Why Options Trading Is the Real Key to Wealth Creation

Options are less risky while offering a greater chance of higher returns. Here’s why options trading is an important route to financial security.

Contrary to common assumptions, options trading can be safer than regular stock trading, and much, much more rewarding.

If options trading isn’t already a part of your personal finance and wealth management strategy, this article ought to get you excited about it

We’ll talk about how options work, including the risks and benefits, and show you why options trading is the real key to wealth creation.

The Hidden Risk of Traditional Investing

Traders who only use long-term stock trading and mutual funds in their investment plan are missing a key component of wealth creation: time.

Let’s assume you’ve given yourself 20 years to build a $5 million net worth. That’s about 7,300 days, and you need to make every one of them count.

Now, let’s assume you have $20,000 tied up in a stock. The stock is bringing in a 6% or 7% return every year. Not bad.

But each year your $20,000.00 is making only 6% or 7% is another year you can’t use options trading to make %20 or 30% (or more) using that same $20,000.

Did you know that 2 out of 5 workers believe they won’t be retiring until they’re 70? Maybe it’s because they don’t take this “time cost” into account.

How Options Trading Solves The Time Cost Problem

Let’s assume you’re looking at a $40 stock called “ABC.” You expect it to go up, so you buy 100 shares, investing a total of $4,000.

If it goes up to $50 in the next 60 days, your $4,000 grows to $5,000, for a 25% return and a $1,000 profit. Not bad.

But, let’s assume you’d bought 20 call option contracts on that same stock. If you buy 90-day options, this might cost you the same $4,000 (this cost is called your “premium”).

But if the stock goes up to $50 within 60 days, your 20 call option contracts could be worth $20,000.

That’s a 500% return on investment, compared to a 25% return on investment over the same time period.

How Options Trading Works

When you buy an options contract, you’re buying the right to buy (or sell) the underlying stock at a set price (strike price) within a specific time period (expiration date).

For example, let’s assume ABC stock is selling for $40 and you buy a 90-day call with a $45 strike price. You’ve literally bought a contract which allows you to buy 100 shares of ABC any time within the next 90 days, and at the price of $45.

Now, imagine if ABC goes from $40 to $50 in the first 60 days of your options contract. You now own a contract which allows you to buy a $50 stock for only $45 any time within the remaining 30 days.  This makes your call contract more valuable than it was when you bought it.

Now, you simply close the position by selling your call contract at a higher price than what you bought it for.

Of course, the risk is that ABC stock will either go down or remain under $45 until the 90 days of your contract is up. In this case, your contract will only allow you to buy the stock at $42 or even $39.

If the 90 days end and the stock price remains in this range, your contract expires worthless and you lose your $4,000 premium. Thankfully, you can use options trading to reduce this risk and increase your odds of winning.

Why Options Trading is Safer Than You Think

We just talked about a “call,” contract, which gives you the right to buy 100 shares of the underlying stock at your strike price.

However, you can also buy a “put” contract, which gives you the right to sell 100 shares of the underlying stock at the strike price. This way, your options contract becomes more valuable if the underlying stock price goes down.

By combining calls and puts, you can create a lower-risk options trading strategy.  For example, let’s assume you pay a $4,000 premium to buy 20 calls on ABC stock, which is selling for $40.  Your call contract period is 90 days, and your strike price is $45.

You pay another $4,000 to buy 20 put contracts with a $35 strike price and a 90 day expiration period. Now you’re in for $8,000 premium instead of a $4,000. But, you also have two scenarios where you can make money:

  • SCENARIO #1: ABC stock rises from $40 to $50. You net $20,000 from your 20 call contracts. After subtracting your $8,000 premium, you have $12,000 in profit.
  • SCENARIO #2: ABC stock falls from $40 to $30. You net $20,000 from your 20 put contracts. After subtracting your $8,000 premium, you have $12,000 in profit.

Notice that this strategy makes money whether the stock price goes up or down. Your only risk is that the stock will hover between your $45 call strike price and your $35 put strike price for the entire 90 days.

