Tag: Options Trading

5 Common Options Trading Mistakes

5 common options trading mistakes
Options Trading: Here are 5 common options trading mistakes

Published by FrankNez Team.

Options are everything in life, and some traders embrace this concept.

Although trading options can help you make a lot of money, they can also turn out badly when not used correctly.

“If stocks move up, down, or sideways, traders may benefit. They can do so with a very minimal monetary input by employing options methods to limit losses, safeguard profits, and control significant pieces of shares. The drawback is that while trading options, you can potentially lose a lot of money in a matter of minutes,” connotes option trader and startup business loan provider Shane Perry of Max Funding.

It is thus essential to act with extreme caution.

Even the most experienced traders may make the wrong decision and lose money.

So, to help you avoid potentially expensive pitfalls, here are the five common option trading mistakes that you should avoid.

Mistake # 1: Trading Without Sufficient Knowledge

The first and most common options trading misstep is attempting to trade options without first gaining a thorough grasp of how things work.

Diving into anything that is perceived to be difficult to crack without first understanding the principles, features, and risks involved is something you should not do in options trading.

The market is littered with tales of novice traders joining the options market with high hopes only to leave empty-handed.

Mistake #2: Unplanned Trading

Many people who are new to trading fall into the trap of trading without a plan.

They undertake a stock investment without considering when to exit.

Many may believe that planning your trade is a complex undertaking; however, this is not the case.

An entry point, exit point, profit target price, the maximum loss you can accept, tactics you’ll use, and the highest alterations to your position should all be included in your trading plan.

Mistake #3: Not Making Use Of Probability

When considering whether or not to conduct a trade, consider the probability of your plan.

It would put what is mathematically likely to take into perspective, but it is also necessary to determine if your risk/reward ratio is reasonable.

It’s vital to remember that probabilities have no bias in any way.

Mistake # 4: Capital Misallocation

When trading options, generating profits of 100%, 200%, or even more in a brief span of time, is possible.

You may obtain these gains on very slight changes in the underlying.

However, depending on your purchasing options, you may lose all of your money in a single deal.

Given the threat of a complete loss on a transaction and the high potential of doubling, tripling, or even quadrupling your money, the amount you invest in options should be much smaller than your stocks.

This allows you to make the same earnings as a stock trader while putting much less capital at risk.

Mistake # 5: Poor Choice of Options

options trading mistakes
5 Common options trading mistakes

When trading options, there are several paths to take.

The advantage is the flexibility and freedom to match the time with the indicator(s) you’re employing; the disadvantage is that it may be scary and overwhelming for beginner options traders.

One consideration should always be your risk tolerance when purchasing options since specific options may yield better results than others.

Still, they also carry a higher potential to lose your entire investment.

Ready To Trade Options Smarter?

When done correctly, options trading may be an excellent method for portfolio diversification, risk mitigation, and profit generation.

Naturally, no transaction is risk-free, and if you’re not attentive, options may lead to significant losses.

You’ll have a greater chance of spotting and preventing these typical mistakes if you familiarize yourself with them.

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Related: How to Trade Options in The Market With a 9-5

How To Trade Options in the Market With a 9-5

Options Trading for beginners
Are you ready to trade options? Here’s what you need to know first.

There are many ways to earn money outside a 9-5 but multiplying your money at will through the market provides you with another type of freedom.

If you’re like me, you probably hold traditional long-term stocks, some crypto, but have also been interested or curious about options trading.

Options trading seemed intimidating to me a year ago.

But after many months on and off of researching it, I’ve finally decided to apply the knowledge I’ve gained.

And it’s changing everything very quickly.

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Why options trading?

how to trade options for beginners

Options trading allows you to make money at will, no matter if the price of a stock is on an upwards or downwards trend.

Differentiating calls vs puts is going to help you identify which strategy will best suit you as a trader.

While some traders use one or the other, many traders also use both strategies in different plays.

