By: Costas Bocelli — December 18, 2019
7 Reasons Why Options Belong in Every Investors Toolbox [Part 3]
Our overriding theme over the past couple of weeks has been...
... that for any investment goal you might have, there’s a simple options strategy that can help you achieve it.
So, if you’re a stock market investor and not incorporating options into the mix, you could be cheating your own account.
Throughout this three-part series, we’ve discussed the first of seven major advantages options provide.
Two weeks ago, we discussed the ways that options:
- Let you use leverage to achieve cost efficiency...
- Let you profit in up and down markets.
And this past week, we continued the discussion with two more major benefits:
- Options let you limit your risk...
- While boosting your returns.
Today, we’ll wrap up our discussion with three more major advantages of options.
Then, I’ll share with you a special opportunity to learn more about options investing and how you can apply an easy to use options strategy to achieve each of the four goals you can have as an investor.
Let's start with one of my favorite advantages of options investing.
Advantage Number Five: Lock in Profits Without Reducing a Position
The options strategy is called Stock Replacement. Essentially, it lets you create a similar position using options rather than taking a direct position in the underlying stock.
And through the use of options, you’ll have the ability to lock in profits while maintaining your entire upside profit potential completely intact!
How is this possible?
You use a technique called rolling to make periodic adjustments to your options position. You can adjust the strike price or move to another expiration date. Depending on the type of "roll" you use, you can adjust either of those parameters... or both of them at the same time.
These adjustments allow option investors the ability to lock in profits while maintaining all the unlimited upside profit potential, something that is most definitely not true for buyers or holders in the underlying stock.
When a stock you own trades up, how do you profit? You have to sell it, right? And if the stock goes even higher after you sell?
You miss out on additional profits. How many times have you sold a stock, thinking it was the top, only to see it rip even higher?
Well, if you were trading a Stock Replacement style options strategy, it allows you to lock in profits while maintaining unlimited upside potential and reduce excess risk along the way.
If you'd like to watch a video that demonstrates this powerful strategy, click here now.
Advantage Number Six: Generating Income
This is a biggie, especially for investors that have accumulated wealth, and for retirees looking for ways to generate a steady and reliable income stream.
Let’s face it. Earning a decent return from traditional means is a distant memory.
The Federal Reserve has cut short-term interest rates three times this year. And the rate-setting committee told us that rates will remain low well through 2020, perhaps beyond.
So what are the implications for for those who need to generate income?
It means yields on Savings Accounts, Money Markets Accounts, CD’s, Treasury Bonds (you name it)...
...are barely keeping up with the rate of inflation.
This is a huge problem for investors that need to create a steady and reliable income stream.
Well, you can use options to generate income, even using your personal portfolio of stock holdings.
You see, most people associate options investing with buying Call and Put options.
But investors can also act as the seller of options. When investors sell options they collect "premium" which generates income. Not surprisingly, this technique is called the "premium collection strategy".
And if done correctly, investors can generate steady and reliable income -- even double-digit annualized returns. That’s far superior to the returns investors are seeing from traditional income vehicles.
Advantage Number Seven: Wealth Protection
Did you know options were originally created as an insurance product, to offer investors a means to hedge risk?
It’s true. After all, an option is basically a tradable, liquid, transparent insurance contract. That’s what's at the heart of an option.
Its main benefit is the protection of an asset, in this case, underlying stocks and ETF’s that trade on listed exchanges such as the NYSE and NASDAQ.
And that's not all. An options technique called dynamic hedging can even let you "insure" your entire portfolio.
The trick is to use options tied to exchange traded funds (ETFs) with a high correlation to the performance returns of your personal holdings. In other words, through a simple technique using Put options, you can easily hedge your assets whenever you feel the market landscape is about to turn rocky.
This bull market won’t last forever. So learning how to protect your downside is as important as learning to grow your wealth. Options provide the perfect solution when you need to shift gears from wealth accumulation to wealth preservation.
So there you have it…
We laid out the four goals that you can have as an investor.
And the seven major advantages as to why options belong in every investor’s toolbox.
Options are easy to learn and apply. And as you've seen, they can help you achieve any and all investment goals.
Happy Holiday’s and Best Wishes for a Prosperous New Year – See y’all in 2020!
PS: Want more info on a powerful options strategy that can turn $930 into $15,866 and requires just 7 minutes of your time each month?
Click here to watch this special, limited time training video available exclusively to True Market Insider subscribers.