This would make both of your contracts worthless, and you’d lose your $8,000 premium.  But here’s why this shouldn’t scare you.

The Secret to Smart Options Trading: Probability

Successful options trading isn’t about winning all the time. It’s not even about winning most of the time. It’s about leveraging probability. This is why every options trader needs a smart trading plan.

Imagine having a coin that lands on heads 50% of the time. Every time it lands on heads, you make $12,000. Every time it lands on tails, you lose $8,000.

Flip that coin 100 times, and you’ll have a net $80,000. Flip it 1,000 times, and you’ll have a net $800,000. This is the mathematical power of probability. Again, it’s not about winning most of the time. It’s about leverage.

The beauty of options trading is that the wins are big enough to make up for the losses, and then some. So, if you can win even half the time, you’ll still do very, very well.

Ready to Start Options Trading the Smart Way?

By now, you know that you can create multiple scenarios where you can make money trading options. But we’ve just scraped the surface.

We haven’t talked about covered calls, binary options, advanced spreads or the power of selling calls and puts instead of buying them.

Imagine if you can could an options trading plan that wins even 60% of the time, or 70%. That’s why options trading needs to be a part of your investing and wealth management strategy.

If you’re ready to leverage the power of options trading, or discover more interesting ways to make money and build wealth, you’re in the right place.   

Just visit our blog for more articles on personal finance, investing, wealth creation and how to make money online.

 

Earn Yourself an Early Christmas Present: 5 Stocks to Buy Now

Bolster your portfolio and check out the stocks to buy now that offer a huge upside potential.

Another calendar year is upon us which means millions of people will begin the annual ritual of creating New Year’s resolutions.

One of the most popular resolutions is to make more money. Whether it’s through promotions at work or investments in the market, everyone wants to put add to their personal bottom line. Of course, one of our favorite ways to make money is to invest wisely in stocks.

But what stocks should you purchase? What stocks are going to be profitable in 2019 and beyond?

Read on, as we reveal our five favorite stocks to buy now. These are stocks with a focus on long-term growth for 2019 and for the foreseeable future.

1. Amazon (AMZN)

Our favorite set-it-and-forget-it stock is Amazon. This should come as a shock to no one as the stock has been a popular choice for investors for years.

Our enthusiasm for Amazon is well justified. The company is what Warren Buffett calls a “wide-moat,” which means it has it’s involved in numerous products and services that figure to be profitable for years.  

Amazon’s AWS cloud business earns over $1 billion annually.  Even better, Amazon Prime has 100 million subscribers paying $99 every year.  The $9.9 billion in subscription revenue is impressive, but what really matters is how much these consumers spend purchasing other Amazon products.  Statistics reveal these loyal consumers spend more on the site than they did before subscribing to Prime.

The company is led by an innovative CEO, Jeff Bezos, who positions them for continued success for the long haul.

2. CorVel (CRVL)

CorVel has a lot going for it.  The Irvine, California based company has an immense market, as they help companies control the costs of their insurance and workers compensation.

The financials are attractive too with improved revenue at a rate of 10% a year for the past decade.  And the company earned an impressive 24% on stockholders’ equity last year.

3.  Starbucks Corporation (SBUX)

You might think Starbucks has already experienced max-growth with a store seemingly on every corner.

But consider this: Starbucks is still largely under-developed in many countries. Currently, the largest grown is in the China/Asia Pacific region.  In China, for example, Starbucks opened 278 new stores between July and September this year.

Hedge fund icon Bill Ackman believes so strongly in Starbucks growth in 2019 he invested $900 million in the company in October.

4. Alibaba (BABA)

The future of the Alibaba stock price has been a hot topic in 2018.  In June, the China-based company’s stock rose to an all-time company high of $210 per share.

Since then, the company announced CEO Jack Ma is stepping down.  This comes as stocks in Chinese companies have taken a hit due to pressure from the US/China trade war.

Still, Alibaba is poised for fantastic revenue growth.  Already a $400 market cap company, the company projects final year revenue growth of 58%.  And analysts predict 40% growth in earnings in 2019, making the stock an excellent value buy.