Trading options isn’t as risky as most people might initially think it is.

For starters, buying a call or put option means you can only lose what you invest in.

Another pro to trading options is you can earn money every day, or every week if your margin account has less than $25,000.

New options traders will find you do not need a lot of money to begin trading options.

You can fund your account with a few hundred dollars or less for starters when learning how to trade.

Reason why you shouldn’t limit yourself to a 9-5

9-5

A 9-5 might feel like you have some sense of security, but the reality is a 9-5 is never truly 100% secured.

Learning new skills will allow you to increase your income outside your 9-5 without having to take the risks of entrepreneurship.

Two of my startups failed while I was employed, the third one wasn’t scalable, and finally my first real business has been growing since 2020.

But even then, I knew that I didn’t just want to earn money per project.

I asked myself, “how can I earn money on a regular basis?”

That’s when I began to study options trading before actually committing to making my first trade.

The hardest part for me was taking action after I had digested the knowledge on how to make my first trade.

But let me tell you, once I made my first trade, I got a rush.

Because I wanted to do it for so long and I was finally doing it.

I had a strategy in mind I always thought of using and I finally began putting it to work.

I made gains on my first trade, gains on my second, and lost a little on my third.

But by my sixth trade, I was up 10.57%.

If you’re a long-term investor you’re lucky to see these gains by the end of the year.

Here’s why these gains were so important

If you’re thinking to yourself, what’s so significant about +10%?

Well, you’re missing the macro vision here.

Think about how often you get a raise at work, are you even in a position to get a raise at work?

Imagine you getting paid 10% more one day at work, that be great wouldn’t it be?

Now let’s break down how much 10% is when comparing it to a few different brackets when trading options.

10% gains on $200 is $20 more per day / additional $600 per month

10% gains on $500 is $50 more per day / additional $1,500 per month

10% gains on $1,000 is $100 more per day / additional $3,000 per month

Now that’s a lot better, right?

If you are able to make $1 trading options then you can make $10 trading options and $100, and so on.

And while not every trade will be a 10% gain day, some will be bigger days and some less.

This is where strategy and due diligence will play a big part in your success rate.

How to prepare for options trading

Read the differences between calls vs puts.

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’m going to show you 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

Options Trader - FrankNez
  1. You gain control of your finances
  2. A confidence emerges that was previously dormant
  3. 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.

Join our private community here to be part of this experience.

You can follow me on: Twitter | Facebook | LinkedIn


Calls VS Puts: The Biggest Differences in Options Trading

Calls VS Puts
A simple guide to Calls VS Puts – Puts vs Calls – Calls vs Puts explained

This article is going to help new investors identify the difference between calls vs puts.

I’m going to provide you with a very simple overview and breakdown of what these two trading strategies mean in the world of options trading.

And if you’re not familiar with what options trading is, I will further explain that down below.

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What is a call option?

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?
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?

ATM vs 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

OTM 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
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: 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.

  1. Buy Calls
  2. Sell Calls
  3. Buy Puts
  4. 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.

  1. Short-term gains
  2. Big returns
  3. Losses are limited to what you put in your contract
  4. 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?

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.

  1. Familiarize yourself with technical analysis / chart patterns
  2. 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.

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Was AMC’s MOASS Just Threatened by New ‘Put Theory’?

AMC Put Options
AMC Put Options – AMC ‘Put Theory’

AMC’s MOASS was just threatened by a put theory that came about from YouTubers in the ‘ape’ community.

Many community members feel betrayed, others are choosing to follow the new narrative.

Despite which road you decide to take, we’re going to break it down together below.

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Let’s dive right into it!

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Puts on AMC stock

Most of you have heard about the put theory where YouTubers in the ‘ape’ community say buying puts on AMC is the way to make money and drive the price of the stock up.

And while buying puts or options trading is a way to make money in the market, what’s the exact logic behind it in this scenario?

