The Secret to Big Profits in a Down Market
Several times a year the market presents investors with the opportunity to make exponential gains on their money, in less than a month. As I write this, you’re facing that opportunity.
The headlines right now are spooking investors but you shouldn’t exit the market. The global panic over coronavirus is presenting a once-in-a-lifetime chance to turbocharge your investment gains. When stocks plunged from February to March in the fastest bear market in history, the old adage “buy when there’s blood in the streets” was rarely more apt.
But how is this possible? How can investors realize astronomical gains in a short amount of time, regardless of market conditions?
Through the “magic” of options.
Think options are too tricky? Think again. This year’s volatile market is giving us a great opportunity to make money from these stock alternatives. If you don’t use options, you’re forgoing one of the most powerful moneymaking tools around. And they’re easier to master than you might realize.
Just mention the word “options” and many investors will have the same knee-jerk reaction: “They’re too complicated…too risky…too expensive.”
But in reality, options trading can open up a world of relatively safe alternatives to making money with stocks. In fact, options can be a great deal more inexpensive than stocks and deliver greater profits in a shorter time frame.
Options really shine when the markets are volatile, as they have been in 2020. You can use them to leverage the movements of stocks as they swing both up and down. Today’s a perfect time to play the options game, as the COVID-19 pandemic clobbers the global economy and sends investors fleeing.
Options Trading: Easier Than You Think
Here’s a quick primer on options trading. Even veteran investors could use a refresher course.
For starters, it’s important to distinguish between options that give you the right to buy stocks versus options that give you the right to sell stocks. They go by different names.
- Call options give you the right to buy the underlying security at a specific price on a specific date.
- Put options give you the right to sell the underlying security at a specific price on a specific date.
You’d buy a call option if you’re bullish on the underlying stock.
You’d buy a put option if you’re bearish on the underlying stock.
Strikes: not just for baseball…
Remember: an option is a contract. As with any other contract, there are specifics spelled out.
One of those specifics is the price at which you will buy or sell the underlying stock. That’s called the strike price.
A call option is in the money when its strike price is lower than the current market price of the underlying stock. It’s out of the money when its strike price is higher than the current market price of the underlying stock.
A put option is in the money when its strike price is higher than the current market price of the underlying stock. It’s out of the money when its strike price is lower than the current market price of the underlying stock.
Any kind of option is at the money when its strike price is equal to the current market price of the underlying stock.
Contract expiration: the shelf-life explained…
Options contracts also have an expiration date attached to them. That’s when the person who owns the option can exercise his or her right to trade the shares at the strike price.
The word “can” is important in that last sentence. In some cases, the person might not want to buy or sell the shares when the contract expires.
Why? Because if the option is out of the money, there’s a better deal on the open market. When options expire out of the money, they’re said to expire worthless.
Worthless options aren’t always worthless…
Although options that expire out of the money are called worthless, they’re sometimes quite profitable to options traders.
That’s because traders can sell options as well as buy them. When they sell options, it’s just like shorting them.
In that case, they want the options to drop in value or expire worthless. That’s how they make money.
If you’re bullish on a stock, you can sell a put option instead of buying a call option.
If you’re bearish on a stock, you can sell a call option instead of buying a put option.
There are some caveats, though.
First, keep in mind that you can take enormous losses when you sell options. In the case of selling a put option, your loss can theoretically be infinite because there’s no limit to how high the underlying stock can rise.
Also, your online brokerage will place rules on selling “naked” puts. There will be significant margin requirements in case the trade goes the wrong way.
The price isn’t right…
When you look at options chains for specific stocks, you’ll see that they’re usually traded at a much lower price than the stock itself.
Options contracts are bundles of 100 shares. So you have to multiply the price of the option by 100. That’s something you need to keep in mind as you trade options.
Also, as is the case with stocks, you buy options contracts at the Ask price and sell them at the Bid price.
Volatile markets can be scary, but playing options can hand investors a safety net and opportunities to profit on both highs and lows.
With just a little more effort than you’d use for stock trading, you could not only face roller-coaster markets unafraid, but welcome them.
Meet our options guru…
When it comes to options trading, I’ve only scratched the surface. You’ll want the advice of someone on our team who is one of the world’s most experienced and skilled options traders. He’s my longtime colleague Jim Fink [pictured].
Jim Fink, chief investment strategist of Options for Income, has devised a proprietary options trading strategy that racks up profits regardless of the pandemic or economic downturn.
Of course, Jim can’t guarantee you a “sure thing” on every trade he makes. Anyone who makes that sort of promise is just blowing smoke. But he can assure you that he has overwhelming statistical probability on his side.
The hard numbers don’t lie. Jim’s proven track record shows that he can deliver a successful outcome on 94% of his closed trades, as he has done over the past eight years. That includes a current winning streak where he has closed out 42 winners out of 42 recommendations.
Want to get in on Jim’s next winning trade? You’d better act now, because we’re only opening access for a few short days. And don’t worry, Jim walks his followers through every trade…every step of the way. Click here for details.
Comments or questions? Drop me a line: email@example.com
John Persinos is the editorial director of Investing Daily.