Options Talk – Going Long
Without a doubt options are the most exciting – and potentially profitable – way to play the stock market. Of course, as with any high-reward strategy, the risk is just as high.
So a trader needs to be smart when delving into this method of trading. At Financial Reboot options are a huge part of the strategy we use to get our clients huge gains.
Options are a complicated method though. And if you’re a new trader or even one with a ton of experience trading stocks, it can be very intimidating.
So let’s take a look at one of the most common options trading strategies out there – Going long.
The great thing about options are they allow a trader to play a stock, ETF, etc., with little capital up front. The profit potential is also larger but as we mentioned above, the risk is much higher.
This shouldn’t deter you though. If you play it smart, you’ll do fine. So how do you play it smart? That’s what we’re here for. So let’s get started.
As mentioned previously, options are complicated. So the first thing we want to do is keep things simple. Over the years the gang at Financial Reboot have tried and tested a ton of formulas and methods.
By following this simple formula, we will guide you through a simple options trade. Now, depending on when you read this blog, the trade me be old and done. But it’s not the trade that’s important here. It’s the steps we took to find that trade and make money of it.
Let’s start with the steps we took:
- Find the stock or ETF you think is going to go up
- Use the free tool at optionsprofitcalculator.com to find the right contract
- Decide on an entry point
- Place the trade
- Cash in
Step 1: Find the stock or ETF
We made this blog on 9/13/2016 when the markets were blood red. Things were really ugly but we felt like the selling was overdone and there was a bounce in the cards. We decided that the SPDR S&P 500 ETF (SPY) was the right play for us.
We also like that this is one of the more liquid ETF’s out there so we could get in and out quickly and easily.
We found our stock/ETF: SPY
Step 2: Use the free tool at optionsprofitcalculator.com to find the right contract
Ok, we are rolling now. So we pulled up the free tool and we started looking at different contracts. We wanted to give ourselves some wiggle room so we decided to look at the September 30th expirations.
We also looked at a chart of the S&P 500 to make sure we were being realistic about our price goals. We felt like $216 was a realistic target for the S&P 500 over the next few days.
We were getting a quote of $1.16 per contract so we popped all that info into the site and this is the profit chart that popped up…
Isn’t that amazing? Everything you need to know about that contract in one simple picture!
Without having to decipher Beta’s and Gamma’s and all that other complicated mush, exactly what the profit percentage of that contract will be at any given point of the trade.
We decided we liked what we saw, so we decided to dive in and move to the next step…
Step 3: Decide on an entry point
We liked our odds at $1.16 so we decided to put our order in.
Step 4: Make the trade
The ask was jumpy so we used $1.17 as our offer. We ended up getting 50 contracts at an average of $1.1684 for a total investment of $5842.00.
We are in!!
We are ready for the best part…
Step 5: Cash in
As of the close we are up about $300 on the trade. What will tomorrow bring? We will update this blog so be sure to check back.
So this was a very simple method to make a solid option play. The world of options is much more complex though. Could we have found a better contract? Maybe, maybe not. Could we have used a different option strategy to make bigger profits? Probably.
But the bottom line is using a style that any trader can follow, we are sitting on a tidy profit.
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