Options, Iron Condor Trading, and Stock Investing Strategies
"Stock market investing is risky..."
I used to think that a long time ago. Most people still think that it is, especially in markets like we have today. To the average, "retail" trader, I would say that they are probably right. People that are just buying stocks with the "hope" that they will go up and doing nothing else are putting themselves at greater risk. Why? When you buy just a stock, you get anything that comes along with it...bad earnings, news, industry market swings, etc. You also only have about a 33% chance of making money. (More on that later)
Most people do not know that there are ways to greatly reduce your risk and loss when trading. For example, most people do not know what a "stop-loss" is or does. As "stop-loss" is simply an order that you can put on indefinitely after buying a stock that effectively says, if the stock falls to "x" price--it will automatically sell it for you. So, if you had bought XYZ stock at $30 per share and wanted to protect yourself from losing too much if it went down, you could put a "stop-loss" in at $28 and if the stock fell, it would automatically sell the shares at $28, therefore mitigating the risk and the loss to a maximum of $2 per share. Most retail investors would just hold a stock and get frustrated as it went from $30 on down and when finally, they could not take it anymore, they would sell it...probably at it's lowest point. (note: Stop Losses do not always work in a large move by a stock or market, but they are at least a start in helping to mitigate risk)
A stop-loss is a very basic way to lower your risk. There are definitely much better ways to lower risk and accelerate your returns. A friend of mine, Craig Severson, owner and founder of OptionsLinebacker.com is the best I have ever seen at mitigating risk in trading. That is probably why hundreds of traders all over the world subscribe to his service and follow him on a daily basis.
When I first met Craig, he taught me something very important, and I alluded to it earlier... By just buying a stock, you have a 33% chance of winning. Why? Well, if you think about it, if you buy a stock, what are the possible ways that it can go? It can go up, down, or stay the same. The only way to make money in "buying and holding" a stock is for it to go "up." This means that you only have a 33% chance of making money! This point made a light bulb go off in my head. I had made money in investing, but was always putting the odds against myself! So, I asked Craig, "How do I better my odds?" That is when Craig told me about "selling" options and his unique strategy called "The Trading Pyramid."
Craig taught me that "option sellers" have a 67% chance of winning. For example, if I sell someone the right to buy a stock at a certain price in the future from me, they pay me now, and then the stock has to go down to the level I sold them the rights to, in that time frame for me to lose. As discussed earlier, I have the upper hand. I "sold" them something that I do not even own, with an expiring time limit, at a certain price. I have the 67% chance of winning because the only way I lose is if the stock goes down and stays there by the date defined in the transaction. If the stock goes up or stays the same, I win and keep the money I was paid! This is called a "Put Sale." It is just one of many options strategies that are out there. Don't worry if it went over your head a little. It did the first time is was explained to me as well.
In Craig's "Trading Pyramid," selling options are at the base of the pyramid as they are the least risky. Now, I will say that the type of options that you sell can affect your risk, and there are other factors that you have to learn. The point I want to make in this article, is that there may be a whole world of making money out there that you may not know about and I hope that this article will help make you aware. I always tell every audience or individual that I coach or train, never stop with what I just gave you. If it interests you, go find 2 books on the subject and take 1 seminar before jumping in. Make sure that it is what you really think it is...and then educate, educate, educate!
One way that you can get a little more informed on the topics above and the Trading Pyramid is to go to Craig's website at www.optionslinebacker.com. Craig and his team have tons of free items and items such as E-books and video series to help you.
Also, recently I sat down with Craig and interviewed him. We took that interview and put it into a series of FREE videos that you can access right now at www.optionstradestrategies.com. We cover everything from the Trading Pyramid to managing risk and some of the biggest pitfalls people that trade find themselves in and how to avoid them.
Go to www.optionstradestrategies.com if you are interested.
In the end, trading does not have to be risky. You can learn to be successful in any area of trading you choose. So get going, get yourself better educated, and here's to your trading success!
D.M. Lukas
Dave Lukas comes from a diverse investing background, being involved with real estate development, forming businesses, and trading the market since he was a teenager. As he saw the Real Estate bubble about to pop, he began to get serious about learning to cash flow the Market, so he developed a complex covered call/call strategy that he trades profitably to this day. Soon after he began his trading education, Dave began to realize that it was not so much the market that dictated results, but the person trading it.
After graduating college with a degree in Finance and Management, Dave has been a serial entrepreneur. He has worked with many top trainers and mentors including Zig Ziglar, Brian Tracy, Mike Koenigs, and many others. Through his consulting firm, LCS Group, he has been an architect of companies that have started at $0 and grew to over $1 million + market caps in less than three years. Dave is also very involved in internet business and VC start ups. He speaks to companies, organizations, and Universities on the mindset of success and the everyday principles success. Through all this, he still finds time to trade every day.
Dave is the author of the forthcoming book, The Fast Track, a Young Entrepreneur and Businessman’s Guide to Getting on the Path to Great Wealth and Success. Please visit www.fasttrackwealthguide.com to learn more.
Dave lives with his wife, Jennifer, in Columbus, OH. He can be reached for questions/comments at dlukas@lcs-group.com