5. Berkshire-Hathaway (BRK.B, BRK.B)

Berkshire-Hathaway has been a mainstay on top stock lists for decades.  It’s leader, Warren Buffett, turns profits like no other.

But the big concern with investors is how long Buffett, age 88, will help the company.  Surely, Buffett will step away in the not-too-distant future and many fear his departure could spell the end of the company’s long and successful run.

However, those who trade stocks for a living know the best way to value a company is to examine the current value of their future cash flows. Investors can remain confident in Berkshire-Hathaway whose future cash flow appears to be significant.

What’s more, Berkshire-Hathaway is structured similar to a mutual fund, with a diverse group of holdings but without the management fees.

Stocks to Buy Now: Wrapping It Up

You don’t have to wait until January to invest wisely.  These five companies are excellent stocks to buy now for 2019 growth and beyond.

Everyone’s financial situation is unique.  Analyze these investments carefully to determine if they are wise fits for your portfolio.

If you enjoyed this article, please check out more of our helpful investment content.

 

7 Best CFD Trading Tips to Trade Like a Pro

Interested in CFD trading? Avoid common mistakes by learning the best strategies. Discover our seven best CFD trading tips so you can trade with confidence.

While only 10% of Americans own 84% of stocks, there are lots of other ways to get involved with trading other than owning stocks. Forex, cryptocurrency, and CFD trading are just a few ways to seek out wealth other than the standard buying and selling of stocks. A contract for difference is a particular agreement that allows you to speculate on prices of assets over a period of time.

Here are five tips to ensure that you succeed with your next major CFD trade.

1. Be Patient

It’s vital for anyone who is learning something new to be patient with the learning process. Whether you’re learning to rollerskate or trade CFD, you’re going to stumble if you don’t learn the basics first.

When trading, you need to start by understanding everything you can about how foreign currency works. Get to know the playing field and move slowly at first.

Invest only small amounts of money for the first few months or even years if you don’t have time to invest in learning. Slow and steady investments will give you an understanding of how currency trading works, the kind of change that happens in markets, and where you fit in.

Markets spike and drop in extreme fashions but by and large, they tend to change fairly slow.

2. Adjust Your Expectations

When you’re CFD trading, don’t expect to win big on every trade. No one succeeds at everything on their first try, so why should trading be any different?

You need to practice trading before you can get the results that you’re looking for. Constant trading gives you the opportunity to win and lose. A few wins and a few losses will teach you more than any article you could read.

Losing money when you’re learning is an unappealing prospect to anyone. That’s why many of the biggest trading tools out there allow you to set up a demo account to play around with for a while. There are no consequences with a demo account and it costs you nothing to set up.

Learn more about trading tools by playing around with a variety of options. Sign up for a few free trials and see what works.

3. Become an Armchair Psychologist

While you might not think of yourself as a psychologist, the key to trading is to understand how the human mind works. CFD trading means that you’re going to be speculating on the rise and fall of markets. You need to think about what happens when a market changes and start to consider how people react when they see a market drop.

You also need to be skeptical of your own thinking.

There are times when you’re looking for a problem and merely get the confirmation bias that you were looking for when pieces come together. If you weren’t looking at facts and were thinking with your gut, it’s easy to have your fears or beliefs confirmed.

Some traders are liable to make a trade out of frustration when they feel like they’re going to get burned. This kind of acting out can lead to mistakes or losses. Even when it doesn’t, it reaffirms bad habits.

Always think before you act. Get to an understanding of why you chose any particular currency pair. Was it based on something in the news, an international development, or merely your gut?

Getting to the bottom of your psyche is key to making the best decisions.

4. Control Your Emotions

Related to the last point, you need to keep your emotions in check when making a trade. A losing streak drives you into depression and causes you to think that you’re not capable of making good judgments. You’re likely to act up and make trades that don’t make sense when you’re in this stat.

Level-headedness is your best friend when you’re dealing with a losing streak. Making smart choices means keeping control over how a trade makes you feel. Manage risk by managing your feelings.

It’s easy to get stressed out when you’re trading. There is a lot of quick decisionmaking that goes into CFD trading. When you see something drop, quick actions leads to high yields.

