Editor's note: For many people, trading call and put options can seem intimidating, something accessible only to "other" people.
If you feel this way, I want you to change your thinking starting today. Options trading is safe and very straightforward once you've learned the basics.
In today's Retirement Millionaire Daily, I'm sharing a story from Jeff Clark, my colleague and editor of the Stansberry Short Report. He's one of the best traders I know... and an options expert. In this issue, Jeff explains how he started trading options, along with one of the most expensive lessons he has learned. As Jeff explains, despite their reputation for high risk... traders who understand options know their real purpose is to reduce risk while increasing returns in the market.
I (Jeff Clark) was only 19 years old when I made my first options trade.
I had a gut feeling the market was going to go higher... so I bought four S&P 100 call options at $1.50 each – a total investment of $600. A few hours later, the options were trading at $4.50. I sold and took the $1,200 profit – a 200% gain. And I was hooked on options forever.
My next trade was in IBM. I bought 10 calls at $1. This time, it took a couple days to double my money. Next, I bought Digital Equipment put options... which nearly tripled in just a few days.
I made 17 trades during my first six weeks as a trader. Every single one was a winner.
Going 17 for 17 was a remarkable feat for a rookie trader – especially since I wasn't using any sort of fundamental or technical analysis. I was just going with my gut. But I was careful not to put more than $1,000 or $2,000 into any single trade. And I still managed to turn my $5,000 brokerage account into $50,000 in just six weeks...
And then I decided it was time to get serious. No more tiny trades. I was too good for the small stuff. For whatever reason, I had figured out a way to beat the market. Heck, I had just rattled off 17 straight triple-digit winners. So I decided to take the $50,000 in my account, add to it my $25,000 in savings, and put it into a handful of options trades.
You can probably guess what happened next.
The stock market has a habit of humbling folks who think they've figured it out. For me, the humbling started right away.
At first, the positions started slightly moving against me. It was nothing to be concerned about. One good day would put everything back in the profit column.
But then, one by one, each position blew up on me. It was too painful to watch. I kept the television off and avoided reading the newspaper for fear I'd see something bad about the stock market and my positions. When I finally got up enough courage to call the branch manager and check on the status of my account, I learned all the gains I had built up over the previous six weeks were gone.
"Just sell everything," I said.
That was an expensive lesson to learn. But it's one every options trader learns at some point. I was just fortunate that it happened to me early in my career.
You see, that experience changed how I looked at trading. Instead of using options as vehicles for speculation – a way to juice my returns and get more bang for my buck – I started using them the way they were intended to be used: as a way to reduce risk.
Today, I still do my fair share of speculating. But I'm not focused on how much money I can make. I'm focused on how little I can lose.
That's a huge difference. It has allowed me to trade options successfully for nearly three decades. And it allowed me to retire at 42 years old.
Best regards and good trading,
P.S. Every Tuesday, Jeff sends an alert to his subscribers detailing the latest opportunity he sees in the market. So far this year, Jeff has already closed option trades on Wal-Mart and Intel for gains of more than 8%... in just a few weeks.
Normally, Jeff's Stansberry Short Report costs $3,000 per year. But until February 29, you can claim 30 days' worth of full and unlimited access to Jeff's research (and every newsletter that Stansberry Research publishes). Click here to learn more.