Over the past few decades, we've seen many advances in how the stock market functions. Today, exchanges and brokerage houses exist almost entirely online, and everyone is competing for microseconds of speed. We've also seen the idea of "investing" evolve into something much more advanced and complicated than it was in the early days.
I've spent my entire year career immersed in the finance world. And in my experience, no matter what data, methods, techniques, witchcraft, mojo or voodoo you choose to use for your investments, it is absolutely critical that you understand what you're doing. If not, you're just another amateur grasping for success.
The truth is, today's "game" requires an increased arsenal of tactics and methods to prosper. And for the average investor, a powerful options strategy is one of those tools that should be used. I realize some of you may have never considered using options in your own portfolio. I want to use today's essay to explain some of the basics and demystify options so that you can use them to amplify your profit potential and limit the downside.
The truth is, options can be as simple or as complicated as you want to make them. Just know that when you purchase options as a means to speculate on future stock price movements, you are limiting your downside risk, yet your upside earnings potential can be unlimited.
Aside from speculation, investors also use options for hedging purposes. It is a way to protect your portfolio from disaster. Hedging is like buying insurance -- you buy it as a means of protection against unforeseen events, but you hope you never have to use it. The fact that you hold insurance helps you sleep better at night. Today, I want to talk about one of the most basic ways investors use options: Investors generally buy calls on stocks they expect to move higher.
But rather than simply buying shares, savvy investors use calls to amplify their upside. Let's take a look at a theoretical example to see how this works. Here's what will happen to the value of this call option under a variety of different scenarios: But many of my Profit Amplifier readers choose to trade with larger position sizes, so that's why we use deep "in the money" calls that have a higher probability of being profitable.
We also use stop-loss orders. After all, there's no sense in being greedy when we can protect ourselves and still profit. Buying call options is one of the most basic and common options strategies, and you can use it as a substitute to simply "going long" and buying a stock.
And by taking a sensible approach to our trading strategy, we've come out ahead more times than we've lost. Take a look at the track record we've been able to achieve so far in the table below:. Aside from a few road bumps, our path to success has been very profitable. In fact, my readers and I have made an average return of The bottom line is, if you've never considered using call options as a way to amplify your gains, now is a great time to start.
I've put together a short presentation that explains how options work and more details on how my Profit Amplifier readers and I have been able to achieve our record of success. If you sign up for my newsletter, I'll also send you five special reports that will help you get started, including a Brokerage Guide, an Options course and my special "Black Book" of trading secrets.
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