Manage episode 298474712 series 2134820
Before we get into this episode, I did want to remind you that we have Futures Options Live coming up July 30, it's going to be an all day seminar, virtual Zoom event where we're going to be teaching and talking and answering questions all day long. It's gonna, if you haven't been if you don't anything about futures options, and this episode will be great to listen to, to get some understanding a little bit, but we're gonna go deep, deep, deep on Friday, and tickets are going really fast. Hopefully, there are still tickets by the time you hear this. But if you go to FuturesOptionsLive.com that's where you get more information, FuturesOptionsLive.com, and the link will be in the show notes. Now, let's hit the music and on the other side, we're going to be listening to the difference between futures options, and stock options.
So what are the difference between futures options and stock options? We get this question a lot, because I do have a Oil Trading Program and oil is a futures. And I talk about it a lot, because it's one of the favorite ways to trade. But really quickly, I wanted to go over and there are several reasons I'm going to give you the top three, you know what now I'm going to give you the top four, let's give you a bonus, right, the top four differences between futures options and stock options. Now, I do still trade stock options. And I probably always will. But by adding futures options to it to my investments, and to my portfolio, to my strategies, it's really been amazing. It's given me really, really great diversification, it's given me a lot more fun in my trading. And it really adds another element and another way to generate income and passive income really, that, well, let's get into the differences and you can see for yourself.
So number one, the numbers are bigger when you're trading futures options. And there's a couple of different reasons for this. And the numbers being bigger. I mean, they're all all the numbers are bigger. Number one, there's more leverage. Okay, so now, when you're talking about stock options, you're talking about a regular trading account, they have something called portfolio margin. So this is for those traders who have over 100, 130, 150, I don't know how much the limit is. It varies by broker, but you need somewhere over $100,000 in your regular trading account. And you have to have a lot of experience in order to qualify for something called portfolio margin. Regular margin accounts, you know, when you buy stock they give you, if you buy, you know, you have the money for one stock, they'll let you buy two shares, that's 50% margin, that's what normal accounts are. Portfolio margin - they'll give you five times. So if you have you for buying one stock, they'll give you the the let you borrow the money to buy five shares. So it's like five times bigger. Now, that in stock world that only happens if you have portfolio margin. In the futures world, they have something called span leverage, which is very similar to portfolio margin.
And everybody gets that right off the bat. So you have more leverage, right when you start. What does that mean? Well, it means that the premium for every option is higher. So you can make a lot more money per contract, than you can in the stock market world for the same amount of risk. And secondly, you can spend less time in each trade, because you can hit your goals much faster. So if you have a profit goal, hey, I'm gonna make 10% when make 15% whatever it is, you can hit that way, way, way in advance. Okay, so in my Oil Options account, my goal is to make 10% on the account every single month, and whatever trades I put on, I'm usually in and out of them in two weeks. So compare that to my iron condors. Right? I'm also trying to make 10% on my iron condor, but I'm usually in there for 30, 35 days, sometimes 45 days. So it's much sooner, much quicker, because the numbers are bigger. The other difference where the numbers are bigger is that the amount controlled by each option is just one futures contract. Okay, so it's not 100 shares to one option, like the stock it's one futures contract is controlled by one options contract. And then that how much control that futures contract has depends on what commodity or what future you're trading. So if you're talking about oil, it's barrels, you know, you might be doing 10,000 barrels per futures contract. That's a lot of money, right? 10,000 barrels, you're controlling a lot of oil with just one options contract. With soybeans, it's the number of bushels. Corn is, you know, bushels. Wheat - same thing. With gold, it's ounces. So the numbers are bigger because you're controlling thousands and thousands of dollars worth of the commodity with each contract. So that's the first thing, numbers are bigger. And that really is awesome. Because you can make a lot more money, you can lose money, too. So it goes back and forth. Right? But if you have the proper strategy, and you have the proper risk management in place, you can take advantage. Secondly, trading on futures options is almost 24 hours a day.
