Buying Call Options instead of stock - How to trade options for Maximum Gain Limited Risk
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- Опубликовано: 15 окт 2024
- Buying Call Options instead of stock - How to trade options for Maximum Gain and Limited Risk
Learning the basics of options trades by analyzing how the price of an option is determined and looking at how to make money making these trades. Today I look at the buying of call options to go long stock and determine if there is any theta decay in the stock option that could work against me. By using this strategy I am limiting my risk and collecting the same upside potential.
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My primary investment strategy is long term high yield dividend investing. I have been an actively trading the market for over 20 years and have built most of my wealth by reinvesting my dividends and following my 14 Personal Rules of investing. I actively trade options on both the American and Canadian Stock exchanges using options strategies and buying and holding high yield dividend paying stocks.
I generate monthly income in two ways. Averaging more than an annual 7% return by collecting dividends on high yield dividend stocks that I hold. The second income stream comes from the selling of option premium and taking advantage of theta decay. This neutral strategy allows me to make money in both bull and bear markets and limits my risk. Both of these strategies are suitable for passive income and create a stable predictable safe passive income.
Want to learn how to trade stocks and make more money? This channel is dedicated to want to increase investment returns and get rich by passively trading in the stock market. If you’re tired of poor performance then make sure you subscribe to Drawbridge Finance www.youtube.co... I produce weekly videos for the beginner trader and use simple explanations to learn how to buy and sell stocks for profit.
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Levi Woods
Disclaimer: I am not a financial planner and am not offering investment advice. This is an opinion channel only and should not be taken as any form of financial advice. I receive a small commission from the purchase of any item from using the links listed above. There are financial risks involved in taking on any monetary transaction that I discuss in my videos.
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Is everyone starting to understand this concept?
@SuperSteelers -- excuse me being blunt, but here is what you should do --- stop sports teams for 3 months --- learn - you'll thank me later - i promise you will.
Great video. Also good length. Some option strategy can get so deep and take for ever to get to the point they lose me. You made a comment about time premium that really made me understand. I know about time premium. I do like to buy naked calls and have done well, but I have always struggled with time premium and how to consider it. With your calculations and knowing there is only $.07 in time premium (in that trade) that will help me a lot in calculating ROI and understanding those trades much better. Thank you.
Thanks. I would love to add options buying into my strategy, but when I do the math, I can never understand where to enter. Where did you learn to trade long options and out there any resources out there that could help me?
The problem with this method is when market crash heavily, which is below your strike price then whole capital will be wipeout, no matter it is million or billion, whereas in stock you can hold that.
Again if you try to adjust the strike price before expiry or when it's moving towards ATM, then still your capital will be low to buy another expiry option.
Did you get that? I've wasted my whole week to understand that.
Absolutely
Hi levi thinking of joining patreon but i work fulltime so can only check trades when out of hours trading will i still be able to copy your trades?
Ryan Fitzpatrick teaches options trading
I'm lost at the end. If you buy 1 contract (100 shares) with a $1.25 per premium, then you pay the $125 up front and have the option to buy, within the specified time period, 100 at $12.50 per share. So your total expense is $1,375. It goes up to $14.65, $1,465 total, your net gain then is $90.00. Where does the extra $10 come from?
Edit: Thank you for the video though, I really appreciate it. Very helpful
This also confused me! I thought I was the only one. I cant sleep! I need answers!
Indeed, the price should go to 14.75 (instead of 14.65) to get 100 dollars return.
The best way to learn is to make the move and yolo some options
Makes sense. It's crazy how people use Options to take on even more risk with leverage.
Who do you broker with?
Great video. Im new to this trading game. Very helpful. Will check out ur site and other vids... u got another subscriber here!
Hey need some help nio going up you clearly see it goin to 47 from 45 if I buy a call max cost $151???
I didn't get the last paragraph. Say, you are willing to risk $1200 buying a stock and hoping it will go up, why can you not do the same on the options side by simply buying 10 call options at $1.2 /contract? Your max risk would be $1200. But the upside potential would be a lot greater as well. Of course if things go south (say stock goes to $10) you would be out $1200 if you hold options till expiry, but you always have the option to simply exit the call at a $1 (or whatever the option is trading at the time).. Is this a wrong approach?
because buying options is a low probability trade. which means there is a great chance of losing the $1200 than making any money.
This is as confusing as trying to learn a card game while at a party.
I never thought of calculating in dollars how much time premium a contract has. It makes a lot of sense to use this metric when deciding to buy or sell a contract. I love the idea of selling time but I don't like how my upside is limited and the downside could be unlimited.
Selling time decay has to be carefully managed and watched to limit losses and only works well in a high implied volatility market. It can be a very powerful tool with a large probability of profit.
While trading options like calls limits your risk, couldn't you also make more money by just buying the stock if you're certain that the price will increase? Then you wouldn't have to pass a break even point that resulted from paying the premium
Yes. I sometimes do this.
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what are your thoughts on covered call etfs ?
Generally speaking covered calls don’t work well in bull markets and barely protect us in dramatic bear markets. The fees out weight the income. So I will play covered calls only in certain situations. I prefer selling a call and a put in most cases.
Stock, etf, futures. Doesn’t matter what the underlying is as long as the math works.
How do you select your strike price?
Hey Levi, I really enjoy your videos and I appreciate you putting them in playlists. For the Option trading playlist, could you make a video explaining how you chose a particular contract (call or put) to sell? What Greeks do you look at and what is the range of those Greeks. I have a high level idea of how options work but you have a really good way of explaining things and would love to get some feedback from you.
Using delta. I usually look for 16-20 Delta range.
I love your videos. Didn't you mean that 13.75 is your break even point not 12.50?
Yes. My bad. My breakeven is actually $13.80 if I include my commission fees. My thought process on that comment was that I am losing money equal to buying stock down until $12.50. Breakeven was the wrong terminology.
not exact same rate
I thought it was Ryan Fitzpatrick for a second
Might be worth buying more Call options on SLV...
excellent
Hypothetically: Which one would be better and pay out more......
A. Buy a Nov.19th call option for NIO with a strike price of $95 and NIO hits 97$ in june and I exit.
OR
B. Buy a march 19th call option for NIO with a strike price of 65$ and it goes to 80$ on feb 15th and I exit.
why wouldn't you take more time...6 months to get it right
fell asleep 😴
too much BS just go to the F point man.
Sorry.
I havent even watched the vid but my guy its an 11 minute video how impatient can you be lol