«It’s all about leverage and limited liability.»
Swing traders have three choices when building a trade.
- First, they can purchase shares of stock.
- Second, they can enter a directional options trade.
- Third, they can enter a cash flow options trade.
It is the second which commands our attention today.
For bullish trades, long calls are the logical substitute for buying stock. So here are a few key characteristics of the call option.
- It’s a contract that usually controls 100 shares of stock.
- It gives you the right to buy shares of stock at a set price, known as the strike price.
- It has an expiration date and loses value as time passes.
- it increases in value as the stock rises and decreases in value as the stock falls.
Two big reasons traders buy calls instead of stock are leverage and limited liability.
- The leverage aspect means that a small move in the stock can generate a significant move in the option. For example, the stock might rise 4% while the option increases 40%. Long calls can supercharge your gain.
- The limited liability refers to your risk being capped at the original trade cost. For example, if you buy a call for $3, then no matter how much the stock drops, you can’t lose more than $3.
In next Monday’s webinar, we will dive into more examples of using calls to limit risk while enhancing returns.
🛑 Upcoming Options Trading 101 Webinar: How to Swing Trade with Options with Coach Tyler Craig | February 14th, 2022 at 8:30 PM EST on YouTube
Join us to learn how to use two simple options trading strategies – the Long Call and Long Put – when Swing Trading. Traders use Technical Analysis in price charts to determine when to buy and sell. Many traders use the stock itself, but options are a great product to consider as well, as they bring leverage, complexity, more dynamic reward to risk ratios, and more.
In this webinar you will learn:
✅ What is Swing Trading
✅ How to use Technical Analysis to identify entry points
✅ What is a Long Call Option
✅ Long Call Risk Graph
✅ What is a Long Put Option
✅ Long Put Risk Graph
✅ How to Swing Trade with Options
Click on the button below to go to YouTube and set a reminder so you won’t miss it when Coach Tyler goes LIVE.
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