One Way to Profit in a Volatile Market: Options Trading 101

I was invited to appear as a guest on CNBC yesterday afternoon for a segment on options trading strategies. The very first question from the host was, “What are some of the options strategies you are focused on right now?” 

I’ve personally used options trading strategies often in my nearly 20-year career in the investment industry. At times, I’ve used options to hedge my risk in existing positions, but I have mostly purchased both put and call options outright – making directional bets on individual stocks or market indexes.

In addition to the many options available on popular indexes today, there are also hundreds of exchange-traded funds that now offer listed options, giving traders more flexibility than ever before. While trading options is more speculative than purchasing mutual funds, ETFs, or stocks – it’s really not complicated at all – as long as you stick with a simple directional strategy of trading put and call options.

Options are Great for Playing Sudden Market Shocks

At the Sovereign Society we have an existing signature research and trading service that focuses on currency options, and a new service that we've actually just launched called Market Shock Trader.

I developed this new options service to give Sovereign Society members an easy to follow, no-nonsense way to focus on the big upside profit opportunities in index options and options on exchange-traded funds. In both of these services we recommend simple, directional plays that involve going long both puts and calls – nothing more complicated than that.
 
Perhaps the biggest advantage options have to offer is leverage, which can potentially boost your returns many times over. For instance, it's not uncommon to find attractive options trades where you have 10 to 1... 50 to 1... or even 100 to 1 leverage on the underlying security. This means that even SMALL moves in the underlying index or ETF can mean BIG potential gains from your options.

That said, options are more speculative than many investments, like mutual funds, but are perhaps less risky than futures, so they aren't for everyone. Here's a good rule of thumb when trading options; use only money you can afford to loose if you're wrong, because you will be wrong at times.

Discipline is the Key to Realizing Big Potential Gains in Options

However, if you follow a disciplined options trading strategy, you’ll often be able to position yourself for double- and even triple-digit gains; and these profit opportunities far exceed anything you’re likely to earn from investing in blue-chip stocks or mutual funds.

Let me give you a very recent example of the profit potential in options that simply can’t be matched by other investments.

Global currency markets have been red-hot lately, thanks to increased volatility from the ongoing credit crunch. As a result, we've seen a bit of a “carry-trade” unwind that's boosting the Japanese Yen’s value against most other major currencies.

Our currency options service has been taking full-advantage of this market volatility. In fact, my colleague Jack Crooks recently recommended December call options on the Yen that gained 139% for subscribers – and one of these trades was just a few weeks in the making.

Just to give you an idea about the leverage-advantage of options that I discussed above, the value of the Yen itself moved up less than 4% or so during this time, while the call option surged 139%! Jack also scored gains over 100% on Euro put options in recent weeks too.

This gives you an idea of the big profits that are possible using a relatively simple, straightforward call and put buying strategy.

Tune in to my blog again tomorrow when I'll show you where I'm finding option trades with the best upside profit potential right now.

Comments

[Ron F. Mitchell, Sr.]

? Option trading ?

Yes, I do understand the melt down and a sinking US dollar...

WJAT I DON'T GET IS OPTIONS 101.... I HAVE
STUDIED AND READ MANY TUTORIALS ON THE
SUBJECT OF OPTIONS TRADING YET I'M MISSING
SOME ELEMENT AS TO MY UNDERATDING OF IT ALL.

I PASSED ON THE NEW AUG. 24TH OFFER BECAUSE
OF MY DELIMA OF NOT GETTING HOW THEY WORK..

SORRY, BUT I NEED TO REALLY UNDERSTAND WHAT IT IS I'll BE PLACING MONEY INTO:

PROVDED THERE ARE RECOMMENDATIONS HOW
I CAN GET A GRIP ON 'OPTION TRADING' WHICH
YOU SMART GUYS CAN RECCOMMEND, I'LL BE
MOST HAPPY TO PURCHASE ANY LEGITIMATE
STUDY COURSES ON THIS IMPORTANT SUBJECT.

THANKS,

A PAID MEMEBER