Selling vertical options.
You might be surprised, but this was how I started on my stock market journey.
While most people started buying and selling stocks, I started with selling vertical options.
Here's why.
How I Started With Vertical Options
I started my investing journey in 2017.
Back then, I was only a 22 year old - who was just starting out my University.
I went to several investment courses (some of which were thousands of dollars), wanting to learn what I could do with my savings.
(As a 22 year old university student, you probably figured out that I don't have much savings)
I felt lost and defeated.
Until, I learned how powerful selling vertical options can be.
The Power of Selling Vertical Options
Here are three reasons why selling vertical options is so powerful:
Requires Little Capital To Start
For those who are starting out like me, capital has always been a problem. For example, if you are starting with only $1,000 - then it is hard for you to get exposure to many of the quality companies. However, with vertical spreads - it changes everything.
Take this trade for example.
On normal circumstances, I wouldn't be able to buy many stocks on TSLA due to the high share price.
However, with vertical spreads (a bull put spread in this case), I was able to put on a bullish position on TSLA with only $396.30.
This trade also allowed me to collect $105.00 in option premium from a high price stock like TSLA.
High Win Rate
When selling options, we get to define our win rate. And this is based on statistics, otherwise known as Delta (i.e. or what we used to estimate the Probability Out-of-the-Money).
POTM is the probability that a strike price will close at expiration below an underlying stock price for calls and above an underlying stock price for puts.
To put it simply, POTM represents the statistical probability that you will make money from your vertical spreads.
For myself, I always aim to have at least 0.25 Delta (75% probability OTM) - staking the odds in my favor.
Not only that, I incorporate technical analysis as well (i..e Mechnical win rate) and enhance the win rate to close to 90%. I share more about this in the Options Cash Flow Mastery Course.
Flexibility in Direction
Most people start off with buying stocks. As such, they only know how to make money when the stock market is going up.
However, with vertical spreads - we are able to positioned ourselves to make money even when the stock market goes down. This is otherwise called Bear Call Spreads.
For myself, I mainly focus on the Bull Put Spreads and the Bear Call Spreads - allowing me to make money in both directions, so that I will have opportunities regardless of market conditions. This is unlike investing, whereby I have to wait for the stock to be undervalued in order to enter my positions.
Summary
In other words, if you are just starting out with little capital - I think there are great merits in starting with vertical spreads for the following reasons:
- Requires Little Capital To Start
- High Win Rate
- Flexibility in Direction
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