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This course is for anyone who wants to learn how to trade in the options market to make a supplemental income. Even if you have never traded options before or have been discouraged to do so, you will learn all the key basics you need to make double digit yearly returns with minimal risk. I explain in this course why using options in the right manner is actually less risky than buying a stock.
You don't need to learn complicated equations to be successful trading options. Even the average investor can use these techniques to improve his yearly returns.
In this course I show you:
This course contains illustrated videos with actual trades and detailed explanation of the implications and risks as the trades mature. I demonstrate how I find a set up and also follow up with how to properly fill out an options trade ticket. I have a list of stocks I regularly use, but you can also use these strategies with any of your favorite stocks.
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Certificate of completion.
|Section 1: What Is An Option?|
Here you will learn the basic definitions and option terminology
Buying a call is a bullish strategy, and increases in value as the stock moves up. Buying a put is a bearish strategy, and increases in value as the stock moves down. Buying a put can be the equivalent of shorting a stock. Options do have a set time limit, so they are not a buy and hold vehicle like buying or shorting a stock.
Comparing an option trade to a real estate deal may help you under stand the concept better. You agree to buy a piece of land for a pre-determined price in a certain time period. if an event occurs and the land value is below the agreed upon price, you would walk away from the deal. If it is above, then you ave the right to purchase the property at the agreed upon price. Stock Options work the same way.
It's important to understand some of the main factors influencing an option price. The actual formula is calculated using Black-Scholes equation. But you really only need to understand the main, logical components of pricing.
The main factors are:
1. Current value of underlying asset
An options price has 2 components, intrinsic value and time value. Intrinsic value is the amount of value the option has at expiration. The time value is the difference between the intrinsic value and the time value. So an option with a longer life (i.e. 3 months vs 1 month) is more expensive cause it has more time value.
Definition of terms used by option traders and how to read symbols. Don't forget to read the document "Characteristics And Risks Of Standardized Options" in the resource section of this lesson. It is a publication put out by the Chicago Board Options Exchange all option investors should read.
We will be using the standard options that expire on the 3rd Friday of the month. Your broker will have option quotes and also you can get free option quotes on any Yahoo finance quote page.
|Section 2: Calculating Profit/Loss On An Option Trade|
This Section describes how to calculate the profit or loss on an option trade. This would be the case should you take possession of a stock as a result of an option assignment and is shown graphically in this lesson.
If you buy a call, when the option comes ITM, it trades essentially just like the stock and the value goes up about $1 for every $1 the stock goes up.
If you buy a put, when the option comes ITM, it trades essentially just like the stock and the value goes up about $1 for every $1 the stock goes down, just like a short position.
In this example, you would have to put up $3875 to get 100 shares of MSFT, whereas with the call options, you only need $25 to control 100 shares of MSFT stock until expiration date or closing out the option contract.
The basic formula for calculating profit/loss on an option trade and the implications of the 3 possible outcomes explained.
You do not have to hold the option to expiration. You can close it out in an offsetting action anytime during an active trading day. You would get the cash value deposited or debited from your account.
An option that is ITM will be automatically exercised by your broker if held to the closing on expiration Friday.
|Section 3: How To Find An Options Broker|
Having a reliable broker with low commission rate is essential. I present a list of the best options brokers, choose one that fits your needs.
Try to get the highest trading level possible in our account either 2 or 4, whereby you will be able to sell naked puts. Level 4 requires a margin account which is not allowed in retirement accounts but it is beneficial to get you can for a non-retirment account. Just remember you do have obligations so don't overuse margin. if you can only get level 1 to start out with that is fine. Once you start doing a few trades you can request an upgrade later.
Commissions can severely cut into your profits as I show in this lesson. Be sure to use a discount broker or one that does not charge an advisory fee per trade. The more contracts you do, the less the commissions matter. But if you have a small account, commissions can eat away at your profit.
|Section 4: Easy Strategies To Reduce Risk|
This module illustrates the 2 main strategies I do and how they put the odds in your favor. When you sell an option, time is on your side. The time value of an option decreases as time goes on and falls to "0" at expiration day. I like to sell OTM options with 4-7 weeks of life.
If you buy an option you have to be correct about the direction of the stock, the duration of the trade, and the magnitude of the move. Get any one of these 3 wrong and you lose. You could be right about the direction the stock moved, but many times it doesn't move enough to overcome the cost. As a seller that does not matter. You win.
Of course, you don't get big winners by selling options but you get MORE winners. Kind of like a home run power hitter vs a singles hitter in baseball. The singles hitters have a better batting average. I like to win more.
I walk through and explain a trade I did in IBM in early 2014. This is a typical trade on a typical stock that I use in my system. You will learn all the nuances and implications as the trade matured. I do my main trade which is sell the put. In this case I "lost" by getting assigned IBM stock, then turned around and sold a call against the stock. I collected premium and was out of the trade by expiration. So I made double digit returns on a stock that went nowhere.
