In this week options trading Tutorial, we are going to introduce a strategy on how to trade options for a decent gain.
We have previously shared Day trades we took on expiration day and benefited from them.
This time, we are bringing you a Swing Trade we took on FCX and learn from it.
How To Trade Options For Decent Profit
The challenge we face as traders is to ensure with high probability the correct direction of the stock we are trading.
There are triggers or indicators that can help you and me with this.
Over time, such triggers or indicators provide us with a degree of confidence.
It is that confidence that can help determine our risk on the trade.
The risk is how much money to dedicate to the trade.
Based on the cost of each contract, that will in turn determine how many options contracts a trader buys.
The trade we are sharing today presented a high probability for profit because of this historical study on the stock.
How To Trade Options For a Profit: FCX Setup
We have previously shared with you our multi year study of the Friday Bulls stock.
That study ranked Freeport-McMorRan Copper (ticker:FCX) as our Number 2 best performing stock on Fridays.
Which means that the probability of success on profiting from calls is high on Friday for FCX.
This year alone, that probability is over 52% according to our study.
If you are thinking, wait a minute.
That implies that there is a 48% for calls not to be profitable ?
Yes, that is correct. So how can I feel that confident ?
Answer: Confidence. Remember we made 400% gains on Nov 1 on FCX calls.
We could have made up to 1600% gains.
Our Entry Condition
The way we made this trade safe and easy to benefit from is by taking advantage of the lack of action of Thursday.
We knew that the trend on recent Fridays has been bullish.
So we decided to buy calls with a limit order on Thursday Nov 20.
But at the same time, we hedged this trade by buying Puts as well.
We did it in a way that whatever direction FCX was to move on Friday morning, we were in the right position to profit.
Of course, FCX could have not moved that much on Friday.
Here are the two legs of our straddle:
- Buy 4 FCX Nov22 11 Calls for 10 cents per contract
- Buy 3 FCX Nov22 11 Puts for 10 cents per contract
This is our first time we introduced this strategy called straddle.
As you can see, it consists of a Call and a Put at the same strike and same expiration.
The basic idea is for the stock to move: down or up by a big percentage (at least 1.5 percent) and the overall trade will be profitable.
Notice how we the position had more calls (4) than Puts(3).
Well, that is the way to reflect our bias or confidence level in calls compared to Puts.
The study and recent trades on FCX suggested this: 52% confidence on Calls as shown above.
Below is a view of the two orders execution:
Scaled Exit on FCX Calls
On Friday pre-market hours, FCX was trading up over 1%.
Our hope was that the bullish momentum will carry on during live session.
And it did in the classic Gap and Go move. This turned in a very easy worry-free trade.
Have you been noticing the pattern of these trade strategies we have been sharing ?
How many times have I used the word worry-free ?
Trading is not supposed to be always stressful where we are fighting against the market.
Once a trader gets to this understanding, the Profit and Loss Curve becomes enjoyable to watch.
As we have done before, we used our scaled exit method as shown below.
It is worth mentioning here the times of each exit.
- 8 minutes into the session, the calls are worth 33 cents or 230% gains and we sell 1
- 1 hour and 3 minutes after the Open, the same calls are up 300% and we sell 2
- 3 hours and 9 minutes after the Open, our last call is up (46 cents – 10 cents)/(10 cents) = 360%
We lost on the puts leg which ended up expiring worthless.
However, the calls more than made up for it.
The calls paid just shy of 300% not withstanding the small fees.
In the overall trade, we made a Profit of 125%.
Frankly, we never had to sweat at any time during this swing trade.
We hope that you found value in this case study on How To Trade Options.
The next step is to scale this type of trade by increasing the risk.
Do you agree with our exits ? Do you think we sold the first calls a bit too early and thus left money on the table ?
Let us know in the comments section how you would have managed this trade to maximize your profits.
12 thoughts on “How To Trade Options For 100% Gain”
I’m not too familiar with trading but I’m always willing to learn.
I think I can grasp the information here and along with my accountant I can give this a try. I didn’t know that Friday was the best day to trade either.
And I have to say that a 400% gain isn’t too shabby. I can’t even fathom 1600% gains!
I can see why the strategy would work too.
Worry free works for me and I’m sure many other folks as well.
I’ve always had a hard time with any kind of risk.
I’m going to run this by my accountant because he does understand this and could help me even further.
Glad to see that the article triggered a positive reaction from you.
Have a great day.
Great article, and highly comprehensive. The risk is indeed in how much you dedicate to the trade. The common mistake most people do is selecting a wrong strategy and risk large amount of money. It is also important not to be anxious, you have to be calm and make informed decisions.
Thank you for stopping by and leaving us a comment.
We appreciate it.
I haven’t read up on this information in years. Good read! I use to be marketing manager for your trading edge, taking adverts for stock trading companies in Asia and the South Pacific. I learned alot, but moved on. Is it really as easy and risky as people make out, sounds like an oxymoron to me, but it also sounds lucrative. Ummm can handle another skill under my belt🤔
Thank you for stopping by. We appreciate your comment.
I think you clearly sum up the profession of options trading.
I can be risky for the untrained and very lucrative for those
who have mastered the skills and have the know how.
Have a great weekend.
I used to be a negative thinker whenever the topic about options trading is discussed as I have heard a lot of negative stories associated with this kind of money-making. Aside from that, I am a traditional-minded when it comes to investing like investing in a stock and hold it for the next 20 years without making any trade. With your example here, I think I have to change my thinking and be more open-minded for this. Can you suggest to me an ebook or a guide I can download for free, something that’s tailor-fitted for beginners, to learn more about options trading?
Thank you for your interest in our training material.
We have numerous posts tailored for beginners on this this.
May I suggest you take a look around and let us know how we can further
assist you in your learning of Options Trading ?
Talk To you Soon.
I think a profit of 125% is very good indeed, especially over such a short time frame. Although you called the first calls relatively early, I think that was a sensible thing to do: much later and your profit would have been at risk. Having said that, I’m not comfortable with too much risk, so this might reflect my thinking rather than being an objective comment. Interesting stuff!
Thank you for stopping by. I agree with you especially because this trade was on expiration Friday.
That first exit was when the calls were up 200% in gains , difficult to let that go on Expiration day.
Recent pattern of trading on this FCX stock is what gave me the confidence to leave the rest of the calls
for longer. This is the stock that gave 1600% gains recently in this article !
How must say that this a very nice article and I know it would be of great help to the public as it has been of help to me..I have always wanted to trade on options but I have tried and failed many time but I know after reading your article I would be able to start again but I would like to ask,does trade system differ from broker to broker?
Greetings Feji Ben,
Thanks a lot for providing your input into this article. We really appreciate it as it helps us understand what are the needs of our readers. We will strive to continue bringing you quality and relevant content on this platform.
Regarding your question, yes, the platforms are different for each brokers.
However, the functionalities they all offer are basically the same.
If you are interested in finding out some of the differences, may I suggest you try out either this article on what to look for or my personal recommendation of the best trading platforms in the US.
Hope this clarifies your question. Looking forward to seeing you next time.