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Stock Options 101

Welcome to Stock Options 101

Our goal is to explain stock options in simple English. As you learn more, you will appreciate how difficult a task it is. People say that investing in stock is like playing checkers, while investing in options is like playing chess. We look forward to teaching you how to play the more complex game of stock options.

Are Stock Options Risky?

Most people would answer that question with a resounding "yes". True, according to some studies, over half of all options that people buy end up being worth absolutely nothing. Nada! Tear up your ticket stub and walk away.

If buying options is such a bad investment, maybe a strategy of selling options to someone else would be a better idea. Let their loss be your gain. But there is a problem here as well - it is called selling a naked option, because that is how you feel for the whole time you have sold that option. You are facing a theoretical unlimited loss. You can lose many more times the amount you invested. At least when you bet on a horse, that is all you lose when he trips on his way to the finish line.

So if buying options is usually not a good idea, and selling them can be worse, it is easy to see why people decide that options are risky no matter what you do. It does not occur to most of them that a strategy of buying an option and simultaneously selling another option to someone else might be an entirely different story.

This website is designed to explain an options strategy that we believe is less risky than buying stock or mutual funds, and potentially a whole lot more profitable. We hope you will read through this material and learn to love the world of options as we do.

Why Trade Stock Options?

Stock options are exchanged for two main reasons: for speculation (adds risk) and for hedging (reduces risk).

Speculation

Stock options are a way of leveraging your money. This is usually done by buying call options. You are able to participate in any upward moves of a stock without having to put up all the money to buy the stock. However, if the stock does not go up in price, the call option buyer may lose 100% of his/her investment. For this reason, options are considered to be risky investments.

Hedging

Stock options can be used to considerably reduce risk. Put options are usually traded for hedging purposes. While hedging reduces risk, it also limits the amounts of gains you can make. Since most stock markets go up over time, and most people invest in stock because they hope prices will rise, there is more interest and activity in call options than there is in put options.

Terry's Tips Stock Options Trading Blog

January 17, 2016

Making a Long-Term Options Bet on Oil

The market is closed for the Marin Luther King holiday today, and maybe you have a little time to see how we plan to make some exceptional returns by playing what might happen with oil prices.

I would like to share with you details on a new portfolio we have set up at Terry’s Tips. It is a long-term bet that the price of oil will eventually recover from its recent 12-year lows, but maybe it will get even worse in the short run before an eventual recovery takes place. In the wonderful world of stock options, you can bet on both possibilities at once, and possibly make double-digit monthly gains while you wait for the future to unfold.

I hope you enjoy my thinking about an option strategy based on the future of oil prices. Maybe you might like to emulate these positions in your own account or become a Terry’s Tips Insider and watch them evolve over time.

Terry

Making a Long-Term Options Bet on Oil

Nobel Laureate Yale University professor Robert Shiller was interviewed by Alex Rosenberg of CNBC on July 6, 2015. He delivered his oft-repeated message that he believed that both stocks and bonds were overvalued and . . .

January 11, 2016

Half-Price Offer Ends at Midnight Tonight

All good things must end, they say. Tonight at midnight, the lowest price offer we have ever made in the history of our company, does just that. It ends. Tomorrow we will return to the prices that thousands of smart investors have paid over the past 14 years.

If you ever considered becoming a Terry’s Tips Insider, this would be the absolutely best time to do it.

To get our entire package for only $39.95, you must order by midnight tonight – only $39.95 for our entire package -here using Special Code 2016 (or 2016P for Premium Service - $79.95).

Terry

Half-Price Offer Ends at Midnight Tonight

If all good things must end, it is equally true that all bad things must end as well. Hopefully, the dreadful start for the market in 2016 will end as well. Volatility has skyrocketed as the market has tumbled. The so-called fear Index (VIX – the measure of option prices on the S&P 500 tracking stock, SPY) closed above 27 on Friday. This compares to an average range of about 12 – 14 over the last few years.

When VIX reaches 27, it means that option prices are about twice as high as they are on average. For Terry’s Tips’ subscribers, that is a big deal. Since our strategy consists of selling those short-term options, this could be one of the most profitable opportunities that come along all year.

The historical fluctuation of VIX is that it makes sudden forays above 20 when market uncertainty flares up (usually due to an unexpected event like a war breaking out or a 9/11 type terrorist attack, of some economic calamity or fear of slower growth). This time around, it seems to be fears that China’s unusually high growth rate might be slowing. Instead of . . .

January 6, 2016

Favorite Suggested Books for the Conservative Options Investor

The market has made a dreadful start of the year. This is the perfect time to check out the world of options because there are many profitable ways to make money with options even when the markets are crashing everywhere.

Terry’s Tips is celebrating its 14th birthday this month. As our birthday gift to you, we are offering our service at the lowest price in the history of our company. Thousands of subscribers have paid double this price to join. If you ever considered becoming a Terry’s Tips Insider, this would be the absolutely best time to do it.

To get our entire package for only $39.95, you must order by midnight on January 11, 2016. at the lowest price ever offered in our 14 years of publication – only $39.95 for our entire package -here using Special Code 2016 (or 2016P for Premium Service - $79.95).

This week I will share some of my favorite books on investing. I hope you enjoy reading one or more of them.

Terry

Favorite Suggested Books for the Conservative Options Investor

I am often asked about my favorite books on investing (other than my own Making 36%: Duffer’s Guide to Breaking Par in the Markets Every Year, In Good Years and Bad). There have been several revised editions of this book, and the 2015 edition came out just a couple of months ago.

Here is my list of favorites:

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

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