But most importantly, will buying puts on AMC stock trigger MOASS?

There are two things to consider when putting out information like this out to a massive community.

  1. Trading options is risky, and profits are not guaranteed
  2. This is just theory

What is the put theory?

The theory says that as market makers are pushing the price of a stock down, you push the price of the stock down too with put contracts while you hold your AMC stock.

This essentially would enable the market maker to lean towards the upside since majority of orders are puts rather than calls.

At the same moment, options traders may potentially make money when they exit the put, a process known as ‘hedging’.

Although, it is important to note that a successful play is not guaranteed.

The theory then transitions to buying the stock or buying call options as the market maker moves the price of the stock up, further fueling buying pressure.

According to the put theory, because algos tend to favor low prices (which puts are at the moment), eventually those same algorithms will move towards buying the less expensive call options, driving the price of a stock up.

This is all theory of course.

Trading options

While I agree that as individuals, we can always learn something new, you cannot demand it from a community who may potentially lack the resources to do so (time, monetary means, etc.).

Trading options requires patience, time, money, and learning something completely new, which I’m 100% for.

But most people might not be open to the idea of taking up a new hobby or hustle.

And if you are, kudos to you.

But is buying puts on AMC going to help squeeze shorts from their positions or will it only provide market makers with more liquidity?

Remember, this is just a theory after all.

YouTubers say that with so many puts in play, market makers will eventually begin to move the price up, where retail investors can then begin to play call options.

While it’s a great strategy to make money in the market, is there a lack of integrity when asking a community to keep buying and holding a stock while others profit from the foundation of those who are not trading?

Options trading is risky but may provide great reward if a play is strategized properly.

But should it be done on AMC?

Would buying puts on AMC prolong a short squeeze?

It’s an interesting theory, isn’t it?

But if options traders begin to fuel AMC with puts during a bear market, doesn’t that just drop the price for retail?

Yes.

And while some retail investors might feel like this theory may be taking advantage of them, in the sense that options traders get to make money while retail momentum collapses, I don’t personally think there were any nefarious intentions behind this.

Some sentiment in the community is looming that:

  1. YouTubers either sold their positions and are now looking for ways to make money trading AMC.
  2. There’s a lack of integrity and transparency from creators.

And not every YouTuber in the community is on board with this idea either.

But I’d love to know what you think.

Is trading options bad?

Options Trading
Options Trading

Absolutely not.

Trading options is a skill you can develop to hedge in the market and make money on the downside and upside.

It allows traders to buy shares cheaper and earn a premium.

Technical analysis usually provides traders with hindsight and allows them to make educated predictions as to where the price of a stock is going.

A trading decision is then made based on this research and analysis.

The risks are you can lose money on every trade, which could develop into a form of gambling without proper due diligence and research in options trading.

What can we take from the information that YouTubers in the community are suggesting retail take?

There’s always something to learn.

While I don’t agree with buying puts on AMC specifically will accelerate a short squeeze event, trading options could prove to be a valuable skill you can put to use in other assets.

Is an AMC short squeeze still possible?

YouTubers are saying to make cash with both calls and puts in AMC Entertainment stock.

So where does that leave a short squeeze?

Is a short squeeze still possible?

AMC’s current short interest is at 20.94%.

This means there’s a high percentage of shorts that have not closed their positions yet.

AMC surged to $72 per share from a 20% short interest drop to 14%.

AMC has the proper setup for a short squeeze, you can read more about the data supporting this setup here.

Can the put theory really trigger MOASS?

Like shorting a stock, the put theory is essentially a ‘bearish’ strategy that stunts the growth of a stock in the short term.

There are no guarantees algorithms will favor calls over puts as puts pile up into the market.

One would also need to convince many call option traders to buy puts or get the ‘ape’ community learning the process to do so.

It’s an unlikely scenario that has the potential to create bigger losses for the inexperienced options trader.

I’d love to hear your take on it.

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