| By Jeff Clark, editor, Market Minute Most people say option trading is risky. Novice traders often don't take the time to learn the right way to use options. They jump right in – thinking, “I got this.” They gamble, blow up their accounts, and then walk away penniless and swearing off options forever… Even experienced traders sometimes get caught up in the allure of fast gains. They overleverage their positions – take a bigger position size than they should – and then take a hit. All the option traders I know, including myself, have blown up their accounts at least once. But it's not the option that's risky… it's the strategy. And when used the right way, options are far less risky than trading stocks. | Recommended Link | | This is your portfolio on “steroids” While the Dow is down so far this year… This is a snapshot of Jeff Clark’s track record in 2020… - 273% gains in 8 days on Gold Miners Fund (GDX)
- 127% gain in 8 days on Financial Select Sector Fund (XLF)
- 91% gain in 3 days on Semiconductor Fund (SMH)
- 144% gain in 19 days on Technology Fund (XLK)
- 99% gain in 10 days on Invesco QQQ Trust (QQQ)
- 105% gain in 7 days on U.S. Natural Gas Fund (UNG)
- 111% gain in 19 days on Invesco QQQ Trust (QQQ)
| | | -- | You see, most people use options the wrong way. They use options to increase leverage… to get more “bang for their buck.” In other words, most people use options to increase risk. Let me explain… That's wrong. That's the exact opposite of what options were designed for. The options market was created so investors could reduce risk. Options allow investors to hedge their positions… and to risk much less money than they would buying a stock outright. The Tech Royalty Retirement Plan can help anyone live like royalty Let's say you want to buy stock in Company X. It trades for $10 a share. You could put up $1,000 to buy 100 shares… But you can control the same amount of stock with one option contract. You can buy a contract for, let's say, $50… and leave the other $950 in your account. If Company X's stock goes up, you'll make money. If the stock goes down, the most you'll ever lose is that $50. That's a 100% loss… but it's a lot less than potentially losing 20% or more of the $1,000 you risked buying the stock. | Recommended Link | | The Best Way to Play the Tech Boom One small corner of the tech boom recently returned extraordinary gains… And most investors missed out. RNC made 900% in 34 days… FVAN made 3,400%… And one company, GGI, made 9,400% in just over three years. A $15,000 investment in GGI would've turned into $1.4 million. While investors were picking over the scraps of the 5G boom… Or trying to decide between Amazon and Apple… They missed a key part of the tech boom. It's not microchips, semiconductors or online advertising… | | | -- | This is a simple example. And it's the simplicity that proves my point. Options allow you to risk much less and profit just as much as buying stocks. But that benefit disappears if you overleverage the trade and take on a larger position with options than you would otherwise take with the stock. Angel Investor reveals world’s top tech stock That's the biggest mistake most novice option traders make. Instead of replacing a 100-share purchase with one call option, they take the entire amount they would have allocated to the stock and buy a much larger position with the options. Rather than buying one call option for $50 and leaving the remaining $950 in the bank, novice traders take the entire $1,000 and put it into buying more call options. | Recommended Link | | 900 Million 5G iPhones Need This Apple is expected to release its long-awaited 5G iPhone on or around September 22. But it’s not Apple’s stock we think will soar the highest. Instead, one company makes a tiny piece critical to 5G phones. And its shares could soar. This video gives you a sneak preview of this brand-new device. And why it could be the No. 1 tech stock of 2020. | | | -- | They end up buying 20 call options to try to get more bang for their buck. What would have been a 100-share purchase has turned into control of 2,000 shares. Instead of using options to reduce risk, they've increased their risk 20 times. Losing 100% on an overleveraged trade would be a disaster. And it's why most folks think option trading is dangerous. But it's not dangerous if you trade options the way they were originally intended… as a way to reduce risk. Limit your option exposure to control just the number of shares you would normally purchase. Leave the rest of the money in the bank. Then it won't be so bad to lose 100% on an option trade. It will almost always turn out better than what you could have lost on the stock. Best regards and good trading, Jeff Clark
Editor, Market Minute P.S. If you’re new to options… or are skeptical if it’s the right trading strategy for you… then you’re not the only one. But I believe anyone can trade options, even my 18-year-old son Carson. Which is why this past Wednesday, I hosted a special presentation from my home to showcase how easy options can be if you just follow my simple techniques. I used these techniques to help guide Carson through the same process I use with all my trades, but was he able to double his money on a single trade like I said he would? Click here to see for yourself…
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