In other words, if you invest $100 and it earns 5% interest every year, you will have $105 at the end of the first year, then %110.25 at the end of the second year, and so forth.
Even in banking, it works like this, just check your savings accounts. With trading, it can work the same if you have a proper plan, now let’s dive into that plan.
Your end goal is the number that will decide your financial freedom.
Do you want $1 million after 5 years? Or is $100 000 in 10 months more what you are after?
Whatever the case may be, you need to figure out your end goal and ensure it works for you.
To keep it simple, if you want a monthly return of $1000 per month, you need to look at certain things.
Let’s work with this and follow some tips below.
FX strategies
Strategies are incredibly important to reach your goal, so here are a few things to consider.
The number of strategies you trade depends on how comfortable you are with trading.
But since you have a goal of financial freedom, there are three strategies you can use, they are breakouts, reversals, and trading markets.
Rate of return
If you are after a monthly return, then this one is for you.
So, what is it and how does it work?
This is the percentage rate at which your capital grows. In other words, where your wealth accumulates month to month.
Considering the three strategies above, and to keep it simple, say each one of them will give you a return rate of 3%.
That means that 3% times 3 strategies give you 9% every month.
Now let’s look at your capital.
The capital
What do you need to do to generate $1000 every month with the 9% to reach your goal? $11,000 or $1,000/9%.
What’s next? Understanding growth principles as this will help you overall.
Understanding growth principles
A book titled The Richest Man in Babylon by George S. Clason highlights 7 simple rules of money, and this is what can be applied here.
These rules are
Save money – saving money is often listed as one of the better tools to help you reach your financial freedom goal
Don’t spend more than you need
Invest wisely
Avoid investments that sound too good to be true – chances are they are
Own your home
Have life insurance to protect yourself and your loved ones
Gain more knowledge
You must think about how these tie into reaching financial freedom, but each of the points above will help you.
Growth principles are based on these 7 simple rules. You need to learn to save a part of your income every month.
The smallest savings requirement is around 10% of your salary, however, financial advisors encourage you to save between 25 and 30%.
Even if you need $1000 per month in return, you need to save more, in the long run, to have a higher return and inch that much closer to financial freedom.
Look at it this way, growing your capital will also increase your monthly return, so keep at it and push as much money into it as possible.
Lastly, can I, do it?
Yes, you can.
However, a lot of thought and research goes into this.
Trading is not a get-rich-quick scheme regardless of whether some famous and wealthy traders make it seem like this.
Just like the more traditional ways to reach your financial freedom goals, you need to be patient and have a plan.
If you are new to trading, you might wonder what is MACD?
It stands for moving average convergence divergence.
This indicator is used to measure both trend momentum and direction.
It consists of two lines, one blue (signal line) and the other orange (MACD line).
Crossovers of these lines present the most opportunities for scalpers since if the signal line crosses the MACD line to the upside, it means upside price action can be expected.
On the other hand, if the MACD crosses over the signal line, then downward price action can be expected.
Scalping indicators | Day Trading Tips | Options Trading Tips
The RSI or relative strength index is an algorithmic trading tool that measures a currency’s price action momentum change.
The indicator will take price action data and convey the information through a simple line graph.
This indicator displays the relationship between current price action and buying/selling conditions.
It ranges from 0-100, with most traders using parameters 30 – 70.
The logic of the indicator is simple: if the asset price is trending between 0-30, it is said to be oversold, thus considered cheap, while if the price is trending above 70, it is said to be overbought, thus expensive.
If you are scalping an uptrend, you want to buy “cheap” on the RSI and sell at the overbought level.
The opposite applies in a downtrend.
Additionally, watching out for divergences between price and RSI can indicate an imminent change in trend.
Another thing you need to remember is scalping requires use of platforms with high liquidity.
Therefore consider using the likes of PrimeXBT for fast trade execution.
Also, as mentioned earlier, remember, price action is king.
First of all, determine the direction the asset is headed, then use the above indicators to strengthen your bias.
This increases your confidence in taking a given position and tremendously improves your trading success.
I break down the differences in this article and make it very easy for beginners to understand how they work.
