save that for later. First, let's talk about something called "exercise" and "assignment..."
To put it simply, expiration is the last day an option can be trading. Exercise: the point at which the buyer or seller activates (or "exercises") his or her right to buy or sell the underlying stock. Assignment is the point at which the seller of the option is obligated to (or "assigned") the terms of the contract. For example, if a put option is assigned, then the seller will be obligated to buy shares of the underlying stock at the agreed upon strike price.
Understanding how options are valued is a crucial part of harnessing their power. But in order to trade like the pros, you need to know the breakdown of option pricing...
Using Option Valuation to Churn Out Bigger and Safer Profits
Unlike a stock, options are derivatives. That means their value is derived from an underlying stock, amongst other things.
Now we've already talked about some of the moving parts used to calculate an option's value, like strike price and expiration. And now, we're going to focus on two more key ingredients...
You'd probably never think of options and milk as having anything in common. But the first thing to understand about an option is that it has a shelf life. Like milk, options have an expiration date. And the amount of time left before this date hits has a value.
This is called time value, and it is baked into an option's price.
Remember - time costs money. So, if you buy an option that expires in a year, it'll cost you more than one that expires next month. It's like sand dropping through an hourglass. As time passes, the time value of an option decreases.
Let's say, for example, a $5.00 option has $2.50 of time value. The remaining $2.50 is called real value (also known as "intrinsic value").
The instant you buy an option, that "sand" in the hourglass of time starts flowing, and you're in a race against time. The stock must move quickly enough to offset the time decay in the option.
Unknown to most novice option traders, the sand falls at a faster rate as the expiration date approaches. In other words, time value erodes faster and faster as the option approaches expiration, meaning you have to be right on direction faster. Time decay is biggest in the last 30 days.
That's why buying 60-day or longer options is a good way to avoid excessive time decay.
Here's another rule: buy 60-90 day options and exit all options with 30 days to expiration.
Now, onto the second half of an option's value. Real value is the portion of an option's value that is intrinsic (or essential) to the option. This is why it's also called "intrinsic value." It's the amount that the option must be worth based on the rights it provides.
For example, if XYZ is trading at $50, an XYZ $45 call (which provides the right to buy XYZ at $45) must be worth at least $5.00.
That's because if you were to exercise your right (to buy or sell the underlying stock), you would buy the stock for $5 less than it's worth. So, the option must be worth at least that.
An option that has real value is considered "in-the-money (ITM)."
Real value is easily calculated, as shown below:
So, in the example above, if the XYZ $45 call is worth $7.00, with the stock trading at $50, then this option has $5.00 of real value.
$50 - $45 = $5.00
The remaining $2.00 is time value.
If the stock stays flat, then the risk in this trade is $2.00 that will be realized upon expiration.
Taking a look at the option table below, you'll notice that ITM options (shaded gray) all have real value. ITM options will also have time value, provided there is still time before expiration.
Options that are "at-the-money" (ATM) or "out-of-the-money" (OTM) all have time value only.
Time Value Trade-Off
You may be thinking that you should always buy ITM options to reduce the amount of time decay risk. And sure, it's a logical assumption. But the truth is that there's a trade-off. Options that are ITM have less time value and, therefore, less time risk. Options that are ATM or OTM have nothing but time value and are completely at the mercy of time decay.
That means OTM options with 100% time value also double your money faster than ATM or ITM options. So, if you want to make more money faster, you'll want to deal with time decay full on. Be sure to have a strong directional opinion backed with a solid time target!
On the other side of the coin, if you want the option to behave more like a stock, you'll want to use ITM options to squeeze out as much time value as possible.
Here are some rules to help you decide what type of options to use:
And remember your at-the-money (ATM) options, too. When you're day trading, an ATM option could be your best bet.
And that's it - congratulations! You are now equipped to navigate option tables like the pros.
So let's put everything together and take at a real trade I recommended to my premium subscribers in July 2019 on Booking Holdings Inc. (NASDAQ: BKNG)...
