Senior Process Engineer
For example, accountant Adam Nas had not tried options trading despite eight years’ experience in the markets.
Fortunately, a brief period under the guidance of Jeff Bishop of Bullseye Trades persuaded him to rethink his entire strategy.
“Jeff is a genius,” says Adam, “And he has consistent wins.”
He continues, “After I found the AVLR trade from a marketing email and made 100% on the call options, I figured I’d give Jeff’s paid service a shot. And BAMM, another 120% on NKLA. I’m so excited!”
Adam’s enthusiasm is understandable. However, trading options, in the same way, is not his core strategy.
Not that it can’t be very profitable, as he’s already found. The problem is that big triple-digit option moves depend very much on volatility in the underlying stock.
And although market conditions in 2020 have created lots of volatility, there’s no guarantee it will continue.
Historically, about 75% of all stocks tend to track sideways over the long-term, making highly-profitable moves difficult (though not impossible) to find.
Fascinated by the markets, accountant, Adam Nas, had been trading for 8 years before discovering Bullseye Trades. Working with Jeff Bishop, he’s already posted some exciting triple-digit wins. Nevertheless, Adam’s long-term goal is to generate a safe, steady income by selling rather than buying options.
The good news is, there’s another way to make consistent profits as an options trader. One that Adam is already well aware of.
“I want to make passive income selling options,” he explains. “Safe bets to generate a weekly income.”
And selling rather than buying options is indeed a strategy every trader should be aware of – particularly those with larger accounts looking for regular income rather than spectacular capital growth.
Keep reading to see how it works.
“I want to make passive income selling options. Safe bets to generate weekly income.”
The first thing you should be aware of is that, according to figures from the Chicago Mercantile Exchange, around 75% of all options contracts expire worthless because they fail to hit their strike price before they expire.
Buying an option, be it a put or a call, means that you’re stacking the odds against yourself from the start.
While it’s true that your only loss will be the price of the contract (the premium) you paid, steady profits may be elusive, particularly in ranging markets.
On the other hand, selling puts or calls means that you get to keep the premium paid to you no matter what happens.
And, as we have seen, this can generate an immediate profit of around 75% of your trades.
That said, it’s on the exercise of an option that you’ve sold that things get really interesting.
Essentially, there are two types of call options:
Call options sold on stocks you already own are known as covered calls and are often used by long-term investors and institutions as a way of generating income and hedging against possible losses.
The biggest risk? In a rising market, option sellers may be compelled to sell the underlying stock at a price that’s lower than they would have wished.
However, even in that event, there’s no cash loss as such.
This next type of call option is:
Naked calls are a very different and potentially riskier proposition, in which the seller (writer) of the options contract doesn’t own the underlying stock.
If the buyer exercises the option, the seller will be compelled to buy the underlying stock at the current market price and provide it to the option buyer at the agreed (“strike”) price. This will result in an immediate and heavy loss if the market price rises significantly above the strike price. Which is, of course, precisely the move the option buyer is hoping for.
On the other hand, these options contracts’ value can increase tremendously as the market price moves above the strike.
This is the exact process that generated such impressive profits for Adam on Avalara Inc. and Nikola Corporation.
“Jeff Bishop is a genius. And he has consistent wins.”
By selling a put option, you’re granting the buyer the right to compel you to buy the underlying stock at the strike price. The buyer will be the owner of the underlying stock, using this method of putting in place a stop-loss.
The seller’s attraction is the opportunity to acquire stock in a company they’d like to own at a price they’re willing to pay.
And, of course, to receive a premium, which they’ll keep, no matter what happens.
That said, they’ll realize an immediate loss if the market price is below the strike price when the option is exercised.
“After I found the AVLR trade from the marketing email and made 100% on the call options, I figured I’d give Jeff’s paid service a shot. And bam, another 120% on NKLA!”
No style of trading or investing is without risk. However, for financially sophisticated individuals, selling options can be a relatively safe way of generating substantial income.
A 2% monthly return on a trading account is often considered a conservative target, and 2% is a very achievable figure that’s certainly far superior to those typically generated by Exchange Traded Funds (ETFs) and other market tracking instruments.
It’s important, though, to realize that this kind of trading is like any other in that it requires a carefully-thought-out, comprehensive trading plan if consistent profits are to be achieved.
Fortunately, as might be expected of an accountant, this is something Adam is well aware of. The patience to wait for “good solid stocks” to provide opportunities is what he regards as the essential quality for his type of trader.
And with this thought kept firmly in mind, he’s now well-positioned to achieve his goal of financial independence through passive income.
Raging Bull does NOT track or verify subscribers’ individual trading results and these individual experiences should NOT be understood as typical as or representative. Please see our Testimonials Disclaimer here: https://ragingbull.com/disclaimer.
Senior Process Engineer