Benefits of Trading Options on Stocks and ETFs
At Master Trader, we use an objective, rule-based approach to trading stocks, futures, cryptocurrencies, and options.
Our Advisory Swing and Options Letter focuses on identifying high-probability long and short trades in stocks and options using Master Trader Strategies (MTS).
We buy call and put options as Directional trades when they are liquid, as they provide us with leverage and limited risk, and we even lose less in the event of a stop loss.
Trading ahead of news events like earnings has significant gap risk; however, trading earnings can be lucrative if you know what you’re doing.
We buy options as speculative directional using call (bullish) and put (bearish) options when aligned with a compelling pattern on multiple time frames (MTF), as was the case with COUR.
We also sell options and credit spreads around technical turning points as an income strategy where we profit from time decay, the underlying stock or ETF moving away from the reversal area, and volatility contraction.
Buying Options Allows for Speculation on Earnings Trades with Limited Risk
Real Trade, Real Profit: How COUR Delivered Big with Anticipating an Igniting Breakout Using Call Options
The Setup
COUR was a perfect example of a bottoming pattern on both the daily and weekly charts (notice all the flat major moving averages), poised to ignite a bullish breakout if earnings came out positive.
On 7/24 (the day leading into earnings post-market), it was a closing Breakout above all major moving averages, as shown.
Master Trader Tip: When all three major MAs intersect in a bullish alignment after price action has contracted for many days, it suggests an imminent expansion in volatility (i.e., Breakout) in alignment with the price Setup and MAs. That is a fabulous indication of an Igniting Breakout, confirmed by the chart pattern!
Even without pending earnings, this is a compelling Breakout pattern that we would recommend buying over the high.
Options were liquid, so we bought the $9 calls (giving us the right but not the obligation to buy COUR at $9.00/share on or before expiration) for only $.70/share. The debit of $.70/share (one contract represents 100 shares) is your MAX LOSS, so $70 per call option purchased.
The potential gain is theoretically unlimited since nobody knows how high COUR can go. But it was a great reward-risk setup to buy options into earnings to speculate on a Breakout, which you see came to fruition with gusto!
The Entry
The entry was into the close, where it was shown when it traded over the prior day’s high, which was a short-term Breakout. That was our high-probability entry point, and then move into “management mode.”
Instead of buying the stock, we recommended buying call options, which provide the benefit of leverage and limited risk – an excellent strategy for earnings.
The Profit
We hedged our gains with stock post-market after the large gap up after the earnings announcement and unwound it the following week.
This swing trade generated a whopping 214% return, delivering $600 profit on a modest investment of four call option contracts. The cost of the call options (which control 400 shares of the underlying) was a mere $280.
Had you bought 400 shares of stock at the $9.08 closing price, that would have cost $3,632, 920% more! In both cases, your maximum loss is the cost paid for the trade, so significantly less for the call buyer, even if the stock became worthless.
You could have also shorted out-of-the-money puts as an income trade, but the premium was not that attractive.
Why Stocks Under $10 Are Often a Goldmine for Traders
If you’ve avoided these stocks because of concerns about volatility or fundamentals, it’s time to think differently.
- Low Entry Barrier, High Profit Potential: With smaller capital requirements, the upside can be huge.
- Hidden Gems Before the Crowd: Using our proven techno-fundamental approach, you can uncover stocks on the verge of big moves.
Our strategies have consistently delivered profitable trades on stocks under $10, and the results speak for themselves.
The Master Trader Edge: Proven Strategies for High-Probability Setups
At Master Trader, we teach you how to align:
- Multiple Time Frames: Weekly, daily, and intraday charts for confirmation.
- Trader Sentiment: Candlestick patterns that reveal hidden market psychology.
- Money Flow: Following the trail of institutional support and momentum.
With these tools, you can confidently trade any market and seize opportunities others overlook.
Your Roadmap to Consistent Profits Starts Here
Every day, our Advisory Swing and Options Trader Letter delivers high-probability trade ideas, so you can take the guesswork out of trading.
Imagine turning small opportunities into consistent wins. With the right knowledge and strategies, it’s possible.
Sign up for the Swing Letter and let’s trade the setups that count!
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