How to make a lot from a little

adamMake BIG Money With Options: Exponential Returns

Options trading is a very lucrative way to make money in the stock market. Unfortunately, most people do not understand how to properly use them and end up blowing up. So instead of trying to understand how to make money with options, they put their head in the sand and look the other way. It’s time for you to learn how and start making money with options. This article will shed some light on this powerful subject. This is a complex topic but this article will serve as an intro to this fascinating world.

Step 1: What Are Options?

The simplest definition is that options are derivates that allow you to use leverage to control a stock at some point in the future. There are two types of options: Puts and Calls. Puts allow you to profit when a stock falls and calls allow you to profit when a stock rallies. The next concept to keep in time is the strike price. Every option has numerous strike prices and it is up to you to decide which one is ideal for your strategy. Intrinsic value is a term that is used to describe how far the stock price is from its strike price.

For example, if the stock is trading at $100 and the strike prices is 108. The intrinsic value equals 8. The other element is time. Each option has countless expiration times and again it is up to you to select what is best for your strategy. Typically, every contract you buy represents 100 shares of the underlying stock. The premium (cost of the option) is simply determined by adding the intrinsic to the time value.

Here is the formula:

Premium =           Intrinsic Value   +            Time Value

$8.25 =  $8          +            $0.25

Remember, you are buying time and taking a risk that the underlying stock will trade above (call) or below (put) your desired strike price by expiration. If it doesn’t, the option expires worthless.

Step 2: Buying Options- What Is Your Downside?

This article will cover buying options. Selling options will be discussed down the road. When buying options (puts or calls), the absolute worst case is that you lose your premium- even if the stock goes to zero or gaps down for any reason. This is very important because knowing in advance how much you can lose is critical to being successful in the stock market. Buying options, allows you to define your risk and enjoy massive upside- when the stock moves in your favor (up for calls and down for puts).

Step 3: Secret Ingredient

Leverage is the secret ingredient, when properly used, allows you to potentially enjoy massive profits from trading options. The common reason why most people trade options is because it allows them to control a lot of stock for a fraction of the price. By definition, every option uses leverage because one contract (call or put) represents 100 shares of stock. The premium you pay today is a fraction of the price it would cost to buy 100 shares of stock because unlike a stock (that never expires unless the company goes bankrupt), every option eventually expires- so you are paying less for that risk.

See It In Action:

EX: Apple Inc (AAPL) is trading at $550, you think it will be higher in three months.

Stock: If want to buy 100 shares of AAPL- that transaction will cost you $55,000.

Options: Alternatively, (using options) you can buy 1 $550 July call option (gives you the right to own 100 shares of AAPL in July if it is trading above the $550 strike price) for $1900 (premium is $19 x 100 shares= 1900).

Risk vs Reward:

As you can see buying the stock today will cost you $55,000 while buying 1 call option will only cost $1,900. The max risk for you is that if in July the stock is not above 550 you will lose your premium. The max reward is potentially unlimited. Since the option costs you $19 today (intrinsic value plus the time value)- it will increase exponentially as the stock rallies (gets closer and eventually above your strike price). Remember, you are free to sell the option anytime before expiration so you don’t have to lose your entire premium. Additionally, your risk is capped while your upside is potentially unlimited. So you only need a few good ideas each year to enjoy huge returns.

Recent Real Life Example

Just recently, I told one of my clients to buy 6-month calls in Facebook (FB).  During the 6 months, the stock soared a very impressive 75%. Meanwhile, during the same period, the options vaulted a staggering 900%! His small $10,000 investment ballooned into $90,000!

Enjoy Exponential Returns:

Want to Enjoy These Exponential Returns? Exclusively- Starting immediately, I will give option ideas alongside stock ideas to Midas Wave Alert Members! These ideas are powerful and are not available anywhere else. Check today’s email to see if you have an exclusive invitation.

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