My Favorite Option Strategy For ETF Directional Trend Moves

As a CBOE Market Maker, I bought and sold millions of dollars of options during the Internet Bubble era.

I made quite a bit of profits from the time premium decay in options I sold.

So I learned NOT to buy a lot of time premium when I buy Calls and Puts on ETFs.

My tested, unique system finds the best trending ETFs for quick momentum gains.

To capitalize on these big sector moves, I use the fantastic leverage of options -- and often hit gains that are 10x the profit compared to the underlying ETF.

But I don't pay a lot of time premium.

My method gives 1 to 3 months for a trend move to play out, with a small cash outlay and limited risk. You can even trade these in IRA retirement brokerage accounts.

Options can be complex to understand, even for investment professionals -- so let me break it down for you:

I buy In-The-Money (ITM) options that act as a cheap Virtual Stock Substitute.

By cheap, I mean the cost of the ETF options I buy are generally $1 to $6 -- $100 to $600 each.

This allows even a small investor to buy 2 contracts or more of the ETF option trades that I recommend.

There is great big Bang For The Buck leverage by using my option strategy, here is an example:

100 shares of an ETF that is at $40 will cost you $4000.

But let's say you spend the same $4000 to buy 20 In-The-Money Call options on the same ETF that cost $2.

You now control 2000 shares of the same ETF for the same cash outlay.

The Virtual Stock Substitute comes from the fact that the options I buy have a high Delta value of 65 to 90.

Delta is a mathematical calculation in an option price, an 'Option Greek'.  But you don't have to be a math expert to use it. 

It basically means that the option price move will move $0.65 to $0.90 for each $1 move in the underlying ETF.

Think about it -- if I buy an option for $2.00 and it goes up $0.75, I just made a 38% profit.

If you had $2000 in that option, you now have $2750.

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Bill Johnson 2 years ago Member's comment

Sounds good. Tell me more Moby.