Why I Choose Options Over Common Stock
I have traded large accounts and I have traded small accounts. I have spent a year professionally day-trading (making an average of over fifty trades in any given intra-day period) and I have reduced my activity to four positions in a one month window.
Why do I say all of this? I want to give context that I have been around the block, I have sampled a wide variety of trading dishes and I really keep coming back to one tried and true favorite pairing: Deep in the money calls coupled with 30 to 45 day swing trades.
The biggest lesson that I have learned is that as much as I love trading, I prefer being an entrepreneur and building cool shit, over scalping the market 24/7.
Alright, back to the topic at hand. Why do I prefer options over common stock? I’m a long term investor (aka perma-bull), but I buy the dips and follow market cycles. I would also prefer to have $5k on the line (utilizing deep in the money call options) for 1,000 shares of AAPL rather than $158k in common stock. Simple mathematics, I suppose. This also allows me to stay diversified and not over leverage my brokerage account.
The problem that I see on the forums, chat groups and on Stocktwits is that everyone who plays options goes out and and loads up on a bunch of random lotto-style out of the money call options with four days left until expiration. This gives zero time to correct a bad trade and ultimately leads to the batch of call options expiring completely worthless.
This does require the ability to focus on the bigger picture and stay two or three steps ahead of the big boys. The strange thing is I find this almost easier than trying to figure out the immediate next move.
The other side of the camp are people who are constantly selling options for premium gain. This strategy is awesome when there is volatility to help juice (and pad) the short premium, but I’m personally not a fan of having undefined risk for a small amount of income generated by decaying premium. Yes, time works in your favor, until a trade for $250.00 in premium blows up in your face and costs you $5k ($TSLA).
Shorting premium at these levels is like picking up pennies in front of a freight train (the same theory goes for shorting the VIX at these levels).
We are in an aggressive bull market, the easiest and safest bet for me is to buy deep in the money calls after I see a bottoming pattern on a longer term time-frame.
Currently the market is giving us excellent buying opportunities at least once a month. The summer months are always slow, but things will pick back up going into September.
As for me, I am in mostly cash with a few small bullish positions to catch any additional upside in $QQQ, $AAPL and $FB. I will patiently wait for better setups in the upcoming weeks and months.
Are you completely lost with what I’m talking about (and heavily invested in the market)? I’d highly recommend stopping by YachtMoney (shameless plug, I know) and start taking a few free lessons on the topics mentioned above.
