My Simple Approach for Trading Options

by Hilary Kramer | July 1, 2013 10:35 am

My Simple Approach for Trading Options

I love digging for moneymaking stocks in both GameChangers and Breakout Stocks under $10. And I will continue to work tirelessly to find the absolute best opportunities in those services – stocks that have powerful catalysts and trends to drive them higher over time. I invest a significant chunk of my own money in those kinds of stocks, and I think they should be part and parcel of what any investor does.

But what you may not know about me is that I also invest in options. I think smart investors should also profit from short-term opportunities, especially in a volatile market. The market is right where it was a month ago, so if you invest in an index fund, you’re even. But there has been a lot of movement in that time, and options can help you profit from that movement.

So if you want to make money as the market finds its footing, you can consider shorter-term options trades. Options can be used in a variety of strategies. They can offer protection from a decline in a stock’s price. They can enable you to control shares of a stock for less money down than buying the stock outright. Options contracts can let you buy a stock at a lower price, sell a stock at a higher price, or create additional income against a long or short position. You can also use option strategies to profit from a move in the price of the underlying asset regardless of market direction.

There are two basic types of options: calls and puts. Calls give the buyer the right, but not the obligation, to buy a stock (i.e., to “call” it away from its owner) at a specified price during a specified period of time. Typically, you buy calls when you’re bullish about the direction of the market and/or about a particular stock’s prospects.

Put options give you the right, but again not the obligation, to sell a stock (or “put” it to someone else) at a specified price during a specified period of time. Put buyers more often are bearish on the markets and/or a stock’s potential, so they purchase puts to profit from a downside move.

A call option trade I wrote about earlier was in Tesla (TSLA[1]). Tesla has been on a tear the first half of the year, having more than tripled in the past six months. Now this company has two things going for it: their product and the CEO.

Tesla, as you may know designs, manufactures and sells electric cars and electric vehicle power train components. And while the vehicles aren’t cheap (some run up close to $100,000), the company has customers willing to pay the price. The company’s CEO, Elon Musk, is the genius behind the product, and his innovative ideas are why the company has done so well.

I thought the stock was due for a breather, but I expect another leg up. Call options were a good strategy to profit. To hear more about the Tesla trade and the buy price I recommend, make sure to take a look at my full recommendation on 24/7 Trader’s Trade of the Day[2].

Endnotes:
  1. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
  2. Trade of the Day: http://investorplace.com/247trader/trade-of-the-day-tesla-motors-tsla/

Source URL: http://investorplace.com/2013/07/my-simple-approach-for-trading-options-tsl/
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