Can You Make Money Option Trading Level 1 ?

[da-net]

DEFINIING OPTION TRADING LEVEL 1:

This is the buying only of calls and puts to open a position.

PLEASE understand that level 1 buying options, historically loses money. The ideal thing is to sell options through spreads or covered options. Selling is a proven way to make money or buy the stocks you want at prices you like.

GOAL:

My goal with this thread is to check the possibility of making money only buying options (level 1) in a $1000 funded account. Can I be selective enough to grow the account to the point it becomes a source of income like a part time job? I don't want to sit in front of a screen all day.

Simply being net positive is not good enough, there has to be enough to compensate for both risk & time. I will do this for one year or the account is exhausted.

RULES:

All options that I purchase will have 2 to 3 months of life, 1 level out of the money, and cost no more than $1 + or -. One option contract at a time. Focus on the KISS principle and don't deviate. The more complicated I make it, the more times I am wrong, thus KISS.

Do not get greedy as some option Market Makers are known to control option pricing stating "Volatility" as the reason why. Not every option will be a home run, nor will every option lose money. If the account grows enough, I will advance from single options to multiples or more pricey options when warranted.

CHARTING SETUP:

I use daily candles with SMA of 20, 50, and 200, along with CCI (I have more screen time with it), Support & Resistance (price rejection area), and candle patterns, ie: pinbars, "W" and "M" formations, bullish / bearish bars.

INTRODUCTION:

Over the years of trading different markets, I have tried many things. I typically tried to squeeze an extra percentage point, etc with adding new indicators, or bots, but always found more was NOT better. Thus in this I adhere to the KISS principle. Since I'm a Yank, I'll be posting things from mostly USA markets. I may also post things from other stock markets around the world that allow direct access by Americans (Yanks), but they most likely will not be option plays.

I'll share tidbits of information along the way as situations arise as I remember them.

If you have some knowledge that would help everyone, I ask that you share it, but keep to the principle of KISS.

TRADE POSTING:

My trades will be real, and I will post the trade after I have opened a position or closed it. I will post both the losers and the winners with a fill notice. I will NOT post a chart as I don't want to influence you in what setup works best for you.

Recently in a T2W journal by Brett Bot, he disclosed that new 52 week lows on good companies typically bounce 10%, and I have started to test this with an option in SWBI. here's that trade BTO:

 

[da-net]

PFE $27.50 Call 17 Jan $0.24 x $0.25 BTO $0.25

 

[ChelseaR]

Interesting read. I like how you’re keeping things simple and not chasing the big win. Sometimes when things don’t go according to my strategy and I start seeing losses, I tend to change my strategy and end up overcomplicating it. Do you have any tricks for keeping me from deviating from the strategy I initially planned?

 

[da-net]

Thanks for dropping by, ChelseaR. I believe the thing that helped most was when I finally listened to the wisdom in the old saying;

Bears Eat. Bulls Eat. Pigs get slaughtered!

I realized that my style needs to be mine, and not influenced by other people that are "Allegedly" making huge profits from their style. I take the time to look first at ONLY the daily bars and think what is the market telling me. If I can't make a decision from these KISS principles, I do nothing. Adding more indicators, or relaxing personal rules isn't going to make the decision more correct. I quit trying to force a trade, and simply wait for it to arrive or not.

Stick with your style as it fits your personality. Someone else's style doesn't fit your style, it only adds confusion. Hope this helps.

 

[da-net]

ET $20 Call 17 Jan $0.24 x $0.25 BTO $0.25

 

[ChelseaR]

Thanks for dropping by, ChelseaR. I believe the thing that helped most was when I finally listened to the wisdom in the old saying;

Bears Eat. Bulls Eat. Pigs get slaughtered!

I realized that my style needs to be mine, and not influenced by other people that are "Allegedly" making huge profits from their style. I take the time to look first at ONLY the daily bars and think what is the market telling me. If I can't make a decision from these KISS principles, I do nothing. Adding more indicators, or relaxing personal rules isn't going to make the decision more correct. I quit trying to force a trade, and simply wait for it to arrive or not.

Stick with your style as it fits your personality. Someone else's style doesn't fit your style, it only adds confusion. Hope this helps.

Thanks for the insights. I really do sometimes find myself overcomplicating things when I should just let the setup come to me. I am trying to focus on my plan with simple patterns and not adding any extra indicators.

