Using Options For Cheap Directional Exposure


Options sometimes get a bad rap in financial markets, especially as Warren Buffet once famously referred to them as weapons of mass financial destruction! Never mind the fact that Buffet uses options extensively in his own portfolio.


The beauty of options is they provide so much flexibility. You can use them to gain leveraged exposure, you can use them to hedge an existing position, you can use them to generate income, or trade volatility. The possibilities are endless, and I’ve talked previously on ChartYourTrade about how they can be used.


Today I want to talk about using them to gain exposure at very little cost.


Using Options For Cheap Directional Exposure

The strategy is called a butterfly spread. If you want to learn about them in detail, you can do so in my free course, but I’ll explain briefly here…


Let’s use CRM as an example because it’s a stock I know Michael and Adam are watching currently because it was in a recent Elite Stocks Setups report.


Let’s say we want a bullish exposure, but we don’t want to risk too much money.


With the stock trading around $121, we could place a butterfly trade at $130 that expires in 3 months time.


To complete this trade we would do the following:


Buy 1 Aug $125 Call

Sell 2 Aug $130 Calls

Buy 1 Aug $135 Call


This gives us a triangle shape profit zone centered at $130, about 7.5% above the current price. The trade only costs $50 per spread and has a maximum profit potential of $450 per spread.


The trade makes a profit if CRM finishes anywhere between $125.50 and $134.50 at expiry.

Using Options For Cheap Directional Exposure

I like using butterfly spreads as a cheap way to gain directional exposure to a stock.


I’ll do the opposite using puts on stocks that I have a bearish outlook on.


Be sure to check back in a few weeks and I’ll provide an update on how this trade progressed.


Trade safe!


Gavin McMaster


Options Trading IQ


Here are more articles you may like

Claim Your Free Guide Today

Give us your email and we will give you the tools to change your life. 


Learn about Early Entry Points & much more...

© ChartYourTrade | Contact us:

Disclaimer: All communication from ChartYourTrade is general in nature and for educational and general informational purposes only. Under no circumstance should it be considered personalized investment advice. All our work is general in nature and not specific to any one person. All the information on this site and/or that originates from us, or any of our partners or affiliates, is for educational and informational purposes only and is NOT a recommendation to buy or sell anything. To avoid any conflicts of interest, we do not have a working relationship with any of the companies mentioned in our work. Furthermore, we may have a long, short, or no position in any, or all, of the names that appear in our work and they may change at any time without notice. Investing and trading in capital markets or using margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you as well as for you. Before you decide to invest or trade in capital markets you should carefully consider your investment objectives, level of experience, and risk appetite, among other factors. The possibility exists that you could sustain a loss of some, all, or more of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with capital markets, investing/trading, and seek specific investment advice from an independent financial advisor and other professionals. Remember all the information we provide is for educational and general informational purposes only and is subject to change without notice.

Charts and Data are courtesy of MarketSmith Incorporated. Join MarketSmith here.

Terms of Service