Options Trading for Beginners!

Options Trading Pro John Napolitano from Top Trading Pros discusses a strategy for beginners using options trading. He provides Datadog as an example, showing the long-term downtrend of the stock over a year and explaining a shorting opportunity using a cup and handle formation. John suggests using options to capitalize on the move of the stock without risking too much capital. He explains how expressing a short position through the options market is more effective and less risky and advises selecting a put option with a later expiration date to take advantage of the volatility shock and potentially profit from it. John also invites viewers to sign up for their trading classes.

00:00:00 – In this section, John Napolitano from Top Trading Pros talks about a strategy for beginners using options trading. He mentions that options can be overwhelming, and that people should take a look at the larger picture of a stock instead of following it in the short term. He uses Datadog as an example, showing the long-term picture of the stock and how it has been on a downtrend for over a year. John suggests a shorting opportunity using a cup and handle formation, which can potentially capitalize on the recent move that Datadog had. Instead of going short on the actual stock, John suggests going for an options trade, which won’t risk as much capital.

00:05:00 – In this section, John from Top Trading Pros explains how he expresses his short position through the options market, emphasizing that using options is more effective and comfortable than taking a short position. John suggests selecting a put option that’s a little bit further out, around June 16th, to take advantage of the volatility shock and potentially profit from the trade, instead of risking thousands of dollars in a short position. He also encourages viewers to sign up for their classes on their website, where they teach what strike price, expiration, and strategy to select for any given situation.

Hey, John Napolitano here with you at Top Trading Pros. I hope everybody’s doing well on this wonderful morning. Reason why I’m creating this video today is to talk a little bit about some options trading strategies for beginners. I know that options can be very overwhelming to a lot of you, especially if you’re brand new to this or if you’ve been stock trading for a long time.

Sometimes basically you want to dabble in options and you find them to be a little bit. Puzzling. So what I’d like to do is create videos like this and talk about strategy by strategy. And one name that popped up on my radar was this wonderful company called Datadog. So we’re going to talk about Datadog today, and we’re going to talk about a simple strategy where you can potentially capitalize on this massive move that it had.

And we’ll talk a little bit about my thoughts on that. So one of the big mistakes that people make, I think when they first start trading is that they follow a stock in the short term and they really don’t take a look at the larger picture. So without, without without talking about too much here, I’m gonna jump into it with you.

Let me just share my screen with you if you don’t mind. So this is just a daily chart on Datadog. So this goes back obviously about a year. And as you can see over the last year or so, Datadog has not had a very good year. It used to be back in April. Before actually last April, it was about $150 stock.

And ever since April of last year it had a nasty spill. I’m looking over here. Actually it came all the way down here back in May and June. It tried to bounce, it went sideways for a little while, and then it took another leg down in November with the rest of the market. And then basically in 2023, along with the Nasdaq, it started to climb higher.

It fell again, and it’s just been disappointing over and over again. So that is the long-term picture of Datadog. Now, I don’t have an opinion of Datadog. I’m not a fundamental analyst. I am a technical, I read the technicals. I generally don’t let news try to trigger me as far as making trading decisions.

One of the things you can use news and headline news for is to increase your edge, and that’s perfectly fine. But if you are, if you’re, if the overall market is telling you that this stock has been in a overall one year downtrend the fact that it was up 8% yesterday and that it’s been rallying basically for the last several days.

To be honest with you, it doesn’t impress me that much. I know if you would’ve tried to pick the bottom here, you would’ve been very profitable and congratulations for you. But the easier trait to me is on the downside, I know that it broke. Its its down trend here a little bit. But if you look at the long term trend, if you look at the big picture of this thing it’s pretty gnarly.

And not only that, it is up against a very stiff point of resistance right here. These are things I watch for. There’s a lot of buyer’s remorse right here. The person or the people or group of people that bought this thing right around where I drew that circle are probably just itching to sell once it gets to this area.

So it is creating this cup and handle if you’re into kind of that type of formation, which is fairly accurate. And if it does that, You could probably expect if it does hit this line that I drew, you could probably expect it to retrace back to this area here, which is about one third of the distance of the actual cup itself.

And what I mean by cup, I’m talking about from here, down to here and down to here. And you could actually go ahead and draw that out if you want. You could go from here to here and draw this. This cup and usually a cup and a handle formation, you get about a one third move to the downside.

Once it hits the top of that cup, think of all the exhaustion it takes to get all the way back up here just to meet these sellers. So in the options world what’s great about a trade like this is you can sit through. You could sit through another day or two of it going up without potentially losing too much money.

You can jump into a trade like this today or tomorrow or something like that. I would probably pick a target somewhere up here. Maybe one more up day. If it starts to break down, I would jump in right away. But bottom line is I anticipating it. Maybe to kinda. Jump up here.

This does look like an exhausted candle, by the way, because it gapped up and it closed almost at its high on pretty heavy volume. So I, I don’t know if we’re gonna get another update. We’ll see what happens today with the overall market, which is another factor you have to consider. But bottom line is this is a great shorting opportunity and instead of.

