10 Times Your Money With Low-Cost Options

Published: 18th June 2015
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I don't understand why so many gurus tell you not to waste your time with low-cost, out-of-the money options.

For years this bad advice kept me from engaging in what has become a very nice income stream for me!

One to one is the best you can do with in-the-money options.. That means for every dollar that the underlying stock rises (or falls in the case of puts) your option increases one dollar. This is shown by a Delta of 1. That is as good as it gets with options.

So, if you purchase some call options for lets say 5 bucks, and the stock goes up a dollar, your option (in the case of a Delta of 1) will then be worth 6 bucks. Still gives you a lot more leverage than buying the stock, but we can do even better.

If you have purchased some near-the-money call options for 4 or 5 cents, and the price of the stock rises by about a buck, the low-cost options may well be in the money now!! Your 4 or 5 cent options will likely increase to 19 cents or more if that happens.. They could even go up to 40 to 55 cents fairly quickly.! That would amount to 10 times what you invested in the options!! That almost never happens with an in-the-money option (unless the stock goes up 10 times in value - how often does that happen?).

I think the reason we get the advice to stay away from these low cost options is that they may not be as liquid as the in-the-money calls and puts are. It has been my experience that when your out-of-the money option play moves near-the-money, the big dogs will move in and your options will become popular.. You won't have any trouble selling them to someone else.

Of course, with any option trade, in the money or out, the most important thing is picking a good stock. There are times when that is easier than other times.

I often look for low-cost option plays on expiration week that are near-the-money.. There is little if any time value you are paying for, but you need to pick a stock that is ready to do something. If it is the week of the third friday of the month (expiration week), and the company is reporting earnings, that can be a good combo. The stock will nearly always break one way or the other when the report comes out..

You could do a straddle play where you buy a cheap put and a cheap call. This can work well at times. The numbers have to work out. If I can triple my money on either side and pay for the loser, I'll do it every time..

Recently we took a play on Coke (KO). Their earnings report came out and it was a little less than expected. The stock quickly fell by about a buck and a half. It was also expiration week. I know that Coke is not going anywhere, and I was sure that traders had over reacted. I quickly bought some cheap out-of-the-money calls on KO, and by that afternoon it had more than doubled. By the next day, we tripled our money on this low-cost option play.

Sometimes simple things are the best strategies. Don't overlook the great income you can create with cheap out-of-the-money options!


Discover how to double or triple your money with low-cost option trades inside of your discount broker account. Take Doug's free video training course now at:

Enroll in Free Option Course Here

Find out how we recently doubled our money on low-cost Bank of America calls. How we tripled our money on Coke while at the theater watching a movie. These are the kinds of trades you need to be doing too!

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