Somebody asked me recently why I like trading options so much.
I've been asked that question many times. And my typical answer has
me listing all of the advantages that options provide over stocks.
But this time, for whatever reason, my answer was a bit different.
I immediately blurted out, "when I look back on my trading career,
my best trades have been in options".
As soon as I said that, I remember smiling, as all of my
spectacular winners over the years flashed through my mind.
It was true. And my smile only got bigger as we talked.
My Introduction to Options
The very first trade I ever made was in the commodity futures
market. It's funny when I look back on it because futures are even
less understood than options. But that was my starting point. (My
path in life has always been a bit unconventional.)
The trade was in sugar (World Sugar #11 to be exact). The trade
went ok. But nothing too memorable other than it was my first.
I soon discovered that as a trader, I wasn't much of a risk taker.
And the highly leveraged futures contracts were probably the
riskiest investment one could make. So I set out on a way to better
manage my risk. And that's what led me to limited risk options. I
liked the sound of that 'limited risk' part. And that's when my
love affair with options began.
I had a knack for finding winning opportunities. I soon found
myself trading grains during the drought, trading oil during the
first Gulf War, and catching the coffee market during two freak
frosts in Brazil. And I took advantage of them all through options.
But these special situations called for special strategies. I
employed straight long calls for some, but used bull call spreads
for others, and at times, a seldom used technique called ratio back
spreads for the most unique opportunities. Profit, of course, was
my motive, but risk management was always foremost in my mind.
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Larger World Out There
With over 10,000 stocks out there vs. only the handful of
commodities I was interested in, I decided to expand into equities.
I incorporated both stocks and stock options into my trading. And
now I trade those exclusively.
When I joined Zacks in 2000, I was fascinated by the Zacks Rank. It
was the most profitable and logical stock rating system I had ever
seen. And the track record of performance was testament to that.
Over the years, I studied and used the Zacks Rank profusely, and
became an expert on it.
And now, I couldn't imagine trading without it.
Eye on Risk
Risk management continues to be one of the most important factors
in my trading. Especially now, as I get older.
I've seen people blow themselves up in both stocks and options.
Usually, it's due to bad habits that go unchecked, leading to silly
risks and dire consequences.
Ironically, these bad habits are usually created during the most
bullish of markets, where even bad choices and mistakes can be
But when the easy-money stops, their accounts soon become a shell
of their former self, as each poor decision takes its toll in
With proper position sizing and the right option strategies, you
can enjoy big gains with only a fraction of the money needed for
stocks, and a fraction of the risk.
Zacks Rank and Options
Even though we're in a historic bull market where almost everything
seems to be going up, stocks can, and do, go down. And actually,
more often than not, stocks go sideways, trading within defined
ranges without any meaningful move in one direction or the other.
The Zacks Rank is ideal for spotting the future winners and losers
with its Zacks Rank #1 and #2, Strong Buys and Buys, and Zacks Rank
#4 and #5, Sells and Strong Sells, not to mention the Zacks Rank
#3, Holds (which is another way of saying there's no compelling
reason for the stock to outperform or underperform the market).
But most stock investors only buy stocks, making money if it goes
up. Investors can sell (short) stocks and make money when a stock
falls, but few do. (I suppose the idea of 'unlimited' risk is
likely what keeps them away from that.) But there's absolutely no
way to make money in stocks if it goes sideways.
With options, however, you can make money if the market goes up,
down, or sideways. And to a certain degree, you can even make money
when you are wrong about the direction of a stock. All with limited
In addition to the strategies I mentioned earlier (calls and puts,
bull and bear spreads, and ratio back spreads), I also now include
iron condors, butterflies, calendar spreads, and more. All are ways
to make money no matter what direction (or non-direction) the
market is going in.
The Market's Next Move
Statistically speaking, the month of December has historically been
a good one. Over the last 10 years, the market has been up in 8 out
of the last 10 Decembers. That's 80% of the time. And the average
return was 2.53%. In the 2 December months it was down, the average
pullback was just -0.48%.
This December, the stars all seem to be aligned for another great
showing. I'm expecting it to be one of the best ones we've seen.
And I know just how I'm going to play it.
But what the market does after that is up in the air. There are
plenty of potential headwinds lurking in the beginning of the new
For an options investor, that uncertainty just means more
The Option Is Yours
Investing in stock options is really just an extension of stocks.
(They're not called stock options for nothing.)
And the word 'options' is another way of saying choice and
If options are new to you, there's no need stop what you're doing
now and make a total switch to something new. Start off slow.
That's what I did.
Sometimes the best way to invest in a stock is through the actual
stock itself. I have stocks that I've been in for years. And some
that I've just gotten into.
But, other times, options are the best way to go. And when it is,
take advantage of it. Feel what it feels like to have a few option
positions on. See how you like the different strategies to make
money in various directions. Enjoy the ability of doing so with
significantly fewer dollars at risk than with stocks.
You may find yourself loving options like I do, and make them a
part of your everyday investing. Plus, you'll no longer have to
feel dependent on a bull market to secure your financial future.
The road less traveled can be an interesting one. And a profitable
An Easy Way to Start
As mentioned, I'm looking for new market highs in December, and am
excited about our prospects for extreme short-term gains. But you
don't always have to wait for the next bull market to make money.
Down and sideways markets can be just as profitable.
Want to be ready for whatever the market throws our way, starting
now? I invite you to look at our
Zacks Options Trader.
This portfolio service takes the guesswork out of
by doing all the research for you and presenting it in plain
language with easy-to-understand signals. Whether you're new to
options trading or a seasoned pro -- we'll walk you through each
trade step-by-step as we combine professional options strategies
with Zacks Rank timeliness. You'll learn to take advantage of
options techniques that many investors have never even heard about.
This is an especially good time to get rolling. Starting Monday,
I'm planning to post a select handful of trades to take full
advantage of a December boom at sharply reduced risk.
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learn more about
Options Trader >>
Thanks and good trading,
Vice President, Zacks Investment Research
Kevin Matras is our world-class research expert who has
developed more than 30 market-beating strategies using the Zacks
Rank. He also directs the portfolio service that combines Zacks
Rank timeliness with the best professional options techniques,
Zacks Options Trader.
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