Why I May Never Buy Another Stock Again
Construct a game plan, and I promise you will become a better investor.
With proper planning and perseverance, Profitable Trading’s Jared Levy was making $600,000 a year trading by the time he was 18. He was also one of the youngest-ever members of the Philadelphia Stock Exchange. But without goals and a roadmap with which to achieve them, Jared wouldn’t be where he is today.
Before I get into the details of how Jared made so much money in the markets, please note that his investing strategy involves options, and options involve leverage. But don’t let those words scare you. Jared’s approach is perfectly suited for beginners. In fact, I’d venture to say it’s ideal for someone looking to cut their teeth in the investing world.
Most investors think of options as an advanced, risky strategy. But that couldn’t be further from the truth.
Whether you want to dabble in options or not, I urge you to continue reading. What I’m about to explain will help you become a better investor. Jared would have made a lot of money regardless of whether he bought options, stocks or bonds, because he approaches his trades with one of the most important tools in the financial community — investing discipline.
Before he initiates a trade, Jared lays out a detailed plan that covers every scenario. He knows what price he’s willing to pay, what price he will exit at, his total upside potential, his downside risk and how long he’ll be in the trade. He maps every route before ever hitting the purchase button.
This is so vital that I’m going to repeat it: He enters each trade with a detailed schematic of every potential outcome.
The Greatest Way to Learn About the Markets
Most investors want to control their own portfolio. But they fall victim to what I like to call “hobby investing.” This is when someone gets overly excited about something for a short period of time, only to lose ambition and shelve the hobby to collect dust.
Many investors buy a stock, check it almost daily for a couple weeks and then forget about it. But using options requires regular, active attention. Most options expire on the third Friday of every month, forcing investors to check their portfolio at least monthly, if not more frequently. You’re almost required to become an attentive, efficient investor.
The Basics of Buying Call Options
Now that Jared has made his money, he recommends detailed trades in his premium advisory, Profit Amplifier. So far, he and his readers have been able to notch annualized gains of up to 4,700%, and their average trade returned a 670% annualized gain.
Buying a call option is similar to buying shares of a stock. In both cases, you are going “long” (bullish) on the company. In other words, you expect the share price to rise. But instead of buying the stock outright, you are buying a contract that gives you the right (but not the obligation) to buy the stock at a certain price at a future date. This allows you to enjoy all the upside of the stock with limited downside risk.
Options also allow you to leverage your position. One contract controls 100 shares of a stock, but it costs much less to enter into one contract than buying 100 shares of a stock outright.
Let’s look at an actual trade Jared recommended to his readers. On Aug. 31, he recommended buying call options on Apple (NASDAQ: AAPL). Here’s the detailed plan he sent to readers:
As you can see, Jared knows the trade’s desired outcome before he buys it. Having a detailed plan gives him, and his readers, confidence in the trade. They know exactly what to expect.
Not only does Jared construct a game plan, but he sticks to it. Jared advises readers to enter all the provided information (limit price, exit price and stop-loss) when they buy the call option.
When the call option is purchased, he enters a good ’til canceled (GTC) limit order to sell that option for $12.50 per contract (his target price). As soon as the option hits the target price, his broker will sell the option, locking in a 20.2% profit.
He also sets an “alert” when the option hits his stop-loss price. If the trade turns against him, then he will be notified that the option is nearing his exit price. When it does, he re-evaluates the trade to decide if it’s worth selling in order to preserve capital. If it’s time to sell, he lets his readers know immediately. No questions asked, no second guessing. He sells and moves on.
This is investing discipline at work. And it’s what has helped him and his readers make consistent double-digit returns while minimizing losses.
So let’s see how the Apple trade played out. The day after his alert went out, Jared’s readers were able to purchase the AAPL call option for $10.30, or $1,030 per contract ($10.30 x 100 = $1,030) — slightly less than his recommended “buy under” price. Then, on Sept. 13, the option hit $12. In order to reduce risk, Jared recommended taking guaranteed profits there. Again, since one contract controls 100 shares ($12 x 100 = $1,200), readers made $170 for every contract bought — a 16.5% gain in 13 days.
Rather than using $1,061 to purchase 10 shares of a stock and earn less than $20 on a 2% gain, the call option allowed Jared’s readers to control 100 shares for roughly the same amount and earn $170 — a 16.5% return in less than two weeks.
It’s for this very reason that I rarely buy a stock outright. If I’m bullish on a stock, I will buy a call option because the risk/reward ratio is so much better.
Not only that, but like I mentioned earlier, the very nature of the way options work means you’re forced to make a plan, stick to it and consistently monitor your trade. So not only will you amplify your profits, you’ll become a better, more disciplined investor in the process.
If you want to learn more about Jared’s options strategy or how to get his weekly trades, follow this link.