Whenever I begin discussing the idea of trading options with someone unfamiliar with the topic, I invariably get a line like this:
“Oh, that’s too risky! I don’t want to lose all my money!”
I had these same thoughts when I started trading options, but you know what? THEY’RE NOT TRUE!!!
We’ve been programed to invest a certain way because that’s how the finance industry makes its money. Think about it; you probably pay somewhere between .3-.5% on the low end if you use a discount broker, or up to 2-3% on the high end and hope to earn 8-10% on typical investments in a GOOD year.
Let’s not even talk about how much you pay to end up losing money!
I knew that I could do better, and I know you can too! I’m on track to make 20-24% return with options this year, AFTER expenses.
Grab a beverage of your choice and let’s walk through the top 10 excuses people tell me for not exploring options, and why they’re misguided. When we’re done, you will have an appreciation for the positive impact options can make on your life.
1. I don’t know what options are
Let’s fix this one right now…options give a buyer the right, but not the obligation to buy/sell the underlying security (stock/ETF) at a set price.
If you sell an option, you have the obligation to buy/sell the underlying security at a set price.
There you go! Now you know what an option is!
Honestly, you can go as “deep” as you want on options. But to begin trading you don’t need to have a master’s level understanding of the topic. Put in the time and you’ll thank yourself later!
2. Trading Options is Too Risky
Did you know options were created to MANAGE risk?! Options are really risk management tools which allow you to set the amount of risk you take based on your comfort level.
If you’re willing to drive in a demolition derby, but bury your money in the yard. We can find a trade which fits you.
If you barely leave your house but when you do, you’re willing to put it all on black 17 at the roulette table. We can find a trade which fits you.
The great thing about options trading is the flexibility and the ability to create a trade which fits your risk level. And all the while, you’ll earn better returns on your investment than you would with “typical” investment vehicles (i.e. mutual funds).
The best part is, YOU get to choose. You’re in control.
3. Trading options is only for really smart math people
I was a liberal arts major in school. Trust me, numbers weren’t my strong point.
The math I use to figure out the return on my trades, how much protection a particular trade will give me or anything else to do with options is basic algebra…if that.
Can you make options complicated? Absolutely! There’s a whole section of the finance sector run by people with really big brains like the aliens from When Mars Attacks who are smart on numbers. But do you need that knowledge to make options work for you?
As we move along in your options education, I’ll provide tools which will do the math for you and remove that roadblock for you.
4. Trading options is too hard to understand
The Wall Street suits are great at making finance and investments difficult to understand. They throw around Greek words like “Theta” or “Gamma”. Or they’ll ask about the “spread” between the “bid” and “ask”.
And for some reason, maybe they were all zoo keepers in a past life, they like to name trades after animals. Iron condors, butterflies, lizards just to name a few.
Do you need to learn some new vocabulary? Yes. Is it difficult? No.
I ran into this tiny obstacle when I first started trading options and I created a few easy ways to remember what a term means.
For example, the “bid” is the price you sell an option at. Bid=Sell, or BS…yup, BS.
The “ask” is the price you buy at. Ask=Buy, or AB…like A, B, C, D…
See, it’s not that hard to get started and if you can remember those two, you’re about 25% complete with the terms you need to know.
Not too bad, huh?
5. I don’t have enough money to start
This is the one reason on this list I’m willing to let someone slide on…for a bit!
Now, when it comes to actual trading, yes, there is what I call a “Minimum Viable Investment”. Or, how much money you should have before you start trading. This amount is different for each person and isn’t as much as you think.
If you look back at my Income Reports, you’ll see I got started with $4,861. And I think you could start with about half that. But we’ll get into that at a later time and I’ll give you a plan on how to build your account up to this minimum level.
There are ways to trade options, with no money and for beginners, I highly suggest it. It’s called “paper trading”, or virtual trading.
Paper trading lets you set up an account either through your broker (the company you trade through), or you can find a number of them free online.
This technique allows you to practice, practice, practice before you have any “skin in the game”. A technique I definitely recommend so you can get a feel for how trading works and work out the kinks in your trading plan.
Check out my resources page for a great, free paper trading site
6. I don’t want to lose all my money
I don’t want to either!
Can you lose your whole account trading options? You betcha. But I don’t advocate any of the buying strategies which can sometimes quickly lead to that result.
Don’t get me wrong, you can be VERY successful buying options. A friend of mine last week made five figures on a trade lasting a few days…ridiculous! But he’s very capable at researching and analyzing stocks and spends hours a night doing so.
At some point in life you may want to do that, but for now let’s focus on selling options smartly.
Options are extremely flexible and allow you, as I mentioned before, to set your own risk level. There’s lots of ways to make this happen and we’ll get to them soon!
7. It’ll take too long to learn
Yes, you do have to put in some time to learn the mechanics of options trading. It took me about a month or so spending 1-2 hours a night learning the ins and outs of the trading platform and how to trade.
After that initial investment of time, the maintenance is easy.
I probably spend 30 minutes to an hour a month picking my next trade, and then another 10-15 minutes executing it.
And that little bit of time gets me a 24% return or better.
That’s what you call awesome.
8. I’m already invested in other methods
Great! Let’s further diversify your investments and explode your returns through the use of options.
I’m invested in a few other areas as well. I have the usual IRAs, 401(k)s, regular mutual funds and real estate. But options are a great way to amplify your returns.
Have a stock you own for the dividend and it’s had a good run up in price? Sell covered calls against it, make money on the run up in the stock price and collect a little extra with the sale of the option.
Options shouldn’t be your only investment vehicle, but they are a great way to get paid extra for trading stocks.
9. I don’t have time to constantly trade
Reference item seven. I’m not a day trader and I’m not going to show you how to do that.
I want to show you how options can amplify your returns with a minimal investment of time. Just set aside 30 minutes to an hour once a month to select and make a trade and you’ll be set.
10. I don’t know where to start
You’re in the right place!
Take a look at the following posts to get you started:
Whew! That’ll be enough to get you started.
Thank you so much for taking the time to learn with me today. I’m excited to take you on this journey of learning options and help you to create the financial freedom you deserve!
Take a quick second and join my mailing list in the top right of the page. You’ll not only receive future updates on how to make money with options, but you’ll also get a free copy of my ebook coming soon!
I think it would be awesome to see a comment below from you on why you haven’t taken the leap into the options world so I can help you overcome that fear!