5 Quick and Dirty Tricks That Will Make You Better at Options

Don Kaufman here.  

And I'm about to blow your mind faster than a gamma squeeze on a Friday afternoon. 

You think you know options? 

Think again!

I've got five quick and dirty tricks that'll turn your options game from snooze-worthy to newsworthy. 

We're talking "make the market-makers sweat" level stuff here, folks.

These tricks are like finding the cheat codes to the stock market video game. 

And the best part? 

They're simpler than explaining theta to your grandma.

So, are you ready to stop being the fish and start being the shark? 

Let’s get started!

#1: The At-the-Money Straddle Trick

Want to know the expected move of a stock? 

Here's how you do it…

Find the at-the-money straddle for the nearest expiration. 

Take that price, divide it by the current stock price, and boom! 

You've got yourself a rough percentage of the expected move.

For example, Microsoft is currently trading at around $420. 

The ATM call expiring this week is about $3.95, and the ATM put expiring this week is about $3.45. 

When we add those premiums up and divide it by the stock price we get an expected move about 1.7%. 

Now that you know what the market is expecting you can come up with strategy ideas. 

In addition, it can be used to set your profit targets and stop losses. 

It's like having a crystal ball, except it actually works. 

#2: The Volume-to-Open-Interest Ratio

Alright, here's where it gets juicy. You want to know where the big boys are playing? This is how you do it. 

Take the day's volume and divide it by the open interest for a particular strike. 

If this ratio is high, especially over 0.5, you're looking at some fresh, hot activity.

For example, Nvidia is on fire today. At 1:30 PM ET, we saw 43.9K $143 calls expiring on Friday trade vs. open interest of 11.2K contracts.  

That's like a neon sign saying "Look here!" 

It could signal that big bets are moving in. And in this market, folks, sometimes it pays to be a follower.

#3: The Volatility Skew Analysis

Now, don't fall asleep on me because this is where it gets really interesting. 

Don't just look at implied volatility (IV) for one strike. Compare the IV of out-of-the-money puts to out-of-the-money calls. 

If put IV is much higher, the market's bracing for a downside move.

Let's say you're looking at XYZ stock again. The 90-strike puts have an IV of 40, while the 110-strike calls have an IV of 30. 

That's the market telling you it's more worried about downside risk. That's your cue to consider some bearish strategies, people!

#4: The Poor Man's Covered Call

Can't afford 100 shares for a covered call? 

No problem! 

Here's a trick that'll make you feel like a millionaire on a budget. 

Buy a deep in-the-money LEAP call and sell shorter-term out-of-the-money calls against it. 

It's like a covered call on steroids, with less capital outlay.

Let’s say you believe that Boeing (BA) is eventually going to get their act together and you don’t want to invest nearly $15K to buy 100 shares. 

You could buy the $110 calls expiring on Dec 19 2025 for $52.25, and then start selling calls like the Nov 15 2024 $160 calls for $4.20. 

You get the upside potential with a fraction of the cost. It's beautiful, folks!

#5: The Liquidity Litmus Test

Last but not least, here's a trick that might just save your bacon one day. 

Before any trade, check the bid-ask spread as a percentage of the option's price. 

Aim for 10% or less for liquid options. Anything more, and you're swimming in dangerous waters, my friends.

Say you're looking at an option with a bid of $1.90 and an ask of $2.10. 

That's a $0.20 spread on a roughly $2.00 option, or 10%. That's your upper limit. Any wider, and you're asking for trouble. 

It's like trying to parallel park a semi-truck in downtown Manhattan – technically possible, but why put yourself through that?

There you have it…

Five killer tricks to supercharge your options trading. These aren't just party tricks, people. 

These are battle-tested strategies that can give you an edge in the options market. 

But remember, with great power comes great responsibility. 

Always, and I mean ALWAYS, manage your risk.

The options market can be a goldmine, but it can also be a minefield if you're not careful. 

Use these tricks wisely, and you might just find yourself on the right side of the trade more often than not.

To your success,

Don Kaufman