Good morning,
Meet Bob “the options buyer” and Sally “the options seller”
Ever bought a call or put option and had it expire worthless?
You’re not alone.
Options weren’t created for retail traders to buy.
They were created to act as insurance on stocks or a hedging tool.
90-95% of traders lose money in the markets.
Buying options is one of the main reasons.
Here’s why.
Meet Bob “the options buyer” who has a big $200,000 stock position in TSLA.
Elon Musk has been unpredictable lately.
So he “buys” $500 worth of out of the money put options, a month out, to ‘insure’ his big stock position against unpredictable Elon and a possible pullback in the stock.
Bob owns a home too. It’s worth $500,000.
He insures it for $100 a month through Geico.
Meet his agent, Sally “the seller.”
Sally “the seller” understands how Geico makes its billions i.e. selling policies for premiums.
So she applies that principle in the stock market.
Unbeknownst to Bob “the options buyer”, Sally sold him those out of the money put options he bought.
A month goes by and nothing bad happened to TSLA stock, it stayed within the expected range.
And nothing happened to Bob’s house either.
The $500 worth of out of the money put options he bought, to insure his $200,000 worth of TSLA stock, expire worthless.
Sally collected that premium.
Bob’s $100 monthly home insurance premium expires worthless too. Geico collected that premium.
In both examples, the seller collected the premium.
If Bob wants to insure his stock holdings again, he’ll need to buy new out of the money put options.
Same for his house insurance, another $100 premium for the month ahead.
Which brings me to Warren Buffett.
Do you know what Warren Buffett’s favorite investment was?
Hint: it’s not Coca-Cola, Wells Fargo, Chevron, or even Apple. Although those have been great investments, he told Forbes:
“My favorite investment… is GEICO, which I learned about when I was 20 years old.”
Which makes sense, GEICO has increased billions since he acquired it.
How does an insurance company make that much profit?
They’re in the business of selling premiums they know will expire worthless.
Bob gets “peace of mind” while GEICO gets profit.
The same dynamic is at work when it comes to trading options.
You can either be a BUYER or SELLER of option contracts.
Geico calculates odds against Bob making a claim.
Option sellers bet against buyers making profits.
And in the $2,000 Small Account Journey that’s my edge.
What’s crazy nowadays is a swarm of uneducated traders are buying options outright.
Not to insure big stock positions. Let’s call it what it is, gambling.
Now you know how I’ve won 87% of my trades in the current $2K SAJ balance.
This edge in the market excellent to try and grow a $2,000 balance.
It’s exactly how I’ve grown this small $2k balance over *1,000% in just a few months.
Results not typical. Trading is hard. Nothing is guaranteed.
A new $2k balance will start on March 1.
Apply coupon code: SAVE50 to lower the subscription 50% at checkout.
The moment you join you’ll unlock concise video lessons so you can get up to speed quickly.
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*I want to point out that I cannot speak for my members’ performance, as results may not be typical and trading is HARD. And I cannot guarantee you will make money. But what I can guarantee is that I will work my BUTT OFF to teach you WHY I trade WHAT I trade.
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