I am asked this question numerous times a week and the simple answer is “Yes,” anyone can learn to trade options if that is what they desire and they are willing to put in time to understand the concepts involved in learning to read charts and select equities that are getting ready to move in one direction or the other, either up or down. It is not hard. It just takes the desire and willingness to learn the concepts. Options are unique in that they can earn a profit as they move “up” or “down,” traders just need to be able to determine which direction is apt to happen next.
In a sense, it is like renting equities for a specific period of time where you benefit from their price moves during that period of time.
Simply put, my goal is to teach everyday people how to trade stock options and to earn money doing it! It is what makes me happy and I try to do it in an easy to understand way.
Stock options are unique versus owning shares of a stock. As mentioned, an option allows you to rent a stock for a specific period of time versus owning the stock outright. As an example, when you purchase an option contact with an expiration date that goes out 1 month, the 100 shares of stock covered by the option contract will be influenced by what happens to the price of the stock over that 1-month period of time. An option as mentioned covers 100 shares of a specific stock or equity and the cost of the option is a fraction of the cost of the stock. If the price of the stock goes up over its current price during some portion of that 1-month period, the option can be sold any time during that period of time for a profit. This is a quick description to share the general principles of option trading.
To take this further, let me explain using the equity QQQ (Invesco QQQ Trust) which includes 100 Nasdaq companies in its QQQ equity. One share of the QQQs would cost approximately $375 per share. One 378 strike option contract for the QQQs going out a month would cost about $9.25 per share or $925 per contract. Now you might say, “Whoa, that is 3 times the cost of one share of stock!” And, then you realize that the option contract covers 100 shares of the QQQs or equities worth $37,500, not just one share at $925.
There are other variables as to which strike price you select or how close the option price is to the current price. There are ways to reduce the cost of $9.25 per share. My objective here is just to share that option trading is learnable and affordable for the “everyday” person who wants to put a little effort in to learn the trade concepts.
Once you grasp how option trading works, the next step is to learn how to analyze a chart to determine what direction price is apt to move next. I am going to share the image of a chart for the QQQs.
Stockcharts.com
Now imagine if you learned how to read and then trade a chart based on the information that is being shared. Had you been in an option trade from the last week of October until now, a two week period (circled area), the price of the QQQs rose $33 over those 10-days. Add a large portion of that $33 gain to an option premium amount like the $9.50 per share mentioned earlier. That then might be an amount like $32.50 per share for the 100 shares or $3,250. That’s an awesome profit on the contract that cost $950, holding just 2 weeks. Now, of course, you may decide not hold for the full 30 days. Closing anywhere along the line will have produced an awesome profit.
Again, my goal is to teach everyday people how to trade options, to learn to read charts, and while they are learning, they can participate in a program like MERIT Paycheck that trades the Nasdaq QQQs. I think of this as an earn-while-you-learn program that is perfectly suited for people who are interested in learning to trade options as well as have the opportunity to earn a profit as part of the learning process.