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3 Options Trading Myths to Ignore

3 Options Trading Myths to Ignore

Source: Fangfy / Shutterstock.com

Whether you simply dabble or are fully invested in every market fluctuation, lately the stock market may have you feeling like you’re struggling to hang on to a mechanical bull.

Traders may be wondering if the S&P 500 will ever return to its former glory. Many are left wondering if there’s money left to be made in such an unpredictable environment. The stress and lack of liquidity when waiting for a potentially lucrative stock to reach its maximum profitability might make you consider chucking the whole stock market game.

But there are ways to invest that can meet your needs and satisfy the peace of mind you might need to stay off the sidelines.

As you know, we specialize in options trading, and that method has a lot of misconceptions. Here, we want to make options trading accessible to all traders and clear up some of the myths to make way for real profits.


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Myth No. 1: Options Are Riskier Than Stocks

There are many ways to trade options, and yes, just like any stock market venture, you can lose money.

But with options, you can only lose as much money as you put in.

Say, for instance, you buy a call on Starbucks Corp. (SBUX) for $1.06. You actually pay $106 because the option represents 100 shares of the underlying security.

By buying a call, you expect the stock to increase in value; conversely, you buy a put when you expect the stock to decrease in value.

So, say your SBUX calls go straight to zero by the time their expiration date hits. You, at maximum, lose $106.

On the other hand, if you were to buy 100 shares of SBUX stock, your downside is unlimited.

If 100 shares of SBUX go from its current price of around $104 (you’ll have spent $10,400) to $10 (you’ll be looking at a loss of $9,038.38.

That theoretical loss of $106 on an option contract isn’t looking too bad now.

Please note, of course, that no investment is risk-free. It doesn’t matter how experienced or cautious you are, you can still lose money.

The stock market is an uncontrollable entity, and there’s no position you can be in where you’ll win every time.

However, the way we trade options is different than buying; it is essentially the complete opposite.

Which leads us to Myth No. 2…

Myth No. 2: Options Trading Is for Experts

As you’ve probably noticed, not many stocks are going up nowadays.

Negating a choice few, many call buyers are suffering losses as stocks plow through a turbulent earnings season.

That’s why we take the opposite approach: selling options.

Think of when you buy an insurance policy: You pay a premium for the protection it provides. This is the role that the option buyer plays in the markets.

But most of the time, you don’t end up needing that insurance, and the insurance company simply pockets the money you paid them. This is the role of the option seller.

It’s far more likely that we will get to keep the premium that is paid to us as buyers… which is why insurance companies are so profitable.

The option premium is simply the price to enter into an options contract. If you are buying an option, you will pay the premium. If you are selling an option, the buyer pays you the premium.

Now, by taking a few steps with your broker and ensuring that you are cleared to trade any sort of option (both “long” and “short”), you can sell a put on SBUX instead of buying the call that we mentioned earlier.

By selling the put, you instantly earn income – if you sell an option for $0.50, you get an instant 50 bucks. The same can be said for selling one for $5.00 ($500 in instant income). You just have to ensure you have enough capital to buy 100 shares per contract you sell.

The key is to not go in blind and start firing off sell orders on any option you can find.

By maintaining a careful, neutral outlook on the market and following the trends that have emerged over the past 12 months, you can make informed decisions to generate consistent income.

Now, “consistent income” is not synonymous with “second salary” – you’re not going to pull the ludicrous numbers that so-called financial gurus claim… 10,000% in 3 Days! or something of that nature.

But compounding modest gains add up… and that leads us to the final myth.

Myth #3: You’ll Make a Ton of Money Trading Options

Unfortunately, trading options is not a “set-it-and-forget-it” way of playing the stock market. It requires research and constant maintenance and focus on your particular options. They can lose value over time and have expiration dates that should be watched closely.

The benefits of trading options far outweigh the risks, as we’ve outlined.

The whiplash of watching market volatility, paired with the endless waiting and guessing about which investments may or may not pay off and when, may not be how you want to spend your time or money. Trading options incurs less risk, a close eye, and ultimately, a faster payoff than waiting for a stock to stabilize.

If you’re ready to take the plunge – and we highly encourage you do – we recommend options trades two to three times a week in our elite trading research service, Strategic Trader.

We’ve been at this game for a combined 40+ years, and we have the track record to prove it.

  • Twenty days into 2023, we already have five winners under our belts…
  • In 2022, we had a win rate of 94.03%…
  • And the year before that, we closed out 142 trades and had a mere 10 losers.

The list goes on, and we want to you to be a part of our next success story.

Our latest trade recommendation could come as early as Monday morning, so click here to learn how you can be ready for it.

Sincerely,

John and Wade


Article printed from InvestorPlace Media, https://investorplace.com/tradingopportunities/2023/01/3-options-trading-myths-to-ignore/.

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