options trading Archives | Bulls on Wall Street

Stock & Options Trading Strategies – Combining Both For BIG Gains

Evan Seech — Sat, 15 Jul 2023 20:05:47 +0000

In the dynamic world of financial markets, traders are always on the lookout for strategies to maximize their profits. One powerful approach involves combining options and equity, utilizing the strengths of both to create a winning trading strategy. In this blog, we will explore how to blend options and equity in a simple and effective way, allowing you to increase your gains while managing risk. Join me as we dive into strategies and considerations that can lead to substantial profits in your trading journey.

Understanding Options and Equity

Before we jump into their combination, let’s understand the basics of options and equity trading. Options give traders the right (but not the obligation) to buy or sell an underlying asset, like stocks, at a predetermined price within a specific timeframe. Equity trading involves buying or selling shares of a company’s stock, aiming to profit from price movements. By using both options and equity, we can create a powerful trading strategy that brings the best of both worlds.

Hedging with Options

Options can act as a form of insurance in equity trading, helping to protect against potential losses in volatile markets. For example, if you own a portfolio of stocks, you can buy put options as a way to safeguard your investments. If the market experiences a downturn, the put options increase in value, offsetting the losses incurred from falling stock prices. This approach allows you to protect your capital while still being exposed to potential gains.

Generating Income with Covered Calls

A covered call strategy combines equity ownership with options writing. Here, you simultaneously hold a stock and sell call options against it. By selling call options, you earn a premium and generate income. If the stock price stays below the strike price until expiration, you keep the premium and continue holding the stock. However, if the stock surpasses the strike price, you may have to sell the stock at that price, limiting potential gains. This strategy helps you earn income while benefiting from a stable or slightly rising market.

Leveraging Options for Better Returns

Another way to combine options and equity is through leveraged strategies that amplify your returns. For instance, you can use options to control a larger position in the underlying equity with less capital. Instead of buying 100 shares of a stock, you can buy call options on the same stock. If the stock price rises, the call options increase in value at a faster rate, resulting in significant gains relative to your initial investment. However, remember that leverage also increases risks, so use caution.

Synergistic Strategies: Straddles and Strangles

Straddles and strangles are options strategies that allow you to profit from significant price movements, regardless of the direction. A straddle involves buying both a call option and a put option with the same strike price and expiration date. A strangle, on the other hand, involves buying out-of-the-money call and put options. These strategies work well when you expect large price swings but are uncertain about the direction. By combining these options positions with an equity holding, you can create a winning strategy for volatile market conditions. These are one of the best options trading strategies you can adopt for risk mitigation and income generation.

Check out a visual breakdown of a straddle below:

Check out a visual breakdown of a strangle below:

Managing Risks and Diversification

While combining options and equity can boost your gains, it’s crucial to manage risks and diversify your trading. Options trading comes with its own set of risks, including the potential loss of the entire premium paid. Assess your risk tolerance carefully, use appropriate position sizes, and diversify your trading strategies and underlying assets to minimize potential losses. Stock and options trading is risky, but with the right stock and options trading strategies you can crush the markets in a safe and efficient manner!

If you want to watch a deeper breakdown of this concept and dive into some examples, Kunal dropped an awesome YouTube video explaining this all in detail that you can watch here: https://youtu.be/m-CNNAwlFmM

By combining options and equity in your trading, you can unlock a world of opportunities to maximize your profits. With a simple and straightforward approach, you can harness the benefits of options strategies while capitalizing on equity market movements. Remember to focus on understanding the basics, managing risks, and continuously learning. With practice and experience, you can master the art of combining options and equity, bringing you closer to your financial goals and trading success.

Ready to launch your stock trading career? Apply for our 60-day LIVE Bootcamp right here: https://bullsonwallstreet.com/register/christmas-60-day-bootcamp/

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Vega Definition: Ultimate Guide for Learning to Trade Options

Kunal Desai — Mon, 18 Feb 2019 23:59:59 +0000

Last definition over the series! We are back on the Greeks! Yesterday you learned about implied volatility and why you need to understand the concept for buying and selling contracts. Today’s topic is another topic that is directly related to implied volatility: Vega.

What is Vega?

