Selling a put can be a great way to make money from the stock market. It is a strategy that I use a lot and for one simple reason, it works.
Any time you decide to sell a put what you are doing is selling someone else the right to sell you a certain stock at a given strike price on or before a given date.
For Example, if you sell the $40 put on a stock and make $3 off of the option. You now hold the obligation to buy that stock at $40 should the buying party choose to exercise that right. Even if the stock falls all the way to $20 you would still have to buy it at $40. On the other hand if the option expires then you walk away with the profit.
If you are right it can be very profitable. If you are wrong, there can be a lot of risk associated with it, but there are a few things you can do to minimize the risk. They are.
1. Only Sell puts on stocks you want to own
If you are selling puts only on stocks that you do not mind owning, then you are actually taking less of a risk by selling an option then you are if you would have just bought the stock.
Let’s say you wanted to own stock ABC and it was trading at $43. You could buy it and hold onto it for the long term. If it falls to say $30 and it still looks like a great investment you would still hold onto it right?
Well if you sold a $40 put on it and it drops to $30 you are not risking losing $43, you are only risking $40 minus the $3 you received to take on the risk, so $37. Your breakeven point is much lower.
So selling puts only on stocks that you do not mind holding onto for the long term, and that you can afford to buy can greatly help you in your quest.
2. Sell a bull put spread
Creating a bull put spread is also a great way to limit your loss when something turns against you. It consists of not only selling a put but buying a lower put as well.
Let’s say instead of just selling the $40 put you sell a $40 put for $3, but you also buy the $35 put for $2. Your max gain is smaller, only $1 because you spent money buying the lower put, but your max loss was also reduced.
Now if that stock drops to $30 or $20 you will not take such a large loss. You now have the right to buy the stock at $35. So if you get called out at $40 you will be able to sell it at $35, reducing your risk greatly. greatly reducing your risk.
Of course if the put expires then you just walk away with the profits.
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Trading the stock market can be extremely profitable if you are trading right or it can be very expensive if you are trading incorrectly. Here are a few stock tips to help you get the hang of the trading world.
1. Develop a System
The very first thing you need to do is to create your own system. This is something which gives you precise entry and exit signals for each trade. It does not have to be something complex, just something that you can follow.
The real reason for developing specific rules is to help you achieve some sort of consistency. Creating consistency is the first step to being profitable. The first set of rules that you create may not be very profitable, but you will be able to tweak the parts of your system that are working against you.
2. Control Your Emotions
Managing your emotions is a big part of managing your money. I have seen others go through emotional highs and lows and I have done it myself many times. The part to never forget is not to let it get to you.
So how can you deal with your emotions? Well there are many different ways but the one I like is the ability to walk away. Getting away from the screen and thinking about something else will often save you from making bad mistakes.
It will also be more pleasant to spend your time doing other things then looking at the computer screen all day counting the points as they move back and forth.
3. Cut Your Losses
There is no denying it. When you trade in the stock market you are going to have losses. No matter what you do losing money is just part of the game. The trick is to keep those losses as small as possible.
Instead of waiting for your position to move 15 points against you, you can decide to get out after only losing 3 points. Stop Losses, which are points where you agree to exit out and take a loss, play a huge role in making sure that you do not ride a losing trade for very long.
Another benefit of cutting losses short is that you do not have to be right the majority of the time in order to be profitable. You may only be right 30% of the time, but if you make $3 when you are right and lose $1 every time you are wrong that is a profitable trading strategy.
4. Trade only what you feel comfortable with
There are many investment vehicles that you can invest in. But when you learn stock trading you may find that there are some investment vehicles that you are not comfortable trading.
You may not be comfortable trading options and the large moves they bring, and that is fine, you can make a good return without them. The important thing is that you only trade with what you are comfortable with. It can help you stay less stressed which would always help your trading.
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You have to do a lot of research while selecting yours stocks. Here is a very simple strategy that you can use to choose the hottest stocks best for swing trading. When a large financial firm builds an ETF, the first step is always to choose an index of stocks that is expected to outperform the market. The premise of the piggyback strategy is to use the large dollar research of the major financial firms to come up with new and fresh swing trading ideas.Try these 1500 pips a day Forex Signals from heaven. Know Options GPS.
Large financial firms spend millions to choose the index on which they will base their ETF. The ETF is then based on this index of stocks. The price of the ETF then changes as the basket of stocks within the index moves. Why not piggyback on that research and save yourself a few millions? Cool, huh!
Your first step should be to analyze ETFs and make a list of ETFs that have outperformed in the last 3 to 6 months. This will give you an idea where the big money is flowing and which ETFs have buying momentum behind them.
After making your list of top 20, narrow it down to the five top performers and choose a few areas worth trading. Choose the best performing ETF in your opinion to begin with. Now you need to analyze the top ten holdings of that ETF. Don’t miss this 1500 pips a day Forex Signal Service!
Etfconnect.com is a great resource for information on ETFs and closed end funds. What makes this trading strategy great is that it often generates fresh ideas for swing traders. With thousands of potential stocks to choose from, the piggyback trading strategy allows you as a swing trader to choose stocks that have a buying momentum behind them.
Now another advantage of this piggyback strategy is that it can identify stocks that may not be household names to the average trader. With this strategy you will come across many stocks that may not be household names but have a great swing trading potential. ETFs can be utilized to find stocks for swing trading ideas that are based outside the US.
There are thousands of ETFs in the market now. Some are country specific, some are industry specific and some are market specific. So you will have a lot of option in choosing the right ETF for your investment. The way to do that is to use the ETF piggyback strategy with either single country ETFs or regional ETFs. The single country ETFs invests 100% of their assets in one country. A good example can be the iShares MSCI Mexico ETF (EWW), an ETF that invests only in companies headquartered in Mexico.
