Investment Strategy. Options.
Important. This post is NOT investment advice. Investments in Etrade options are NOT FDIC-insured and may lose value all the way to $0. Buying puts/shorting a stock has severe or unlimited risks.
Day trading option has very big leverage and serious potential to profit (or to lose money).
One of my favorite strategies is to buy puts where there is a gap that shows a price decrease. Why?
- Gaps tend to fill the same day.
- You are betting on a price decrease.
- A decrease in price will increase volatility and time value. This means you have to worry a little bit less about your options losing value due to time.
All image credits in this post are to Etrade.com.
Image 1- a gap that shows the stock needs to fill it if it drops.
Image 2- we are buying puts that have expiration today through 3 days (depending on your risk preference). The sooner the higher the risk.
Image 3- the gap is filled.
Image 4- shows the percent of gain.
Image 5- the same trading strategy- filling gaps to bet on the stock to go down.
Image 6- bought 100 put options at $1.80; sold 100 put options for $2.30. The same day, within a hour-two.
Image 7- total gain. NOTE, this is a PAPERTRADING account. Learn before you trade with real money.
If you have a loss or a gain on your trading, you will receive a tax form by January 31. The gain or the loss needs to be reported to the IRS