Vega is simply the value an option price will change with a 1% move in implied volatility. Like with other greeks, it doesn’t have any effect on the intrinsic value of options but is an indicator of potential future value. It is only a measure of the potential fluctuation in contract value with a change in volatility. In general, the more time remaining until contract expiration, the higher the vega. When you are far away from a contract’s expiration, a greater proportion of the option’s premium is accounted for by time value, and the time value is sensitive to changes in volatility. Remember that a portion of a contract’s premium is made up of time value, and this proportion changes as you approach the expiration date.

Example

Let’s examine a 30-day option on SQ stock like we did yesterday with a $50 strike price and the stock trading exactly at $50. Vega for this option could be .05. In other words, the value of the option might go up $.05 if implied volatility increases one point, and the value of the option might go down $.05 if implied volatility decreases one point. If you looked at the 365-day at-the-money SQ option, Vega could be as high $.30 meaning the value of the contract could fluctuate by as much as $.30 when implied volatility drops by a point.

Why It Matters

As IV increases, the value of the options contract will increase as well. This is because the anticipated volatility would cause the stock to potentially increase in even more value, causing the value of its options to appreciate. When volatility drops, we subtract vega due to the drop in IV. Vega and implied volatility are more predictable than a stock’s direction because it is so correlated with time. Since Vega is related to implied volatility, it is a measure of the market’s expectation of a change of volatility in the time period of the contract. If you’re feeling confused, don’t worry: We’ve got more educational material to help you out!

6-Day Live Options Bootcamp

Options are a great way to build wealth, even if you have very little capital. Risk management is even more important in options trading than stocks to the volatility in contract pricing. My 6-day bootcamp will take you A-Z on everything to do with options, and teach you how to survive and thrive! If you still feel baffled by the terminology and are interested in learning more about options and learning proven options trading strategies, you should check out my upcoming live 6-day live trading bootcamp. It will teach you everything you need to know about how to trade options successfully. C]]>

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Implied Volatility Definition: Ultimate Guide for Learning to Trade Options

Kunal Desai — Mon, 18 Feb 2019 00:22:08 +0000

Finally giving you guys a break from the Greek terms! In yesterday’s article we discussed Theta, a crucial concept to understanding how to trade profitably. Today we will discuss another critical concept in option contract pricing: Implied Volatility (IV).

What is Implied Volatility?

Implied volatility is the estimated volatility of a stock’s options contracts in the future. It is sometimes denoted by the Greek letter Sigma, but it usually referred to as IV. Like with historical volatility, this is expressed on an annualized basis. It is typically more of interest to retail options trader than historical volatility because it is more forward-looking. In general, implied volatility will increase when the market is in a bearish trend, and decrease when the market is in a bullish trend. Implied volatility is a method of estimating future fluctuations in a stock’s value based on specific factors. It is a crucial factor in the pricing of options contracts. You want to use options that are at the money to determine what IV is for an option.

Factors That Affect IV

There are a variety of factors that affect a contract’s implied volatility. Many of them are based on events affecting the price projections of the underlying stock. It could be an earnings announcement, statements from an FOMC meeting, drug trial results, and other events that will likely affect the price projection. The higher the value, the more expensive the contracts are since there is more premium due to the higher risk investment. IV is expressed as a percentage of the underlying stock price. You just need to understand a very basic statistical concept to understand implied volatility: A stock should end up within one standard deviation of its original price 68% of the time during the upcoming a year, a 95% chance it will end up within two standard deviations, and 99% of the time. Don’t be intimidated by the math. I am just explaining that so you know how it is calculated. You do not have to worry about that for buying and selling contracts.

Example

Let’s say that imagine that the stock is trading at $50, and the implied volatility of a call option contract is 20%. This implies there’s a consensus in the marketplace that a one standard deviation move over the next 12 months will be plus or minus $10 (since 20% of the $50 stock price equals $10). Here’s what that means in plain English: the marketplace thinks there’s a 68% chance at the end of one year that SQ will wind up somewhere between $40 and $60. It also means there is about a 32% chance the stock will be trading above $60 or below $40.

6-Day Live Options Bootcamp

If you are interested in learning more about options and learning proven options trading strategies, you should check out my upcoming live 6-day live trading bootcamp. It will teach you everything you need to know about how to trade options successfully.]]>

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Gamma Definition: Ultimate Guide for Learning to Trade Options

Kunal Desai — Fri, 15 Feb 2019 22:12:33 +0000

There is a lot of confusing greek terminology in options trading. Hope that yesterday’s article about Delta cleared about some confusion, but we’ve got more coming! Let’s talk about gamma, and what you need to understand about it to trade options successfully:

What is Gamma?

