What Every Investor Should Know About Options!

By Joshua Belanger

Often times, I feel like I’m living through an episode of MythBusters. Let me give you a quick overview if you’ve never seen this popular show that’s on the Discovery Channel. 

The show circulates around a group of guys and gals who run elaborate tests (based on science) to prove if long standing rumors, old wives tales, unbelievable stories and myths are true or not.

For example, my favorite episode is when they were able to prove that cell phones, iPod’s or even laptop computers do not affect flight instruments!

Now, I’m not a scientist by any stretch of the imagination. However, I’m constantly myth-busting when it comes to the financial markets. In fact, just a couple weeks ago, at a party, I was dispelling myths about options investing.

It is where I met Ian, a successful young guy (in his mid 30s) who owns two dental practices. When Ian asked me what I do for a living, I explained to him that I teach people an efficient, more profitable way to make money with less risk.

I went on to explain to him that I use options to create risk/reward scenarios that shift the probability of success in my favor. Of course, he thought options were riskier than stocks or mutual funds.

And believe me, I’ve heard it all before; options leverage is dangerous, they are too complicated, they are good for trading not investing, they lack liquidity and trading costs are too damn high.

Don’t get confused. Some of these concerns are actually legitimate…that is, back in 1994. Fast-forward 20 years and these arguments simply don’t hold true anymore. I told Ian, that most investors (and even most investment professionals) think the same. The overall industry and investment education is still stuck in the 90s.

You see, it hasn’t been until recently that options have become a viable choice for investors.

This is mainly due to improvements in electronic trading platforms, analytic tools, technology and competition amongst exchanges to create better pricing.

I know a mouthful, right?  But all these aspects benefit you, the investor.

In addition, brokerage houses are fighting like hell for your business, creating a price war, which works in your favor by the form of cheaper commissions and transaction fees.

Imagine being an “old school” investment professional now having to learn about options. These “pros” are so stuck in their old ways; they’ll do anything to discourage you from trading/learning about options.

It’s true… I’ve witnessed it with my own eyes.

For example, a couple years ago I was asked to consult with small hedge fund ($100 million in assets) about using option strategies to smooth out and enhance performance.

When I sat down with the fund manager, I started explaining some techniques that they could start implementing. Of course, he was nodding his head as if he’d liked what I was saying.

However, I knew that there was something missing…my gut was telling me that we were not on the same page.

Moving on, I started to ask some questions, only to discover that he didn’t even understand the difference between a call and put option (the very first concepts you learn about options)…I was floored!

My shock started to turn into slight anger. You see, people put their hard earned money and trust into money managers like this all the time. Don’t you think they owe it to their clients to work hard to try achieving the best results possible?

It still fires me up to this day…thinking about that meeting.

In all fairness, it wasn’t his fault. The mutual fund and hedge fund business model is broken. Sure, their pitch might sound sexy, but all they’re doing is selling and collecting assets for a (undeserving high and sometimes hidden) fee.

Let’s face it, we’ve all been sold on the idea that we need to hand over our money to an investment professional. That they’ve got a plethora of research, proprietary models, signals and information that give them an edge…knowing when to buy low and sell high…yada, yada, yada.

News Flash!

Less than one percent of managers have beat index funds over the last ten years. Please, go back and read that sentence again.

O.K. good - That’s right folks…and that’s not just me saying it, this hard to swallow statistic comes from Motley Fool. In fact, according to their study in 2013, only ten of ten thousand actively managed mutual funds were able to beat the S&P 500 consistently over the past decade.

Like a lamb to the slaughter.

Not only that, but these funds have to be fully invested at all times. Nothing makes their greed glands secrete more than the management fees they stiff you with. The more money invested, the higher the fee they collect…

Now, when I asked Ian how this broken model was working for him…he simply told me, “Josh, it’s not”. I agreed to meet up with Ian at a local Starbucks to continue our discussion at a later date.

Sure enough, a couple weeks passed and there was Ian at Starbucks, right on time as we planned. From our previous discussion, he told me that he knew nothing about options.

However, he did want to make his money work harder for him. In addition, he was open to learning about a better, more efficient way to grow his wealth. After all, he had invested $200,000 in various mutual funds with subpar results.

As with anyone I teach, I went over the basics behind options and how they’re used to achieve unordinary results…all while skewing the risk/reward in your favor. I later busted out my MacBook and logged into my options trading platform.

First, I showed him what an option chain is (options jargon for a list of all tradable options for a particular stock)…I noticed his eyes started to gloss over.

Believe me, learning about options at first can seem very overwhelming. There is no shame if you “don’t get it” right away. In fact, I’d be surprised if you pick up the ball and run.

After all, the reason why most investors stick to stocks and mutual funds is because they are so damn easy. It’s the same thing when you go to the casino and become surrounded by so many slot machines. Needless to say, it’s a game where the casino has the biggest edge.

You see, with stocks, you either buy or sell short and you have a 50/50 shot of making money. However, with options you can create odds in your favor from 63%-92%.

Look, I understand options are tough and there is a learning curve, but if you can create better opportunities for success with options than stocks, why wouldn't you take a little extra time to learn?

Heck, I’ve been doing it for a decade now and still continue to learn. Here are the four reasons why you should consider:

Leverage- Use less money to achieve higher returns. Options provide a better use of capital and a better return on capital (ROC)

Better odds - Structured option strategies can create more favorable probabilities of success than equities

Reduce risk - Structured option strategies will create max loss scenarios before entering the transaction. You also reduce risk by using limited capital and not fully invested.

Versatility: With options, you’re not vulnerable to any specific market condition. For example, there are strategies for high-volatile markets, low-volatile markets, trending and sideways markets. With stocks you always have to make a directional bet.

Now, when I explained to the hedge fund manager these reasons, this is what he told me:

“Josh, this all sounds good, but with what you’re suggesting we would not be fully invested. Our business model is based on fees and we make the most being fully invested.”

“We’d like to achieve better returns for our clients, but only slightly better for marketing reasons. We don’t want to do that good for our clients, because they might not believe it and we don’t benefit. Our compliance officer suggested options are too risky and we would need to re-evaluate all of our clients.”

This is the reason why I need to teach people like Ian and you, a better…more successful way to investing, because these people aren’t going to be anytime soon.

And, as always, I’ll continue to debunk the myths about options and investing to all my readers.

In fact, I’ve decided to do you one better. After coaching thousands of students and responding to countless emails… I began to notice a pattern in the questions I was receiving…a lot of them sounded the same.

I could sense that investors wanted to learn about options, but were worried that they just wouldn’t get them.

You see, options can be very complicated if you’re not given proper direction… and if you’re like most people, you’re busy with work, family life and maintaining health. Let’s face it, we just don’t have the same free time we did as kids.

That’s why I created a super-easy to understand book, filtering out all the noise, specifically geared towards those interested in making the transition to options investing… for quick and painless results.

It’s called Fearless Income For Leverage, something I’m very proud of. And I want anyone who has ever thought about getting involved with options to read it.

That’s why I’ve made it so affordable for everyone to pick up. Not only that, I’m so confident you’ll get valuable use out of it (maybe even change the way you view investing forever)…

I’m offering a thirty day, no questions asked, money back guarantee if you’re not 100% satisfied. Honestly, what do you have to lose?

Click Here To Purchase The Digital Copy of My Book 'Fearless Income For Leverage'

You can even download a free sample before you decide to buy. Let me know your thoughts below and how I can help you understand options better.