**How to trade options**

How to trade options: Many people prefer to trade options instead of stocks. So right now, I will show you how to trade options using the PowerX Optimizer. Let’s get started.

**Disclaimer**

What I’m about to share is not an options 101. If you don’t know much about options I’ll write another blog for you that tells you what you need to know. I’ll explain the different types of options, we’ll talk about days to expiration, calls and puts, and about time decay.

If right now you don’t know these terms, this blog might not be best for you. This is for people who are already trading options and want to know specifics on how to trade options.

### How to Trade Options with PowerX Optimizer: **Specific Examples**

Let’s take a look at some very specific examples.

The PowerX Optimizer is the software that I personally use to find the best stocks to trade. Now you might say, “Why am I interested in stocks, this is a video about options.” And you’re absolutely right.

Here’s the deal. Options are a derivative. Meaning, that you need to know what is the underlying stock doing before you trade options.

There are 3 things that a stock can do. It can go up, it can go down or it can go sideways.

**First you need to know what the stock is doing before you can trade options. **

Now one of the stocks that I traded today is SLCA.

SLCA gave me a sell signal according to my methodology, which is using indicators.

I use 3 indicators, the RSI, the MACD, and the stochastics to actually determine whether the stock is more likely to go up, down or sideways.

Based on these three indicators, I saw that SLCA is more likely to go down. So now it gave me a signal to sell at fifteen seventy-four and this is what I did today, I traded the stock.

**If you want to trade options instead, it’s very easy.**

Let me show you how to do this. Instead of betting on a falling market with a stock, you can trade a put option.

And again, this blog is meant for those of you who are familiar with calls and puts. For me, honestly, this the easiest way to trade options.

You buy a call when you expect the market to go up and you buy a put when you expect the market to go down.

Don’t get any more complicated I’ll show you how easy this can be.

**Here’s what I like to do. **

Out of all the available options right now, you have the different expiration dates May 17, June 21, September, December, January and then you have all of different strike prices.

**So, the question is, which is the best option to trade?**

First of all, we already know that we want to trade a put. For me personally, the best expiration date is anywhere between 30 and 60 days.

I like to trade options that have plenty of time left so the stock can actually do what it’s supposed to do.

So therefore, here I’m picking the options that expire in June because they have 52 days to expiration.

Now for me there’s two possibilities, I can either trade an in the money option, so this would be a strike price of 18, or I can trade an at the money option which would be a strike price of 17.

**Let’s compare these two and then make a decision of which one would be the better one to trade.**

Now what the software does for me, every single option has a fair price, right? And there’s two different models that help you to determine what is the fair price of an option.

It is the black-scholes formula, or the binomial model.

Doesn’t matter what you use, but it tells me here that a fair price for this option, for the in the money option would be $3.25 and for the at the money option the seventeen put would be $2.45.

So this is my entry price. I can then also use the same formula and estimate how much would the option be worth once the stock hits my profit target.

And you see my profit target is that the stock drops, because we’re talking about a falling market, that it drops by at least $3.50. So this means that the option at target should be worth $5.76.

Now, if this trade does not go in my favor and if SLCA is going up, this would be going against me, then I know that the option, once it goes up to my stop loss, is still worth $2.27.

**Knowing this I can now calculate my reward and my risk, very easy. **

And again, this for those of you who are trading options and you will right now see how powerful it is because this is how easy PowerX Optimizer is making it for you to trade options.

So you’ll see that the reward is $2.51. And the risk 98 cents. So, you’re risking approximately $1 trying to make $2.50. One to two and a half?

I mean this is a pretty good risk reward ratio. Knowing this it’s probably the option that I would go for but we said let’s compare these two.

With this option and having all the data that we can calculate using the binomial model or the black-scholes formula, we know that we would have risked 98 cents trying to make $2.31.

**Now let me ask you this**

If you could risk 98 cents and make $2.51, or you’re risking 98 cents and make $2.31, which one would you choose? Would you choose option number 1 or option number 2?

Pretty obvious, right? I mean you have the exact same risk, but you can make 20 cents more on option number 1, so you would choose option number 1.

is the eighteen strike and I said, today I did enter this stock, I sold the stock.

Let’s go to www.finance.yahoo.com and see how much the option was worth this morning and how much it is worth right now.

So how much you could have made if you picked the June 21 and we want to look for the put, and we want to look for the eighteen put. Here we go.

For the eighteen put we want to pay a maximum price of $3.25. This morning in the open, it was trading at $1.85. Great. It’s below the maximum price that we’re willing to pay.

So you could have bought this option for a $1.85. Where are we right now at the end of the day? The bid ask is anywhere between $3.40 and $3.70. So right now, if you would try to sell the option, you would get at least $3.40 for it.

Now, let me ask you this: Would you be happy if you invested $1.85 this morning and right now it is worth $3.40? Of course, right?

**The most important thing is you need to know which stocks are making an explosive move.**

And this is why I use PowerX Optimizer.

I first look at the stocks that are ready to make an explosive move. And once I know which stocks are primed to move then I’m looking at the option.

**How do I decide which option to trade? **

I only look at two options, I look at the conservative one with at least 30 days to expiration but no more than 60 days, and I look at the medium aggressive one which is the at the money.

For those of you who are familiar with options I’m looking at a delta of point seven. And the other one is the delta of point five to point six.

For those of you who are trading options you should be pretty excited about this because this, for me personally, is the information that I need in order to make informed trading decisions.

This is a very brief overview on how to trade options using the PowerX Optimizer with a very, very specific example of a stock trade that I did today.

And if you would have traded the option, you know that options come in hundred packs so you would have paid $185 for the option, and right now at the end of the day it’s worth $340 almost doubling your money within a day.

I hope that you find this exciting. If you would like to know more about how I trade and the software, please go to www.mytradingroutine.com. This is where I set up a website that explains all of this in detail. How I find the stocks and how I set up my indicators.

Read Next: What Motivates You?