So this is great for people who maybe they work a full time job, and they can't trade during market hours. So they come home, and they can still trade the same markets. Yes, it is less liquid. But it's still tradable. And when we teach you the way we do it, you know, it's pretty simple, you could put some trades on and it works great. This also is great for our overseas friends. You know, if you're in a different country, besides the United States or Canada, you can be trading the same markets when you're awake, you don't have to wake up super early to to get the opening bell in the United States. Third, the futures markets, they protect their traders in a way that the stock market does not. So if there are really big moves, there are two different things that the futures market does, that changes what you're allowed to do as a trader, to help you protect, right to hedge yourself to be where you have less money at risk when the markets are crazy, volatile and wild. Now, I don't have time to go into all that because I don't want to make this a three hour episode. But we will be covering those at the at the futures options live. We do cover it in there. And so we'll be talking about those different protections.
But just know this, that the futures options markets protect traders better than the stock market. And then lastly, our bonus one - commodities and futures are actually easier to trade. Because they're easier to predict. Right? Somebody comes to me and says, Hey, what's the stock market going to do next month, next year? Nobody knows. Nobody can tell you with any certainty, or any even close to being correct. Unless they're just very lucky. In futures, it's a little bit different. And there's several reasons why. So number one, technical analysis, if you're good at that, if you understand Fibonacci, or if you understand support resistance, if you understand basic moving averages, you'll do better trading futures, than in stocks, the technical analysis just works better. Because most futures options traders, and most futures traders, they use technical analysis a lot more. There's not as much fundamental analysis used, there's not as much valuation and all this other stuff that people use to trade stocks. So that the technical analysis, all those signals and indicators, they are more effective, and they work better. Number two, the trends stay longer intact.
So if there's a bullish trend, you know, in a stock market, it might last maybe a month. In a commodity is gonna last a lot longer. So for me, I love trend following, I love trading trends, you know, that takes away a lot of risk for me in my book. So when when there's a trend, I wanted to stay consistent, I wanted to stay long, I want to I want this trend, just keep going and going and going so that I can extract as much money as I can from it.
Three, demand and supply is a lot more important and prevalent. Okay, so in the stock market, you know, demand supply, it's not really that relevant, because companies can increase the supply or decrease the supply of the stock whenever they want. They could do a stock split, there's more supply all of a sudden, right? They can issue more shares, oh, all of a sudden, more supplies. The owners could sell their stock if they want to up more supply if the stock on the stock market. So they can dilute or liquidate or play games with their stocks. And how many shares are outstanding, and that affects the price. With a commodity like, you know, wheat, you really can't do that. You can't just snap your fingers and make more wheat. So how much wheat there is in supply and how much is there in demand that makes a big difference in the price.
And there are ways to know what is the supply going to be? What is the demand right now, there it's much easier to understand and so supply and demand is a huge part of understanding futures and how they work. So if you are, you know, if you have a good head on your shoulders, you understand basic economics, it really helps you a lot in the in stock, you really can't tell, you know, but you have to try to guess, if a stock is gonna go up or down, but you never know, right? stock has wonderful earnings, they have earnings report, they really knock it out of the park, they're making a lot more money than they expected, and the stock goes down. That's totally counterintuitive of what common sense would be okay, if the company is making more money stock should go up. But no stock went down. Or sometimes stock is the company's doing horrible, and they're like, Oh, no, we're losing so much money. Oh, we're hemorrhaging money, but the stock goes up after earnings. So it's really a crapshoot a lot of times. Futures, they don't have that, and they don't have earnings, right? So that's another thing they don't have. They don't have a quarterly report that can mix up your whole trade. There's also no insider information. And any commodity, everybody knows what's going on. There's no insiders that are selling their shares, right? There's no lockup periods.
There's no way for the company to dilute shares. There's no way for the company to cut the dividend, because there are no dividends. And there are no earnings surprises. So I just, you know, went through basically four differences between futures options and stock options. Now, futures options is not for everybody. Right? Can you trade them in your IRA? Yes, you can - we'll talk about that on the event. So whatever's stopping you from trading futures options, if you are doing halfway decent at stock options, you should look into futures options. It's not for everybody, I'll get that, you know, but looking into it, it's not gonna hurt you. You might find that you love it, like I did. Alright, so that's the end for this episode. Again, if you have any comments, you have any questions, you can always get me Help@OptionGenius.com. We'd love to answer them. And if you're more interested, check out our website. Thank you for listening. Trade with the odds in your favor.
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