Instead of wasting capital in your account and going short the actual stock and kind of risking all that money where you would have a short position you can, you could basically express your short position in the options market. And that’s what I do all the time. You can go in here.

And what I simply do is I follow simple rules. If you sign up for our classes, our bootcamp actually is beginning this week. We’re having one this week. But you can sign up for our classes on our website, top trading pros.com. We talk about what strike price to select, what expiration to select, what type of strategy to select for any given situation that we’re in this particular situation.

Since the implied volatility is, fairly high. And you have basically a move that you’re anticipating to the downside. There are one of, there are maybe two to three different strategies that I would implement for this particular for this particular situation. One thing to consider is theta decay, which we talk about in our classes all the time.

I like to go out in time, so I would definitely select something. That’s a little bit further out. I would pick maybe June 16th or even further out to select my put options. I’m also expecting volatility to increase. If it does collapse or start to roll over, chances are the vol will pick up. And if that happens, I want something that’s at the money to take advantage of the volatility shock that you might get as well.

So we talk about all this in our classes. I’m gonna be looking at these 90 put options out to July, I’m sorry, to June 16th. That gives me 36 days to sit through this trade and potentially profit instead of having a short position and having a nail biter situation. The price of this, by the way, is about 700, and if I pay the mid-price, it’s about $760.

That’s all I’m risking for one contract. I’m much more comfortable sitting in a trade for a couple of days and watching it flop around and see what happens with $700 worth of risk than potentially having thousands of dollars of risk in a short position and kind of, getting stopped out all the time, intraday and stuff like that.

That is why options are so effective. They allow you to sit through you can’t always pick the most perfect entry point, right? Especially with a name that’s this speculative and one that kind. That kind of jumps around a lot. You know a name like Datadog I picked on purpose because it’s very easy to get stopped out of a name like that.

If you’re day trading it because it has a very big atr for a cheaper stock in the eighties, it tends to move around. It can move five, $10 a day, which is crazy for an $80 stock. So that is why, using the option market makes sense. You might say John, you’re paying a lot of money for those options because of the volatility.

You can use other strategies to absorb that volatility. These are all things we teach in our classes. We do create a lot of YouTube videos like this for education purposes. So please and subscribe to our channel. Top Trading Pros, if you like these type of videos, we are going to be posting a lot of content in the days and weeks to come because we really wanna increase our community and have everybody benefit from these types of ideas in, in, in our community.

So please, like if. If you wanna subscribe, also check out our website and if you wanna spend time to earn, to learn options the correct way from an institutional trader, someone who’s been doing this for two plus decades, I encourage you to spend more time with us. Okay? So please enjoy the rest of your day.

Please be careful out there. Please trade with risk in mind and proper risk management in mind, and I will see you guys shortly. Okay. Enjoy the rest of your day everybody. Bye-bye.

NEW: AI COACHING! // Get ChatSTP Today

Related Articles

Stocks & Options For Breakfast | Bull Market Breakouts

Stocks  Long stock ideas Financials (BAC, GS) with potential for pullbacks but overall bullish  Healthcare (BHVN, JNJ) showing relative strength  Technology (DOCS) early uptrend Short stock ideas Basic materials (AEM, STLD) clearly bearish sector Energy (XOM, CVX) at support levels but potential to go lower  Risk management Position sizing critical in volatile markets  Use stop…

Podcast: Stocks & Options 3-23-24

Trade Stocks With Pete  |  Trade Options With John Summary Navigating the late-stage market cycle: How to stay cautiously bullish while avoiding potential pitfalls   Mastering the art of chart-reading: Discover why respecting technicals is crucial for trading success, no matter your opinions   Traders vs. Investors: Uncover the surprising differences in how they approach…

Options Trading Q&A

0:00 – 6:36 Identifying the Market6:36 – 8:10 Great Idea, Not Expressed Right8:11 – 10:37 Implied Volatility10:39 – 11:38 Credit side11:39 – 15:53 Call Options Off the Bottom15:54 – 21:40 Risk to Reward Ratio (Aarons Question)21:42 – 25:40 Diagonal vs Vertical Spreads25:41 – 34:36 Difference of Equity Traders and Options Trader34:37 – 37:15 Biggest Mistakes with Fast Moving…

Stocks To Watch: Earnings Season Begins

Stock Trading Pro Pete Renzulli discusses the start of earnings season and provides insights on various stocks to watch. Pete emphasizes the importance of not letting headlines scare investors away from good ideas and highlights the financial sector, specifically mentioning JP Morgan and American Express. They also suggest categorizing stocks into different lists based on…

Stock Market Ends Bullish On Quarter 1

0:00 – 4:48 Tradeable Opportunities4:49 – 8:32 Options LULU Trade Broken Down8:33 – 12:03 VWAP From the Institute Side 12:04 – 18:38 Using Sector Rotation for Options Strategies 18:39 – 20:08 Biggest Mistakes Options Traders Do20:09 – 26:41 Sector Rotation Break Down Stocks26:42 – 29:47 Sector Rotation Break Down Options29:48 – 34:22 Is A 10%…

Responses

Your email address will not be published. Required fields are marked *