Hedging your risk is what a good investment is all about. Instead of putting all your eggs in one basket, you should try to diversify your investment. A regional ETF covers several countries concentrated in a region. The iShares S&P Latin America 40 ETF (ILF) invests in Brazil, Mexico and Chile. So if you want to find international stocks for your swing trading strategy than you should begin by picking the region or the specific country.
You must be thinking why you need to think outside of US Stocks. The traders who refuse to consider international stocks only hurt themselves because with the US in the mature business cycle, the real growth and volatility that you need as a swing trader can only come from international stocks. In addition to volatility that you need as a swing trader, international stocks also give you the ability to create some hedging strategies in combining US and non US Stocks into a pair trade.
Norman Hallet is an authority on Trading Discipline. This is what Norman Hallett from The Disciplined Trader Intensive Program says on Options University New Options Trading Videos: I’ve been talking to you a lot about options over the last week and that may just be because I’m a lover of options, having run a very large options firm in the 80’s…. OR…Join Options Mastery Classes. Try these 1500 pips a day Forex Signals from heaven. Download your 82 page pdf Candlestick Guide free now!
It may be because I’ve seen how effective options can be in highly-volatile, wide-swinging markets. By applying the “limited risk” nature of options in combination with stocks, futures, currencies, or other options, you can devise strategies that TAME the volatility and put you in a position to profit… no matter which way the market moves!
Now, I know this may sound like it would be complicated to learn. But complicated is NOT the right word to use. Intricate is better. The thing about “intricate” is that in this case, it means taking a little time to learn the simple step-by-step process to apply the techniques. Don’t think you can’t learn this… because you can… and the rewards, especially in markets like we have right now could be substantial.
Think of it this way…
The reason speculators get chopped up in wide-swinging markets is that they cannot hold their trading discipline… they falter… and all it takes is ONE SLIP to cause serious damage to an account. When you construct a trading plan that includes options, you can “box in” your risk parameters and trade with more confidence, knowing the worst that can happen is a very acceptable loss level. Options University are old pros at educating traders in the ways and means of options and there are a couple of nice, complimentary videos you may want to check out (they’ll give you a nice options overview plus a few specific uses)…
VIDEO ONE…
A nice complimentary video on the Basics of option uses… plus at the end of the short video, you get some nice additional complimentary bonuses that will really give you a nice basic options education…
VIDEO TWO…
The Options Manifesto Video (The Tale of Two Traders).
If you’ve never seen this video, you’ll see why many traders considered it a real “eye-opener” and the reason for why they decided to “go for” further options training. The Manifesto compares two traders… approaching the exact same market conditions. One uses Options as part of the trading strategy, the other trader does not. You’ll see the outcomes of their choices. Like I said, for someone unfamiliar with options, it’s an eye-opener…
Whether you actually wind up using options in the short term or not, knowing the basics of options will allow you to consider them as an alternative down the road. They’re getting very popular for a reason… and that reason is the current volatile market conditions and the ability of options to “box in” risk.
Norman Hallet is considered to be an authority on trading discipline. This is what Norman Hallett from The Disciplined Trader Intensive Program says on Options Trading with Ron Ianieri: With the advent of many small speculators entering the world of trading, the purchasing of options is on the rise. Sadly, most small speculators who use options are not successful. Here’s why…
When you buy a Call Option or buy a Put Option, your risk is limited. So you can be DEAD WRONG about something and you know the maximum extent of your loss. Wow!
But there’s a dark side. You have to be right within a certain time period. In fact, in most options you buy, if the underlying currency, or stock, or whatever kind of option you buy, just goes sideways, not up or down, in the period of time allotted, you’ll STILL lose most or all of what you pay for the option! Geez! Try these 1500 pips a day Forex Signals. Join Options Mastery Classes. Read about Options GPS!
OK..HERE’S THE THING…
Small traders (with small accounts) are attracted like moths to light by the “limited risk” nature of the options, not giving enough consideration to the dark side
THAT SAID, OPTIONS ARE TERRIFIC!
Like any good relationship (even a romantic one), you have to learn to emphasize the positive and minimize the negative… plus understand the simple ways to use options “in combination” with your current trading techniques. And if you do, you may learn to LOVE the option,like I do and many other experienced traders do. Here’s a video about options done by the leaders in options training, Options University.
It’s a good one…Learning the basics of options will serve you whether you wind up using options as a stand-alone vehicle or in combination with other trading vehicles. It’s Saturday, so I’ll be brief… but I wanted the you to put this on your Wednesday calendar if you trade stocks. Some of the most consistent money earned by professional traders involves the use of options in simple combiniation with stocks.
Ron Ianieri, former floor broker (who ran Dell’s book back in the 80’s) will be having a friendly Webinar where he’ll go through HOW to use options effectively. If you can attend… or even if you think you MAY be able to attend, go ahead and register now for the event…I know two things about Wednesday’s Webinar on Options…
ONE
You won’t get lost in the terminology. Ron is known for breaking things down so that those unfamiliar with the ‘lingo’ won’t get lost. (and don’t worry if you’ve got some options trading experience… he won’t put you to sleep either…you’ll likely learn a little something yourself!)
TWO
Ron will be enthusiastic in his presentation. With his voice, I don’t think he’ll be recording any Sinatra tunes anytime soon… but you will stay awake with his delivery and his enthusiasm. Ron’s a passionate guy and you’ll enjoy the “show”.
So, if you’re like many traders who are considering getting the most out of the recovery in the stock market over the long term… options can be a real friend and Ron could be a good mentor… at least for a complimentary 60 minutes!… I’ll be tuning in Wednesday and I hope to see you there if you have options aspirations.
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