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9 Lesson Option Course
Lesson 3 - Making Money if
the Stock Goes Up, Down or Sideways.
If we sell a call option (I'll
explain what a call option is in this lesson),
we make money if the stock goes down or sideways,
but we can also position our trade to make money
if the stock goes up only a little. Making money
three ways is much better than buying a stock
and praying it goes up.
When you buy a stock you make money when it goes
up. If it goes down you lose money. And if it
just sits there like a lazy dog, your money is
just tied up, unless you get dividends. Normally
if a stock you own moves sideways, it is called
"dead money" because not only are you
not making money, but you are not making the interest
you could be making if the money was invested
somewhere else. You lose twice.
But what if you could make
money no matter which way the stock went? Interested?
Let's use Google for our example. Let's say Google
is at $300. If you think Google is going up you
can buy it for $300 a share. Or you can buy a
"Call" option for $30. A "Call"
option is the option you buy when you think a
stock will go up in value. The other type of option
is the "Put" option, which goes up in
value if the stock goes down.
By buying a Call, we need GOOG to move up. Instead
of that let's sell some options.
We can sell a "Put" option. This means
we will sell an option to someone who thinks GOOG
is going down. Let's sell the put at the $250
strike price for $2. This mean we get $200 for
the option and the option will expire worthless
if GOOG stays above $250. We think GOOG is going
up so we are fine with that. The option will expire
in 30 days.
Now if GOOG goes up, or sideways, and even down
to $250 we still make money. This type of strategy
works great when stocks are trending, meaning
they continue to go in the same direction.
But sometimes we don't know which way a stock
is going to go. What do we do then?
We can sell Calls and Puts
at the same time.
Ok so GOOG is at $300. In 30 days we think GOOG
is going to move up and down but we don't know
where it will stop exactly. But are pretty sure
it is going to be in a $100 range, so either up
to $350 or down to $250. We can figure this out
by technical analysis or using statistics and
probabilities. (I'll show you more in a future
lesson.)
So what we do in this case is we sell the $240
Put for $1.50 and we sell the $360 Call for $1.25.
So we get a total of $2.75 or $275. Now as long
as GOOG stays in between $240 and $360 we profit
on both sides. Where it gets tricky is when GOOG
breaks out of the range. That is the only way
you can get hurt and if that happens I have advanced
strategies that can save our money. I share these
strategies only with members of my newsletter.
Considering the fact that stocks move in a sideways
direction about 75% of the time, this strategy
can make you some nice dough on a stock that is
just bouncing up and down in its range. I personally
wouldn't do this strategy on GOOG because it moves
up and down too much, but it is easily done on
indexes and ETFs.
In fact, this is one of the strategies we use
every month. It's called the Iron Condor. We do
basically what I described above but add in some
risk and loss management. This one strategy brings
in on average 10% every 30-45 days. So if you
take just one trade a month, remember I try to
come up with 3-5, but if you just trade this one
strategy every month, you can bring home at least
50% for the year. We don't win every month, but
we limit our losses in the months we do lose.
In a future lesson I will walk you through an
actual Iron Condor trade that I have done.
The best part is that you can start with as little
at $2-3,000 in your account. If you do a Condor
with one option, it will cost you, depending on
the stock or ETF, for example, $1,000 in margin,
and you can make around $100 per month. With an
80% probability of success, this is one of my
members' favorite strategies.
In our next lesson I will show you can have your
own casino where people pay you to play.
Let's
Go to Lesson 4
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