Back then, things were looking real good for the company - and the stock. Now, knowing that, you could've easily followed Wall Street's playbook and taken the traditional, conservative route: buy shares.
But at the time, BKNG was trading at $1,898.42 per share. That means you'd need to fork out almost $2,000 to add one measly share of stock to your portfolio. And let's be honest... owning one single share of BKNG won't be enough to supplement your income - or cover that dream vacation you've been wanting to go on.
Plus... since you're buying stock shares outright, you could theoretically lose every single one of those dollars you put in if the stock plummets to zero. That's nearly $2,000 in the hole - or worse if you bought more than one share.
Now in my book, that's not worth the risk - not even a little.
And that's exactly why we trade options.
In fact, members of my premium trading service got the opportunity to "rent" 100 shares of BKNG - for only $450. That's over a 76% discount on the stock - plus 99 additional shares.
Imagine buying 100 shares of BKNG the way Wall Street wants you to - that'd cost you no less than $18,984.20. Just think about the other kinds of expenses you could pay off using that money instead of buying one single share of stock.
This is the kind of cash Wall Street wants you to spend - knowing you'll need to keep dumping this kind of money for years before you even see any kind of significant return.
But my members, using the same strategies I'm going to show you, had the chance to pocket 148.11% total gains.
You know how much the stock itself moved during that 16-day time frame? Only 2.24% - peanuts to the gains my readers locked in.
Here's how we did it...
My Money Calendar showed me that BKNG made an upward move 100% of the time between July and August for the past 10 years.
This told me that there was a 100% probability that it would move in this direction again over the trading date range and that we only needed a slight movement in the stock to hit our double. And in only a little more than two weeks, we made over 66 times more than the stock itself.
Look at how one of my subscribers did:
"I made 101.4% gains, $1,299.00. I'm retired and it is helping us live in the lifestyle we were accustomed to prior to retirement!"
Remember, it's not just the stocks that are climbing higher... you can make money whether the market's up, down, or sideways.
Here's how my readers cashed in on a falling stock in July 2019...
Schlumberger Ltd. (NASDAQ: SLB)...
At the time I was interested in trading SLB, the stock was only trading at $37.79 per share. And if you wanted to buy 100 shares, you're looking at $3,797.
Now "conventional wisdom" tells you that you simply can't make money when the market's falling - which is why a lot of everyday investors often stay away from anything that's not going up.
But I know the profit potential exists on even your worst-performing stocks when you're trading options.
So here's what we did...
The Money Calendar showed me that SLB made a downward move in nine of the past 10 years between the end of July and end of August...
That means there was a 90% probability of SLB making that same exact move again in 2019. And for only $160, my subscribers were able to "rent" 100 shares of the stock - a nearly 96% discount from buying 100 shares outright.
Here's the best part...
Before this pattern even ended, we had already more than doubled our money - closing the trade out for a combined 169.69% gain.
This is what one of my subscribers had to say...
"I made 100% - or $2,250 - and am trying to find a path to $1M for retirement."
So you can see why I love options - they're extremely lucrative and easy to trade when you know how to use them - which is exactly why I'm here.
And in Part 5, I'll show you just how easy it is to get started...
If you've got a retirement account, such as an IRA or a 401(k), you can actually trade options in it. In fact, all you need to do is contact your broker to get it converted for options trading. Then, you're ready to move on to the next step: getting your options clearance.
But if you don't have an existing account or would prefer using a separate account for options trading, you'll need to choose a broker first.
It's important to have a broker that actually specializes in options trading, not a stock broker with a small options platform on the side. There are only a small handful of them that do it right. Here's the way most brokers are broken down:
Full-Service Firms
These are brokerage firms that have advisory services and typically move their clients into managed accounts. They may or may not have an active trading group, and if they do, it may be just for their full-service clients as a way of keeping them happy. Commissions are typically on the high side of the range, as they provide full service, including your own individual investment advisor.
