One of the reasons people get into options trading is because it provides a great deal of leverage versus stocks. You only need risk a small amount of capital to achieve sometimes extraordinary gains. Because options can move 10 to 12 times higher or lower than a stock, it is very possible to hit a big options trade winner of 200%, 300%, even 500%. Yes, really!
Another reason people prefer to trade options is because options are defined-risk trading vehicles. You can only lose what you put in. Even if you keep trades small, a few big winners every month can really have an impact. It would do wonders for your portfolio, right?
Hitting a big winner is not random – it’s a strategic move. Even though most options expire worthless (80% +), you can bank nice winners if you manage your risk and confirm a nice setup in the charts/technicals. Remember, you’re only risking a small amount of capital. Even if the play dissolves to zero, you can recover the loss on a less risky trade.
How we hit a big options trade winner last week
Last week, Alphabet/Google released their Q2 earnings report on July 25 after the close. The market was expecting a nice move, but one that was smaller than normal.
One of our best traders in the chat room decided to play the name. She knew their Q1 earnings report was disappointing, but the current chart and technicals were coming around. She chose to go with a 1200 strike expiring on Aug 2. This call cost quite a bit, about $7.50 each. The payoff odds were long, but with about six days to go, plus an earning report about to come out, she decided this play was worth a shot.
She was right. The option rose towards the $60 level after the earnings report was released, and our member turned a 700% profit in ONE DAY. She understood the risk and was mentally prepared to lose the entire premium if Google stayed flat or turned down.
This Google play was still a risky move, so she only traded a fraction of what she might normally trade. If you trade about $3K normally, only trade $1K or less for a riskier bet like this one.
Before you get overly excited about hitting a 700% options trade winner, please keep in mind that you must know your risk tolerance beforehand. Are you OK with losing, say, $1,500 on one trade? Check yourself once – maybe twice – before you hit the buy button and then accept the outcome. If you lose some money, it should not devastate you. Of course, if you bank a huge winner, don’t go all-in on the next one. Celebrate your win, and then move onto the next trade.