However, if you’re in a state where you’re about to make an irrational or stressed out decision, take a deep breath. Don’t cost yourself money because you made a stressful trade.

Figure out what’s stressing you out and get on top of it. Find a treatment for stress when trades don’t go your way. Some people go run a couple of miles while others go get a cup of coffee and think about their choices.

No matter what you need to do, be good to yourself and focus on how fruitful trading can be rather than how stressful it is at moments.

5. No Rewards Come Without Risks

Remember what you’re really doing. With CFD trading, you’re doing a lot of risky speculation. The reason you get into it is because of how rewarding those risks are.

In CFD trading, fortune favors the bold in the most literal sense. You need to be able to anticipate which way the market is going to go in the future. Your success depends on it.

Your trades won’t work 100% of the time but if you don’t make them carefully, you’ll end up disappointed at the results. CFD trades reward people who like to research, read up on markets, and pay attention to which direction the wind is blowing.

Set realistic goals and work to exceed them with every trade that you make. The best way to control your feelings when trading is to make sure your personal finances are in order.

CFD Trading is a Fun Challenge

If you’re not that excited about traditional stock exchanging, CFD trading offers serious excitement. It can give you a new way to look at the price of assets over time.

For another exciting way to build wealth, check out our guide on buying, selling, and trading cryptocurrency.

3 Methods for Successful Swing Trading

Swing trading is a valid method of trading stocks and making a profit, but it requires good money management, a willingness to put in the research, and the ability to accept the fact that you’re not always going to make a large profit on a trade. Understanding swing trading is easy, but executing your trades so you earn money takes study and research. Below are three methods to help you become a successful swing trader.

Manage Your Money

There’s an old saying that investing in the stock market is a lot like gambling, and there is an element of truth to this. However, you can control your money by engaging in smart money management. Keep track of your starting balance, work out an estimate of profit based on the past performance of the stock you plan to invest in, and don’t hold onto the stock once it has reached your planned profit.

A stock can keep increasing in value, but it can also decrease suddenly, leaving you with a loss. Losses are going to happen, and it’s never an easy thing to accept, but an occasional loss can be overcome by many profits. Plus, some losses can also be avoided by sticking to your plan and not pushing your luck.

Study Past Performance 

Stocks have a historic performance record that’s a good indicator of how they’ll perform in the future. There are no guarantees that the stock is going to keep performing as it has, but barring bad news from the company, you can reasonably assume that a stock will tend to perform within historic parameters going forward. By studying the historic performance, you can uncover patterns that tell you how to handle the stock for swing trading.

Don’t overlook the company behind the stock when you’re looking at what you should swing trade. The performance of a company is what drives the performance of the stock. Corporate ethos and operating procedures have a far greater influence than you might realize. Some people buy stock in corporations because they have a way of doing business that is unconventional yet successful over the long term. Alternately, they may buy stock because the company adheres to old-school operating principles that see a steady rate of return over time.

Don’t Seek Large Profits

Earning money on swing trading is more about making multiple small gains than a single large gain. Before you buy a stock, you have to figure out what your acceptable profit is for that trade. You also need to factor in the fees that come with executing a trade, then subtract that amount from your acceptable profit. You might be able to realize a profit that goes past your estimation, or you might not. It’s easier to expect multiple small profits over time as opposed to one large one and have a pleasant surprise in a large profit now and again.

These methods are part of what it takes to become a successful swing trader; don’t rush the trades, take the time to study the companies, and watch your money inflows and outflows. Slow but steady wins the race when it comes to short-term trading.

How to Trade Stocks for a Living

Learning how to trade stocks for a living takes research, practice, and capital. Most people who decide to go this route are interested in becoming day traders, those who buy and sell securities within the same day. While day trading is different from traditional investing, it follows the same basic principle — buy low and sell high. The difference is that day traders buy and sell in a much shorter time period than long-term investors.

Research How the Stock Market Works

Potential day traders should begin by researching the market and learning how it works. You don’t need to become an expert, but learning basic market fundamentals is vital.

