One of my fondest memories of growing up was playing four square every day at recess, and despite access to Netflix, iPads and all the other gadgets these days, I’m thrilled to see my kids playing four square every day at recess, too. And they love it! They play a slightly different version than I did, including “trespassing,” “tree tops,” “early birds” and “snake eyes.” I don’t have any clue what any of that means, but I’m glad to see that they are creatively building on the traditional game.
Similarly I want to show you how trading Calls and Puts can build on your traditional investing game.
Trading Calls and Puts: How it Works
Take, for example, a trade that I recommended in Zscaler (ZS) on January 4 this year. As you might remember, the market was a total disaster in late December of 2018, and there was still a lot of fear early in 2019. However, I really liked the way ZS was trading during the market malaise and wanted to get bullish exposure. And with Call options I risked a small amount of money to do just that. And how did that trade work out?
With the stock trading at 41 we bought the ZS May 44 Calls for $5.60. Today the stock is trading at 64 and my Cabot Options Trader subscribers sold their calls last week for $19.50. So if you bought 10 calls, you risked $5,600, and now have a profit of $13,900. If you bought 20 calls you have a profit of $27,800.
If you are hesitant to start trading options you have little to fear. At Cabot Options Trader and Cabot Options Trader Pro I give you a detailed breakdown on how to execute all of my trade recommendations, as well as the risks. For example, here is my original ZS trade alert:
Buy the Zscaler (ZS) May 44 Calls (exp. 5/17/2019) for $6 or less.
As the market has fallen apart in recent months, I’ve been building a watch list of stocks that have stood out amidst the carnage. One of those stocks is Zscaler (ZS), which surged higher in early December on a strong earnings beat. Since then, while the stock has taken a few lumps and been volatile, big picture ZS has held up remarkably well and is one of the few stocks still trading above its 50-day and 200-day moving averages. (This is similar to the action I spotted in Xilinx (XLNX) in the fourth quarter of 2018.)
Because of our light market exposure and the stock’s strength I am going to increase our long exposure by adding ZS to the portfolio today.
To execute this trade you need to:
Buy to Open the ZS May 44 Calls
The most you can lose on this trade is the premium paid, or $600 per call purchased.
The risks I see in this trade are mostly market- and sector-related. Should the indexes fall apart in a meaningful way, or the sellers again turn their attention to “glamour” stocks, this trade will likely not work. Also of note, ZS can easily move 5% a day, so we will not get wrapped up in the daily market and stock moves when evaluating this position.
However, should the market strengthen again, I like the upside potential and risk/reward in paying $6 for five months of exposure to a potential market leader in 2019.
As you can see I definitely tell subscribers in detail how and at what price to execute the trade, as well as the risks. If you’re new to options trading, or have further questions about how trading calls and puts works, you have access to my personal email.
Investing, much like four square, has come a long way in the last 20 to 30 years. And if you are still trading and playing the investing game like an “old man” now is the time to adapt and add options trading to your investing repertoire. To learn how to become a Cabot Options Trader subscriber, click here.