A few years ago in 2008, I planned to make millions trading options. I had been searching for a way to invest my money and create multiple streams of income. I began to look for an investment where I would not have to be a day trader nor would I have to wait years to see any substantial gains. I did not have $100K to invest but I was willing to put in money to learn and would be able to dedicate about $10K to begin my life as a financial trader.
I read everything that I could get my hands on regarding different investing vehicles. I poured my heart and soul into my research and spent many hours reading and studying. I read all about forex, options, ETFs, REITs, tax liens, oil/gas investments and penny stocks. I decided to focus on trading options.
Reasons For Trading Options
1. Huge returns
With options you can achieve very high returns. 100% to 400% is not uncommon in a matter of weeks or even days. With the high rate of return, you also face high risk.
2. You can make money when the markets are moving up or down
All you need is for the market to be moving. You choose either a Put or Call option based on what you think the market is doing.
3. Options are cheap
Options are cheap, relatively speaking. Very few investments have this type of affordability. I could limit my losses by putting in a stop loss order.
You utilize leverage when buying options. Basically, you purchase an option contracts in lots off 100. You use leverage to do so. Although, you don’t own the stock, you own the right to buy or sell the stock at a given price. You sell the option or purchase the option which acts as an insurance policy to the buyer or seller of a stock. You leverage your money 100 to 1.
I searched for a course to teach me about options and settled on one that was well known where I was living. I paid $5,000 USD for the course but learned everything I needed to know (or I thought). I decided to become a technical trader, which basically a way of trading. A technical trader focuses on formulas and graphs to find the right trade. Basically, you run the numbers and when something falls within your strategy you make the trade. This is different from fundamental trading, where an investor will watch company’s events such as earning reports or product launches to make a trade.
With my new found knowledge, I set up a workstation, opened an account with a brokerage and began to trade. I put in $10K into my account and started to run the numbers. My first few days I did a couple small trades and made some initial money. Nothing big, a couple hundred at a time, but I was gaining experience and confidence.
My trading went up and down but I always making some and losing a little. I was not in a position to quit my day job but I figured if I kept my trades at a constant price and won 51% of the time I would come out ahead. It’s funny, “Come out ahead” sounds a little bit like someone who is in a casino doesn’t it. I kept trading until, one night, I ran the numbers and found a option that looked really good. Remember, this was during the financial meltdown. The company was Bear Sterns. The same company that went bankrupt during the Wall Street collapse. I found a put option that I could not believe I was able to get. I put $2,000 in the trade and began to make a lot of money. As fast as I refreshed my computer, I was making money. I was making $300 to $500 dollars a minute. I did this over the next twenty minutes or so. I could not take it any longer and cashed out. I totaled up my take and found that I made $6,800 in about twenty minutes. I was ready to quit my day job. Thankfully, my wife talked me out of it. She said to do it again and if I could then I could quit.
I set out to duplicate my success. I had an account of about $18K from my initial $10K investment in a mere 2 months. I kept at it and began to get more aggressive with my trades. I would throw good money after bad. I made mistakes and got away from the conservative trader that I had set out to be. I decided to cash out and get out of options trading. I lost that $8,000 profit that I had made and $4,000 of my initial investment! If you add in my initial course fee I was out $9,000.
I will probably get back into option trading some day because it was a lot of fun. Next time, I will stick to my conservative trading style. The thing to remember that I was in a position to loose my $10K investment and I was not cashing in my 401K or using our food money to try this “experiment.” I know that I can make money options trading but now is not the right time in my life. Now, does anyone have a good stock tip?