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How I Trade Without Worry
Trading successfully while working full time is a skill that you can master.
This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
A six figure salary is very nice and not something to take for granted.
A trading account with above average returns is also something to appreciate.
Most think you can’t have both. The myth is you will either jeopardize your career or your trading returns will not pan out.
This does not have to be your reality.
If you know how to read charts you are off to a good start. But it takes a little more.
You need to know how to utilize options effectively. This is where many fail.
When most traders start trading options they are looking to buy out-of-the-money (OTM) call options, trying for big wins in short time frames.
OTM options are contracts that have a strike price that is outside of the current price of the underlying stock. So if the stock is $10 and the call option has a strike price of $12, the option is OTM because the stock price is below the call option price.
An OTM option like this requires the stock to rise by more than $2 (which is +20%) to have value at expiration. Otherwise, it could end up worthless.
What does this mean?
New traders are placing low probability trades with the hopes of big payouts, stacking the odds against them with every trade.
This type of trading also requires an incredible amount of screen time, paying attention for any quick movements that require immediate action.
Instead of seeking out higher probability trades that still provide outperformance but in a less dramatic way, traders often make things harder than necessary.
Buying OTM options is a riskier way to utilize contracts that allow for outsized gains, this is true, but that added risk is the real chance of big losses.
Trading like this requires an advanced level of discipline, the ability to make precision trades, and a thorough understanding of options. More importantly, it requires a lot more of your time and attention.
If you are willing and able to spend hours every day watching your trades, staying glued to the screen and putting in the work, I have no doubt you can become a successful day trader.
I want more than that.
I have spent decades building my resume and growing my career and I want the salary I’ve earned and those annual bonuses PLUS a portfolio that outperforms markets.
And I love trading stocks and staying involved with the stock market.
I want to have a successful career and a powerhouse portfolio. And that is how I came to develop my style of trading, which I simply refer to as Trader Nate Trading.
While discovering what worked and what would not, it quickly became obvious that options could be a powerful way to outperform the stock market without putting in hours and hours of trading.
Trader Nate Trading was created and I have never looked for any other strategy since. It works for me, allowing my money to make money while I’m out making money.
The Power of Options for Strong Returns
There are two primary ways I prefer to utilize options for outperforming the market. The first I write about often, which is selling covered calls.
Here’s some numbers that I hope show clearly why I like this strategy.
I will dive into this example but the key takeaway to get your attention is the immediate 9% gains collected for selling covered calls against this growth stock.
Selling covered calls means you own shares of a stock and sell call options against each lot of 100 shares that you own.
The way this works is you collect a cash premium for selling the call but you are obligated to sell the shares at the strike price of the option you sell.
This is why you already own the 100 shares, to have the call option “covered” if the owner of the option decides to exercise it.
The cash you collect for that obligation can be very lucrative, especially if you know how to use growth stocks effectively with this strategy.
And that is what I set out to figure out and ultimately did.
I prefer to utilize a covered call strategy with growth stocks that are in a defined range or have a fairly well-defined support level.
Why growth stocks and what does all of this accomplish?
Growth stocks have higher implied volatility, meaning they tend to make bigger moves (in both directions) which makes the stock price swings wider than a value stock or ETF typically experiences.
This wider range of prices drives up the price of the options you can sell which means you collect more money.
The key is buying the shares of stock at price points that allow you to put as much of the odds in your favor as possible.
Here’s an example using MARA which had a number of reasons to be positive.
The chart gives nearly all of the information you need.
Clear uptrend all year
Prior resistance at $8.51 provided support - buying range
The 50-day moving average is an easy stop loss target
Bitcoin has been on fire and MARA is highly correlated
Huge options premiums for cash collection
If you were disciplined about buying shares between $8.50 and $9.00 you can set yourself up for a nice trade.
The set up was there. The uptrend, the strong support at $8.51, and the volatility that would drive the price back to these levels for buying opportunities.
After buying shares, the premium for selling a covered call at the $11.00 strike price were huge.
As noted above, I was able to sell the June 6th call option for $79 which was roughly 9% of the purchase price of $888 for the one hundred shares of MARA.
When you utilize growth stocks and buy at an optimal level, you can create opportunities for large percentage gains strictly from selling call options.
Option Strategy Number 2
I also like to buy in-the-money (ITM) call options as a way to trade to capture upside gains while limiting how much I put at risk.
Options allow me to clearly define my risk, which means I don’t have to worry as much because I dont’ have as much at risk.
I used this strategy with SOFI recently, buying the $4 strike call options instead of buying hundreds of shares of stock.
When the shares were trading for $5.55 I was interested in taking a position for near term gains. I could have put $1,110 to work buying 200 shares but instead I used options.
The $4 strike price calls expiring June 16th were being sold for $1.60 at the same time. This meant for only $320 I could get the same exposure to 200 shares as I would have for $1,110 for shares of stock.
If the price of the shares moved up to $6.00 the call options would have moved up to $2.00 each, the value of the stock less the strike price ($6-$4), which would be a profit of $80.
Notice that if the 200 shares were at the same $6.00 price they would be worth $1,200 which would be a profit of $90 ($1,200 - $1,110). Only $10 extra dollars for risking more than triple the amount of your money.
With the call option, your percentage gains are higher because you risk less of your money. The $80 gained on a $320 trade is an increase of 25% where the stock gains in this example are just over 8%.
Another way to look at it is, you’ve defined your risk in the event of a big drop.
Managing risk is a big part of being a profitable trader and options allow you to have a tighter grip on your risk management.
For example, SOFI is caught up with all of the banking news. If the shares were to suddenly drop 30%, which we have been seeing with some of the regional banks, you would be hurting more if you owned shares of stock instead of options.
If shares of SOFI dropped from $5.55 to $3.88 (-30%) the call options would be worth zero at expiration. You know the max you can lose is the $320 traded.
If you owned the shares instead, they would now be worth $776 which would be a loss of $334 and you would still own the shares and the risk of more downside.
Your risk is not clearly defined when you own shares other than knowing that zero is the lowest the share price can go. This is not very helpful information.
With options you give yourself an opportunity to capture greater percentage gains while also defining exactly how much you are willing to risk.
This is how you use options to both beat the market and do so without staring at your account all day long.
Working Without Thinking About Trading
I hope you can see the benefits of using options with growth stocks. The ability that options provide, having greater control over your risk management, is a big deal.
When I buy shares of MARA I am looking to beat stock market returns. The volatility of the stock makes it a riskier trade which is why the payoffs can be much higher.
Thinking only about how much you can make will get you in trouble really quick. Instead, focus on what you can lose first.
By selling covered calls with MARA, I’ve given myself 9% of room to the downside before losing any money in the trade.
That 9% allows me to work all day knowing this position has plenty of room to move around.
If the shares make a dramatic run to the upside, I know that I still will capture over 32% gains before being capped by the covered calls sold.
There is no reason to try to catch the top, I already know where my max is at.
There is no reason to stress over a drop of 4, 5, or even 6% because I know I have a buffer of 9% to the downside.
This is truly stress free trading. And if the shares stay within this range, it can be repeated next month!
For the SOFI trade, again I knew exactly how much I could lose so there was no need to stress a wild swing in price on negative news.
Using the ITM call options allowed me to participate in upside while only risking less than one third of the capital I would have need to trade the same equivalent of stock.
Additionally, setting stop losses allow for further automation of risk management and the day at work can be truly distraction free.
The power of options comes in many forms. For me, the most powerful is the ability to work full time and trade with confidence and without worry.
This is possible because options provide clearly defined risk. And with covered calls, they provide some added room before thinking about taking losses.
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