Special Q&A: Last Night's Trading Master Class

Last night, I aired my first ever Trading Master Class.

Thousands of people watched while I taught real readers – like you – my strategy that is designed to transform any stock into a potential triple-digit winner in a matter of just a few weeks.

During the event, we were flooded with hundreds of questions. I wish I could have answered everyone.

So today, we're dedicating this issue to answering some of the questions you've sent us about this strategy.

And if you missed last night's Trading Master Class, you can watch a replay here.

As always, if we didn't answer your question, or you have something else to ask, write us here: [email protected].

Here goes...

Q: My concern in subscribing to Advanced Options is that I have zero experience with options, so I have been reading to try to understand the basics. But, it appears to be a fairly steep learning curve. Therefore, I am wanting to know how much support new subscribers will get out of the blocks as we begin trading options. – T.R.

A: I designed Advanced Options just for you, T.R. When my team and I were putting together the educational material for this service and deciding how each issue was going to look, we wanted to make everything as straightforward as possible so even a beginner could flourish.

Our educational material – which includes a comprehensive  "Guide to Advanced Options," multiple special reports, and more than two hours of training videos – is meant to take someone who knows nothing about options and turn him into a master spread trader. I truly believe this is one of the best options educations that you'll ever find.

It's funny... When we launched Advanced Options in December, we decided to give subscribers some time to go through the educational material and digest all of the new information before we published our first trading recommendation. A few days after we launched, we were inundated with e-mails from subscribers eager to make their first trade. We even had some that took what they learned and made their own trades. It didn't take long for them to learn and feel comfortable with our new strategies.

You'll have everything you'll need to go from options beginner to expert.

Q: Do you have any advice and recommendations on buying puts and calls?

I am a very recent subscriber to Retirement Trader where you lean heavily on selling puts and calls. The issue I face is having limited funds to purchase the stock underlying a covered call and similar funds for securing a sold put.

I only do options in my IRA's and I do not in any way want to leverage funds to make the buys. Buying calls and puts takes much less cash, but it has higher risk. – N.D.

A: My advice about buying puts and calls is to avoid it. Buying options is one of the worst strategies out there. It's mostly a money loser.

Here's the thing that no one will tell you about options... They lose value every day. Regardless of whether the underlying stock rises, moves sideways, or falls, an option still loses what's called "time value." This is built into the structure of how options are priced.

So when you buy an option, time works against you. Even if you're right about the direction the stock is headed, you can still lose money.

In Advanced Options we use spread trades, which is a neutral strategy. This means we don't have to buy one option and sell another to neutralize the negative effects of time. This allows us to make a purer bet on the direction of the stock.

Also, by using a spread instead of just buying an option, you have less capital at risk because you earn income from the second option you sell. It's actually cheaper than just buying an option. You only need a couple hundred bucks per Advanced Options trade.

Q: Can we make these types of trades in IRA accounts? I'd rather not have to open up another account with another broker to make these trades – J.H.

A: Most brokers allow Advanced Options trades in an IRA. If you want to make sure your broker allows it, give him a call and ask if your account allows spread trades. All brokers are different of course, but it's been our experience that the majority of brokers allow these types of trades.

Q: Will Advanced Options offer text messaging for initiating trades and closing them? As options prices can change rapidly timing as they say, is everything. – D.W.

A: Advanced Options publishes twice a month on the second and fourth Monday. We aim to publish each issue by 2 p.m. Eastern time, so you'll have plenty of time to complete trades before the market closes. We don't send text alerts, but because we're on a set schedule and because you'll know exactly when we're putting out a new trade. We also include closing instructions in our regularly scheduled issues. But if there is anything urgent, like a new trade that can't wait or sell instructions that need to happen ASAP, we will send an e-mail update.

Now, this is important... Unlike single options that may be priced at $2 one day and shoot up to $3 the next, typically spread prices don't move around too much. That's because a spread includes one short option and one long. Any move in one option is offset by the other. So spread prices aren't that volatile – as far as options go.

If we put out a trading idea on Monday, you'll typically see the same spread price a day or two later. That makes it easier for our readers to participate in the trades, regardless of their schedules.

Q: Regarding the new Advanced Options service, I'm concerned that with thousands of subscribers trying to buy and sell call options on the same stock at the same time, that firstly, there may not be enough liquidity for this on some stocks, and secondly, that this sudden volume may move the price significantly. – D.N.

A: This is a great question and it was a concern we had to address when we were designing this service. We've dealt with this in several ways...

First, we consider liquidity and volume when we select our trades. We only use options on stocks that can handle an increase in volume. Typically, these stocks have tighter bid/ask spreads so it's easier to get the price we want.

Second, in our bimonthly issues we'll include several choices for trades you can make. We list a conservative trade, a standard trade, and an aggressive one. That will spread our activity across several options rather than just one.

Third, we always recommend using a limit order and for readers to remain patient to get orders filled. We've rarely run into an issue when a subscriber was unable to get our recommended price if he can wait a couple days.

And as I mentioned earlier, spread prices don't move around that much – even with an increase in volume.

Q: You discussed stops regarding stocks. Do you have suggestions regarding stops on options? I have struggled with knowing when to cut losses on options. – D.R.

A: This is a tricky question. First, you can't treat stops on stocks the same as stops on options. Options are much more volatile than stocks. An option may be up 20% one day, down 10% a few days later, and then back up 40% a few days after that.

If you use a standard 25% stop loss like you do with stocks, you would stop out of most positions. If you want to use a stop loss on option trades, you should use a wide stop. We've found that anything below a 50% stop doesn't give you enough room for your trade to play out. With options, the more wiggle room, the better.

Q: Are the trades multi-contract trades or just singles? – W.R.

A: Our Advanced Options strategies use two different options for each trade. We buy one option and sell another option on the same stock. This is called a "spread."

For those who have never traded spreads before, it is just as easy as buying a single option. Your broker will allow you to make a spread trade in one transaction. You don't need to worry about the prices of each individual option – only the spread price instead. You'll also only pay one commission fee per trade.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
June 20, 2019