Warren Buffet's Options Trading Strategy

I got an email from a new Investing Buddies.

"Hi, Maggie,

I am new to trading and only have Option one rights on my trading platform.  I can buy and sell stock and do covered calls and that is about it.  What advise do you have to get me started?”

I am glad you asked.  The first thing I would begin working on is to arrange with your trading platform to gain more trading rights.  Many times, they have an educational series you can take or a test to get those right.  Get on the phone and find out because ideally you would like rights at level 3 or greater.

Let’s head back to where you are now.  Stock and covered calls.  Watch below to get the trading strategy I learned from Warren Buffet!

Buying and Selling Stock vs. Placing Covered Calls

Picking the right stock to trade is critical to your success.  You need the stock to be gaining in price.  

Get really good at looking at sector rotations.  Sectors come into favor; they go out of favor.  There are 12 major divisions in the stock Market.  Companies are placed in different sectors depending on how they generate their income.  I only track 11 of these sectors as the 12th sectors is conglomerates.  

For instance, GE is a conglomerate with many unrelated divisions.  They manufactured light bulbs, they had a financial division the financed purchases by consumers, they have a health care company and another that manufactures appliances and so on and so forth.  

Sectors also tend to rotate in and out depending on what the current economic picture is.  

In a contraction or recession time, you find consumer staple stock tend to do well.  We all need to brush our teeth and wash clothes no matter what the economy is.  In good economic times, research and technical stocks blossom.

Then within the sector doing well look for the stocks that are starting to climb.  Notice I said starting to climb.  You don’t want to buy a stock after it has made a run up.  I look for positive news announcements for stocks ready to break out.

Once I identify a stock I wouldn’t mind owing, I don’t just run out and buy it.  I start selling naked PUTS 

with the goal of being PUT to the stock.  With the naked PUTS, I am banking premium each week until I am actually PUT to.  

A word of caution is with level one rights you have to have the money available to purchase the stock.  You don’t yet have the right to buy on Margin

So, if you want to buy a $20 stock that means you have to have $2,000 of free’d cash for the trade.

Options are sold in 100 share contracts.  $20/share x 1 contract x 100 shares/contract = $2,000

$20/share x 1 contract 

x 100 shares/contract 

= $2,000

I have all kinds of trade setups at my fingertips and employ them based on how the Market is trending.  I also name all my set ups – Why?  Because it is fun 

I was once explaining to a friend this method of obtaining shares and banking some money.

I can’t take all the credit for designing this trade set-up.  I watch Warren Buffet use this same trade to personally buy some shares and thought it was brilliant.

 My friend looked at me and said you are one smart cookie.  Most of you that know me know I like to name my trading styles.  I like the sound of what my friend was saying and started calling the set-up a Smart Cookie trade.  

Taking it just little further.  When you have determined you are ready to sell your stock, Sell Covered calls until the stock gets called away from you.  Smart Cookie.  

What I just outlined for you is good but I think there is even a better way to set this trade up 

If you want a deep dive into Smart Cookie Trading, head to the link below to sign up for a free trial of Investing Buddies!

Just for listening this far I have a free gift for you.

I have developed an easy to use trade journal that tracks all my trades and let’s me see my gains.  And I never lose track of a trade.  And even better the journal is a great analyzing tool for possible trades as well as a tool to analyze completed trades.

If you would like a copy of this journal just email me at [email protected]. 

It is free to you and all my Trading Buddies.  Hit the button below to join this elite  trading group. 

 You are going to learn to be a great Thinking Trader.