If you’re like most people, when you think of investing and trading, you automatically think of buying stocks on the stock market which goes something like this:
You buy stocks, hold them for long periods of time, hoping and sometimes praying the stock price rises because you don’t profit unless the stock trades up. As the old adage says “Buy low, Sell High”.
Most people are completely unaware of how they can monopolize options for short term gains and bring in immediate returns. Using options is what separates those traders with a wealth mindset and the others.
If you aren’t already trading options, here are some reasons why expanding your mind and portfolio can lend you some sweet (and short term) profits.
Stock trading limits you to trading directionally, and only in one direction. Up! With Options, you literally have, well, options. The versatility of trading options allows you to trade directionally, both up and down as well as profit if the stock is meandering sideways through a range of different strategies and in any market condition. And savvy traders take advantage of this.
Price. The price is vastly different in trading stock and options.
Let’s say hypothetically speaking, you purchase a stock for $200 a share. If you were to Buy To Open a long call option on the same stock it could run you $3.40 a contract. Each option contract controls 100 shares. So in comparison for the same amount of shares, you’d pay $20,000 for the stocks and $340 for the option. Options traders use this leverage to their accounts advantage.
Loss. It’s a thing every trader has to face and endure from time to time. But loss can be so much less for options in comparison to trading stocks.
Using the same example as above let’s look at possible loss. Say something catastrophic happens and the stock plummets all the way down to zero. How much have you lost? Well, with the stocks you’re out $20,000. With the option, the maximum you can lose is $340. You don’t have to be a financial advisor to see how this can protect your account.
Trading options also differ from stocks as they do not represent ownership in a company. Consider options like getting paid to rent an apartment versus buying a home hoping the value will increase.
Have you ever watched your favorite stock knowing that it was too expensive for you to purchase and watch it skyrocket in price and then thought to yourself, “Would have been great to have bought that stock…” Well, you can. With certain options strategies, you can actually purchase stocks by exercising the option.
When you purchase the stock in this manner, you pay the amount you agreed to pay when you entered the trade. Pretty cool, right? It’s kinda like going to Costco to purchase stocks. Not paying the sticker price for your stocks, now that’s what we call a wealth mindset.
“I like buying quality merchandise when it is marked down.” – Warren Buffet
To learn how you can trade options for short term gains and attain a wealth mindset, register for Trading U and start learning today.