You might ask, Why will someone choose to trade the Options instead of Stocks?
The Answer is Leverage!!
Options Trading is a Business.
Here are the factors:
For Example, If you are opening up a restaurant, Here are the relative cost:
- total investment of building a store from $200,000 to $300,000, Breaking Even points usually between 3 to 5 years assuming business’s good. 90% of the restaurant closed out during the first 5 years
- length of your lease with the property Landlord, usually from 3 ~5 years depend on what type of restaurant you are running. (This means you are stocked for the contract length, no flexibility.)
- Paying monthly lease, $3,000~$5,000 for 1,500 square foot store (about 10%) in most of the shopping center in Los Angeles
- Labor cost about 25% of the business revenue
- Food Cost about 30%~ 40%
- Utility and CAM and insurance about another 5%
- Advertising about 5%~10%
- Management arise issues
- Longer hours operation
- Mental and Physical Challenge if business not well
And what’s the cost of Options Trading? (of course, the rewards and risks always exist in every major business)
- No employee, total result bases on personal performance. ( skills can be learned or trained)
- No overhead, all you need just a computer connect to Internet, and an online Broker.
- You make your trade from the comfort of your own home
- Just spend 10 minutes ~ 2 hours per day depend on what type of Trader you are.
- Total flexibility
- Do it as part time, and still keeping your job (quit your job if you like until your trading income is more than your job income. This can turn into a big business. Unlimited potential!)
Why Options Trading so attractive?
- initial investing capital. you can start with a thousand dollar, or $500 to open a trading account.
- minimum of time, Average spend only 30 minutes in the morning to manage positions
- Leverage. For Example, if you are buying 1000 shares of BAC (Bank of America) @ $14 per share, you will need $14,000 to fill the position, and your risk is total lost if the bank bankrupt like Freddy MAC. But with options you can pay $540 premium to buy 10 contracts of call of $15 strike to control 1000 shares of the stocks. If the stocks share move up $1.00 to $15, you will profit $1000 ($15,000-$14,000). That’s 7.14% gain. Now let’s take look at the option trading position. As speaking today, 3/11/2011, BAC’s May 2011 $15 call sell @0.54, and Delta @ 0.40. If the stocks share move up $1.00 to $15, that means the options premium will be sell @ 0.54+0.4=0.98. Which means if you execute the position, you will net profit $400.00. That’s $400/$540= 74% gain. Can you see the picture. (it might be very confuses to you, but you will be step-by step trained in the course.)
- Tons of time to do the thing you love.
- My name is Ryan C. I've been trading stocks, and options for sometimes. I personally operates a Chinese Food Restaurant in Los Angeles. One of my passion is making residual income from trading, and currently heading to the right direction. On this blog, I am just sharing my thoughts, and my personal trading experience while I have time. The course that I recommend onsite because I benefits from it, and hope it will be beneficial to you as well. Happy Trading!!!