An option contract’s gamma is simply a measure of the rate of change of its delta. The two go hand in hand. The gamma measures the rate that delta changes based on a $1 change in the underlying stock price. Options contracts with high gamma are very responsive to changes in the price of the underlying contract. Contracts with low gamma are not very responsive to change in the stock price.

Example

Let’s look at the Delta and Gamma of stock, and an options contract with a strike price of $50: You can see how when the contract is further from expiration has much lower gamma because the delta only shifts from .32 to .40 when the stock goes from $48 to $49 per share, .1 from $49 to $50, and so on. But when the contract is 1 day from expiration, the volatility in the option price significantly increases. The same $1 move from $49 to $50 causes the delta to go from .1 all the way to .5. This is because as expiration approaches, the underlying stock has less time to move above or below the strike price in the contract.

Why It Matters

If you’re an option contract buyer, high gamma is a positive thing for your position assuming that your prediction is correct and your contract stays in-the-money. When your contract is in-the-money, the contract’s delta will approach 1 more rapidly, causing it to appreciate in value more. But if you’re incorrect in your position, high gamma is a very bad thing for your position. The high gamma will cause your position value to decrease at an increased rate if the option you’ve sold moves in-the-money. Always be aware of how an options contract’s delta and gamma changes as it approaches expiration.

6-Day Live Options Bootcamp

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Delta Definition: Ultimate Guide for Learning to Trade Options

Kunal Desai — Thu, 14 Feb 2019 19:23:14 +0000

Hope that yesterday’s article about expiration dates in options contracts cleared up some confusion people were having. Today we are going to talk about a crucial term and concept in options trading: Delta.

What is Delta?

We discussed in the articles earlier in the series how options contracts pricing is derived from the underlying stock. Delta is the amount an option price is expected to move based on a $1 per share change in the underlying stock. The Delta of a call option ranges from 0 to 1, and the delta of a put ranges from 0 to -1. Traders will often drop the decimal point for simplicity and say 0 to 100 and 0 to -100. Options contracts do not have an exact correlation with the stock price. Options have a different cost basis than the underlying stock, and as a result, move differently than the stock. A 1% increase in the stock value will not result in a 1% increase in your options contract value.

How Delta Changes

Understanding how an option contracts delta changes us will tell us how much the premium of an option will change, determining how much our options contract will appreciate or depreciate in correlation to the stock price. The further delta is from 0, the more of an effect a price movement in the stock will affect the premium. Call contracts have a positive delta, and put contracts have negative.

Example

If we purchase a 10 delta call on a stock and it goes up by $1, the premium on the contract would increase by $0.20. If we purchase a 100 delta call in the same scenario, our premium would increase by $1. It works the same in put contracts but inversed. If you buy a 50 delta put, and the price of the stock decreasing by $1, our premium would then increase by $0.50.

What It Tells You:

In general, In-the-money contracts will move more than out-of-the-money options, and short-term options will react more than longer-term options to the same price change in the underlying stock. As a contract expiration date approaches, the delta for in-the-money calls will approach 1, reflecting a one-to-one reaction to price changes in the stock. Delta for out-of-the-money calls will approach 0 and will not react to price changes in the underlying asset. Here’s why: If they are held until expiration, calls will either be exercised and “become stock” or they will expire without any value. Vice-versa for puts. As expiration approaches, the delta for in-the-money puts will approach -1 and delta for out-of-the-money puts will approach 0. That’s because if puts are held until expiration, the owner will either exercise the options and sell stock or the put will expire worthless. This is a crucial concept for understanding why an option contract is valued at what it is!

6-Day Live Options Bootcamp

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Call Option Definition: Ultimate Guide for Learning to Trade Options

Kunal Desai — Tue, 12 Feb 2019 19:58:02 +0000

Ultimate Guide for Learning to Trade Options

Kunal gets asked all the time if we teach options trading strategies. To satisfy the ever-growing demand, Kunal finally recently asked me to teach Options strategies I use every day to grow my trading account. I’m going to do a series over the next week going over basic options terminology to get everyone started and build foundation knowledge about options trading! If you are interested in learning proven options trading strategies, you should check out my upcoming live 6-day live trading bootcamp.

