Are You Making as Much Money as You Possibly Can with Stocks?
They’re too hard to understand.
They’re too expensive. It’ll cost me far too much money.
They’re only for professionals with years of experience.
These are just a few of the many excuses I’ve heard over the last 20 years when it comes to options trading. But believe it or not, none of those excuses hold weight.
Truth is -- once you put the fears to rest with options trading, you stand to make a great deal of money. In fact, I can prove to you why options can actually boost your savings with one word – leverage.
Tell me this. If you had the opportunity to make a 205% gain in weeks, or a 15% gain over the same time frame, which would you choose?
For example, around May 1, 2017, President Trump signed an executive order on cyber security efforts. A great stock to own on that news was Fire Eye (FEYE) at $12.50 a share. You could have picked up 100 shares for $1,250.
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That’s not a bad deal. Days later the stock would soar to $16.50 for a gain of 28%.
However, on May 1, 2017, you could have picked up a call option, which rises as the stock rises. Plus, you never have to take ownership of the FEYE stock with the option.
At the time, a June 2017 12 call traded at just $1.15.
When FEYE ran from $12.50 to $16.50, the call option ran from $1.15 to $4.75 for a return of 313%. Again, which would you prefer? A 28% gain or a 313% gain?
That’s the power of leverage. You’d rather have 313% in your pocket than 28%.
Exciting right? Confused, though?
Let’s take a look at what options are to begin.
If you think a stock is going up, you buy a call. If you think a stock is going down, you buy a put. Simple. An option is a contract that gives a buyer the right but not the obligation to buy or sell a stock, ETF or index.
Each of these contracts – which derive value from respective stocks, ETFs or indexes – control 100 shares, and remains good until a set expiration date (third Friday of your chosen strike month, or expiration month).
While stocks are safer with no expiration dates, they don’t afford you the opportunity that options can with simple leverage. Plus, options can oftentimes allow you to spend much less money on a trade than a stock.
In short, if you’re looking to make a living by trading, consider options, too. If not, you’re leaving a great deal of money on the table.
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