The Income You’re Missing Out OnStansberry Churchouse Research
When it comes to investing, you have options about how you want to make money —literally and figuratively.
The most common way investors make money is by buying shares of stocks. This strategy is good for people who are willing to sit on investments and make small- to medium-sized returns over time.
But then there’s the options market: The less-talked-about, ugly stepchild of investing.
Options get a bad rap because many people believe they’re riskier investments than stocks. But the reality is that options can help you mitigate risk in your portfolio, while handing you greater returns on your investment – in a much shorter timeframe.
That’s why, when it comes to options, don’t believe everything you hear.
To explain, let’s take a look at a few of the myths surrounding options…
Myth No. 1: Options are risker than stocks.
This really comes down to your personal definition of risk. When it comes to both options and stocks, the most you can ever lose is 100 percent of your initial investment.
However, an options contract will expire worthless within a fixed period of time if a trade moves against you. Stocks, on the other hand, can go down and stay down for months at a time … even years, in certain cases.
Options also give you an advantage that buying or shorting stocks can’t offer.
For one, they give you the power to lock in large gains without risking a huge chunk of your portfolio. They also give you the opportunity to diversify your overall portfolio while limiting the impact of a single investment that goes against you. Talk about a win-win.
Myth No. 2: It takes a lot of money to trade options.
Options actually allow you to gain broad exposure to a stock relatively cheaply.
An option contract gives you control of 100 shares of a stock, yet the cost of purchasing that contract isn’t anywhere near as high as it would be to buy 100 equivalent shares of that stock.
Options also give you the potential to make much higher returns than stocks.
For example, let’s say that Boeing is trading at US$260 and you believe it’s going to go higher. So, you purchase a Boeing call option with a strike price at US$260 (the price you would agree to buy Boeing’s shares at if you exercised the contract) for US$10 a contract with a three-month expiration date.
At the end of those three months, Boeing’s stock price has moved up to US$280. At the expiration date, a call option is worth the stock price minus the strike price. So, your options are now worth US$20 a piece. And because you bought them for US$10, you’ve made a gain of 100 percent on your investment.
Now compare that to the return you’d have made had you bought shares of Boeing’s stock.
Remember, an options contract always represents 100 shares of your particular asset. So, at US$10 a contract, you spent US$1,000 on your Boeing option call.
Had you bought Boeing’s stock at that price, you would have had to spend $26,000 upfront. And you would have only ended up getting a 4 percent gain in the same amount of time.
Clearly, the return on an options contract is potentially much higher. You also don’t have to risk anywhere near as much money for a greater reward.
Tall Tale No. 3: Options are difficult to understand.
At first, options can look a little daunting. And I get it. Learning a new “language” of sorts can be scary. But once you get the vocabulary down, you’ll find that making an options trade is pretty straightforward.
You can find definitions of options vocabulary online for free, as well as walkthrough videos on how to successfully make an options trade.
For more advanced tutorials and trade breakdowns, it never hurts to get some tips and tricks from the industry’s leading experts.
These tall tales often scare off investors who are new to or inexperienced with the options market. But, if you’re willing to take the time to learn more about options trading, it can be a fast and lucrative way to make more income.
In the end, options still might not be the investment vehicle for you. And that’s OK. But don’t let common misconceptions keep you from trying something new. After all, they just might work in your favor.
Publisher, Stansberry Churchouse Research
P.S. Our friends at Banyan Hill Publishing believe that options are one of the best and most lucrative ways to make money right now. In fact, they recently launched an options service called Rapid Profit Trader that allowed their readers to make 1,193 percent in the last four months. Go here to learn more.