No-Service Firms
These brokers typically offer a downloadable platform for executing trades, but do not offer any client services beyond this. Execution and commissions may be great, but don't hold your breath if you have a question for this group, because chances are, they don't have a big support team to offer phone support. I personally like this group, but it's only for the most experienced traders who won't need much, if any, support.
Discount Option Brokers
This is the sweet spot for most traders. Most brokers of this type offer web-based platforms, with some downloadable platforms, great execution, and middle-range commissions, but also offer phone support if needed.
Keep in mind that your broker may not be familiar or comfortable with the idea of flipping stocks and trading options. In fact, they may not even understand it.
I get it. Many brokers don't.
You see, most financial advisors have never spent the time learning how options actually work. It makes up only a tiny portion of the licensing exams advisors have to pass.
So it's no wonder they don't feel comfortable advising you on how to trade options - and might even try to scare you away.
But they're dead wrong. After nearly 30 years of trading and teaching options, I can tell you from first-hand experience that when used correctly:
Options decrease risk and boost profits.
If your broker advises against trading options, please show them what you've learned so far and how you can use options to boost your gains tenfold.
And if your broker is still reluctant, consider changing to a different one. These are currently the best online brokers, as rated by Barron's. Any one of them would be glad to help you.
Barron's Best Online Brokers
Web Address
Phone Number
Please note: We don't receive any compensation from any of these brokers, in any form.
The choice, of course, is yours. Remember, unless you're with a full-service firm that charges you $50 in commissions on each trade (which for daily options trades can end up being very expensive), then you should factor in your needs and experience as a trader, as well as commissions, slippage, and execution as the total expenditure in trading.
And in Part 6, I'll show you exactly how to get your account ready to trade...
Now that you know how to choose your broker and what the process of opening your options account entails, that means you're almost ready to trade.
So naturally, the next step is trading, right?
Not quite...
Trading options is simple, and the benefits speak for themselves: lower cost, lower risk, greater potential gains...
But before you can actually place your first trade, you're got to get your "options clearance."
Now this won't get you access to any classified information... But it will get you approved to start trading options. Options clearance is basically when your broker asks you a series of questions to determine the types of options you'll be able to trade in your account.
And I've broken down the process of opening your options account into five very easy steps. Keep in mind that while all brokers will ask you these questions, the specific order and phrasing will vary. In this guide, I've given you examples of the questions you'll be asked based on Charles Schwab's application process.
Let's jump in...
STEP 1
The first thing you need to do is get whatever clearance lets you buy "calls" and "puts." Clearance levels can vary from broker to broker but typically include four levels (some include five).
The other thing your broker will ask you is whether or not you want "margin trading" or "margin" added to your account. A margin account is a basically a "loan" given to you by your broker.
This allows you to enter certain trades that could potentially end up costing you more money than you initially put in them. You don't have to worry about this when it comes to either of my services, though. Since you only need, at minimum, Level 1 clearance, some brokers won't require you to open a margin account. And keep in mind that you can always apply (or re-apply) for a higher clearance level. All you need to do is call your broker.
Let's move on to the next step..
STEP 2
After you've chosen the clearance level you want, your broker will then collect your personal information (such as your income, employment, and trading experience). Like the clearance levels, these questions could vary depending on your broker, but the purpose is the same: verify your identity and determine your suitability for options trading.
STEP 3
When you get to questions about your annual income and net worth, remember that this is only used to determine what types of options you can trade as well as to verify your identity. It's similar to the information you'd provide when filing your annual tax return, too:
Many brokers ask for both "total net worth" and "liquid net worth." As the definition in the margin explains, liquid net worth includes all investments that can easily be turned into cash, including funds, stocks, and so on.
However, liquid net worth does not include any real estate investments. So don't include the value of your house here.
Your total net worth will include all of your liquid net worth, as well as any illiquid assets you may own (such as real estate).
And don't worry if this seems too complicated to figure out on your own... Charles Schwab, for example, has the Personal Net Worth Worksheet you can use. There are also plenty of calculators and other helpful tools online you can use, such as the "What Is My Net Worth?" Calculator.
