Short term trading options for high returns, the age-old question. How to get into the stock market or any other market on a short term basis? Where to start what to look at and how to do it? Let TRADEPRO Academy guide you through the process and mitigate whatever confusion you may have on the matter. In terms of short term trading options, there are many. All of which can be divided into the following categories: stocks, futures, and Forex. Within stocks, we will look at options.
There is however risk involved with such activities as there are with any trading related activities. Naturally, if you are expecting to take home high returns, you will be taking on high risk. If there was a world of low-risk high returns for all trades, please let us know! Short term trading can also be associated with larger risk, and therefore high returns.
What is short term trading?
Next, we have to define short term trading and high returns. First, short term trading, this is a somewhat vague subject. Short term trading can be anything from a second to a few months depending on who you ask. By the investor’s definition, a short term investment is a trade that is open for less than a year. If you ask a swing trader, they might give you a different answer, such as a few weeks. Then comes the day trader who will tell you a short term trade is seconds or a few minutes maximum.
What is a high return?
So how can you define high return? Again, arbitrary. You can put it into a percent return on the capital you used for the trade and the time it took to hit your profit target. Consider the following. You get into a trade using $500 of capital and in minutes you close out the trade for a $150 profit. That is a 30% ROI in minutes. Everyone should consider this a high return, considering on average fund managers tell you they’ll earn 5% annually on your portfolio. Another example, if you had a $10,000 position on and in two weeks time, the position is closed out for a $1,200 profit. That is a 12% return, less than the original example but the time in the trade was longer, and potentially risk might have been less than it was in the first trade.
Let’s dive into our short term options, how can you yield a high market return in a short period of time?
Short Term Trading Options with High Returns-Stocks (Options)
When people first get interested in the markets they think trading is only comprised of stocks, well that is the basis of the market. The reality is, when earning high returns trading stocks you will either have to trade penny stocks (not advised), overleverage or have a huge account.
That is why we trade options! One, they have an expiry so you can manage the trade on a short term basis. Depending on your expiry, you can choose to hold the contract for days, weeks, even as long as months. The other attractive thing about options is the leverage, and limited exposure they offer traders. When buying options, traders pay a premium, that premium is the maximum you can lose on that options trade! While the returns are magnified.
Let’s look at a basic example, Verizon. Assuming the trade picked up basic call options on the day with the expectation that Verizon was going to move up to $60 in the next three weeks. Considering the current price as of March 21st, 2018 is $58.34 that might not be a substantial move. If one used straight stocks to ride out this $1.66 move, the return would not have been that substantial, but the risk high.
Let’s look at options possibilities, using a May contract expiry, we’ve laid out the possibility below. We’ve outlined one call contract purchase on Verizon at $185. This gives you access to 100 shares of Verizon, and the maximum you can lose on this trade is $185. The upside is theoretically unlimited, but if we are aiming for the $60.00 level, the return at $60.20 which is a 3% gain in the stock’s value is equivalent to a $128.98 return. That is a near 70% return on the initial $185 investment. For more on options trading, check out our Swing Trading Package here.
Short Term Trading Options with High Returns-Futures
Day trading futures is a lucrative business to get into. This is one of the most popular short term trading options to harness high returns. Again due to our good friend, margin. Low margin through brokers allows you to trade large indices like the S&P 500 and the Nasdaq with as little as $400 to $500 in your account for 1 contract. The returns are high, but so is the risk.
As we’ve mentioned time and time before in articles, use bracket orders! With bracket orders on the S&P 500, if you use the 5/8 strategy, you are risking $62.50 per contract per trade. While gaining $100, with the option to prolonge the trade or cut it short. During volatile events such as FOMC meetings, that $100 gain can easily turn into $400 using the same risk parameter if on the right side of the trend. Using $500 of capital to yield $200 (2 winning trades) is a substantial 40% return.
This is a quick trade opportunity, in which trades last seconds to minutes. A 10-minute trade in the futures market can seem like an eternity for a day trader even. With this comes the risk of constantly getting your stop hit, so precision is involved with this trading style.
Another word of warning, when increasing position size, risk increases substantially but as does potential profit. Take a look at the image below. This is an example of crude oil futures day trading. In which a $0.01 move is equal to $10. The blue arrows are buying arrows, average fill at $64.33. While the red arrows are sell arrows. On the first move up the position was taken out at $64.63 on one contract. This is a $0.30 move on the underlying or a $300 gain on the one lot contract. In the second stage of the position, another long was added at $64.52. The initial long was taken out at $64.55, while the last long at $64.69. A total gain of $300+220+170=$690 on three total contracts traded. To trade on a contract of crude oil you need $1000 of margin in your account.
At most this trade had two contracts on at the same time, meaning $2000 was needed. The $2000 yielded a return of $520 or 26% and the last $1000 a return of 17%. But if you look at the time stamps at the bottom of the chart, these trades took no more than 5 minutes.
For more information on Futures trading, check out our Elite Trader Course.
Short Term Trading Options with High Returns-Forex
Finally, we had to include Forex. Forex can be seen in two different lights, the angel of trading and the devil. We like to consider Forex to be somewhere in the middle. Along with all other trading vehicles, Forex can be very profitable if done correctly. We believe the correct way to trade Forex is on a swing trading basis. Meaning taking a longer larger position that last days or weeks, typically until your target is hit.
The is because the Forex market can be very unpredictable due to constant central bank decisions throughout the world. Every macroeconomic event affects currencies, spreads widen, risk increases and day trading Forex becomes a nightmare. We are firm believers in the price action strategy going for 50 or even hundreds of pips at a time. These trades last days or weeks on end, but the larger move becomes more profitable. Depending on the currency you trade or the currency in your account, there is a possibility of making 10-20% returns on a weekly basis.
Conclusively, we’ve laid out three of our top choices when it comes to short term trading options. Capital requirements for each is different although relatively low. The main thing to remember about looking for high returns is that there is high risk involved. High returns can happen throughout short periods of time but these returns are compensation for the risk taken on.
If you want to join us in our live trading room and trade alongside a community of professionals, check out our ELITE package here
Want to trade more passively? Check out our newsletter, trade ideas and live analysis in the Swing Trader package here.
The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.