Fake News Alert — Options Are Too Risky
“Options are too risky.”
You’ve likely heard this. You might have even said this yourself before.
You might think they’re too complicated for the average investor to use.
But it’s all fake news.
When options are used correctly, they actually reduce your risk. And it can be as simple as buying a share of stock.
Today, I want to debunk the fake news around options by showing you a recent example.
Earlier this month, we grabbed a 124% gain from retail giant Apple Inc. (Nasdaq: AAPL).
And it happened in less than two weeks.
Here’s how it happened and how you can do it again by trading options.
Risk $42,000? Or Just $2,500
Apple’s stock price soared $30 after we bought call options on July 31.
It was a quick 7% rally that delivered our triple-digit gain. Take a look:
But let’s talk cash.
If you wanted to trade the stock and make, say, $3,000 in profits on a 7% move, you’d have to buy 100 shares of the stock. For Apple, that would have been a $42,000 investment.
Not many everyday investors have $42,000 to lay down on one stock.
But, to make $3,000 using the call option, we only had to put up $2,500 to buy the option.
Two weeks later, this turned into more than $5,500 for us as the stock shot higher, delivering a 124% gain.
But we need to talk about risk. What if Apple had tumbled 20% during this trade instead of surging higher? Something like that is possible. It happened at the start of the coronavirus-related sell-off.
Our option would have expired worthless, assuming we didn’t close it out early. That means we would lose the initial capital we spent to buy the option, $2,500.
But if you’d bought the same 100 shares — $42,000 worth — you would have seen a much steeper loss of $8,400. That’s more than three times the loss on our option.
By using options, we know exactly what our risk is: the $2,500 we paid.
When you buy the stock, it’s different. Who knows if some bad press comes out, or another pandemic hits, and the stock sinks 20% in two weeks.
When you have to purchase shares of a stock, those losses can add up.
Using options allows us to limit our exposure, but still capture massive returns in a short period of time.
Educate Yourself Now
I know options are one of those things that people either love or hate.
If you don’t know how they work, you could accidentally damage your investment portfolio with them.
But, once you understand the risks and when to use them, you can be on your way to racking up big double- and triple-digit gains every month.
That’s why I’m making it my goal to cut through the fake news around options so everyone can benefit. And it starts this week.
We are just days away from launching a new weekly update at no charge to you — my Weekly Options Corner. But you won’t receive it as part of your Winning Investor Daily subscription. You have to let us know you want in.
That way, we know you are serious about learning more about options every week … including potential trades on my radar and more about the strategies I use to bag triple-digit gains.
This is all about making sure everyone has the tools and confidence they need to profit from options in the stock market.
And since you are a member of Winning Investor Daily, it comes at no cost to you — you just have to sign up.
Chad Shoop, CMT
Editor, Quick Hit Profits
P.S. Stay tuned in Winning Investor Daily in the next few weeks for an announcement from my colleague, Alpha Investor Charles Mizrahi.
He has been working on something big behind the scenes here. He wants to help average investors reclaim their financial future. He’s setting up something he’s calling the American Prosperity Summit. It will be the first of many events that will feature high-profile Americans who have received research and recommendations from Charles — and, after having suffered financial setbacks, are now beginning to realize their dreams again.
This summit and the ones that follow are just one of the many ways Charles is going to help millions of Americans take back their financial future in these trying times and rekindle the American dream.
He’ll be updating our Winning Investor Daily readers with all the information they’ll need. We’re excited to share it with you.
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.