STEP 4
The second-to-last step in getting your options trading clearance is providing some information about your trading experience and knowledge. Now this isn't a trick question... you'll want to check the box under knowledge level based on how much you know about options trading. If you've never heard of options (until now, of course), you'll want to check the box next to "None" under "Knowledge Level."
If you've heard of options before, then you'll want to check the box next to "Limited" under "Knowledge Level." If you're pretty familiar with options, you'll want to check the box next to "Good" under "Knowledge Level." And if you know options like the back of your hand, then go ahead and check the box next to "Extensive" under "Knowledge Level."
The same thing applies to "Options Trading" below...
If you've never traded options before, you'll want to check the box next to "None." If you've placed an options trade before but are still pretty new to them, you'll want to check the box next to "Limited." If you trade them pretty regularly, you'll want to check the box next to "Good." And if you're trading options like a pro, then go ahead and check that box next to "Extensive."
STEP 5
Now the only left for you to do is sign and mail, fax, or upload (depending on your broker) your application. That's it!
And remember, if at any point during the application process you have any questions, don't hesitate to call your broker and ask. Their job is to help you, after all, and they'll able to clear anything up in no time.
NEXT STEPS
The next thing to do while you wait to receive your options clearance, is to take some time to get familiar with how to trade options. Once you get your clearance, I'd also suggest practicing placing your first few trades using your broker's "virtual trading" or "paper trading" system. These allow you to enter, follow along, and exit a trade as per usual, but without using any money.
Now of course, that also means you can't make any money. But it's a great way to get acquainted with options in general, and your broker's platform in particular. I recommend all my readers use paper trading until they get comfortable - in fact, I wish I'd used it back when I first got started with options.
And remember, if at any point you're not sure what to do, never hesitate to contact your broker. As a customer, they owe you time on the phone to make sure you're buying the option you want to buy.
Having covered the basics of options, let's look at the do's and don'ts of trading options in Part 7...
DO No. 1: Have a Trading Vision
Knowing why you want to trade is one of the most important steps toward achievement. That "why" is what will light you up, giving you the motivation you need to succeed.
In fact, this is the most critical step in creating anything in life. You should be able to feel your vision driving you in each present moment. That's when the magic really starts and when your vision is most likely to come true.
So, do this for your trading. Build a vision of what you want in your abundant life, and don't hold back. Trading will be your cash machine.
Then, take action!
The first thing to do is build a series of steps to begin trading. Create a trading plan with each step identified, along with when it will be completed.
DO No. 2: Only Trade Liquid Options
Liquidity is the gauge of how much trading activity there is on an option, which helps assess how quick you can open or close a position in that option. There are three numbers that can tell you how liquid an option is.
Some traders prefer the "open interest" value of the option to be above some number before they think of the option as liquid enough to be safely tradable. "Open interest" is simply the total number of option contracts that are not closed; that is, the total number of options contracts that have yet to be closed and haven't expired yet.
Other traders will talk of some number of contracts or a certain "volume" being required before an option is deemed liquid enough. "Volume" is just the number of contracts traded for that day.
Both of these factors do speak to the liquidity of an option, but the truest measure of high liquidity is how close the bid and ask prices of the option are - or, as it's often called, how tight the bid/ask spread for the option is.
Now, an option's bid price is the highest current offer to buy the option. An option's ask price is the lowest current offer to sell the option. These are usually quoted next to the actual premium of an option (which is at the level where one trader's ask price matched another trader's bid price).
The tighter the bid/ask spread, the higher the liquidity. The difference between the bid and ask prices is sometimes called "slippage." My rule of thumb is to never trade options that have a slippage greater than 2% of the price of the underlying stock.
