Key Takeaways
- See your INCREDIBLE answers to my readers’ poll…
- What strategies do Evolvers love to trade? Read on to find out…
- PLUS — a detailed breakdown of the differences between calls and puts…
Thanks to everyone who responded to the reader’s poll over the weekend. I got SO many responses! It was fun to read everyone’s thoughts on their favorite options trading strategies.
It’s also clear that a lot of you are newbies. Welcome to the program. You’re hungry to learn more, and I’ve got you covered. Don’t sleep on these resources available to all Evolvers:
- Mark Croock’s Glossary of Options Terms
- The Evolved Trader Guide to Trading Alerts
- How the Student Becomes the Teacher
- Why You Should Never Chase Alerts
- See more posts to help you get up to speed here.
Plus, remember to check out all the services available on the Evolved Trader membership dashboard:
Now it’s time to hear from you. Let’s dive into your answers, and I’ll respond with any additional thoughts I might have…
“Printing” With Puts
Let’s start with a response from Eric L.:
“Puts seem to print the biggest, fastest. And downward momentum tends to be strong once it’s started.”
It sounds like Eric’s been studying my strategy diligently. I agree with him — it’s always been easier for me to trade puts over calls.
In the stock market, there’s a saying that “stocks take the stairs up and the elevator down.” This is as true as ever. Pay attention to price action and start looking for short setups.
“I also like call verticals as they protect you a bit. Smaller money but safer. I like those when I think there is continued momentum but not full confirmation.”
Vertical spreads are an excellent choice for mid-term trades. They reduce IV and time decay while simultaneously costing less than a straight call or put trade.
One More Vote for Puts
Another student, Jeremy, agrees with me and Eric about puts:
“My favorite strategy right now is buying puts. I have always wanted to play first red days (my favorite — overextended gap down), thanks to watching “Trading Tickers” a million times, but had never wanted to really touch things short. Puts have completely changed the game for me now that I can take advantage of the backside moves while having a max possible loss. It’s awesome!”
Yes, Jeremy! I’m so happy that you’ve figured this out. The first red day is my favorite pattern. And the capped losses on puts make them BY FAR the best way to go short, in my opinion.
I think a lot of traders miss bearish opportunities because they think the only way to bet against a stock is through shorting common shares. It’s great to see that you’ve hacked this loophole. Evolvers — learn from Jeremy!
Waiting for the Pop
Meanwhile, Danny Boy is intrigued by the idea of trading puts (but hasn’t pulled the trigger yet):
“I’m intrigued by puts because of this bubble economy, I can’t wait for things to pop and for puts to work well often.”
Danny Boy, you don’t need to wait for a major market crash or bubble pop to play puts. Smaller sector bubbles pop CONSTANTLY in this market.
Keep studying with me. I think as you gain more confidence, it’ll be easier to find these setups (like I do).
“I dislike calls because I never know where things can go, or how far.”
I feel your pain. I too have a lot more trouble with calls than puts. Failed breakouts can be very difficult to spot before it’s too late. Trade accordingly.
Comfortable with Calls
Bron prefers to go long and buy calls:
“I tend to buy more calls than puts due to the fact that the market has been going up mostly … calls seem to be the easiest to comprehend but puts tend to increase faster.”
Bron, kudos for focusing on the big picture. While I’m more of a negative bias guy myself, I can’t blame you for mainly going long in this rip-roaring bull market.
I think all options are complex, so I would hesitate to agree that calls are “easier to comprehend.” Calls and puts work very similarly.
On the other hand, I think both calls and puts can increase in value EXTREMELY QUICKLY. It just depends on the setup (and your timing).
“The brokerage account I have does not allow me to sell options so I have not done any spreads. I like the idea of spreads since the cost is less but there is give and take with the limited upside.”
Totally fine, Bron. Don’t worry about selling options or trading spreads until you’re more comfortable.
But you’ve got the right idea about how vertical spreads are a double-edged sword. In general, they can be a great choice for mid-term swing trades where you have a clear price target.
Go With What You Know
Francis sticks to calls because they’re most familiar:
“Calls are my favorite options trading strategy because they’re easy to manage and because I don’t have a good understanding and confidence for a more sophisticated options trading strategy.”
Francis, good work sticking to your comfort level.
Warren Buffett, arguably the greatest investor of all time, has said his success is largely based on sticking to his “circle of competence.” You’re in good company!
There’s no need to overcomplicate a strategy that’s working. If you do want to explore other strategies, I recommend paper trading them before risking any real capital.
Conclusion
Wow! I only got through about 25% of your responses and just like that, we’re out of time. If I didn’t get to you, don’t worry — I’ll continue to feature your answers in future issues.
Thanks again for all of your insight. I LOVE hearing from my students, so this was a real treat for me. From newbies to experts, I’m constantly amazed by how dedicated you all are.
Starting on Thursday, I have a VERY SPECIAL two-part Hanukkah edition planned for you. Keep an eye on your inbox — I’ll go over some of the greatest lessons I’ve learned from my past year of trading.
