Many investors who have joined me over the years have either been new to options or moderately experienced.
Once you have gained a level of experience and confidence trading stocks, it is usually time to expand your knowledge into different areas, especially options.
There are too many reasons to list here but in my experience, there is nothing better for investors of all levels than learning how to trade options.
If you are a hands-off investor, options are not for you.
But if you are the kind of guy who likes to get his hands in the dirt, keep reading and I will try and do my best to explain how options could be a major cornerstone of your lifelong investing strategy.
Historically stocks have volatility, albeit we are seeing historic lows at the time I am writing this.
Options can be used in conservative strategies to accomplish two beneficial things for your portfolio:
- Reduce the overall fluctuations in the value of your portfolio
- Help you generate more income every year by employing a few strategies that will help you juice gains from existing holdings.
How options can affect your overall holdings is a matter for each different type of investor. If you are the type of investor who wants the maximum amount of return every single year, there is a good chance options are not for you.
Using options by themselves will not transform you into an investing wizard overnight, and by no means should you show up for your next round of golf claiming so.
Options at their simplest are tools and tools are there to help you complete your task.
If you find you consistently underperform the market, then options can help you juice your returns and get them more in line.
However, if you are looking for miraculous trading results, you are also barking up the wrong tree. If I had a dollar for every time I heard of an investor making millions overnight using options, I’d have about 10 dollars.
Options are not going to turn into the next bitcoin.
Investors who become successful with options are doing so in their search for reliable income, and usually off existing holdings.
There are a large variety of strategies, but for new investors, your best bet is to start small, usually with a strategy like a covered call. I will explore that tomorrow in the Option Specialist.
— The Option Specialist