Another way to think of slippage is as the difference between a theoretical entry and exit price. The bid/ask on options is usually quoted like this: 2.00 x 2.20. This means the option could (typically) be bought at $2.20 (the ask price) and could be sold right away for $2.00 (the bid price). The $0.20
difference is the slippage. Suppose that the option's underlying stock is trading at $25 and the option's slippage is $0.20. Then the slippage ($0.20) is less than 2% of the underlying stock price ($25 x 0.02 = $0.50), and it meets my rule of thumb of keeping slippage under 2% of the underlying stock price.
This gives me confidence in being able to liquidate my option without having to wait for a bigger move in the price of the underlying stock and means that the option should be able to cover the slippage quicker.
In other words, I make sure that the slippage is no more than 2% of the underlying stock price, because that way there's a higher chance for the option to become profitable, and I'll have an easier time of getting rid of the option in a timely fashion once it is profitable.
DO No. 3: Keep Your Risk Equal Among All Trades
One money management rule of thumb in trading is to keep your risk the same on each one of your trades.
Options traders run the risk of seeing two or three trades in a row end up profitable and growing over-confident. Here's what I mean: Let's say you develop a new strategy and spend $500 per trade on each of your first three trades, and you double your money, ending up with an extra $1,500.
When the time comes to set up the next trade, you may be so confident from your first three trades that you decide to trade, say, four times as many contracts as before, risking $2,000 on the fourth trade. As fate would have it, that is the one trade that turns out to be a loser - and not only wipes out the money you put on that trade, but the gains from your previous three trades as well.
If you set a profit limit of, say, 100% to the upside, then money management rules dictate that your trading method or strategy needs to deliver winning trades more than 50% of the time.
In other words, if you spend (or, which in this case is the same, risk) $500 on every trade and your goal is to make another $500, then every successful trade (every trade that gets you your $500 back and an additional $500 profit) only makes up for one losing trade (a trade where you lost all $500): you need at least one more winning trade than losing trade to maintain the overall profitability of your trading strategy.
If you feel that a greater-than-50% winning percentage is going to be tough for your strategy, consider leaving your upside open, instead of limiting it to 100%. Or, when you get to a 100% gain on your option trade, consider closing half your position if you can and moving your stop or closing order to break even. That way, you've recouped your initial investment cost (selling half of a position that has doubled in value is in effect the same as selling the whole position at its original value), and the remaining half of your position is still open for you to take advantage of any additional price gains. What you do to manage your upside is the one thing I feel an option trade can be flexible about, but I would strongly suggest you set in stone a rule of thumb as to your risk level per trade.
DO No. 4: Assess and Feel Good About the Price Move Needed
Now, when thinking about the upside or profit goal of your trade (100% return on investment? 50% per trade?), the best thing you can do as an options trader is use a set of option analysis tools that can help you calculate the price move in the underlying stock required to make the option premium rise to the level you're looking for.
DO No. 5: Take a Loss
This may surprise you, but I believe one of the best things that can happen to a brand-new trader is to take a loss.
Don't get me wrong. It's great to win, like we have, and be profitable on your first trade, first five trades, or even your first 10 trades. But an immediate winning streak like that may be setting you up for disappointment later.
Why?
Too much success can give new traders an overinflated amount of confidence. You start to think that trading is easy and there isn't much to it. That whatever you used to choose the winning trades is ALL you will ever have to use, that you found the magic bullet to trading success. You start taking more and more risks... and then disaster.
Look, I can speak to personal history that all I have mentioned is possible... because it happened to me when I started out.
I look back and think if I had suffered a loss or two or more to start, I would have had to learn earlier what it takes to manage a trade when it goes against you.
DO No. 6: Practice, Practice, Practice
In any business, you need a high level of expertise in order to succeed. This is particularly true in trading - but getting that expertise is easy. All you need is education and practice!
I have been teaching people to trade for decades now and have seen thousands of people gain trading expertise.
Mathias Jefferson is one of them. In fact, he made $3,500 off of a single trade! He said, "Tom, I have made a ton of money from your services. They are truly changing my life for the better. Thank you!"
Mathias isn't the only one, either. Terry Talbot made $1,750 in one day - all while the market fell 600 points! She said, "I have made much more money than I have lost. I am now positive for the year - something I haven't been for the past 20!"
