The Best Options Strategies

We are bringing you this week a practical trading example using the best options strategies we have learned.

From the setup of the trade, through the entry criteria, all the way down on the exit criteria, we will share the Why, How and What took place to benefit from this trade.

The Best Options Strategies: Week of October 25

This is the bulk of the third quarter Earnings season that goes typically starts from Oct 15 through November 15.

This does not mean that other companies do not report outside of this 30-day window.

It is called the Earnings season because that is when we have the largest concentration of reports.

If you are new to trading, four times a  year, companies set a specific date when they will announced how their business performed during the previous three months.

As such, the third quarter Earnings window will see companies provide updates on the 3-month going from July 1 through September 30.

In case the performance time frame is different, they will make a mention of that.

This concentration of news lend itself to great volatility.

This comes from the fact that analysts who are present at these announcements through conference calls are eager to report about the status of the businesses.

A bullish outlook can make a stock jumped much higher than during any other trading day.

On the other hand, a bearish outlook can lead to a severe plunge.

Allow me to illustrate this concept with the picture below.

 

Western Digital stock chart with highlights of Earnings gaps in the best optionsstrategies

The yellow areas in the above daily chart of Western Digital (Ticker: WDC) showcases November 2018 and November 2019 Earnings gap down.

The blue circle portrays  n Earning Gap Up in January 2019.

What are gap down and gap up ?

A gap Up is when the stock price jumps and opens at higher value than the previous day close.

A gap down is exactly the opposite.

The two gap downs are of $6 and $4 respectively. The gap up is of about $6 as well.

In terms of percentage on a $50 stock is average, $6 is over 10%.

In the world of options, that is serious money to be made if you can predict that correctly.

In case you are wondering if one can play both side, the answer is Sure.

But Markets Makers are in control and can make sure you lose on both trades.

Nevertheless, many rookie and seasoned traders cannot help themselves but take part of this guessing game.

Let me tell you right now, it is not a sustainable method to make money trading options.

Do not get me wrong, huge amounts of money are made each quarter by those with the crystal balls.

I do not know about you but as for me, there is no trading options a stock before its Earnings in hope that the trade may go my way.

So, I am strictly picking stocks to trade from our Watch List after they have reported the quarterly performances.

I do not typically trade Amazon(Ticker: AMZN) because of the high cost of its options.

But I have learned how the early big techs to report have behaved post Earnings Release.

So I wanted to apply that knowledge to this high-flying stock to showcase that trading Post Earnings Release is truly among the Best Options Strategies.

The Best Options Strategies: Setup on AMAZON (Ticker: AMZN)

Earnings report came Thursday after market close and the stock immediately plunged. At one point, AMZN was down almost 7% in After Hours from 1775 to 1650.

Then it settled down around -6.5%.

By the time end of pre-market Friday, a rally has already started. This is a give away sign that the initial move down was unlikely to hold.

This gave me the direction of my trade. I was going to buy calls based on this pre-market volume.

The only question left was to determine a strike price since I had already decided to play this same Friday Oct25 Expiration.

This strategy is called playing lotto. It means that there is a calculated Risk that the trade may not pan out and thus lose money.

The upside of playing Friday Lotto is that even the smallest move (+/-1%) in the stock equates to substantial gains in expiring Options.

Thus making it one the most lucrative Option Trading Strategies to master when learning how to trade options.

The Entry into AMZN Call Options Trade

I usually like to buy at least 3 contracts minimum in any trade I take.

Why ?  Because it enables me to employ a scaled exit.

This means that I set my first exit for 1 or 2 contracts if i am winning and leave at least 1 contract run it course.

Unfortunately for me, the capital allocated for this trade on AMZN was not enough to buy 1 decent OTM (Out of the Money) contract left alone 3 of them.

So, I had to just be content with one single contract if I was lucky to get a fill.

From the previous day After hours price of 1650, AMZN opened almost at 1700 and quickly spike to 1725.

 

Chart of AMZN post Earnings Release in the best options strategies

 

I was late putting in my automated order which turned out great.

In the retrace phase thereafter, I figured i would go for the 1752.5 strike because 1 contract was close to my budget for this trade $200.

So I was able to eventually get a fill for 1 contract for the cost of $1.95

 

Order detail for AMZN OCt25 Calls post Earnings trade as one the best trading strategies

 

The Exit out of the Trade

As shown on the confirmation exit below, I sold my call pretty quickly because I was not at ease with just one contract.

So I decided to take the profit once my gain was above 100%. I automated the exit to $4.55 using the chart of the Options itself.

