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No doubt about it, there are a lot of amateur traders in the market at these levels.

Now, it’s not a knock on these new traders. In fact, I welcome it.

You see, this new money is just catching wind of the options market. What they don’t realize is they’re competing against traders who have it already figured out.

The way I see it, these traders are just looking for cheap options to get more bang for their buck.

However, when they just try to find cheap options, they don’t know they’re actually gambling.

No joke.

I mean I noticed traders were jumping into Amazon (AMZN) puts BEFORE earnings, and betting against the tech giant.

 

 

I don’t know about you, but that was a long-shot bet, and the options premium got sucked out.

Those puts they bought were going for $0.01 bid X $0.03 ask at 1:40 PM ET.

To me, that was a “sucker’s bet” and there are ways to take advantage of these low-odd bets, and leave these players stuck with the bag.

How?

 

Were These Traders Destined To Lose In AMZN?

 

Betting against AMZN seems like a lose-lose situation at these levels, especially if traders are just shorting shares outright or buying deep out of the money puts.

I mean take a look at this options trade in AMZN.

 

 

They purchased $2,700 puts expiring in just one day, when AMZN was trading at $3,018.50.

In other words, they were looking for AMZN to miss big for its earnings announcement.

Sure, AMZN could’ve dropped after the announcement…

But there was just a small chance those options would become in the money.

How low were the odds?

Less than 6%.

In other words, whoever sold those options had more than a 94% chance of winning.

Of course, selling options outright can be dangerous, and there was a safer way to take advantage of this sucker bet.

I don’t try to trade earnings announcements, but if one was bullish on AMZN, they could look to sell the $2700 puts and buy the $2600 puts.

By setting up that strategy, a trader would’ve stood to profit in three different scenarios:

  • If the stock trades sideways
  • If the stock falls a little
  • If the stock runs higher

They would’ve also benefitted from the drop in implied volatility (since the news was out already) as well as time decay.

Now, if this sounds confusing to you at first, don’t worry.

I break down this risk-defined strategy to take advantage of the “suckers” in the market in my complimentary eBook Wall Street Bookie.

Claim your copy here, and learn how to utilize the strategy that helps me stack the odds to my favor.

Author: Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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