The Truth About Options Trading

Posted: Aug 20, 2018 11:37 AM

Do you fall into this category?

You understand stocks but options seems like a second language.

If Yes (or even maybe), this is for you …

Options takes minutes to learn but that knowledge can empower you for years to come.

Get instant options knowledge for free here

An option callis the right but not the obligation, to buy a stock at a set price on a set date.

Let’s use Apple (AAPL) as an example.

It’s currently trading around $213.

If you thought that by December, AAPL would be a $250 stock you have some choices to make.

If you wanted to buy 100 shares of the stock, it would cost $21,300. If AAPL went to $250, you would make $3700 on your investment or 17.4%

If AAPL went to $150, you would lose $10,000.

As an Option Trade, you could buy 1 contract of the AAPL 12/21/18 210 call for $13.

It would cost $1300. If AAPL went to 250 you would make $2700 on your investment or 207%.

*If AAPL went to 250 before December the profit amount would go up even more.

If AAPL went to $150 or even zero, your max lost would be $1300.

As you can see, Options offers you the best of both worlds, defined risk and unlimited upside.

There’s something else though that’s often overlooked and it just happened to me.

I was in a trade in LULU.

We bought weekly options.

The next day, the entire market opened down big and LULU got hit too.

It was down 4 points and the options were only worth .20.

Now, if you owned the stock, on that down day, there was no end in site.

The idea of holding LULU for another minute, let alone another day, week or month was daunting.

But the Option had defined risk.

The total risk left was .20 with all the upside.

So I held and got a little lucky …

Tariff talks took a positive turn and Walmart beat earnings.

The Dow surged over 400 points and LULU was back in play!

While I would have been out of the stock, I stayed in the option with almost nothing to lose and it came back for me.

That is the power of options.

This is your introduction to that power.

Enjoy the end of summer and start preparing for greatness now.