Essentially, the stock market is a huge collection of people buying and selling stocks, pushing the prices up and down. Everyone in the market shares a common goal — they want to make money by purchasing the stocks of companies they expect to do well. While this is a simplistic explanation, understanding this basic premise gives you a solid foundation to build upon.

Learn the Common Terms

Learn the terms used by day traders. Once you have this basic knowledge, your confidence will grow.

  • Securities: Financial assets that have value and are traded
  • Trade: Buying and selling financial assets in the stock market
  • Initial public offering (IPO): The first sale of a corporation’s stock
  • Broker: The intermediary who facilitates trades between buyers and sellers

These four terms are just a few examples, but understanding their meanings will give you a good start.

Best Practices

When you’re researching how to make money from trading stocks, don’t try to learn everything at once. Instead, find a strategy that works and repeat it over and over. Your strategy needs to include a way to enter the market, set up a stop loss, and take profits. Once you’ve determined a strategy, open a demo account, an account funded with fake money, and experiment. Don’t risk real money until you’ve practiced. This doesn’t have to take long.  Many people feel comfortable getting started after practicing for a week or two.

Create Investment Accounts

Once you’ve gained an understanding of how the market works, learned the terms involved, developed a strategy, and practiced, it’s time to open your investment accounts. Numerous brokerage firms facilitate day trading, and you’ll need to pick the one you’re most comfortable with. Keep in mind that by law, day traders in the United States must maintain a balance of $25,000 in their trading account. Due to this, many traders aim to maintain a balance of $30,000 to create a buffer.

Understand Tax Implications

The tax implications associated with day trading aren’t simple, but they’re not as complex as many people assume. The main point traders should understand is that they’ll have to pay short-term capital gain taxes on income generated from day trading. However, hiring a professional tax preparer who understands the nuances of tax law can save you money in the long run.

Trading for a living is a realistic goal, but it takes time and patience to achieve. Potential traders need to learn how the market works, some common terms, and the tax implications surrounding day trading. Once they’ve gained knowledge and confidence, it’s time to open an account and get started.

Cryptocurrency for Beginners: A Guide to Understanding the Most Basic Ideas

If you know next to nothing about the craze that is cryptocurrency, you’ve come to the right place. Here’s the most basic guide on cryptocurrency for beginners.

If you’re curious about cryptocurrency for beginners, we’ve got you covered!

It can seem like a strange new world, riddled with risk to the uninitiated. But it’s also filled with opportunity – and that’s what’s got so many people intrigued.

What is Cryptocurrency Exactly?

Cryptocurrency is a digital currency. It’s an alternative to paper currencies such as the pound, the dollar, the yen and so on. It’s also known as a virtual currency.

Although it’s a virtual currency, it can be used just like a real currency to buy goods and services. Companies such as WordPress, Microsoft, and Shopify accept payment via bitcoin.

Digital currencies are underpinned by something called a blockchain. A blockchain is the backbone technology of the currency. It allows digital information to be distributed but not copied.

Using blockchain technology means that there is no need for a third party (ie a bank) to be involved in a transaction. This cuts fees for people using the cryptocurrency, but it also opens up questions about tracking fraud and even spotting terrorism and money laundering. Banks and financial institutions play a vital role in these issues nationally and internationally.

Cryptocurrencies are globally traded, and when volatile times hit real currencies, many people put their money into cryptocurrencies instead. For example, Bitcoin’s value rose over $100 in a day after the UK’s Brexit vote in 2016. Similarly when Cyprus’s economy crashed in 2013, people turned to Bitcoin rather than the volatile national currency.

How to Get Into Cryptocurrency for Beginners

If you want to understand how to get started with cryptocurrency, or get an introduccion a bitcoin, you’ll first need a wallet. This is a virtual wallet where you save the unique codes and passcode information of your cryptocurrency. You can buy these online, and then you can buy your bitcoins or other currency.

Not all banks allow you to purchase cryptocurrency with their debit or credit cards, so check that first. Paypal is another option to pay for your cryptocurrency investment.

