Signup for our free newsletter:

The Basics of Options Trading

Written By Brian Hicks

Posted January 12, 2010

If you want to make money in a market that’s made little if no sense over the last two years, I urge you to take this simple step:

Follow the volume spikes in stocks and options.

Case in point: We were simply following the smart money when we bought calls on the Financial Select Sector SPDR (XLF) and the Direxion Financial Bull 3X Shares (FAS) calls — which returned 166% and 125% gains, respectively — a few months ago.

We’ve seen countless other opportunities, too. Just take a look at the volume spikes in the following plays this past week:

  • About 40,000 contracts have traded in the UltraShort Real Estate July 2010 8 calls;
  • About 33,000 contracts have traded in the XLF June 2010 20 calls;
  • About 27,000 contracts have traded in the Alcoa January 2010 17.50 calls.
  • And another 20,654 contracts traded in the McMoRan Exploration January 2010 10 calls.
All this leading us to believe somebody knows something that we don’t.

Truth is following volume spikes can provide significant profit opportunities.

Sure, there are lots of ways for detecting shifts: Candlesticks… charting patterns can show "head and shoulder" formations… moving averages… Bollinger Bands… Williams % Range… all of these examples can be used to technically read for pattern shifts.

But if you want a quick read on whether a trend is strong, your best clue is in the volume.

If volume is spiking, someone may be in the know…

Take Forest Laboratories, for example. Every time it touched its upper Bollinger Band, it was also met with heavy put option buying.

Someone was in the know, and we followed — watching the stock dive $10. Technically speaking, the chart told me the story. Volume-wise, the buyers of the underlying stock were tired and ready to drop, which was confirmed by heavier option volume.

So the next time you’re tempted to buy options on a stock that has been rising or dropping, be sure to check out the volume. Regard volume spikes as you would the flashing lights of a slot machine; they are a precursor to profit.

How to research or even buy an option…

For months, we’ve been receiving reader comments and questions regarding options:

"Ian, I’ve been trying to learn options on my own but not getting anywhere. All the terms, and options chains are confusing. Can you help?"

"Can you explain how LEAPS work again and what I should tell my broker?"

"Why bother trading options? I’m doing fine trading stocks…"

Again, if you want to make serious money, you must know options — and disregard the all-too-common belief that options trading is difficult, risky, speculative, and a complicated way to trade stocks.

It’s simply no longer the case.

These days, options trading is quickly becoming the preferred way to make serious gains while limiting risk.

But you can’t do it without understanding the ins and outs. If you don’t know what you’re doing, you will get burned.

And that’s where we come in, laying it all out for investors seeking options profits, providing reports on:

  • All the Basics: The Complete Options 101 Primer

  • Put and Call Options

  • Covered Call Options

  • LEAPS Options

  • The Straddle and Strangle Strategies

  • The Dynamic 2-in-1 Strategy

But again, these reports aren’t for everyone…

They’re for traders who want consistent and hefty gains that can be returned by trading options.

Ours vs. Theirs

Sure, there’s no lack of options educational services out there… but every one of them is part of some sort of "package deal" that costs hundreds (if not thousands) of dollars.

These package deals include the DVDs, video, and printed fluff pieces that fail to deliver.

Sure, you’ll get the background information on options, trade terminology, and a few basic strategies to build your options IQ… but that’s about it.

You’ll probably receive a PDF of an options trading course that’ll conclude with a further offer: "If you join us right now for just $995, we’ll walk you through similar trades!"

This type of package is unfair to those looking for the most basic information. You’re left wondering what to do next… and how to start making gains on your own.

And that’s exactly why we trump these other options education outfits…

We’ll guide you through every step on how to trade options, provide some basic and advanced options strategies, and give you 1-2 test trades every month.

Every week, we’ll alert you to new options trade set-ups and new ideas and strategies. (These are some of the same strategies and insights I recommend in my Options Trading Pit portfolio, which has returned 9,101% cumulative returns since January 2007. In fact, I developed Options Trading Coach after many of my readers insisted on such a service.)

We’ve even set up a message board — checked daily — where you can dialogue with us directly.

So if you’re interested in exploring options trading, take a look at what we’re doing in my Options Trading Coach service… and if you’re not happy with what we’re providing, we’ll return every penny.

It’s that easy.

You’ll be shocked by how much you can maximize your gains while tracking options volume.

Stay Ahead of the Curve,

Ian L. Cooper
Your Options Trading Coach