How Can Options Trading Make You Money?

The Age of Investment Self Determination has arrived. What was once something reserved for brokers and money managers has firmly entered the public realm. A larger portion of the American populace are exploring the inner workings of Wall Street than ever before. Every day, a growing number of people set off on their own investment adventure, hoping to secure the income they deserve. That’s why a larger chunk of investors are turning their eyes toward stock options. Maybe you’re one of the millions of new investors trying to determine how options trading can make you money.

You aren’t alone. And the numbers don’t lie. In April 2021, financial powerhouse Charles Schwab conducted a poll where they spoke with “Americans ages 21 to 75 among a diverse range of demographics.” According to the results of that poll, nearly 50 percent of respondents said they invest in the stock market. Of those questioned, 15 percent said they began investing in 2020. In terms of raw numbers, the wave of new investors is staggering.

One brokerage, JMP Securities, claims to have added 10 million new clients in 2020 with more than 7 million new users signing up in the first two months of 2021. Popular (but controversial) trading site Robinhood claimed 6 million new investors last year. 

The influx of new retail investors has even been saddled with a new name: Generation Investor, a new sect united not by age, but by a similar goal: to achieve financial independence and security through shrewd investments. For the myriad of investors who want to kickstart trades with minimal starting capital, options may prove more reliable than traditional investment. There are several strategies that demonstrate how options trading can make you money. 

Let Record Options Investing (ROI) walk you through some of the most provocative methods for options investing. 

You’ll Love the Price of Entry and the Potential for Reward

Once you dive into the market, it doesn’t take much research to discover that traditional stock investing presents several hurdles to a novice, not least of which is the price of entry. That’s not the case with options investment.

Compared to other means of investment, options investing comes with a relatively low initial cost. For example, if you’re interested in purchasing a traditional stock, the current trading price is the cost you’ll pay to make an investment. Sure, there’s plenty of penny stocks you can throw your money at, but if you want to invest in a stock that has some name recognition, you’ll have to shell out a sizable initial offering. 

For example, investing in any of the most successful stocks comes with a hefty price tag. As of this publishing: 

• Spotify will cost you about $71 a share. 

• Disney? That’s $86 a share.

• Software maker Adobe will cost you nearly $298 a share.

Once you’re actually invested in those stocks, your return on investment is dollar for dollar. So, let’s say you’ve got $10,000 to invest initially. You can zero in on the cheapest stock here, Spotify, and secure yourself about 140 shares (give or take one). If the stock of Spotify rises a dollar, you’ve made $140; if it drops a dollar, you’ve lost $140. This is one of the most fascinating aspects of how options trading can make you money, because your gains aren’t 1-to-1 due to the leveraged nature of options.

Let’s look at someone who chooses to invest in stock options. The same investor can turn to Spotify and purchase what’s known as a vertical spread. At the time of publication, buying a vertical spread on Spotify at the 70/75 strike price costs about $2.25 a share. Since purchasing options contracts leverages control over 100 shares per contract, your total price for a Spotify options contract is about $225.

For the same $10,000 that paid for 140 shares of Spotify stock, you could take control of 4400 shares (divide $10,000 by $225 per contract for a total of 44 contracts or 4400 stocks). If that stock price should rise in the coming months and years, you could see your initial $10,000 investment double and triple in value before expiration. For example, if the price of Spotify stock rose to 75, the value of your position would rise from $2.25 to $5. That’s a 122 percent return on your money. 

Do you see the value in that type of investment?

Fair Warning: It’s okay if the prior paragraph sounded like gibberish. Record Options Investing is designed to help you decode the above example with minimal effort. The point is how options trading can make you money in ways that stocks simply can’t match. The same is true for any kind of commodity like gold, silver, or collectibles like cars and coins. The fact is: shrewd options investment is the best way to grow your income, hands down, especially if you’re starting with a relatively small sum. However, lucrative options investing necessitates thorough financial literacy, regular research into your investments, and working with an options education platform, like ROI. 

Overcoming the Fear of Loss

At first, controlling your potential for lost or gained income can seem daunting. It may even make options investing seem needlessly risky. That’s natural. Psychologists believe that "the pain of losing is psychologically about twice as powerful as the pleasure of gaining.” 

That may be true, but, when it comes down to it, you can’t afford to overlook options investing as a means of accumulating wealth. If you remove inflation, studies indicate that the average US worker’s wage hasn’t truly changed in 40 years. Compare that to the astronomical rise in the prices of homes, higher education, and healthcare. One study reported that “running out of money” was the chief fear for 43 percent of Americans over the age of 50. Further, the American Institute of CPAs reported that 57 percent of clients expressed the same concern to financial planners.

The hard truth is: you need to know how options trading can make you money to simply exist comfortably. The fear and pain associated with loss may be a significant factor in steering potential investors away from the stock market, but it doesn’t have to be. All the data you need to invest wisely is right in front of you. All it takes is the right education to make heads or tails of the numbers scrolling across your screen.

Diminishing the fear of options investing relies on building your confidence as an investor. To do so, you must strengthen your financial literacy, regularly redeploy your earnings, stay up-to-date on the investment opportunities, and engage in vigilant risk management.

What Is Risk Management?

One of the most critical reasons how options trading can make you money is the level of risk management that comes with it. For those who aren’t familiar with risk management, the concept is relatively simple, even if the execution can be unclear for newcomers to options investing or other forms of investing. 

Just as the name would imply, risk management is a strategy or combination of strategies that allow investors to exert control over the potential for loss or gains in their investments. With the stock market smack dab in the middle of one its most volatile periods in history, effective stock market risk management techniques are harder to execute than ever before.