Call options are bullish bets a stock will go up while put options are a bearish bet a stock will go down.
You will also want to familiarize yourself with the meanings of OTM (out the money), ITM (in the money), and ATM (at the money), also explained in this same article.
And lastly, you will need to use a broker that allows you to trade options.
Webull has to be the best platform to trade options as it has one of the easiest navigation layouts in the game.
NOTE: you will need to open a margin account and not a cash account to trade options with Webull.
If you’re part of the community newsletter, you received an email regarding a new 3-part video options trading series I have coming very soon.
I’ve completed Part 1 and Part 2 already and will be publishing a video on my personal day-trading strategy in August as Part 3.
I show you the basics; how to buy a ‘call’ option and ‘put’ option step-by-step during a real-life trade.
I will wrap up the third video with the trading strategies that I personally use that no one else is talking about.
Some of you caught the clip I posted on my IG story this morning on calls that printed from CEI.
This 3-part video series will be made available in our private community if you’re interested in learning more about trading options.
Here’s what happens when you trade options
You gain control of your finances
A confidence emerges that was previously dormant
You unlock the ability to multiply your money at will
Something clicks when you realize that you can literally turn money into more money without relying on an employer.
Those of you reading this who already trade options know exactly what I mean.
By the end of my course, most of you will be able to wake up every morning and make a trade that will yield gains.
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What is a call option?
What is a call option? – Calls vs puts explained
A call option is a bullish strategy that allows a trader to profit from a trade on the upside.
The trader essentially bets that the price of a stock is going to go up by buying call options.
How does a call option work?
When you open the options chain, you will have many contracts to choose from, ITM, ATM, or OTM, which I’ll use as a quick example for now.
If you are betting on the price of a stock to go up, you might buy a contract with a strike price of a few dollars above the underlying securities’ current price, depending on your risk.
If the stock does indeed move up in price, you will begin to see gains on your contract.
You may then sell your contract and profit from your play when you are ready.
What is a put option?
What is a put option? – calls vs puts options – puts vs calls stocks
A put option is a bearish strategy that allows a trader to profit off a trade on the downside.
Unlike calls, traders buying put options are betting the price of a security will drop.
How does a put option work?
I’ll use another OTM example for now and explain the other scenarios below.
You will have many options in the options chain to choose from.
Here you will be able to select a contract to buy based on the ‘strike’ price you’ve selected.
The strike price you’ve selected is where you believe the price of a security will go down to.
If a price of a stock is at $20 and you buy a contract for a strike price of $17, you’re betting that the price of the stock will fall in the future.
If the stock falls to $19 then $18, you will begin to see gains on your bet.
The closer the price of the underlying security gets to $17, the more gains you will see.
You can then close your position at any moment before the contract’s expiration date and take profits.
Both these examples are examples of an OTM contract which I’ll explain more below.
Here are other examples of how calls vs puts work.
What is ATM and ITM?
Options trading: ATM vs ITM
ATM stands for “at the money”.
At the money (ATM) is the current price a stock/security is trading at.
When your strike price is near the current share price this is considered to be “at the money” (ATM) for both calls and put options.
ITM puts
ITM stands for “in the money” and will be a little different for puts vs calls.
When a strike price is in the money for put options, it means the price is above the “at the money” (ATM) price.
Example: You’re betting the price of a stock will go down, so you buy a put options contract “ITM” for $11 while the stock is currently trading at $10 (ATM).
You contract has a higher probability to earn gains since the current share price (ATM) is already below your strike price (ITM).
The further the price of a stock goes down from your strike price, the more money you make.
ITM calls
When a strike price is in the money for call options, it means the price is below the ATM price.
Example: You’re betting the price of a stock will go higher so you buy a call option contact “ITM” at $9 while the stock is trading at $10 (ATM).
Your call option contract has a better probability of making money from the start since the current share price is already above your strike price.
If the price of that stock continues to surge, then you will continue to make gains.
“In the money” (ITM) contracts are a little more expensive to buy since your probability to make money is higher.
“At the money” (ATM) contracts which are closer to the “current” share price had a medium risk factor and are cheaper than ITM contracts.
So then what are OTM contracts?
