Secret 17GET THE BIGGEST BANG FOR YOUR BUCK
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Buying options is the best way to start trading options. The
big advantage that you have is that you can’t lose more than you
pay for the option. That is not true of some other option strategies
such as option writing.
The major error made by option buyers and the reason some
take big losses is that they pay too much for their options. In fact,
most option authorities recommend buying in-the-money options
where the stock price is across the strike price. The problem
with these options is that they have high price tags, usually
several hundred dollars to a thousand dollars and sometimes
more. There is a place for this type of action, but when you are
aiming for high profits, you need a different strategy.
In addition, when you pay a high price for an option, you
have a lot at risk; one wrong move of the underlying stock or futures
and most of your option premium could vanish. If you pay
very little for an option, if the stock moves the wrong way, you
won’t lose much. Also, the higher the price, the smaller the
chance of a big percentage gain.
Cheaper options, in addition, give you a much bigger bang
for your buck. With cheap options, percentage gains of over
1000% are not unusual. You can buy options for as little as $5.00
(.05), the cost of a cup of coffee in the morning, and the $5.00
controls 100 shares of stock.
I set a guideline to avoid paying more than 2 ($200) for any
stock option and $400 for any futures option. Then I know that I
have a chance for a big percentage gain or a home run and I am
getting the biggest bang for my buck.
Buying options is the best way to start trading options. The
big advantage that you have is that you can’t lose more than you
pay for the option. That is not true of some other option strategies
such as option writing.
The major error made by option buyers and the reason some
take big losses is that they pay too much for their options. In fact,
most option authorities recommend buying in-the-money options
where the stock price is across the strike price. The problem
with these options is that they have high price tags, usually
several hundred dollars to a thousand dollars and sometimes
more. There is a place for this type of action, but when you are
aiming for high profits, you need a different strategy.
In addition, when you pay a high price for an option, you
have a lot at risk; one wrong move of the underlying stock or futures
and most of your option premium could vanish. If you pay
very little for an option, if the stock moves the wrong way, you
won’t lose much. Also, the higher the price, the smaller the
chance of a big percentage gain.
Cheaper options, in addition, give you a much bigger bang
for your buck. With cheap options, percentage gains of over
1000% are not unusual. You can buy options for as little as $5.00
(.05), the cost of a cup of coffee in the morning, and the $5.00
controls 100 shares of stock.
I set a guideline to avoid paying more than 2 ($200) for any
stock option and $400 for any futures option. Then I know that I
have a chance for a big percentage gain or a home run and I am
getting the biggest bang for my buck.