An option is a contract giving you the right to buy or sell a specific security at a specific price over a specific period of time.
A call option gives you the right to buy the security.
A put option gives you the right to sell the security.
Through a variety of strategies, investors and traders can combine equity holdings and options to reduce risk, increase return, decrease volatility, generate income, reduce capital gains taxes and more.
In Cabot Options Trader, editor Jacob Mintz recommends using a wide variety of options strategies, including put writing, credit spreads, debit spreads, calendar spreads, butterfly spreads, put hedges, collars and straddles.
He sometimes recommends covered call writing, as it enables you to profit from the growth of a stock while reducing the risk that you will lose money in the stock. In short, you temporarily give up the potential for larger gains in a stock in exchange for reduced risk of losing money in the stock.
Options trading appears complex to the uninitiated, but under the expert guidance of Jacob Mintz you’ll become comfortable with these powerful tools, and the result will be fewer losses and more winners in your investment portfolio!
You can learn more about options trading in our Special Report, “Secrets of an Options Trader.”
When you get your free report, you will also receive your BONUS, a no-cost subscription to the Cabot Wealth Advisory, your source for timely market insights and stock recommendations from our experts.
Secrets of an Options Trader
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• Learn Options Terminology
Simple explanations of puts, calls, time decay, premiums and more...
• Read about Options Trading in the Cabot Wealth Advisory Archives:
Using Options to Increase Your Portfolio Yield
We are living in an environment where it is virtually impossible to get yield in the traditional manner. The Federal Reserve has driven interest rates so low that traditional bank CDs or money market accounts returns are virtually zero. So how do we create yield? One strategy that all investors can use is options.
Options Volatility at Earnings Season
Now that earnings season has started, I thought it would be a good time to discuss the importance of volatility in options pricing. I think of volatility in terms of insurance. If there are reports of a hurricane coming towards of your house, you would likely be willing to pay extra to have insurance.
Advantages of Options Investing
Options can be used to hedge equity bets, reducing the risk of volatile positions. Options are also a great source of yield. And lastly, options can give you lots of market exposure without deploying a lot of capital.
The Good, the Bad and the Ugly of Options Trading
If you trade options as long as I have, you know that you are going to get the occasional extreme situation: a stock will gap up sharply when you are holding puts, or a stock will gap down while you are holding calls, but it still stings.
Three Factors Determine if You Make Money in the Options Market
There are three factors that determine your level of success as an options investor or a trader: your average win, your average loss and your winning percentage. You need to know these three factors in order to make an informed decision about a trading style.
You Have To Treat Options Differently
There are many sound investing practices that apply to stocks, but don't necessarily apply to options trading. You can't really take a "buy and hold" approach to options. Options have a predetermined life span and even if you are buying LEAPs that are two years from expiring, at some point you have to close out the trade.