I still remember the first stock I ever bought…
I was 22 years old and fresh out of college when I plopped a few hundred bucks into a brokerage account.
I was eager to buy my first stock, but also nervous. Id heard about all the money you can make in the stock market… and the investing horror stories following the financial crisis.
When it came time to choose a stock to buy, I did what a lot of first investors do: I went to Google and searched tech stock that will double. (Chances are, if youre reading this right now, youre probably guilty of this, too.)
That led me to a company called Himax Technologies (HIMX). If youve never heard of Himax, youre not alone. Today, the Taiwanese semiconductor company has a market cap of around $580 million. At the time, I knew nothing about the company… but I was caught up in the promise of a 100% gain in a few months.
You wont be surprised to hear the stock didnt double. I sold my shares four months later for ahugeprofit of… $11 after fees.
Ive made plenty more common investing mistakes, too…
Ive sold great companies too early. (This mistake isnt limited to novice investors even the most experienced investors do this all the time.) Im still gritting my teeth about selling cloud-communications company Twilio (TWLO) too soon…
If you buy a stock whose business you understand and numbers you know, do yourself a favor and give it a chance to play out.
Ive also made the mistake of not diversifying properly. A portfolio that consists entirely of a few tech stocks might sound like a good idea, but its not.
Ive bought companies where I didnt understand the risks. Watching the stock jump one day and plummet the next kept me up at night.
And Ive even dug in my heels and doubled down on losing stocks… like my ill-fated experience with social media company Twitter (TWTR). In behavioral finance, this is known as the backfire effect.
Everybody makes mistakes early in their investing careers. Its an expensive tuition, but its how we all learn.
Fortunately, theres one rookie investing mistake I
And I never will, thanks to my professional mentor, Dr. David Doc Eifrig.
Most investing careers start like mine. You buy a couple of get rich quick stocks and you either get bored or get burned. Then, you move to stocks you know and have researched, but you sell too soon. Finally, you experience some success and think you have it all figured out.
Inexperienced investors usually do one of two things: They decide options sound too complicated and scary and never learn about them… Or the promises of outsized gains suck them in, and they dive right in without taking the time to learn the basics.
The second group typically gravitates to out-of-the-money (OTM) call options. This simply means that theyre purchasing the right to buy a stock at a higher price sometimes much higher than where its currently trading.
If theyre right, OTM call options offer a chance for investors to double, triple, or quadruple their money quickly. These options are cheap you can buy one for just a couple hundred bucks because theyre essentially the stock markets version of a scratch-off lottery ticket.
Lets say youre bullish on shares of media giant Disney (DIS)…
You believe, like myself and many others at Stansberry Research, that Disney is a high-quality business. And youre confident that my colleague Steve Sjuggerud is right about the coming Melt Up in U.S. stocks.
So instead of shelling out around $1,400 to buy 10 measly shares of Disney, you buy one call option which represents 100 shares. You pay about $350 for the call, which expires next January and has a strike price of $160. Youve only paid one-fourth the price to control 10 times the number of Disney shares had you simply bought shares outright.
If Disney shares soar above your strike price of $160 to $180 by January 2020, for example, the call you bought for $350 would be worth $2,000. Youd make 471%, while regular shareholders would only make 29% (as shares rose from $140 to $180). And if Disney ended up even higher than $180, youd make even more…
Although this sounds tempting, OTM call options are usually a terrible idea.
Heres what almost no one will tell you about options…
Regardless of whether the underlying stock rises, moves sideways, or falls, an option still loses whats called time value. This is built into the structure of how options are priced.
You can see in the following chart how time value erodes over the life of a four-month option…
If an option is going to become less valuable every day, why on earth would you ever buy one?
To make a profit buying OTM call options, you have to be right about the share-price movementandthe timing.
Even if youre right about both, you couldstilllose because the option will have $0 worth of time value at expiration.
In our Disney example, even if the stock ended up right at your strike price of $160 by January 2020, that option would be worth $0. Youd lose 100% of your money even though you were right about the stock. You wouldnt make money until Disney is trading for more than $163.50 a share, since the option cost you $3.50 or $350 per contract.
Buying OTM call options is a losing strategy for the vast majority of investors. But rookie investors get suckered into it every single day because theyre blinded by potential 1,000% gains.
He showed me the way and explained why I should forget about buying options. Instead, he talked about the benefits ofsellingoptions.
Whereas time value costs the option buyer money every day, the optionselleris making pure profits.