My life goal is to help you trade your way to a life-changing amount of money. Mathias and Terry are just two among many people that I have helped - and you could be next.
Whichever way you decide to educate yourself, just do it! As long as you have the correct trading knowledge, you'll be on your way to success in no time.
Of course, there are also a number of "Don'ts" you should stick to in order to increase your success with trading options.
DON'T No. 1: Place Market Orders
When placing your open order on an option, it's best to go with a limit order rather than placing a market order. A market order is an order to buy or sell at whatever price the market offers, whereas a limit order is an order to buy at any price up to a price predetermined by you (the "limit price"), or sell at any price down to your limit.
As you can imagine, a market order is very risky. You are allowing the markets to stick you with a price that may be higher than you want to pay. The only way to not pay more than you want for an option is to place a limit order.
While the fact that I am looking for options with a low slippage percentage keeps me (and anyone else adopting the same rule of thumb) from getting in too much trouble with a market order, it's still best to stay in the habit of using a limit order when opening options.
There are two main kinds of limit orders you can use. First is the day limit order, which when possible fills at your specified limit price, and if it can't, it will expire at the end of the trading day.
Second, there's the GTC (good-till-canceled) limit order, which when possible fills at your specified limit price and if not will expire in 30 to 90 days (or when you cancel it yourself).
And remember to be patient. I've seen students cancel their order within an hour after making it if it doesn't fill, only to find out that if they'd just let it play out, they would have gotten the fill they wanted.
Be patient and if your day limit order doesn't get filled one day, consider placing another one for the next day if the trade still looks viable, or simply look for another opportunity on another stock, or the next week.
When determining your limit orders, your main concern should be not getting stuck having paid too much for any trade. If you want to go about $0.05 or $0.10 over the current price to have some wiggle room and have a higher chance to fill your trade, I won't stand in your way. But don't be so afraid of missing out on a trade that you overpay - that just decreases your potential gain, and increases your chance of a loss.
Which brings me to my next "Don't..."
DON'T No. 2: Chase the Trade
Do not chase the price. Sometimes in the first hour of trading, the markets will show option pricing adjusting up and down without any rhyme or reason until all the orders settle and the market makers get a grasp on where the pricing should be.
This can cause option traders to go crazy watching the prices of their options bounce all over, their orders not filling, only to see option prices start going higher than their limit price. That's when the fear of not getting in the trade at all sets in.
If the markets are fast, and there is more demand than usual and the option pricing starts spiking higher, be diligent with your limit order. Do not chase the price higher. 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. There's nothing more painful (in option trading, at least) than seeing the price of an option come down just after you bought that option at the high of the day.
Here's an example. Suppose you set a limit buy order for a weekly option at $1.00 and your goal is to get a double. When the price moves up to $1.50 or even $2.00 without your order filling, it's best to leave your $1.00 limit order intact and see if prices settle back, or to call it a day and try again tomorrow or try to find another opportunity.
If you find yourself trying to get a fill at 50%-100% higher than your initial limit order, that may be a sign that the option is moving too fast and you should wait. In fact, sometimes it may be better to not get your order filled than end up getting the option at a price you didn't want.
DON'T No. 3: Overtrade
My third "Don't" comes back to the rules of money management. As you saw previously, one of my "Do's" for successful trading of options is to equalize the risk of every one of your trades. As I mentioned then, that means you need to know your risk per trade, as a percentage of your overall portfolio.
You should also know what the maximum amount of money you can trade with is. Remember, never trade with money you can't afford to lose. Discuss this with your financial advisor, broker, CFP, or all the above, and when you have that established, do not exceed that limit no matter how well your trades are going until you revisit your situation with you financial professionals.
DON'T No. 4: Wait Until the Last Minute of the Day to Exit Your Trade
This one is simple: Never wait until the last possible moment to exit your trade, because chances are the price you get will be worse, because of low liquidity and the time decay of your options. In addition, the longer you wait, the higher the risk that your exit order won't be able to be filled at all, leaving you with either worthless options, or having you exercise them as the only way to make a profit.
