When a slew of tickers hit the tape, it’s important to be able to separate the good orders from the bad ones.
To be clear, just because I think an order may be a good one, it doesn’t mean it’s going to turn into a profitable trade. And vice versa… Sometimes a bad order may surprise me and turn into a moonshot.
But considering how I look at premiums and volume — among other factors — I’ve developed an approach over my trading career to help balance risk and reward to boost the probability of cashing out winning plays.
Risk management is the name of the game. That’s how you make money as a trader in the long run… not just by being right or wrong. Because you can be right 100 times, risk everything on your next play… and lose everything in a flash.
And that’s not how you profit from options trading.
Let’s look at a popular stock like Square Inc. (NYSE: SQ).
There’s a lot to consider here, including the amount of contracts purchased. Plus, with a weekly expiration date when this order hit the tape, we’re looking at a high-risk, high-reward trade.
Could you have traded these calls? Of course. But is it risky? Absolutely.
For me, historically, I look to trade weeklies that are a little cheaper — say, under $1 per contract to minimize risk — than what these puppies were going for on the market. And remember, it’s a $1 per contract on 100 shares, so it costs $100.
Thumbs down here.
Now on the other hand, Nov Inc. (NYSE: NOV), which is part of the oil and gas industry, gets a thumbs up.
This one’s got everything I like to see despite it being short-dated. The call options are “in the money,” which is a big plus. Pair that with a chart breakout and significant order flow… and, well, we’ve got something to work with here!
Ultimately, trades that meet my criteria — those that have some liquidity, some value and strong chart setups — are the ones that separate the good… from the bad… from the ugly.
Watch today’s video to help decide whether or not you should consider taking a particular trade. And it’s not just SQ and NOV we’re looking at. We’ll dive into plenty more companies and trade setups to help give you a better sense of what to look for to maximize your returns, and see how to profit from options trading.
As always, leave your thoughts in the comments below, and don’t forget to subscribe to my YouTube channel to stay up to date with all things options trading.
P.S. Thanks to a little-known market loophole, everyday traders can learn how to potentially make weekly profits using a special formula…
In fact, Wall Street legend Chuck Hughes has already used this formula to convert 96.3% of his trades into wins.
He’s been using this breakthrough formula to signal profits from the stock market… even when he was wrong about the direction!
And he’s finally revealing all the details, just for you.