OTM “out the money” explained
Calls vs puts explained – OTM – Calls vs Puts options
OTM, or “out the money” is the strike price above the ATM for calls, and the strike price below the ATM for puts.
Call option example: If you buy a call options contract OTM at $12 and the price of the stock is currently at $10 “at the money” (ATM), you are betting the price of a stock will rise above $10 per share.
Put option example: If you buy a put options contact “out the money” (OTM) at $8 and the price is currently at $10 “at the money” (ATM), you are betting the price of a stock will go below $10.
Remember, the closer a stock’s price gets to your strike price, the more gains you will reap.
So, the further out the money your strike price is, the higher the reward may be.
Should you buy ATM, ITM, or OTM?
Every trader will use the strategy that best tailors to their risk.
Out The Money (OTM) = High Risk / High Reward
At The Money (ATM) = Medium Risk / Medium Reward
In The Money (ITM) = Low Risk / Low Reward
Traders will need to study the performance of an underlying asset to get a feel and understanding of where the price may go.
Once you have determined whether you will be buying puts vs calls or vice versa, then you may begin to look at the contracts available.
Options contracts explained
Every 1 contract equates to 100 shares of a particular stock.
OTM contracts are usually less expensive.
With these contracts you can buy 100 shares of a stock for only cents.
ITM contracts are more expensive because they are the safest choice.
ATM contracts are in between ITM and OTM in pricing.
The options chain will allow you to choose when contracts based on short-term or long-term expiration dates.
You can go short or long on both a call and put options contract.
These expiration dates may vary from only a few days to weeks, to months, and even years.
Whether you should trade short-term or longer-term expiration options contracts is a strategy that will be highly based on your trading goals.
Where can you trade options?
Options trading with Webull – calls vs puts options – calls vs puts explained
The most popular platform to trade options is Webull.
Webull is where I personally began learning reading charts and familiarizing myself with the options chain and data.
Here traders will be able to purchase calls vs puts or vice versa.
Some traders use both strategies to make money during a bull and bear market.
Other platforms where you can trade options include:
TD Ameritrade
ETrade
Robinhood
Fidelity
If you’re already invested in stocks, you might already be using one of these platforms.
The difference between trading stocks and trading options is that you will need to open a margin account for options.
A cash account will not allow you to buy calls vs puts.
You can earn 5 free stocks from Webull when you sign up using my affiliate link.
If you choose not to keep these 5 stocks, you can sell them and fund your margin account to trade options.
Puts VS Calls: Why trade options?
Puts vs Calls stocks – calls vs puts options – calls vs puts explained
Buying puts or buying calls allow traders to bulk up on stock and use leverage to make money in the stock market.
There are 4 different ways you can trade options.
Buy Calls
Sell Calls
Buy Puts
Sell Puts
All four essentially allow you to use leverage and make money whichever side of the play you want to begin trading options.
However, selling calls and selling puts from the get-go will require further in-depth explanation, which I will do in another article.
For today’s breakdown, I’ve explained buying both calls and puts.
There are a variety of things that attract investors to trading options.
Short-term gains
Big returns
Losses are limited to what you put in your contract
Quick accumulation of cash / shares
If you’re here today, it’s because you’ve probably seen people in your space talk about how much money they’ve made playing options.
And while options can yield a full-time income stream, new traders should also be aware of the risks.
Is trading options risky?
Calls vs puts options – puts vs calls stocks –
Trading options has its risks as bets aren’t 100% guaranteed to play in your favor.
However, there are a few things you can do to increase your chances at becoming profitable.
Familiarize yourself with technical analysis / chart patterns
Only buy what you can afford to lose
While traders can certainly trade based on market sentiment, it would be wise to gain some understanding of how prices move through technical analysis.
TA can help traders determine the trajectory of a stock’s price moves in the coming minutes, hours, days, and even weeks.
It’s best to armor yourself up and learn as much as you can to properly set yourself up for success.
If you’d like me to do a write-up on bullish and bearish patterns leave me a comment below.
When it comes to choosing between calls vs puts, it really comes down to adapting to the changes in the market to help you increase your income potential.
If you have any questions, be sure to leave a comment below.
