Ken Trester here. Over the next few days I’ll share a three-part series that reveals powerful lessons I’ve learned in my 45-year trading career.
I call it How to Score Big Profits from Tiny Stock Moves — and it’s yours free as a member of the InvestorPlace family.
As you’ll see, my trading focuses on 3 proven principles of wealth-building:
- Risk the absolute minimum to make each trade.
- Turn trades fast, so your money always works harder on your behalf.
- And use the profit-maximizing power of stock options to earn 10-20 times more money than the average investor.
Perhaps you already trade options — you’ll enjoy the extra “spice” I can bring to your trading.
But even if you’ve never traded options, it’s easy to enroll in options trading at your online brokerage.
Today’s trading platforms make it simple to trade with just a couple of mouse-clicks.
And best of all, you don’t need to be a fat-cat to play. A trading pot of just a couple thousand is enough to reap oversized profits.
The trades themselves are pretty simple. But if you’re not familiar, here are how the 2 basic types of options work.
By buying a call option, you get the right (but not the obligation) to buy stock (i.e., to “call” it away from its owner) at a specific price. In other words, you can “call” shares away from their owner. That right becomes more valuable as the stock does — so typically, you buy calls when you’re bullish.
That’s just what we did with OFG Bancorp (OFG) a few weeks ago:
At the time, OFG stock was at $16.50, and our OFG calls cost just 40 cents. Since a call-option contract corresponds to 100 shares, we paid just $40 to control 100 shares of OFG.
But we never needed to touch the shares at all! Instead, as OFG climbed 6%, we turned a profit on our OFG call option itself — for a 50% gain on that very same stock move.
On the flip side, a put option gives you the right to sell stock (or “put” it to someone else) at a specific price. That right becomes more valuable as the stock moves lower…so you buy puts when you’re looking to profit on the downside.
VanEck Vectors Gold Miners ETF (GDX) gave us just that opportunity — right on the heels of our OFG trade:
[GDX chart from late July to late August. Circle Aug. 3 with caption: Bought puts here — and circle Aug. 13 with caption: Sold puts here. Add arrow tracing the downward move in the stock. Header across the top: A fast 81% in downside profits!]
Sensing that GDX was about to plummet, we bought GDX puts.
The great thing about doing this with options is that we knew exactly how much money we would have to put up. If you decide to short a stock and it continues to move higher, your losses are potentially unlimited
But with our GDX puts, the meager $0.60 ($60) we paid to open the position is the most we could ever lose — and our profit potential was far greater than if we’d shorted the stock. Before you knew it, our puts were up 81% (on just a 5% drop for GDX itself).
In fact, oftentimes, the price you pay at entry ends up being much more important than your exit price.
As far as I’m concerned, this is the most important key to long-term success: The price you pay — more about that in Part 3 of this series.
Trading options really amps up your profit potential!
Consider these real-life examples from Power Options Weekly:
Options help you magnify the profits in tech stocks. We owned Qualcomm (QCOM) “calls” when the stock popped about 2.2%.
Grocery stocks may seem boring, but our profits at Power Options Weekly are anything but. When Kroger (KR) rose some 2.1%, our calls soared 89%!
Traditional retail may be in trouble, but that’s good news for savvy options traders. When Best Buy (BBY) dropped 29%, our puts soared.
Trading stock options is simply the easiest way for the average Joe to bank huge gains from small moves in America’s favorite stocks.
And the biggest profit potential comes from out-of-the-money options, which are significantly cheaper, often because they’re undervalued. These are the two factors I consider most with my option recommendations at Power Options Weekly.
You see, stock options can either be “in the money,” “at the money,” or “out of the money,” depending how its strike price compares to the stock itself.
A call option is out of the money when its “strike” price is above the price of the underlying stock shares. And it’s in the money when the strike price is below the underlying shares.
A put option, meanwhile, is out of the money when its strike price is below the underlying stock shares. And it’s in the money when the strike price is above the underlying shares.
A call or put option is at the money when its strike price is the same as the underlying stock (or very close).
At-the-money options are typically much more expensive — so as out-of-the-money options move closer and closer to the strike price, they get more valuable.
As Facebook (FB) fell from $25 to $23, our FB $23 puts gained 66%…
Halliburton (HAL) climbed from $42 to $45, and our HAL $44 calls jumped 82%…
Harley-Davidson (HOG) dropped from $57 to $53, and our HOG $55 puts exploded for 167% gains.
And because out-of-the-money options are generally the cheapest, we were able to turn a greater percentage return – with less money at risk – which is why we only trade out-of-the-money options at Power Options Weekly.
More coming your way
Don’t forget to check your email tomorrow.
There you’ll find my second installment of How to Score Big Profits from Tiny Stock Moves, as I show you how to reap fast profits every week of the year.
You’ve got to be in the game consistently to make money.
You need to turn trades quickly to keep your trading kitty working for you.
And the only way to become a better, more successful trader is by trading…and trading some more.
I look forward to sharing more with you tomorrow.