By Samuel Taube
Transcript:
Samuel Taube: Joining us today is Karim Rahemtulla, The Oxford Club’s Options Strategist, a contributor to Wealthy Retirement, and the head of Automatic Trading Millionaire. And today we are talking about alternative income and option strategies. Karim, thanks for joining us.
Karim Rahemtulla: Thanks, Sam, glad to be here.
ST: So what are some common misconceptions that you’ve encountered about option strategies? And how would you correct them?
KR: Yeah, the most common misconception is that all options are risky. That’s just not true. What’s risky is if you don’t know what you’re doing.
What we do is teach you how to invest with options in a way that reduces risk substantially. For example, we show you how to buy stocks for up to 50% less than what they’re trading for – how to make Wall Street take on the risk, not you.
These are not things that your broker is going to show you or that you’re going to learn from some kind of option seminar. They’re only interested in propagating this “go long, speculate and try to make a bundle of money with a little bit of money at risk.” And that just doesn’t work.
Now, if you speculate with options, you’re going to lose. Let me say that again. You’re going to lose. We don’t speculate. We make money. So far this year, we haven’t had a losing trade, and our readers have pulled in almost $3 million in cash from the market.
Trading options is like any other investment. You have to know what you’re doing, and that’s why we’re here.
ST: I see. So you just touched on the fact that sometimes options trades really don’t have the riskiness that they’re known for.
Could you give an example of a situation where an option play would be less risky than buying the underlying asset conventionally?
KR: Yes. Yeah, I will. On the long side, for example – if you want to go long, which is not the best way to use an option, although there are ways even on the long side where you can reduce risk – you can use something like a long-term option. That’s referred to as a “LEAPS” (long-term equity anticipation security).
These options cost you 10% to 20% of what you would have to invest in the underlying stock, and you have even better upside. However, the downside is that if the price of the stock doesn’t go up and you own the stock, you’ll still have the stock. If you own the option, after a while the option is worthless unless the stock moves higher.
Imagine a portfolio where 80% of your assets are now in cash, and you still have the same or better upside versus investing 100% in the stock market. So that’s one way that you can use an option trade to reduce your risk substantially, bringing your cash invested down to 20% or less from 100%.
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There’s another way – and this is what I specialize in – where you can actually bid on your favorite stock …read more
Source:: Investment You
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