Do you want to buy stocks like a rockstar? The secret of the pros is to use a disciplined approach and stay calm in times of market volatility. Many people get emotional when it comes to their investments, and this can lead to poor decision-making. In this article, we will discuss the basics of stock investing and how you can use a disciplined approach to make money in the stock market!
Warren Buffet’s famous saying “Be fearful when others are greedy and be greedy when others are fearful.” This sage advice applies to stock investing as well. When the market is crashing, it can be tempting to sell all of your stocks and get out of the market. However, this is often not the best decision.
We will also introduce Stock options as a powerful weapon to buy stocks at a 50% deep discount as a stock replacement strategy and other simple options strategies.
What are Stock Market Options?
Stock options are a type of derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date. Options are contracts between two parties: the buyer and the seller. The buyer of an option pays the seller (or writer) a premium for this right.
The underlying asset can be stocks, bonds, commodities, currencies, or even an index.
Options are traded on exchanges such as the New York Stock Exchange (NYSE) and the Chicago Board Options Exchange (CBOE).
Why use Options instead of just buying stocks?
There are a few reasons why you might use options.
- To speculate: You might buy an option if you think the underlying asset’s price is going to go up. This is called a “call” option.
- To hedge: You might sell a “put” option if you own the underlying asset and you think its price is going to go down. This limits your downside risk.
- To generate income: You might sell an option if you don’t own the underlying asset and you think the price of the option will be less than the premium you receive when it expires.
What are some of the risks of stock options?
- Options are a risky investment because you can lose all of the money you invested.
- The price of the underlying asset might not go up (or down) as much as you think it will.
- The option might expire before the price of the underlying asset moves enough to make a profit.
- You might not be able to find a buyer for the option when you want to sell it.
Warning options can go to zero just FYI!
How can I make money?
If you buy a call option, you will make money if the price of the underlying asset goes up. If you buy a put option, you will make money if the price of the underlying asset goes down. If you sell an option, you will make money if the price of the underlying asset doesn’t move as much as you think it will.
If you use options to speculate on the price of stocks, you might make a lot of money if you are right about the direction of the market. However, you can also lose all of your investment.
If you use options to hedge the risk of owning stocks, you will make money if the price of the stock goes down. However, you will not make as much money if the stock price goes up.
If you sell options, you will make money if the underlying asset doesn’t move as much as the option price. However, you might not be able to find a buyer for the option when you want to sell it.
Options are a risky investment and you can lose all of your money. You should only invest money that you can afford to lose.
How to Buy Stocks at a 50% discount through LEAPs
LEAPs are long-term stock options that have expiration dates of up to three years. LEAPs give investors the ability to buy stocks at a discount and hold them for a long period of time.
When you buy a LEAP, you are buying the right to purchase a stock at a fixed price (the strike price) at some point in the future (the expiration date).
If the stock price goes up, you can buy the stock at the strike price and sell it immediately for a profit.
If the stock price goes down, you can let the LEAP expire and you will not have to purchase the stock.
LEAPs are a great way to get discounts on stocks, but they are also a risky investment because the stock price could go down and you would still be obligated to purchase the stock at the strike price.
Before you invest in LEAPS, you should do your research and make sure you understand the risks.
Time is the secret to buying options on your stocks
Always give yourself time when choosing options. Stay away from weekly options unless you are super deep in the money (DITM). The premium you pay for weekly options is not worth the risk. If you are going to buy options, make sure you have at least a month until expiration.
The best time to buy stocks is when they are on sale. The best time to buy options is when they are cheap.
Options are cheap when the stock price is far away from the strike price.
The closer the stock price is to the strike price, the more expensive the option will be.
You can buy options that are “out of the money” (OTM) and “in the money” (ITM). OTM options are cheaper than ITM options because they have a lower chance of being profitable.
ITM options are more expensive because they have a higher chance of being profitable.
Final thoughts
Hopefully, I didn’t confuse the heck out of you. There are many stock market strategies to make money these are just a few. I’m sure there are a ton more that I don’t know about. If you have any please share in the comments. Also, feel free to ask any questions below and I’ll do my best to answer them.
So to recap, the secret of the pros is to give themselves time when choosing stocks and options. They stay away from weekly options and buy stocks when they are on sale. Options are cheap when the stock price is far away from the strike price. OTM options are cheaper than ITM options because they have a lower chance of being profitable. That’s it for now, happy investing!
P.S. If you’re interested in learning more about stocks and options, I highly recommend reading “The Intelligent Investor” by Benjamin Graham. It’s considered one of the best-investing books out there and it’s a great starting point for beginners.
I highly recommend reading Options Trading for Dummies it really helped me understand Options.
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Happy trading!
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Disclaimer: This article is for information purposes and should not be considered professional investment advice. It contains some forward-looking statements that should not be taken as indicators of future performance. Every investor has a different risk profile and goals. All investments have risks. Always do your own research or hire an expert before investing and trading in the stock market.
