How to trade options a beginner's guide
need to know is in order to make money
in the stock market by trading options
you need to forget everything else that
you've learned I'm serious
like even when I graduated from an Ivy
League university and I worked as an
investment banker that didn't teach me
how to make money in the stock market in
order to make money in the stock market
the only product that you need is
options you and the only way that you
can make consistent profits in the stock
market is by selling options we don't
buy options because buying options even
though one out of ten times or 2 out of
10 times you will end up hitting a
homerun those incremental or additional
eight or nine times out of ten you will
end up striking out and over the long
term you will not make money so by
narrowing down the universe of potential
alternatives that you have it actually
makes it very easy for you to make money
because the only thing that you have to
focus on is by selling options and to
make things even easier about 80% of my
profitable trades are put options so
again we took all of this information
that is thrown out you from news outlets
like CNBC and seeking alpha and we
essentially just narrowed it down to the
only way that people make consistent
money in the stock market is by selling
put options all right now what is a put
option a put option obligates you to
purchase an underlying stock at
a big price at the expiration date so
for example if Facebook is currently
trading at 175 you can agree to buy
facebook at 155 and in exchange someone
will pay you around $1 a share so you
will collect $1 a share and you will in
the worst case scenario buy facebook at
155 95 out of a hundred times Facebook
will not fall to 155 when you will end
up collecting and keeping that $1 in
premium so this is what we call hitting
singles and it's also the reason why you
make money consistently because you are
selling insurance you are acting as an
insurance company and you are being the
casino and not the gambler the casino
makes money because they know that as
long as they have gamblers who are
playing the games then over the long
term they are going to make money in a
statistically profitable manner now are
they going to win on every single trade
or every single person who gambles or
every single roll of the dice or every
single crap or every single blackjack
can no they're not but the longer people
play the more money the casino makes and
that's what we do by selling options we
make money by selling insurance now a
lot of people will tell you that selling
put options is very risky but those
give you an example of how you make
money and how we keep things incredibly
simple let's say you have an account
size of $10,000
the reality is you should trade no more
than two securities those securities can
be something like facebook which is
trading at around a hundred and
seventy-five dollars as of September
2018 and you can also trade let's say
something like a Lockheed Martin which
is kind of an expensive stop so if you
wanted to trade something like a Bank of
America which is only trading it around
31 dollars then you can do that that way
it will conserve your buying power so
let's say you're gonna trade Facebook
and Bank of America
those are the only two securities that
you would ever place positions on when
you have an account size that's below
$10,000 why because it's super easy for
you to keep track of those securities
you can simply log on spend five minutes
every single day watch its trading
history and then sell puts on it back
and forth whenever it gets to the bottom
part of its range so for example around
reason why people don't make money is
because they try to make fast money and
they take too much risk when placing
trades but the way that we trade is by
being extremely disciplined and we
wait for the stocks to come to us before
we make a trade so for example let's say
Facebook's range is at this moment
around 170 to 185 all right unless
Facebook falls below around 174 or 173
we are not going to touch it and we're
not going to so any puts so let's say
Facebook right now it's at 175 and let's
say it falls to around 172 in that
situation we are going to sell a put
with a strike price of around 150 seven
and a half dollars and an expiration of
six weeks out and we're only going to
sell let's say you have ten thousand
dollars we're gonna sell two or three
contracts and in exchange we're going to
collect around $1 20 per share of
premium now one contract is a hunter
share so if we collect a dollar 20 per
share then we're going to collect $120
for agreeing to buy Facebook at a
hundred and fifty seven and a half even
though at that moment when we made the
trade Facebook was only trading at 172
that's how we make money it's extremely
simple
same thing with Thank You America Bank
of America it's trading ranges anywhere
from around $29.50 to around 3150 so if
Bank of America right now it's around 31
if the Falls to $30 a share we are going
to sell the $28 and $0.50 could NH an in
exchange we're probably going to collect
around 40 cents of premium and we're
gonna choose an expiration date that's
six weeks out because it's around
September 1st right now we're gonna
choose the middle of October
put expiration and we're gonna receive
around 40 cents a share or $40 per
contract and in the worst case scenario
we'll either roll that contract and roll
that position or will simply end up
buying and taking ownership of Bank of
America at $28.50 which is a great deal
you can't by Bank of America right now
with $28.50 is currently trading a $31
Bank of America is a legitimate company
you're not gonna have to watch the new
and try to compete on information or
guest prices or anything like that
buying even if you own Bank of America
$28.50 there's an extremely high
probability that you're going to be able
to sell it at a later date for profit
and the only pot and the chances that
Bank of America falls to $28.50 before
your expiration is probably only around
10% so in the worst case scenario you
own Bank of America $28.50 in the best
case scenario you're able to collect a
credit and bring in money and collect
money without having to assume any risk
because Bank of America is probably not
even going to even approach the $28 and
50 cent strike price so again the only
way that you can make money in the stock
market is by selling not buying you sell
option premium then you really limit the
the Securities and the companies are on
my watch lists include things like
Facebook Amazon Boeing Lockheed Martin
positions on in five or six underlyings
that keeps things incredibly simple then
I simply watch the trading range and
whenever a stop corrects and falls to
the low end of its trading range then I
sell a put for around 10% below that the
reason why I made money and Facebook
when it fell from 218 all the way down
to 175 is because for the month prior to
Facebook's fall it actually went up from
$180 to 218 but there was no correction
that enabled me to get involved in that
security so for example I didn't chase
Facebook when it went up from 180 all
the way to 218 instead Facebook was
essentially it went up every single day
and there was no entry point or no
correction or no regression in
price that allowed me to feel
comfortable that I was that it provided
who they was providing me with a solid
entry point as a result I just simply
didn't enter the position
I waited for Facebook to correct even
though correct is substantially it felt
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moment it's not the right time for you
to invest and learn how to trade options
profitably I completely respect that I'm
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it makes me feel good to help others to
avoid the mistakes than I made even
though I had a great pedigree by going
to an Ivy League university and working
well and if you have any questions leave