Options trading can seem daunting, but today I want to introduce you to what I call the 'laid-back options trading strategy.' This approach is perfect for beginners with a basic understanding of the stock market, and you can start implementing it right after reading this post.
The strategy begins with selling a put option contract. Think of it as selling insurance to someone in the market who wants to protect themselves against a stock's potential price drop. For instance, let's say Apple is currently trading at $221, and there's a trader named Josh who's worried it might fall below $220.
As the 'insurance provider,' I would tell Josh, 'No worries, I'm comfortable owning Apple at $220. I promise to buy your Apple shares at $221 by a specific date.' This date could be next week, next month, or even next year, depending on the expiration date we agree upon. In exchange for this insurance, I receive a commission or fee determined by the market.
It's crucial to note that I only use this strategy with stocks I value and wouldn't mind holding for several years. If I end up buying Apple shares from Josh at $220, I can simply hold onto them until the price rises again, then sell them in the market.
The next part of the strategy involves selling a covered call. This is similar to the put option, but in reverse. Instead of providing insurance against a price drop, we're now looking for someone who believes the stock price will rise.
In this scenario, I would find a trader like Roger and sell him a covered call contract. I'd offer to sell him the shares at a specific price (let's say $221) by a certain date. Roger pays me a fee for this agreement, expecting the shares to be worth more by the expiration date.
The beauty of this strategy is that I'm not obligated to sell the covered call at the same price I bought the shares. I could set a higher target, say $225 or $226. Sometimes, you might need to hold onto a contract for a few weeks or even months if the stock price drops significantly. But that's okay if you're comfortable holding the stock long-term.
This approach is sometimes known as the 'wheel trading strategy,' but I prefer calling it the 'laid-back options trading strategy.' It requires less time tracking trades - I typically check my positions once a week at most, sometimes even less frequently depending on market conditions and contract expiration dates.
If you're interested in learning more about this strategy, let me know. I'd be happy to create a series of blog posts diving deeper into the details. It's a great way for beginners to start options trading without getting overwhelmed by complex strategies.
Oh an by the way, if you want to keep track of your options trades... Check out optiontrack.io
