Yesterday, I went live to drop a new, cheap option trade recommendation.
The trade filled yesterday afternoon – and we’re off to the races.
Already today, this trade is in the green and on its way to an asymmetrical return. As I type, it’s up 11%.
You can track this trade’s performance – and the rest of our open positions – right here in the Profit Takeover portfolio.
You can also check out a replay of yesterday’s webinar on the Profit Takeover media page. We talked about the Fed, the dollar, cheap options – and I answered a ton of reader questions.
And while we’re on the topic of reader questions, let’s get into today’s mailbag issue of Ask Me Anything questions!
We’ve got a great round of Qs today. I’ll update you on our losing SLV position…
Show you how to choose the right strike price for a profitable cheap options trade…
First up, we have one of my most popular questions – one that I touched on during yesterday’s webinar, in fact.
Murali – and a few other readers – want to know what the heck is up with silver.
It’s no secret that our iShares Silver Trust (NYSEARCA:SLV) July 16, 2021 $26 call is at a fairly steep loss.
As I type, this position is about 84% down.
Now, we still have 21 days until this trade expires on July 16. And while this trade may not turn to a win, we have time to cut the loss.
Today, in fact, this option is up 18%.
So, for now, we’re going to hold on to this one. You can track its performance along with me on the Profit Takeover portfolio.
And the moment it’s time to exit, I’ll send an email straight to your inbox.
Now, I’ve got a couple of questions from some of our beginner Profit Takeover traders…
First, let’s review…
|Option Type||In-the-Money (ITM)||At-the-Money (ITM)||Out-of-the-Money (OTM)|
|Call||Stock price > Strike price||Stock price = Strike price||Stock price < Strike price|
|Put||Stock price < Strike price||Stock price = Strike price||Stock price > Strike price|
Now, as you know, an option’s value changes as the underlying moves. The further ITM the option goes, the greater its worth.
So, I see where Althea’s question is coming from. An OTM option won’t gain value as quickly as an ITM option, because it doesn’t move as closely in sync with the underlying.
And OTM options are significantly cheaper to buy up-front. They’re the key to option trades under $1. So, in the end, the trade-off is greater leverage on a move in your favor…
Which is exactly how we bank asymmetric returns.
And lastly, let’s talk trading platforms…
Let me start this off with a warning. Spreads are a great strategy to cut your risk in the market – but I’d advise against putting real money into a spread trade if you don’t have much experience.
Luckily, most brokers won’t let you. That’s where options clearance comes in.
Before you can trade any type of option, you’ll need to get clearance. Basically, your broker will ask you a bunch of questions regarding your experience in the markets, and then assign you a level of options clearance.
These levels vary from broker to broker, but spreads are always a step above simple calls and puts.
I know, I know – how do you gain experience trading options if you aren’t allowed to trade them in the first place?
Well, platforms like ThinkorSwim and Tradestation actually offer electronic “paper trading.” This way, you can trade options without any real money at risk, practicing more advanced strategies as you learn – and that’s exactly what I’d recommend for beginner traders.
But remember – my Profit Takeover trade recommendations will always be straight calls and puts, which are typically on the lower end of options clearance levels.
Giving regular traders from all experience levels the chance to take over Wall Street.
Have a great weekend,
June 25 2021