“On any given day, the options market now represents about 55% of the stock market’s notional average daily volume. The trend is even more significant in specific stocks. Options volumes have recently exceeded stock volumes for Amazon (Nasdaq: AMZN), Apple (Nasdaq: AAPL), Boeing (NYSE: BA), Tesla (Nasdaq: TSLA), Facebook (Nasdaq: FB), Alphabet (Nasdaq: GOOGL), Booking Holdings (Nasdaq: BKNG) and Wynn Resorts (Nasdaq: WYNN).”
– Barron’s, April 2019
If you’ve been following me for any length of time, this shouldn’t come as a surprise. A decade ago, I would have been impressed if 5 out of 100 people at a conference knew the difference between a call and a put. Today, I would peg that number at more than 50%.
As for the stocks above, they all have one thing in common: They all trade for more than $100 per share. In some cases, they trade for more than $1,000 per share.
Investors often feel locked out of the fun when companies like Amazon and Apple are soaring or tanking because they don’t have the resources to participate – but options have leveled the field.
The opportunity has always been available, but only now are investors realizing that you can buy an option for a few dollars and control a stock that trades for multiple times that amount.
For example, $210 per share might be a high price for Apple shares today, but you can control the same shares for the rest of the year for as little as $17 by using an option.
Take Apple for example again. When it fell to around $145 in January, you could have spent $145,000 for 1,000 shares of Apple… assuming you had $145,000 sitting around.
Alternatively, you could have bought a January 2020 $155 option for around $15. That option is now worth around $55, posting an increase of $40. If you had bought 10 options, it would have cost you $15,000, or just more than 10% of what you would have needed if you had bought the shares.
There was nothing speculative about that trade, in my opinion. Sure, Apple could have gone lower, but then you would have had even greater downside risk than if you had owned the stock.
Options were originally created in the early ’70s as a way for professional traders to offset risk. When I use options, I use them for risk management or insurance (when I buy puts), to generate income (when I sell calls or sell puts), or to speculate smartly (when I buy long-term or short-term options).
An option is like a firearm. In the hands of a madman, it’s a dangerous thing. But, as you can see just on the Apple example above, it also allows you and me to reach further than previously possible – in this case, by investing in these companies.
Options trading used to be considered very speculative and only for “gamblers.” I’ve been rowing against this tide for almost 30 years.
In my opinion, it’s all about education instead – and here at Wealthy Retirement, we aim to provide you with all of the tools you need to master options trading. It’s the wave of the future, and it’s one wave that you can’t afford to miss.