For my first-ever options trade, I bought 100 shares of mining company Freeport-McMoRan (FCX) and sold a two-month call against my shares.
I made about 10% from that trade. The return wasnt anything to brag about at the next family cookout. It didnt make me rich. But I quickly learned that selling options is one of the greatest and if done right, the safest income-producing strategies available to investors.
Later, Doc taught me about a new way to trade options…
It was a way to combine the benefits of selling options with the upside of buying OTM calls. Essentially, it was a shot at high-double-digit and triple-digit profits, but smarter.
The best part is, I was able to make these trades with a small portfolio. When you trade covered calls, you have to buy 100 shares of a stock for each options contract. If you buy that many shares of Disney, that means tying up roughly $14,000. A lot of folks dont have that kind of cash lying around to put in a single position.
Docs new strategy only required that I put down $100 or so per trade. That meant I could diversify among multiple trades.
The other great thing about this strategy was that it counteracted the negative effects from time-value erosion. You could still produce gigantic winners, but the odds of winning were significantly higher than buying OTM calls.
In fact, with my own trading, I just recently went on a run of five closed winning trades in a row with an average gain of 83% per trade… or 2,188% annualized (excluding commissions). As you can see, its a powerful strategy…
Doc has been recommending these kinds of trades since December…
Its fun. It doesnt require a huge portfolio. It doesnt require you to stare at your computer screen all day. It works in any market environment bull, bear, or even flat. And it already has a proven track record of big winners…
Doc has already booked a 77% gain on cigarette-giant Altria (MO) in just 14 days. Almost everyone could have participated, too. It only cost a minimum investment of $90 to enter this trade.
Doc also earned a 71% gain on coffee-shop giant Starbucks (SBUX) in just 25 days. That trade only cost folks a minimum investment of $140.
Doc currently has his readers in a trade on a private-equity firm in which theyre already up 100%. If Doc is correct about this companys direction (and it certainly looks like he is so far), his readers will end up with a 167% gain on that position.
And the thing is, this stock has already hit Docs target price. His readers will earn that 167% gain as long as the stock doesnt fall too much from its current price…It doesnt even need to go up. Thats the power of this strategy.
The feedback since Doc launched this new service in December has been overwhelming…
So Doc recently decided to pull back the curtain on his strategy…
On Wednesday, June 19, he will share his first-ever Trading Master Class for interested readers. Hell explain how they can use his strategy to boost their gains on regular stocks recommendations from across the Stansberry Research universe by as much as 10 times or more and with limited downside.
This event is unlike anything else in our firms 20-year history. You see, for the first time ever, weve invited regular readers to our Baltimore headquarters to take part in a hands-on training session.
Doc will walk these folks through all the details of his strategy, step by step. Hell also share his thoughts on the market and give away one of his highest-conviction buy recommendations.
And best of all, you can join us for this free online event from the comfort of your own home. We just ask that you sign up to reserve your seatright here.
Editors note: Docs newest strategy allows you to trade almost any stock with just a couple hundred dollars… And its designed to boost your gains by 10 times or more. Hes hosting a free event Wednesday night at 8 p.m. Eastern time to go over all the details. And just for tuning in, youll learn one of Docs highest-conviction buy recommendations.Click here to save your spot.
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Once you know what stock you want to buy, theres still one critical rule left you cant ignore. And its one every investor needs to follow
Click here to get immediate accessTODAYS MARKET NOTESRecent Market NotesAFTER STRIKING ROCK BOTTOM, THIS COMPANY RALLIES TO LESS BADFriday, June 14, 2019TRIPLE-DIGIT GAINS FROM A FAST-GROWING FIELDThursday, June 13, 2019THIS DIGITAL UTILITY JUST HIT ANOTHER ALL-TIME HIGHWednesday, June 12, 2019SODA AND SPORTS DRINKS ARE STILL POPULAR WITH CONSUMERSTuesday, June 11, 2019HIGHS AND LOWSMonday, June 10, 2019Dr. Steve SjuggerudEditor ofDailyWealth
Dr. Steve Sjuggerud is the Founding Editor of DailyWealth and editor of True Wealth, an investment advisory specializing in safe, alternative investments overlooked by Wall Street. He believes that you dont have to take big risks to make big returns.
Since Steve joined Stansberry Research in 2001, he has found super-safe, profitable investment ideas for his subscribers that the average investor simply never hears about… until the big gains have already been made. For example, Steve recommended buying gold back when it was trading around $320 an ounce.
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