We get emails all the time to be on podcasts, speak at webinars etc. and we do the same to reach out especially with our upcoming Long Short Show podcast we're launching. So today I made some emails and one to a particularly well known author who has a book on start ups.
The question was simple: We'd like to be on your podcast to talk options and have you on ours to discuss your book. His response? I don't think I'd like to have my followers look at options.
If I had a visual response, it was that to the right. No options?
Look, I get it, the stock market gets a bad wrap and always will but to not even consider using one of the most powerful (in my opinion) tools for retail investors today is just insane.
So let me present a few arguments to you the reader as to why we love options as a tool for retail investors here at Landshark Education.
Options Provide Leverage.
Typically we're taught to buy shares of companies, at least that's what most of us do. We buy and we hold...and hold...and hold some more until we finally decide that after giving back the gains we once had that it's time to walk away. But options are different. They give you leverage, and the good kind, not the kind where you can lose $100,000 like this guy did.
No. They give you opportunities to risk a little and make a lot. So when you're wrong, you're wrong small, but when you're right you're right big. This is what Landshark Instructor Ryan Sizemore did just a few weeks ago on Amazon: Risked about $2,000 and made about $16,000.
I loved the movie The Big Short for one reason: They made it so that anyone could understand what they were talking about which is what we try to do. So that being said watch the clip below, this is a great example of just one of the strategies we teach.
(By the way those guys from that movie are a real story but it was called Cornwall Capital)
Now, where is the bad news.....I'll tell you.
Too many of these losses and you're in trouble. Put all of your capital on one trade and you're in trouble. The large returns are addicting, so at times, you only use this strategy and forget about the other two strategies.
But that, that's the bad news.
Warren Buffet Uses Options, Just in a Different Way.
"I view derivatives as time bombs, both for the parties that deal in them and the economic system. Basically these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices, or currency values. For example, if you are either long or short an S&P 500 futures contract, you are a party to a very simple derivatives transaction, with your gain or loss derived from movements in the index. Derivatives contracts are of varying duration, running sometimes to 20 or more years, and their value is often tied to several variables."
- 2002 Berkshire Hathaway Annual Report
The strategy Buffett uses is shorting put options. As a general note, a put option gives the buyer the option to sell the underlying stock at a certain price on a certain date. Consider a put option with an exercise price of $10 and an expiration date in 30 days. Let's assume the underlying stock was trading at $12 when you purchased the put option. If in 30 days the stock dropped to $8, you, as the option buyer, can still sell the stock at the strike price, or $10 in this case. By using a put option, you effectively hedged the downside risk for 30 days. Now I don't personally like this strategy nor do we teach it (it requires a lot of capital). However, the point I am making here is that one of the world's best investors uses the options markets.
They Can Help You Make Money When Stocks Crash.
You don't want to be like that guy above who lost over $100,000 making a bet that the stock he bet against would go lower. You want to be the person using put options to capture the downside risk while knowing your fixed risk.
With put options you can buy the contract and make money if the stock you purchased it on goes lower. (I won't get into a full basics of options here).
I did this exact thing in 2011 shorting online for profit colleges. I used $900 and made $9,000 when University of Phoenix fell over 15% in two weeks.
I get it that people shy away from Wall Street and you should if you don't know what you're doing. But the truth is, you do have options (pun intended) for going about creating a income using options or to hedge your portfolio.
I hope this article was helpful and encourages you to attend a free webcast to learn more.