When selling stock options the odds are that you will win about 80% of the time.

What do I mean by winning exactly?

Well, for example, let’s say you own 100 shares of Microsoft stock.  It’s $31.99 a share right now and you sell someone an option to buy your 100 shares for $33 anytime they want to in the next 71 days.  They might pay you something like $68 (known as a premium) for that right.

Essentially, they are betting you that the price will go over $33 a share – and that’s their side of the bet.  Of course they aren’t dummies, so they aren’t going to buy your shares for $33 unless the stock goes over $33.  So if the shares never go over $33 in the next 71 days, you win and keep your 100 shares AND the $68 premium they paid for the option.

That’s what I mean by winning.

But you may be wondering, is my only choice to sell my options for $68 if the price goes above $33 a share in the next 71 days? Read the rest of this entry »

We know this fact – that people who buy stock options lose their money 80% of the time because their stock options expire worthless.  They ran out of time.

So it’s not a great leap to figure out that the people who sell them those options win 80% of the time.  They get to keep the money the people paid them for the option.  This money is called a premium, by the way

So it seems like the smart thing to do is to sell options instead of buy them.  The odds of winning are much better.

So what is it like to sell an option?

Let’s do one right now and find out.  Let’s sell an option on Microsoft stock.

The first thing we want to do is to buy 100 shares of Microsoft stock.  Let’s say Microsoft stock is selling for $32 a share.  So we pay $3200 dollars, and buy 100 shares of Microsoft stock.

Why do we do this?  Because we do NOT want to Read the rest of this entry »

Tire Kingdom card with my scribbles

Yesterday I had the most surprising experience after work – and it was a good surprise.

I’d left my car to have the air conditioning repaired.  Air conditioning is pretty much a requirement in Orlando.  And the initial estimate for the repair was $1384.  And you know how those things go, don’t you.

They always seem to find something else wrong and the bill just keeps going higher and higher.  So when John, a work associate of mine, dropped me off at Tire Kingdom, I feared the worst.  I was especially alarmed because Brian, the mechanic, wouldn’t discuss the details of the repair over the phone.  He’d told me to just come on by; he wanted to talk to me about the repair.  Alarms, bells, whistle and claxons were going off inside my head about that thought.

As we stood by the car, Brian explained that he had Read the rest of this entry »

So here’s an interesting fact for you about stock options.  We know that when people buy options, 80% of the time they expire worthless and they lose their money.  That leads to one of two thoughts.

First thought — let’s just not buy options, because they seem to be a bad odds proposition.  That’s not totally true, actually, because there are smarter ways to buy options that can give us better odds, but we’ll leave that thought for another time.

Let’s look at the second thought.  If people buying options are losing 80% of the time, that must mean people selling options are winning 80% of the time.  So if we can’t beat them, join them, right?

Okay, so we are going to sell options.  But let me warn you right here, don’t go out and Read the rest of this entry »

People often get too greedy when they are in a profitable options trade and hold out for more.  And they frequently lose their profit and even take a loss.

So when you are tempted to do that, just think of it like this.  It’s late at night and you are leaving a restaurant.  As you step outside, you see a $1000 bill lying on the entrance porch.  No one is around.  Are you going to walk on by, leaving the $1000 bill on the porch, muttering to yourself that Read the rest of this entry »

When you have a winning option that has turned profitable, you are going to be VERY tempted to keep hanging on to it to see if it will go up even more before you sell it.

But don’t do it.  Because options can lose value just as quickly as they can go up in value and make you money.

Let’s take the example where you bought an option from me on SprintFast Stock.  You paid me $100 for the option.  The option gave you the right to buy 100 shares of my SprintFast stock for $5 a share any time in the next thirty days.

And amazingly, SprintFast stock went up to $20 in the first three days.  The value of your option went up from $100 to $1500 – in just three days.  I think that’s incredible, don’t you?  And other people thought so too.  They absolutely coveted your option.

So everyone wanted to buy your option for Read the rest of this entry »

I placed my first options trade over 17 years ago.  It was a commodity futures trade on the price of corn — thousands of bushels of corn.  Analyzing my charts indicated the price of corn was going down so I bought put options.

Indeed, the price of corn did drop shortly after I put on my trade, making me a quick and handsome profit of 300% within 6 weeks.  I was hooked on options from that day forward and Read the rest of this entry »

Many people don’t understand stock options and so they never use them.  That’s understandable, because just about every explanation I’ve read is pretty complicated.

But I don’t think it has to be that way, so let’s give it a go, you and I.  If nothing else, I promise that you will fantasize about the phone company I describe … perhaps even dream of it tonight.

Stock options can often be profitable when used correctly.  Indeed, one common way to use them can often boost your stock returns by 10% to 20%.  We won’t get into that just yet, but that should get your attention. Read the rest of this entry »

We often hear stories about people who “bet it all” on one investment, or business, and became fabulously wealthy.  What an appealing story that is.  It gets me all fired up just thinking about it.

But before we all rush out and bet the ranch on that big investment idea we just heard about, it’s good to think this over for a bit.

Because for every investor that bet the ranch and won, there a many that bet the ranch and lost the ranch – and sadly, are now working as poor cowboys on the ranch they used to own.  We have to remember that the news reports the winners far more often than the losers.  History is written by the winners.

None of us are immune to the temptation.  I have a natural gas pipeline investment in my port folio that went up 400% and Read the rest of this entry »

Here’s a profitable investing secret that I use that is so simple you are going to wonder why I bothered to write it.

But before you pass judgment, let me tell you one other thing.  It’s simple, but for some of you, and sometimes myself,  it is not always easy.  It should be, but often it is not.

And I’m going to tell you the easiest way to do it.  So here it is.

A large part of your success as an investor comes from Read the rest of this entry »