Every day more than over five million options are traded on 3,700 companies such as Exxon Mobil, Starbucks and Apple. Each option contract is worth 100 shares, with an average value of about $50, making a total of perhaps twenty billion dollars. Every day!
That makes options trading one of the largest financial markets in the world, right after the bond, currency and stock markets. And you probably don't know about it, or how to make money in it? That's not your fault, as it never gets coverage on local news, and is not taught in your local school. Your bank doesn't teach classes in trading, and most people think options are risky.
So, there are two things you are probably asking about options. 1. What they are and how to make money. 2. What are the risks? This page will answer these and explain why you should learn to trade options.
Options are rights to buy or sell anything at fixed price by a particular date in the future. In this world of constant change and economic uncertainty, options lock in the price of something--100 tons of flour headed for a famine-torn country, or the price of a share of stock like Genzyme, the company that might have found a cure for Alzheimer's. Options provide security for businesses and institutions like pension funds, and monthly income for investors. Options are the insurance or security market for the securities markets.
Another thing to know is that options have a fixed shelf life from one week, or one month, to several years. That means buyers of options must exercise their rights before they expire. On average, it is better to sell options rather than buy them, and anyone with a computer and training can do it. So there is the second important thing to know: The people who make the most money in options don't buy them, they sell them.
- Imagine you owned a house worth a million dollars, and every month someone came and gave you $5,000 for the right to buy that house for $1,100,000. You would collect a lot of money, would't you? Until eventually the house was sold for $1,100,000. Better still--what if you didn't own the house--it was someone else's--could you still sell the options without having to share the income with the home owner? Yes, plus you could also use the cash you took in and buy the home at a discount!
So savvy options traders sell rather than buy options, and cover potential losses with insurance. Yes, there is an internal market providing insurance options to traders. Get more for selling options than you have to pay out in insurance, and bingo! there's your profit.
INCOME minus INSURANCE = PROFIT
Keep taking in more more than you are giving out, and your account can grow at a clip of 8% or more per month--if you know how, when and where to trade.
So, what's the risk? First, there's the risk of being a net buyer. You are purchasing an asset that is time-limited and decays in value every day. The advantage is to the seller of options, not the buyer. The danger to sellers is that they will mismanage the risk associated with trading-- having to deliver stock to others at a price higher than the market, or receive stock that is worth less than its market value.
Of course, you can always lose money. In fact, you could lose all your money. It happens, and option traders should only trade money they can afford to lose. Learning to trade the HOT way will improve your chances of being successful. Remember: you control how much risk you take!
So, why should I learn to trade options?
1. You can typically earn in a month what people earn on their money in the bank (1 - 2%) or stock market (0% - 20%) in a year. With bank rates around 1% it doesn't make sense to just sit and watch your money get eaten by inflation. By engaging in a small amount of "risk-defined" trading, you decide how much risk you are willing to take. Many option traders reap small rewards every month while engaging in trades with 90+% chance of profitability.
2. You can make lot of money, whether stocks go up or down! Here are some results from option trading in 2015.
- CMG (Chipotle) down from $750 to $450 per contract. Risk: $2,000 Profit $30,000
- AMZN (Amazon) up from $300 to $650 per share. Risk $1,200 Profit $27,000
- AAPL (Apple) sideways from $105 to $107. Risk $1,000 Profit $5,500
3. Options trading gives you the opportunity to make money without owning stock. The option seller never needs to own any stock, because he usually doesn't have such rights. Instead she has obligations to purchase from, or deliver stock to, others and provides the insurance others need. As long as an option is sold or closed before expiration, the option seller simply receives cash.
4. You can leverage your investments without increasing capital requirements. Using synthetic call options, which can be bought at perhaps 1/5 of the cost of stock, you can control five times as much stock for the same outlay of funds. That means five times as much in dividends, and five times as much in appreciation if the stock goes up.
5. You can protect your stock portfolio by using options. Invented to provide protection, "puts" and sold "calls" gain in value as the underlying stock goes down, providing an excellent hedge against loss. Even if you don't intend to use options to gain income, it is wise to use them to protect IRAs and 401k or a stock portfolio.
6. Traders who sell options are paid very well for provide a service to others. In a typical trade, 100 shares of stock can receive up to 100% protection with a single Put if the market goes down, or be purchased by a single Call if the price goes up. You can accumulate enough profit by selling and then buy stock at a discount. You can be paid very well for providing this service!
But where can I learn to trade options in Hawaii? At the moment, you can't learn this in any high school in Hawaii, and there are no college level courses at any of our local universities. Are they preparing students for the real world? Do students have options? Apparently not--until now.
Honolulu Options Traders, LLC is Hawaii's choice for options education. We are designing educational modules, seminars and online resources so that any person, any age, anytime day or night, can learn the principles, strategies and management of successful options trading. Practice with paper money, and launch off into the new income stream that is flowing by--at $15 billion per day.
We have high school, college students and grads in our classes. We offer evening classes, week-long intensives, private mentoring in person or on Skype, and are developing a range of products such as games and social groups to make it easier. See the Calendar >>>>
You can join for free on Meetup, then pay for a class and practice on paper with no risk. You have many decades of life ahead to earn big money. Options trading is one of the best opportunities for your future financial needs that you will ever see. You don't need a license, or a sales team, and there are no employees to manage.
So come and learn the world of options trading, and gain a life-long skill. Your future is waiting for you.
And now you know your options!
For more information, check out our Meetup Calendar. Then enroll in our 10-week classes on Meetup or keep on reading our website. Classes are almost every Tuesday at Manoa Innovation Center, 2800 Woodlawn Drive in the Manoa Valley near the University of Hawaii main campus.
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