 | | Shah Gilani
Chief Investment Strategist | Raise your hand if you think options are too risky to include in your portfolio. That's a common refrain I hear from many investors. Given the countless stories of people blowing up their portfolios chasing 1,000% winners, it makes sense. But what if I told you options could represent some of the least risky investments in your portfolio? It's possible! As long as you understand and implement a few simple risk management strategies. I'm talking about "position sizing" and "risk/reward." First off, let me be clear: Options are for speculating, not long-term investing. Here's what I mean. [🔍 Nvidia's Hush-Hush Deal Revealed: Amazon Is Investing Millions in This Unknown AI Chip Maker! 💸  ] If you want to invest in your favorite company's stock, and hold your shares for several years, options won't work. Because every option contract has an expiration date. And that means the contract will eventually expire. But if you want to speculate on a stock increasing or decreasing over the short or medium term, options could be perfect for you... Just as long as you have a grasp of position sizing and risk/reward. I'll use three scenarios to demonstrate my point. For the purposes of these examples, let's assume you think shares of Nvidia (NVDA) are going to climb 15% higher over the next three months. Now, stick with me. There's going to be a little bit of math. But if you aren't willing to do some basic arithmetic, then options definitely aren't for you. Scenario No.1 In our first scenario, we're going to ignore options altogether. To play your hunch that Nvidia is about to go 15% higher, you could simply buy shares of NVDA stock and... wait. Let's assume you wanted to buy 100 shares of NVDA at the current price of $136. In this scenario, that would put you on the hook for $13,600. If you're right, and Nvidia shares do increase 15% over the next three months, NVDA will be trading at $156.40 per share. Your 100 shares would then be worth $15,640. You could exit the position and pocket a $2,040 profit. Bottom line: In this scenario, you will have risked $13,600 to bank a $2,040 profit… a 15% return on your original investment. So, let's think about risk/reward here. $13,600 seems like a lot of money to risk for a $2,040 profit. Put in other terms... the amount you put at risk is 6.67x more than your targeted profit, which amounts to a 6-to-1 risk/reward scenario. To me, that's an unacceptable amount of risk. Which brings us to our second, more favorable scenario... Scenario No.2 Now we'll bring in options. Assuming you believe Nvidia will go 15% higher over the next three months... You could simply buy a NVDA January 17, 2025, $136 call, which trades for $13.50. As we've covered, every options contract represents 100 shares, so your upfront cost here is $1,350. If shares of NVDA are trading at $156.40 on January 17, 2025, your call options will be $20.40 "in-the-money." You could exit the position just before expiration for $2,040 (100 X $20.40), potentially banking a $690 profit. That would amount to a 51% return on your investment. If you had purchased FOUR contracts, you'd be into the trade for $5,400 (four contracts at $1,350 apiece equals $5,400). In this case, the trade would deliver you a $2,760 profit… which is not only a larger profit, but also represents an initial investment less than half the size of what we spent in Scenario No.1. Bottom line: In this second scenario, you would have risked $5,400 to walk away with a $2,760 profit. That means you risked 1.96x more than your targeted profit... or a 2-to-1 risk/reward scenario. That risk/reward seems better to me. But hey, I'm cheap. I want to risk even less money to walk away with an even bigger profit. So let's move on to our third and final example... Scenario No.3 Now we're going to up the ante and use a bullish debit call spread. If I was absolutely convinced Nvidia will close the January 17, 2025, session above $156.40, I would target a NVDA January 17, 2025, $155/$156 call spread, which is currently trading at $0.19 (or $19 per spread). If I'm right, and NVDA closes above $156 at expiration, the Nvidia call spread would be worth $1.00 (or $100 because, again, each option represents 100 shares). That's $81 per contract profit... A 426% return. If I wanted to target a profit similar to that $2,760 number in scenario two, I could buy 34 contracts of the Nvidia call spread for a cost of $646 ($19 per contract X 34 contracts = $646 total cost). In this scenario, I'm still looking at a profit per contract of $81. But multiply that by 34 contracts for a total profit of $2,754. Bottom line: In Scenario No.3, I would have risked $646 to walk away with a $2,754 profit. That means my risk would only be 1/4 of my potential profit... or a 0.25-to-1 risk/reward scenario. In Summary Let's tally it all up... - Scenario No.1: $13,600 risked for a $2,040 profit (or 15% gain), with a risk/reward scenario of 6-to-1
- Scenario No.2: $5,400 risked for a $2,760 profit (or 51% gain), with a risk/reward scenario of 2-to-1
- Scenario No.3: $646 risked for a $2,754 profit (or 426% gain), with a risk/reward scenario of 0.25-to-1.
Given those three scenarios, I'm taking Scenario No. 3 every time. This strategy is what I call "Profit Stacking"... and it's far more powerful than most investors realize. While I used NVDA as an example, I've helped my subscribers apply this same technique for BIG gains... - Eric S. captured 295% in 24 days
- Jack B. turned $8,000 into over $20,000 in six weeks
- Bob F. doubled his money in less than a month
And remember - just like our NVDA example showed, these trades often cost a fraction of what you'd spend buying stocks or simple call options. And to help more investors take advantage of these types of trades... especially in the first 60 days of Trump's presidency... I've just gone live with a brand-new presentation. In it, you'll see... - How to spot the perfect setup for these trades
- Why this strategy works in both bull and bear markets
- Real examples of tiny stock moves turning into triple-digit winners.
Plus, I'll give you a FREE trade recommendation just for watching! Click here to see how my Profit Stacking trades could help you nab 100% returns in 60 days or less. Cheers, Shah Monday Takeaways: Elections, Earnings, and Interest Rates  Buckle up... This could be one of the craziest market weeks we've seen in a long, long time. With the election... 20% of the S&P 500 dropping earnings... the Fed's rate decision... we're looking at a wild week. Get it all here. The Best Outcome of This Election  The markets have made one thing clear... they don't care who's in charge. In fact... they'd prefer no one party is in charge. Keep reading... Buy This, Not That: This Nuclear Energy Provider Is Ready to Radiate Profits  Trump's pro-nuclear stance will be a boon for these two nuclear stocks ... but only one is in a better position to make gains. See which one here.
Want more content like this? | | | | | Shah Gilani Shah Gilani is the Chief Investment Strategist of Manward Press. Shah is a sought-after market commentator... a former hedge fund manager... and a veteran of the Chicago Board Options Exchange. He ran the futures and options division at the largest retail bank in Britain... and called the implosion of U.S. financial markets (AND the mega bull run that followed). Now at the helm of Manward, Shah is focused tightly on one goal: to do his part to make subscribers wealthier, happier, and freer. | | | | 
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