Considering my track record, a common question I receive is…
How did I do it?
I used a cocktail that consisted of highly leveraged options contracts…
…then knowing when to press my edge.
There are dozens of ways traders can benefit from the use of options. I invite you to explore all of them before making a decision.
That’s why I want you to be ready for my mentors’ upcoming options training event…
On Tuesday, February 22, Tim Sykes and brilliant trader Chuck Hughes are hosting a VERY special event. See how Chuck’s 7-Day Snowball Strategy lets him grow profits on the same trade idea every 7 days. It’ll shock most people! Click here to sign up for The 7-Day Snowball Trading Summit!
Now, you might be thinking, ‘OK, Mark … I get it … You used options to fuel your account from rags to riches. But there’s gotta be more to it than that, right?’
Of course. And that’s what I’m focusing on today: addressing some of the most popular questions about my options trading.
Here they are…
“How much money do I need to start trading options?”
The answer to this question depends entirely on your net worth and risk tolerance. I can’t give a single dollar amount that’s right for everyone…
That being said, the beautiful thing about options is their ability to potentially leverage your gains, regardless of your account size.
Take my small account challenge as a shining example of the power of options.
But at the end of the day, choosing the best setups to trade is what matters the most.
Incredible gains are possible with options — and you, too, could achieve them (if you work hard and stay disciplined).
“Does the pattern day trading rule (PDT) apply to options traders?”
Yes. The PDT rule applies to any trade — options or otherwise — taking place in an account with a value under $25,000.
We could debate the negatives of the PDT rule until the cows come home…
But since it’s a reality we have to live with, I prefer to look for the positives that the PDT rule can provide.
Instead of being frustrated that you can’t execute infinite day trades, use the PDT rule as a way to limit yourself from overtrading.
After all … as a newbie, you shouldn’t be trading dozens of times a day. This is a recipe for disaster!
I think that the PDT rule can actually HELP newbie traders to be more selective and conservative with their trading.
I rarely ‘day trade’ by definition. The vast majority of my huge wins are overnight swings that I easily could’ve done without $25,000.
All this to say … Don’t let the PDT rule become an excuse for a lack of results.
“How do you pick which strike price to trade?”
My choice of strike price depends on the volatility in the underlying stock, the upcoming moves I’m predicting, and the recent price action in the chart.
In general, I’m usually looking to buy contracts that are close to the money, on the money, or slightly OTM (out of the money).
I very rarely buy ITM (in the money) contracts. The risk is lower on ITM contracts, but the rewards are lower as well. That doesn’t fit into my risk-on small account strategy.
That being said, if I had to choose, I’d much rather buy a strike that’s ITM than far OTM.
If you pick a strike that’s too far OTM, you’re setting yourself up for failure. This is especially true with short-dated options. (More on that in a minute.)
Newbie options traders love super-far OTM options. ‘YOLO’ trades tend to appeal to people who haven’t been put through the wringer yet.
Don’t be one of these traders. Instead, pick a strike closer to the money.
The contracts will cost a bit more, but your chances of success will be WAY higher.
“How do you pick which expiration date to trade?”
This is the real key to timing options trades — you MUST pick the correct expiration date.
If you have a strong conviction that the move will happen soon, press your edge and consider buying weekly options.
Weeklies are my go-to contracts because I tend to execute quick one- or two-day swing trades.
If I’m right on the price direction (which I often am), weeklies can return an enormous amount of money based on my capital invested.
And If I’m wrong, I simply cut my losses quickly and move onto another setup…
But for any trade where you have less than A+ confidence in an immediate move, consider buying longer-dated contracts (one week out or more).
You’ll pay more upfront premium on the longer contracts, but you’re also buying yourself more time for the stock to realize the move you’re expecting.
The options market can be confusing at first. I’m glad that students are asking questions — eager to learn how I do what I do.
You can always reach out to me on Twitter (@thehonestcroock) with any questions.
Who knows, maybe you’ll be featured in my next Q&A.
And remember … The only thing standing between you and success as an options trader is a ton of studying, hard work, and perseverance.