Option Trading Can Yield High Returns Without High Risk

Let's get this out of the way now. I'm not an investment adviser. Don't take my advice. Do your own research and seek the advice of a professional. I'm not an expert. What I'm about to share with you is what I have learned trading in options and shouldn't be taken as the gospel truth until you have researched options for yourself.

With 4 pages of Option Terms and definitions on Investopedia, it's no wonder why the average investor is too intimidated to take a second look.

Option investing can be analogous to driving an automobile. I have no idea how my automobile converts gasoline into mechanical power. I can control that power by pressing an accelerator and turning a steering wheel. I can't imagine how many pages it would take to list all the definitions of automobile parts and functions. Even so, I have been driving an automobile successfully since I was 16 years old.

At the same time, I don't understand or use, nor do I need to understand or use even a fraction of those four pages of option definitions to trade options successfully. I have a full understanding of what I'm doing, but don't understand all the jargon and technical garbage used by those who study these things at much higher levels. Even so, I have made tens of thousands of dollars trading options the last few years.

Isn't Option Trading High Risk

I'm a very conservative investor. The overwhelming majority of the money I have invested in the market is done in mutual funds. I'm not a high risk investor at all.

For many years, I wouldn't even consider option investing. I heard enough horror stories and had such limited knowledge on the subject, I just felt options weren't for me.

There are ways to buy and sell options that leaves the investor open to unlimited losses. I'd never make this type of trade. But as I began to investigate, I found there are conservative ways to invest in options that make a lot of sense for me. I do this with two different strategies.

One is called selling naked puts and the other is writing covered calls.

I'll be discussing each of these strategies in an upcoming post on option investing.

Posted by: Brent Crouch on 01 Mar, 2013No Comments »