Choosing between a covered call and selling a put. They are essentially equivalent positions, except selling the put is less risky because you would get a lower cost basis should you wind up owning the stock. Use the covered call if you are not yet approved for selling puts or if you want to collect the dividend. You cannot collect a dividend when selling a put because you do not actually own the stock yet.
|Section 5: Technical Analysis: Increasing Your Odds Of Success|
Support lines and moving averages are used by many traders to establish important buying information and investor psychology. Here I explain what they are and how I use them for options trading. Basically you'd want to sell a put below or near one of these lines.
A support line stays a support line until it is violated. In this case if IBM fell below 170, you'd have to wait until a new price floor was established to get the news support price.
When a stock cannot go higher then a certain price, this is called resistance, and is usually a former support line. So IBM would theoretically have trouble breaking through the 170 barrier if it fell below that level.
When Stochastics get <20 and thus in oversold area, I like to enter a trade to sell a put. Looking at many charts and patterns, this one indicator seem to increase odds of success more than others. Look to enter a trade at or near a support price to increase your odds of success even more.
The typical stocks I do these trades on are big name stocks also called "blue chips". Most investors ignore them cause of their commonality. But by selling options against these types of companies you can get better returns and maintain a margin of safety due to the reputation and financial clout of the Market blue chips.
|Section 6: How To Control Losses|
I like to use a trailing stop to protect my profits. You will always sell at profit and not worry about losing everything should a stock return to the price you bought it at after a big run. Had investors used this one technique during the big corrections in 2001 and 2008, they would have kept much of their gains.
By cutting losses, you can be wrong more times than right and still come out ahead, as the portfolio slide shows. Use a stop price you feel comfortable with, but never more than 25%.
When determining a stop loss, use the underlying stock to calculate your sell price, do not use the option price. The option is tied to the actual asset, therefore the price of the asset is what determines the value of the trade, should you be assigned.
A minimal portfolio of about $15000 is required to take advantage of these trades.
The list of stocks presented are the main ones I've been trading because they are industry stalwarts and great long term investments. So the worst that can happen is you will own one of these. That said, even though they are great companies, you still don't want to pay too much for them. I read several newsletters to keep informed. You should consider a subscription to some of the better ones I use listed here:
|Section 7: How To Place An Option Trade: Putting It All Together|
Here I show you live exactly how I found a trading opportunity in EXC using technical analysis and then explain in detail how to fill out an option trade order form during open market hours. Watch my account get immediately credited for putting on this position by selling a put. I always sell OTM puts as exemplified here.
Joe Sabatucci is a former discovery pharmaceutical senior research scientist, now a full time option trader and online marketer.
Joe started out his professional career attending Drexel University, having obtained a BS in Chemistry in 1978. he then attended graduate school at Wayne State University and the University of Rochester. Through his hard work and performance, he obtained a Ph.D. In organic chemistry in 1984.
He got a job with Wyeth labs as a discovery research scientist in 1984 where he remained for 25 years. During this time he was engaged in the synthesis and design of novel pharmaceutical drug entities in the area of women's health and CNS.
His diverse background gave him experience in many facets of science and technology which he has used for professional and personal growth.
During this time at Wyeth he published several papers and U.S patents on his accomplishments as a scientist. In 2010 Wyeth was bought out by rival pharmaceutical company Pfizer which promptly downsized the entire discovery department. Since then, Joe has sought out new opportunities in life.
Joe is also a firm believer in continued education and therefore attends seminars and courses each year. In 2012 he attended several seminars and conferences on affiliate and internet marketing. He has been trading options for extra income for 17 years and now does it full time. A former syndicated blogger for the Motley Fool, currently he is working on his own product for option trading for beginners. He is now his own boss having freed himself from corporate America by garnering multiple streams of income.
Cited on ABC, NBC, CBS and FOX as a top recommended professional in options trading (see one of these links below)
Going back to my roots as a scientist, I am also owner and curator for my science site
I was born in 1955 in Philadelphia, Pa, the oldest of 3. My favorite show growing up was Star Trek and I've always had an interest in the sciences and astronomy, so it was logical I pursue a career in science. Attending St. Joe's Prep for high school was the start whereupon I went on to earn a Ph.D. in chemistry from the University of Rochester in New York in 1984 after transferring from Wayne State University in Detroit.
I started playing guitar in high school and continue to practice and play everyday. You can check out my YouTube channel with several solo recordings. Sportswise I was always an avid bowler and maintained a 170 average most of my life which I continue today, but have no done much bowling the last 10 years. Recently, I started playing golf a few years ago and enjoy doing that, maybe cause I'm not good enough yet to get frustrated :-). Being a lifelong fan of the philosophies of Bruce Lee I started taking Jeet Kun Do in the mid 90's with an instructor certified under Dan Inosanto, Bruce Lee's best friend and training partner. I still continue taking these arts today for a workout that keeps me in shape. I particularly like Thai Boxing.
Currently I have several full time endeavors:
1. Participating in the finance market as a full time options trader as my main income source.
2. Website curator for science website: callingallscience .com
I want to thank you for your interest in my course and encourage you to always invest in yourself