The Power of Options: Turning a 0.6% stock move into a 70% profit using AAPL stock options.
Updated: Apr 11, 2019
On Tuesday, I posted to twitter that Apple Stock (AAPL) was setup beautifully for a move over 193. This setup known as an ascending triangle pattern; is formed when buyers are willing to buy it higher over time. In this case the 5-minute time frame. The 193 level was the supply level in which sellers were willing to sell. As anyone who has taken a basic economics class knows, what happens when there are more buyers than sellers?
Yes, you guessed it, price increases. This pattern is one of my go-to's everyday. It's a classic tell of what is happening between buyers and sellers. I turned a 0.6% stock gain (193 to 194.24) into a 70% profit by using weekly call options priced slightly out of the money at 195.
Here is a screenshot of my Robinhood position page right after I placed the sell order. (I know Robinhood has a bad rep for options trading, but in 2018 I saved $10,770 in commission using them. I'll stay until a broker offers to beat that by paying me to use them. Webull does not offer options trading yet. I should do a broker post soon as I have found other options trading software to be inefficient for my purposes.)
I'm not posting this to brag as much as I am posting it for you to learn:
A) Price action pays - news is the excuse people use to justify buy, sell or hold. The only thing that is going to pay you is what traders are willing to buy and sell at. Once you grasp the concept of price action vs chasing pure news or hoping for an earnings beat/miss; you will dramatically increase your win rate. You can use news as a tool, just don't use it as your primary buy/sell indicator. Build a playbook.
B) Playbook Entry #1: The Ascending triangle pattern that occurs everyday in a stock somewhere. Use stockcharts.com's chart school to help build your playbook. Remember, a daily chart pattern example can occur in many different time-frames; 1-min, 5-min, 60-min, weekly, etc.
C) Learn how options can improve your trading if you're building a small account or already have a playbook with risk management strategies incorporated. Options will take your account to levels you never imagined if you understand how and when to use them as well as the risks to control losses. The OIC site is a great resource, start with the link. Note the OCC (options clearing corp) is the sponsor, thus they want you to trade options. It's not for everyone. Learn how the cockpit works before trying to take-off or your account will crash before you even had a chance to pull back the throttle.
D) Robinhood is not as bad as the 'pros' make it out to be. I trade full time using Robinhood as my primary options broker. I do have accounts elsewhere, but as long as liquidity is there I'll use Robinhood as much as possible.
E) Follow me on twitter for more real-time chart setups or ask me questions as you're learning.
Happy Trading!