One way to avoid this, and also increase your chances of hitting your profit target, is to use day limit orders (see Don't No. 1). Suppose your profit target is a double. If so, then once your order is filled and you've entered your position, create a new limit order to exit your position once the value of your option has reached your profit target - in this example, double what you paid to enter.
DON'T No. 5: Trade Without Rhyme or Reason
Too many people jump into the stock market as a way to "get rich quick." Now, I'm all for getting rich quickly, but you just can't do it without some sort of plan. And the best one to use (and my personal favorite) is rules-based trading.
This is basically planning your trade and sticking to your plan, no matter what the headlines are saying or the markets are doing. You're not trading on emotion (which is the fastest way to lose all of your money). You're not just guessing and hoping for your trades to work out - you've got a clear set of rules. That method isn't something you can quantify or backtest. It's really not a method at all.
Think about it...
You'd never buy a house or a car without knowing exactly what you want, how much you're willing to pay, and when you want to pay it off. So why would you ever put your hard-earned money into the markets without knowing exactly what you want, how much you're willing to pay, and when you want your profits?
DON'T No. 6: "Bet the Farm"
You can think of these "all-or-none" investors like the guys who spend all day and night in casinos. They start out with the smaller bets at first but then believe they've found the secret and put all their chips on the table for that one big win. But 10 seconds later, they're sulking away from the table with their tails between their legs because they just lost everything they had.
Investors do this, too.
They suffer a few small losses and then feel as though the markets "owe them" for those losses. So they put all of their money on that one trade they think will give it all back to them. This is trading on emotion and without a plan (which we talked about earlier). And unless it's your lucky day, you're looking at losing all of your money - on one single trade.
So don't bet the farm on one trade. Instead, consider risking no more than between 2% and 5% of your account per trade.
By following these three rules, you won't have to worry about losing money. Instead, you can focus on making it.
And during times of high market volatility, here are the three things you want to do:
1. Don't Panic
The worst thing you can do to your portfolio is to make any kind of trading or investing decision in a knee-jerk reaction to whatever's triggered uncertainty in the markets. So never deviate from your long-term strategy.
Short term drawdowns are just that - short term.
2. Tighten Your Trades
Less right equals less loss - and over a volatile period in the markets, you may want this kind of protection.
For example, let's say you have $1,000,000. Do you keep 40% cash and put the remaining 60% to work in other investments and trading? And that's just one of the many questions you should ask yourself.
And once you have those numbers, you should have a risk profile for each and a target expectation of what you want to accomplish profits wise.
By adhering to this plan, you'll know if you're reaching your goals.
Now, I typically don't have more than 20% risk across everything - but this is what works for me. Risk assessment is different for everyone. This would be a great thing to discuss with your broker or financial advisor.
3. Create Portfolio Protection
In a falling market - always consider using put spreads market averages such as the SPDR S&P 500 ETF (SPY). Spreads offer us protection and less risk when the markets turn sideways.
Talk to your broker about spread trades and see if they fit your portfolio and trading style.
One final thought...
BE PERSISTENT
Persistence is crucial to your trading - and your financial - success.
The most important thing you can do as a trader is to be persistent and make your money work for you. Step outside of the traditional forms of investing and be confident in knowing that everyone takes a loss from time to time, including me. It's OK... it's about the overall number of winning trades versus losing trades. So don't let one bad trade get you down.
My goal in this guide has been to show you how and why I trade options, what strategies I use, and the time frames I look for, so that you can do the same. I hope reading it has helped boost your options trading confidence and profits.
Tom Gentile has found a way to squeeze profits out of Wall Street’s biggest names – giving folks the chance to make 25%, 75%, even 100+% on any given trade within a few days’ time.
Today he’s lined up 10 stock patterns, including the stock names, how much they could increase, and when he believes it’ll happen.
Just follow his instructions step-by-step.