If you purchase a stock at a given price and the price drops, you’ve lost money unless the stock price rises again (assuming it does). There’s even the possibility that you could lose substantially more money than you intended. On the other hand, options investing allows a much higher degree of control over your risk.

Investors who explore how options trading can make you money often discover that — in addition to providing profit — one of the strengths of options investment is how much money investors can save, provided they’re utilizing a few simple risk management techniques available to all ROI subscribers.

Is Risk Management Effective? 

“Is risk management important?” It’s one of the most common questions asked by rookie options investors. The short and sweet answer is: absolutely, undeniably, and without a doubt YES! 

It’s impossible to overstate the importance of risk management in regards to how options trading can make you money. Any investor who isn’t consistently considering the risk involved is an investor whose money won’t last long. 

As OptionsTrading.org puts it, “risk is essentially unavoidable with any form of investment, [but with options investment] your exposure to risk doesn't have to be a problem.” When done properly, investing your money in stock options limits your potential loss from day one.

That’s why Record Options Investing sticks out from the pack. In learning how options trading can make you money, we’ll teach you to focus on the potential for loss as much as the potential for gain. In exercising that strict level of risk management, you’ll have guidelines to get you through a variety of investment situations.

All it takes is the right lessons from a trusted ally like ROI. With our simple strategies for risk management, you never have to roll the dice on your potential for loss.

How Does Risk Management Work?

When it comes to understanding how options trading can make you money, risk management is crucial. The general concept behind how risk management works is simple, but you have to know where to start and where to look for data. Any new options investor can limit their exposure to risk by adopting a few tried-and-true rules and sticking to them. Here are a couple of examples:

• Never Invest Money You’re Not Willing to Lose. This is the first and perhaps most difficult rule of any type of investment. It seems straightforward enough, but when you’re in the market with money in your hand, limiting your investment capital can be tough, especially under current market conditions when fervor surrounding some stocks is at an all-time high. Regardless of how much you stand to gain if successful, it’s critical to restrict investments only to money you can afford to lose.

• Stay Grounded. When you’re trading options, nothing is more enticing than repeated success. It makes you feel bulletproof. In those moments, when investors see continued profits, it can be tempting to overindulge and put down more money than you’re truly comfortable with. That’s when it’s critical to shake your head, say “no,” and stick to your risk management routine.

• Diversify. You’ve likely heard the expression, “Don’t put all your eggs in one basket.” That goes double for investment. Regardless of the hype surrounding a stock, you should make sure to never invest all your capital in one company. Identify several candidates and spread your investments around. You’ll sleep better at night.

• Develop Rules. This is the most complicated aspect of honing how options trading can make you money. Every investor needs rules, a set of guidelines that are designed to quickly identify beneficial investments and eliminate risky ones. 

When you enlist Record Options Investing, we’ll teach you how to embody the qualities prized by the world’s most successful investors. We’ll also teach you to pinpoint opportunities that will increase your wealth and improve the strength of your portfolio.

Finally, we’ll answer all your burning questions to help you develop a set of trading rules that meet your specific needs. It’s all possible, and ROI can make it happen.

Learn to Read the Data

One of the most effective means of how options trading can make you money is the amount of data you can harness to stay informed in the world of options. For the most part, traditional stocks don’t offer nearly the same amount of accessible real-time data that options provide. From the moment-to-moment stats on most trading platforms to the consistent stream of news headlines available across platforms and devices, there’s an enormous amount of data to sift through.

Don’t be intimidated, however. When it comes to financial investment, there is no such thing as too much information. The mountain of data available for enterprising options investors is a fantastic weapon to have in your arsenal. In the ROI program, we’ll teach you how to sift through the unnecessary noise, hone-in on the worthwhile tidbits, and do it all without spending hours and hours combing through numbers.

Take Control of Your Future

When it comes to how options trading can make you money, the onus of performance falls on you, because you can’t trust your money manager to make the most beneficial decisions for your portfolio. 

General wisdom holds that a volatile market is the best scenario for those pursuing financial gain. “Volatile” is certainly the word to describe the current US stock market, which, again, is in the midst of one of the most volatile periods in its history. So, it makes sense that actively managed hedge funds should be making a mint. They’re not.

According to a recent report from S&P Dow Jones Indices the majority of funds assessed are trailing behind the S&P 500. In fact, over a ten-year period, only about a quarter of actively-managed funds beat passively-managed funds. What’s more, the larger the cap on the fund, the less likely it was to outperform a passively-managed fund.

At first, that may seem to indicate that a passively-managed fund is the best bet for your investment dollar instead of exploring how options trading can make you money. Sticking to passively-managed funds isn’t the best choice, either. First, passively-invested funds ignore the potential for short-term gains. They also allow their investors little-to-no control over their chosen stocks. Passive investment will also never outperform the stock market. That means it’s unlikely you’ll turn your initial investment into enough for a comfortable retirement, a significant down payment on a house, or the bulk of your child’s education.

All that said, even if you prefer to invest in passive funds or ETFs, Record Options Investing can teach you to add an additional income stream to your existing portfolio without losing sight of proper risk management. 

The only good decision is to take over your finances and look to the market for help. Record Options Investing can teach you to master your investments and grow your wealth consistently, month after month, year after year.

Record Options Investing Awaits

There are several methods on how options trading can make you money. We’ve hit the broad strokes in this piece, but there’s so much more to learn. Find out how the specifics of options investing works in a comfortable, supportive environment. Regardless of how much investment capital you’ve got, our methods for increasing your wealth can’t miss.

Generate a second income, save up for one of life’s big purchases, or set yourself up for a cushy retirement. It’s all possible when you work alongside Record Options Investing.

Ready to learn how options trading can make you money? Sign up for Record Options Investing's 14-Day Option Investor course to start your first lesson. We can’t wait to meet you.