Jared Cummans: Options investing is one of the safest and most effective ways to add exposure to risky assets like commodities. Options allows users to limit their downside risk while also affording the opportunity of making speculative calls on all kinds of assets Read more…
Imagine putting down $187.50 on an investment and getting back a $1,700 return in three months. If that sounds unrealistic, Iâ€™m sorry. That was an actual trade my readers couldâ€™ve made using a technique I call Superleverage.
Allow me to introduce myself.Â My name is Steve Sarnoff.Â You see, I have been helping people make money on options for over 10 years.Â But you could say that options have been in my blood since I was a child.
My father, Paul Sarnoff, gained international fame on Wall Street as a master of options and market intelligence.Â You may have read about him or seen him on the financial channels from time to time.
I worked closely with my father for many years, absorbing his vast knowledge and experience.Â He shared with me his secrets for making money that only a brilliant man with over 60 yearsâ€™ experience in the financial markets could ever have.Â And over time, I built upon this incredible foundation with my own highly successful analysis and methods.
The example I used above, which resulted in a 838% gain, came directly out of my Options Hotline service. Each week, I tell subscribers about which option I think has the most explosive potential based on my personal technical expertise. And over the past several years, readers couldâ€™ve turned my advice into more than $1 million (with just $5,000 down) in less than five years. But Iâ€™m not writing this to brag. I just want to share the power and profit potential of options.
Before we go any further, we need to get into the nuts and bolts of option investingâ€¦
The Basics to the Most Lucrative Investment Strategy Youâ€™ve Ever Heard of
To understand option investing, you need to first look at the very basic idea of an option. When you buy an option, you are buying the right to buy or sell a specific investment at a set price within a set period of time.
I stop here because I want you to read that sentence carefully. It says everything you need to know about how an option works. â€œFinancial instrumentâ€ means it is an investmentâ€”it can be bought and sold. Once you buy an option, you can resell it to another investor for a profit or loss.
An option gives you â€œthe right to buy or sell a specific underlying instrumentâ€â€¦ but not both. When you buy the option you must choose whether you expect to profit from a rise or fall in the price of the underlying instrument. If you expect the underlying instrument to rise, you buy a call. If you expect it to fall, you buy a put. You do not need to buy or sell the underlying instrument. In fact, you rarely buy or sell the underlying instrument at all. Most of the time you sell the option itself for a profit or loss.
â€œWithin a set period of time.â€ That means the option has an expiration date. While it could be a matter of weeks, months or up to three years (called LEAPS), always keep in mind that if you donâ€™t exercise your right in that given time, the option is worthless. Securities options always expire on the third Saturday of their expiration month, i.e., an April call expires the third Saturday in April. Since the market is closed on Saturday, if you want to exercise your option (acquire or sell the underlying optioned stock), you must do so by the third Friday of the month.
I only recommend options for stocks (securities) or indexes. Every option on a security gives you the right to buy or sell 100 shares of the underlying investment. Index options give you the right to buy or sell a futures contract on that index.
I encourage you to check out my Options Hotline service for more specific recommendations.
Editor, Options Hotline
Steve Sarnoff’s Secret to Turning $187.50 Into $1,700 in 3 Months originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.