What is a Call Option?

A call option is a contract that gives the buyer the right (but an obligation) to buy a stock at a price, known as the strike price, on or before when the contract expires, which is also known as the expiration date. An options contract market looks just like the stock market: There is a market of buyers and sellers for options contracts, and these prices will fluctuate. The goal with a call option contract is simply to buy it low and sell it high! Options contracts are deravitive instruments, meaning their price is derived from the price of a stock. You still need to understand how to read stock trends to buy and sell options correctly. When you are holding a call option, you need to pay attention to all the same events as a stock shareholder. Be aware of earnings calls, drug trial results, and other major events that are likely to bring in volatility to the stock, and as a result bring even more volatility into your contract pricing.

Call Option Example

Let’s say you wanted to pay a call option for Apple stock. Apple is currently trading at $170 per share and is currently February 12th, 2019. I will go into the options market and buy a contract that will give me that right to buy 100 shares of Apple stock at $180 on or before May 17th. There are many expiration dates and strike prices for traders to choose from, but we will use this contract simply as an example. As the value of Apple stock appreciates, the price of my option contract goes up, and vice versa. I may hold the contract until the expiration date, at which point they can take delivery of the 100 shares of stock or sell the options contract at any point before the expiration date at the market price of the contract at that time. (we will explain expiration prices in more detail in tomorrow’s article)

Why Use Call Options

Now that you have an idea of what a call option is, you are probably wondering, why would someone use one to bet on the price of a stock instead of just buying the stock itself. One of the primary reasons people use options is contracts is because they tie up less capital than buying the stock itself, and there is more potential upside. If you get in and out of the contracts at the right time, you have the opportunity to make massive returns in a very short period of time. Because of the higher volatility in the options market (and no pattern-day-trading rule), it is easier to turn small amounts of capital into larger sums than trading stocks if done correctly. They are also a great way of hedging risk. ]]>

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How to Use Options To Navigate the 2019 Markets

bullsonwallst — Thu, 20 Dec 2018 17:00:32 +0000

2018 was a great year! BOWS offered it’s first “Beta” Class on Options and I was incredibly honored to have had the privilege of teaching it! TRULY WONDERFUL EXPERIENCE!!!!!

2018, offered countless trading opportunities. We went from a perpetual Bull Market to the Bears starting to take control. We began the year utilizing a lot of Credit Spreads and gradually migrated over to more neutral strategies like: Straddles/Strangles and Iron Condors, complex strategies designed to help us take advantage of the high levels of Implied Volatility that we have been seeing. Utilizing these strategies, we DON’T EVEN HAVE TO PICK A DIRECTION FOR THE UNDERLYING! -Doesn’t matter if it moves up or down to a degree! – We can still profit!

The increases we’ve seen in Volatility only help to improve our options trading! There’s no better time to learn options trading. So “stay tuned” for our next planned Options Class.

Here is an example of some “past and present” trades, where we’ve been able to “follow” an underlying and continue to place repetitive trades to produce wealth building income! Average returns are running 10-15% in ~ 30 days. And we have been able to continue to produce these results over and over again!

$HD Example

Here’s an example of an Iron Condor that was just placed on Home Depot, for a credit of $172 per contact. We sold 4 contracts and anticipate a full profit of $688. Note these are “WEEKLY CANDLES”. This contract will expire on Jan. 18, 2019, we just placed this trade last week. You can see with this high market volatility that we’ve been seeing we have a “MONSTER BREAK EVEN RANGE WINDOW OF” $148-$192!!!!!!!!!!

Here are some “following trades” where we are following an underlying and continuing to make profitable trades over and over again. The boxes represent different trades, over and over again. You can see we got aggressive with an IRON BUTTERLY for a monster $617 per credit per contract! Again, the high level of volatility have given us some great opportunities!

$XBI Example

Holiday Contest 12 Days 12 Prizes

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Options Education Webinar Video

Kunal Desai — Wed, 20 Apr 2011 22:34:43 +0000

Here is the archived video of Tuesday’s options trading webinar. This is a great introduction to options from our friends at tradecaddie.com

TradeCaddie would also like to offer you 2 free weeks free use of their tools. Just use the following promo code:

Promo Code: BIF-937-537

https://www.tradecaddie.com/products/promo.cfm?promocode=BIF-937-537

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