Is it possible to make over a million dollars in only 48 hours trading options? As hyperbolic as that may sound, not only is it possible, it’s already been done.
John F. Carter, a professional options trader and INC 500 Entrepreneur, recently booked over $1 million dollars in trading profits in just two days by investing in options on Tesla Motors stock. While Carter himself admits that these types of profits are above average, the equity options market offers virtually unlimited profit potential for any trader who is willing to learn and consistently apply sound trading principles.
For the uninitiated, options are financial contracts that give the owner the right, but not the obligation, to buy or sell a given stock at a given price. They are known as “derivative instruments”, because their price and value are derived from the price movements of the underlying stock that they represent. Carter was able to cash in on several options bets on Tesla Motors stock (NASDAQ: TSLA) based on his own estimation of what the stock would do after the release of a highly promising company announcement regarding better-than-expected unit sales. The press release became a catalyst that sent Tesla’s stock significantly higher at the opening of the trading day, sparking a blistering 16% gain within only a few hours.
Carter’s million-dollar trade was, for all intents and purposes, a very short-term position; he summarily entered and exited the transaction in only two trading days. So how was he able to reap such massive profits from a trade with such minimal duration? The answer can be found in his skillful use of options. Using a foundation of 5,000 shares of Tesla Motors stock as his base, Carter began purchasing a combination of various call options in order to capitalize on sudden spikes in the price of Tesla’s stock. In options trading parlance, a “call option” is an option that increases in value if the price of the underlying stock rises. One option contract represents 100 shares of stock, so by purchasing hundreds of call options, Carter was able to benefit from the rapidly increasing value of literally thousands of shares of Tesla stock. For his option trades, Carter employed the use of several different “strike prices”–i.e., the predetermined price at which the stock could be bought should he choose to exercise his options–enabling him to better control the amount of capital he had at risk at any one time.
The Tesla trade was somewhat of a “hybrid” trade because it was longer than one day (i.e., a “day trade”), but shorter than what would typically be considered a “swing trade”, which can last several days to even weeks at a time. Carter did enter and exit several different options positions within the two trading days, adjusting “on the fly” based on short-term movements in the stock’s price. He also hedged his call option positions with “put options”, which are options that increase in value as the stock’s price drops. The put options that Carter bought and sold on the Tesla trade acted as a partial safety net, helping to minimize any losses that might have been incurred on a dip in the price of Tesla’s stock.
Carter’s careful use of options as both a profit vehicle and a hedge against potential losses are a great example of an experienced trader using an approach that is aggressive but reasonably conservative at the same time. Carter himself will tell you that even when the markets give you a “gift” of sudden windfall profits, it is dangerous to assume that you have the “Midas touch” on every trade you make. Carter approaches the markets with a healthy respect, understanding that they can be a double-edged sword, and that the power of leverage works both ways. His amazingly successful Tesla trade is a great example of a market veteran who recognized a profit opportunity, and then acted decisively based on reasonable risk parameters. The stock and options market is one of the few places where outstanding opportunities like this exist; the truth is that there are many veteran traders that book five-figure and six-figure profits on a daily basis. Although this may seem inconceivable at first, once you understand the power of leverage in stock and options trading, you will easily see how these types of gains can and do happen. Extravagantly profitable trades such as Carter’s $1 million dollar Tesla haul are not only possible, but with the right knowledge and solid trading discipline, they can even be consistently repeated.
