Dear Reader,
After 20+ years of trading options, I've found it isn't worth buying a certain type of options.
If you've lost money with options before, this might be something you're familiar with.
If you're new to options and have never bought a contract, this is advice to follow.
For many of the most volatile stocks out there (the Amazon's, Tesla's) etc., they already trade at a high price. But, because of their volatile nature, they also trade for a high premium.
A high premium = how much it costs to buy/sell an option.
As Amazon is about to break out to new highs, an option expiring in a couple weeks costs $77 (at the money).
Don't trade these options...trade these instead
$77 = $7,700 per contract.
For you to even breakeven on the trade, Amazon would need to go up $154 in share price in the next 24 days.
Sure, it could happen... but it could also only happen for 5 minutes before pulling back. Which means, to successfully trade these options, you'd need to watch the trade like a hawk.
- That's stressful
- That's a lot of money in hopes of a large move
- It's an inefficient use of your time and money
If the option only goes up $153, your option expires worthless, $7,700 vanish.
That doesn't make sense, and it's really why options get a bad name.
Instead, I recommend buying a different kind of option. See what I mean here.
P.S. If you're skeptical of options because you've accidentally made trades like this, don't sweat it. Instead, let me show you how to trade options with less risk and less watching charts.
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