Yes, this is possible and it can provide a day trader with and exit level when the option is overbought or oversold.

 

How to make money trading Options on amazon stock

Conclusion

 

This trade generated a net profit of $260. However, because I could only buy one contract, I was forced to sell my position earlier than I would have liked.

After another retrace, AMZN rallied to 1766 and the OCT25 1752.5 Calls peaked as high as $16 per contract.

Now, I leave it to you to imagine the emotions that carried me throughout the weekend after missing an almost 10-bagger on might AMZN.

In case you do not know, a 10-bagger is when you make 10 times the amount you initially placed on the trade.

How would you have reacted if you were in my situation in this trade ?

 

 

12 thoughts on “The Best Options Strategies”

  1. Hi, your post is very well written and thorough…I had no idea about this so you made it very clear your experience with Amazon. You structured your article very well and it is written in detail. My suggestion would be to add more high quality pictures or videos? (I’m a visual learner, and this helps further demonstrate your message). Thanks for sharing.

    Reply
    • Hello Sarah,

      Thank you for your comments. Yes, we will be adding a series of our videos 

      capturing our weekly trades. Follow us below so that so that you can receive alerts 

      when those features are added.

      Reply
  2. Very interesting regarding the trading of Amazon stock options. I already had wrote out a question for you but apparently my browser refreshed lol. What I wanted to know is if you always buy Amazon stock options when the price drops and then sell them as soon as they back up or do you keep hold of them for long-term investment of like 10 years?

    Reply
    • Hello,

      Throughout our 12 articles so far on this topic of Options trading, we have stated that our time horizon is no more than a week (Swing trades and it can be as short as minutes (Scalping during day trades).

      In options trading, we can make make when the stock goes up (by buying calls)  as well as when the stock goes down by buying puts. That is the beauty of options trading. 

      As explained in this piece,

       https://successfultradings.com/learn-how-to-tra…y-calendar-guide/ ‎

      volatility is actually a very good things for options traders.

      Thank you.

      Reply
  3. Thank you for your post. I started my online business for a while and am actively looking for money-making opportunity. Your article may give me some inspiration: stock and option trading can be a good way of making money online.

    I never trade option and don’t understand how it works. But from your article and the description of your real time trading, I am impressed by your skill and the timely execution of your trades.

    In order for me starting option trading, I need to have basic knowledge. Could you suggest a book or something like for me to understand the basic terms of the option trade.

    It is kind of you sharing this valuable information with us.

    Reply
    • Hello Anthony,

      How are you doing ?

      We recommended a set of books for all beginners to read before doing anything else.

      That one must Have is : Pit Bull: Lessons from Wall Street’s Champion Day Trader by Martin “Buzzy” Schwartz.

      Let us know how we can further assist you in your endeavors.

      Reply
  4. Hello,

    Nice article you have shared. I am a newcomer in this online market & sincerely looking for opportunities to build up a business. I’ve a little knowledge about Stock and option trading. But your article enrich my ideas more. I’ve a basic knowledge about trading but it would be very helpful to me if you brief the terms more. I really appreciate your efforts keep sharing!

    Reply
    • Hello Irin,

      You are right, we have published and continue to publish more articles specifically for beginners like yourself.

      Please do check out our most recent posts and let us know if we are addressing your questions.

      Thank you.

      Reply
  5. $260 you gained from that trading is already a big money for workers here in my country, it is the amount someone makes in salary for one month. So, this has impressed me and actually encouraged me to learn options trading too. 

    Looking at the picture, the graph in dark screen, I still can’t understand the symbols and the tickers so I’d like to have a book or an ebook that will explain to me in layman’s term how they work. 

    I heard from a friend that this is risky but as we know it, risk varies between persons and if you know how to manage risks, you can emerge as the winner in the game. I think I need to read more from your past blog posts to better understand the game.

    Reply
    • Aboslutely Gomer,

      Please do subscribe to our publication so that you are not missing any of the post.

      We will be breaking down technical charts analysis in a lot of our upcoming post.

      And you are right, eventually, we will be publishing an ebook for beginners like yourself.

      Thank you for your time.

      Reply
  6. These are very good ideas about what it takes to be an effective options trader.  I have some experience with stocks but not with trading options so I appreciate this info which is enlightening me on this subject.

    Determining strike prices and other strategies are new to me but I find it most interesting.  Yoi have done a very good job of explaining how this is done with real life examples.

    You did well in generating a net profit on this trade.  Thanks for sharing your knowledge of this.  All the Best.

    Reply

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