Jeff’s Note: In just a few hours, I’m going to show how you can protect your portfolio from a massive $4 trillion market event that’s guaranteed to strike.
Most people will be caught by surprise. But if you follow my secret strategy… there could be hundreds of opportunities to potentially double your money – or more – within the next 40 days.
Now’s the time to act before it’s too late. If you want to get your portfolio back on track, click right here to join my presentation tonight at 8 p.m. ET.
Don’t do stupid things.
That’s a good rule for life in general. But it’s an especially good rule for option traders.
Like most good rules, though, we don’t really understand their importance until we break them. And when it comes to trading options, doing stupid things can be an expensive lesson.
For example, it’s stupid to use options to overleverage a position.
The options market was created so investors could reduce risk. Options allow investors to hedge their positions, and to risk much less money than if they bought a stock outright.
But like most good ideas on Wall Street, options quickly turned into vehicles to “get rich quick.”
So, we forget about the “risk” side of the equation, and we focus only on the “reward” side. We get caught up in the allure of fast gains. We take on bigger positions than we should. And then we blow up our accounts.
That’s stupid. And that’s also why many folks who’ve traded options this way will tell you that option trading is risky.
But it’s not the option that’s risky. It’s the strategy…
Let me explain…
Let’s say you have $10,000 to invest. You can choose to buy 100 shares of Company X at $100 per share. Or you can buy one call option contract – which gives you the right to buy 100 shares of Company X – for, let’s say, $400… and leave the remaining $9,600 in your account.
If Company X’s stock goes up, you’ll make money with the call option since it allows you to buy 100 shares. If the stock goes down, you’ll lose money. But the most you’ll ever lose is the $400 you paid to buy the call option.
Even if Company X’s shares drop by 20% or more, the biggest hit you’ll ever take is that $400. Your remaining $9,600 is still sitting in your account.
Yes, losing the entire $400 you spent on the call option is a 100% loss on the trade. However, that’s still a more favorable outcome than potentially losing 20% or more of the $10,000 you’d risk if you had bought the stock.
This is a simple example. But it’s the simplicity that proves my point. Options allow you to reduce your risk on a stock trade, while allowing you to profit just as much.
But that benefit disappears if you overleverage the trade and take on a larger position with options than you’d otherwise take with the stock.
That’s the biggest, and stupidest, mistake most option traders make. Instead of replacing a 100-share purchase with one call option, they take the entire amount they would’ve allocated to the stock and buy a much larger position with options.
In other words, instead of buying one $400 call option to reduce the risk of a $10,000 stock trade, a foolish trader will take the entire $10,000 and buy 25 call options. What would have been a 100-share purchase has turned into control of 2,500 shares.
Instead of using options to reduce risk, this trader has increased their risk by 25 times.
Losing 100% on an overleveraged trade would be a disaster. And it’s why so many folks think options trading is dangerous – because they’re doing stupid things.
Options trading isn’t dangerous if you use options the way they were originally intended – as a way to reduce risk.
Remember, limit your options exposure to control just the number of shares you’d 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’ll almost always turn out better than what you could’ve lost on the stock.
And in this bear market, it’s more crucial than ever to reduce risk. Buying and holding stocks in a market like this is dangerous.
That’s why I’m issuing my most timely warning yet – only this time it’s not a prediction.
In my 40-year career in the financial markets, I’ve seen this kind of setup only a few times before…
So, if you think the rollercoaster we’re in right now is unbearable… I’m sorry to say that for most people – it’s only just begun.
Something big in the market is about to “snap,” potentially causing dozens of popular stocks to freefall overnight. This event could be devastating for those who remain in the dark.
But if you’re on the right side of it, it could change your fortunes in a very short time.
During my presentation tonight at 8 p.m. ET, I’ll go over how to protect your wealth from this massive event and potentially make back this year’s losses.
But time is running out to prepare… click right here to instantly secure your spot.
I’ll see you there.
Best regards and good trading,