"Creators of the One-Minute Options Trader"

Question - What are the advantages of trading stock options?

Answer - Trading stock options is a good way to participate on Wall Street without investing a lot of money. You can benefit from the movement of stocks without buying them. In fact, trading stock options allows you to rent the stock for pennies on the dollar for a limited period of time instead of paying big bucks to buy the stock for an indefinite period of time.

This takes a lot of risk out of trading because the least you have on the table, the least you have at risk. For example, instead of purchasing 800 shares of AAPL stock that is trading at $171.61 per share, costing you $137,288 ($800 X $171.61), you could purchase 8 contracts (same as 800 shares) of AAPL for .61 cents, costing you only $488.00 (800 X .61 cents). In this example, whether you purchase the stock or the stock options, you will still earn $800.00 for every point that the stock goes up in the money. However, if the stock falls, if you purchased the stock, you will lose $800.00 for every point that the stock falls but if you purchased the stock options, the maximum that you can lose, even if the price of the stock goes all the way down to zero, is $488.00.

Because stock options have an expiration date and will only exist for a period of time, the secret is purchasing stock options at precisely the right time when the stock is about to explode so that it moves in your favor before your stock options expire. For example, you could time the purchase of stock options right before the company is about to make a big announcement, like an earnings announcement.

Another reason why stock options are less risky is because it allows you to make money in any market direction, whether the market is bullish, bearish, or neutral. If the market is bullish, you can purchase call options; if the market is bearish, you can purchase put options; and if the market is neutral, you can do covered calls.

Therefore, as in the example given above, getting in right before an earnings announcement, if you are uncertain about the favorability of the announcement, you could purchase a call and a put on the same stock position. This will allow you to make money regardless of the favorability of the announcement.

SBX are experts on timing the market. But you can click here to view our Track Record and make up your own mind.