Wednesday, April 4, 2012


Hi Folks,

Option trading provides many advantages over other investment choices. They offer leverage, defined risk, insurance and the ability to profit in bear, bull or flat markets.

I primarily only buy options and do not sell options unless I am executing a vertical spread. Most of my trades are directional bets. There are two main vehicles in options trading. They are calls and puts. A call gives you the right to buy a stock at a certain price, known as the strike price, at or before a defined expiration of that option. A put is the opposite; it gives you the right to sell a stock at certain price at or before a defined expiration of that option. Options are traded in contracts. Generally 1 contract equals 100 shares of the underlying stock. For example, let’s say that you feel that AAPL is going to move higher in the immediate future. At that time AAPL is trading at $600/share. If you wanted to buy 100 shares of AAPL you would need $60,000. If instead you look to the options market, you could buy 1, 620 call for $4. That would only cost you $400(1 contract = 100 shares x $4 = $400). If AAPL trades up to $640/share, your option is worth $20(640-620(strike) = $20) for a value of $2000. That is a 400% return. If instead you bought the 100 shares of stock your return would only be 6.6% instead of 400%.
Until recently options were only offered with monthly expirations. They expire the 3rd Friday of each month. You could buy the current month options and various months in the future up to and including several years in the future. Now many stocks and ETF’s offer weekly options. The new series for the next week of trading are available to trade starting the Thursday preceding that week’s expiration. For example the weekly options that expire on Friday April 13th are available to trade on Thursday April 5th. The growing popularity of the weekly options leads me to believe that soon most stocks and ETF’s will also offer weekly options not just the monthly options.

A great deal of the technical analysis that I do allows me to spot short term price moves in stocks. The moves generally unfold anywhere from 1-7 days. This makes trading weekly options ideal for what I do. I get to maximize my trading capital to take advantage of the short term price swings. I have defined risk as I can only lose what I spend on the options. Generally my winning trades offer anywhere from 100 – 400% returns on those trades. Of course not all trades are winners but even if you are only right a little better than half the time this strategy works well. I have been fortunate enough to win 75-80% of my trades.

You can get a list of the all of the weekly options that are offered at:

Thanks and Good Trading,