If you wanted to experiment, bear in mind that you could lose your investment. It is a volatile market. If you’re looking at this because you’re interested in increasing your income, you might want to check out these alternative ways to make money online.

If You’re Wondering Which Cryptocurrency to Invest In

There are over 1400 cryptocurrencies available. Your choice will depend on your openness to risk. More established cryptocurrencies such as Bitcoin or Ethereum are probably more stable (but buyer beware, as always).

That said, there is still a lot of doubt and negativity around cryptocurrencies. Citigroup, Bank of America and others do not permit their credit cards to be used for cryptocurrency purchases. Respected leaders such as JP Morgan’s CEO, Jamie Dimon, have even called cryptocurrencies a scam.

It is a new industry, and is still evolving – so the risks and the opportunities are great. If you invest, you’d be wise to only invest what you don’t mind losing if it fails.

Other Money Resources For You

If you’re interested in cryptocurrency for beginners, you might also be interested to read our article on saving money by going cashless.

 

Starbucks vs McDonalds: Which Should You Invest In?

Read more to take a closer look at the world’s 2 biggest franchises, Starbucks vs McDonald’s, and decide for yourself which is the better investing opportunity!

One boasts of billions served. The other sometimes has separate stores so close together they occupy the same block. Clearly, Starbucks and McDonald’s are both successful, but which one is the better investment?

The answer is more complicated than you might think. But we’ve analyzed the data, and we now present to you our guide to investing in two of the biggest fast-food stocks on the market.

If you want to forego commodities trading to invest in stocks, read our analysis for yourself below.

Efforts to Evolve

To begin our evaluation of which of these behemoths is worthy of your investment dollar, we wanted to look at what these businesses are doing to bring their food and their business models into the 21st century.

McDonald’s

McDonald’s has been focusing its efforts on value. Its Dollar Menu now has options at $1, $2, and $3. And it’s making ordering more efficient by offering mobile ordering and in-store touch-screen options.

McDonald’s has also worked hard to improve the image of the food itself. The way the store has done this is by highlighting the fresh beef in its burgers.

Starbucks

Starbucks has gone a much different route than McDonald’s when it comes to the direction of its business. The coffee company has focused on expanding its menu to new coffee roasts, new specialty drinks, and its popular blonde roast.

Starbucks has also launched a line of Reserve coffee bars and roasteries that cater to a hipper taste. These locations add a high-class feel to the brand.

Current Performance

McDonald’s is the more established company, and it’s no shock that the restaurant is the biggest player in the market when it comes to fast food stock stocks. But let’s look at the numbers more closely to see what we find.

McDonald’s

Right now, McDonald’s (MCD on the New York Stock Exchange) boasts a dividend yield of 2.43%. The company’s net common payout yield is 6.89%.

McDonald’s claimed more than $5 billion in fourth-quarter revenue last year, resulting in $1.71 adjusted earnings per share, or EPS, in the fourth quarter of 2017. Because the company’s operating costs rose, that’s actually a decline in quarterly revenues, but it is an increase in EPS.

Starbucks

Starbucks Corp. (SBUX on the NASDAQ) is currently sporting a dividend yield of 2.28% and a net common payout yield of 8.07%, beating McDonald’s in the latter category while trailing just a bit in the former.

The coffee chain reported revenue for its first fiscal quarter, which ended in December, north of $6 billion, with an adjusted EPS of $.65. The company’s revenue and EPS are up, though its operating income is down.

Future Forecast: Starbucks and McDonald’s

McDonald’s has had a dramatic stock turnaround in recent years, and it continues to boast robust numbers. It’s the number one fast food stock, and that looks to be the case for the near future at least. If you’re choosing the safer bet, consider buying McDonald’s stock.

But Starbucks is gaining ground quickly, and it seems to be the company better suited to adapting to changes in customer habits. Incidents like the one in Philadelphia earlier this year don’t help the brand, but the company has responded to such incidents quickly and decisively.

If you’re betting on the stock with the highest chance of reward, Starbucks might be for you.

Once you’ve settled the Starbucks and McDonald’s debate for yourself, take a look at our other investing tips.