 

[da-net]

The Smith & Wesson 10 day bounce never materialized, so that was a total loss. The stock sell off caught my options in PFE and ET. Et of course recovered some on Friday and I was able to sell to close with only a small loss (photo). PFE initially did head toward the exercise price, and this has made me consider going with at or in the money options. But I decided not to change my parameters as that could require intraday trading. Also the problem with that is the cost and the risk. I still believe ET & PFE are good candidates. I am looking closely at INTC as it had a nice gap up Friday, that gapped through the 20 sma and is approaching the 50 sma.

 

[ChelseaR]

The Smith & Wesson 10 day bounce never materialized, so that was a total loss. The stock sell off caught my options in PFE and ET. Et of course recovered some on Friday and I was able to sell to close with only a small loss (photo). PFE initially did head toward the exercise price, and this has made me consider going with at or in the money options. But I decided not to change my parameters as that could require intraday trading. Also the problem with that is the cost and the risk. I still believe ET & PFE are good candidates. I am looking closely at INTC as it had a nice gap up Friday, that gapped through the 20 sma and is approaching the 50 sma.

Interesting.

 

[da-net]

Looks like I need to consider longer time frames. The ET option expired on Friday, trading yesterday would have produced a nice percentage return. INTC gapped thru the 50 sma, but is it strong enough to continue or a short term pull back?

 

[da-net]

Found 2 new opportunities. One does not have options, so I took a small position of 20 shares in the stock today. Filled at about the cost of an option. The other had options, but they were too volatile today to get a fill. Will try again.

 

[Simon54]

Looks like I need to consider longer time frames. The ET option expired on Friday, trading yesterday would have produced a nice percentage return. INTC gapped thru the 50 sma, but is it strong enough to continue or a short term pull back?

Longer TF help smooth out noise. What is your plan to manage risk if it pulls back?

 

[da-net]

T $24 Put Apr 17 $0.76 x $0.79 BTO $0.78

Simon, I am attempting to be more selective as to expected time frame. I'm going to attempt to steer clear of options under 2 months. As to managing the risk, that's still a thinking exercise since I want to trade on day bars. Any thoughts especially as it applies to a broad sell off like was experienced, please share them.

 

[da-net]

F $11 Call Mar 21 $0.20 x $0.21 BTO $0.21

KGC $12 Call Mar 21 $0.24 x $0.60 BTO $0.37

The KGC sat all day with my bid @ $0.37, and the MM kept moving the ask to ridiculous spreads, see the closing spread in the photo.

I've thought about a way to control the risk further than buying very cheap options that are close to the money with some time, but nothing has come to mind. If the options were $2.00 each then opting for an allowed 50% drawdown might work, but on these how do you do that?

 

[da-net]

Take a look at how some option market makers steal from their customers. KGC was trading at $11.83 when I checked the option prices for the one I bought. Less than the in the ,money difference plus no time premium. The market for it was quoted at $0.61 x $0.65.

 

[da-net]

Interesting day. 2 trades; Closed the FNMA. Bought a Jan 2026 leap on MRSN even though the stock is sub $1. Biotech seems to be getting some media attention. Blackrock just filed a 13G which their buys most likely caused the recent rise from $0.50 range to $0.80. Mersana Therapeutics (NASDAQ:MRSN) is now covered by analysts at William Blair. They set an "outperform" rating on the stock.
FNMA STC $6.965
MRSN $1 Call Jan 2026 leap $0.10 x $0.30 BTO $0.25

 

[da-net]

Thinking out loud. PARA has been in an accumulation phase ($10 - $12) since Jul 2024. It had a low in mid Jun 2024, but has not returned to that low, to me this adds strength to upside argument. The SMAs 20/50/200 are congested. Short interest is falling, but not quickly. Advisories are mixed between buy & hold, with 1 sell. Jun $11 calls are $0.55 x $0.75, and Jan 26 $12.50 calls are $0.50 x $0.60. If there's some weakness over next week, both options might be cheap enough to buy 2 contracts within my parameters.

My thinking is when this breaks out the short position (8 days) will push it up fast, but do I want to go for the short term or long term?

Any thoughts from any of you?

 

[da-net]

HTGC $21 Call 18 Jul $0.55 x $0.70 BTO $0.60

 

[da-net]

Is China's BYD Auto another Ever Grande in the making? Low profits per vehicle, high debt load, and possible huge recall on the horizon for Hybrid vehicles. Unfortunately, not optionable.

 

[da-net]

PLTR has had a good run from $80 to $120. Is it time for a pullback to its previous accumulation area of $99 to $106 or is it going to accumulate again between $110 and $120 for another run to a new high? Options are too pricey for my defined parameters in this thread.

 

[da-net]

WBD $10 Put 17 Apr $0.46 x $0.48 BTO $0.47