Teaching Options Trading

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Mike Daskaluk teaches around the world ...
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Never be at the mercy of a market crash again!

Whether you have an IRA or a 401 or regular investments, it’s all your money. What are you doing to protect your investments? You insure your car, your home, even your life, but what about your investments? Are you in the cycle of watching your investments grow for a few years only to see them get devastated in the next crash? You CAN crash proof your investments.

We still have calendar brains functioning in today’s nanosecond world. Today a rumor can rocket the market up or crash that same market. We have become so advanced in our computer execution that it can all be over before a human brain realizes that what just happened does not make sense and should not have happened. Today that could all be moot.

With the state of the markets these days you really need to take a little time and learn about options. With flash crashes, increasing computerization, dark pools, sovereign funds over controlling our markets, options allow you to sleep at night and not worry about your investments.

I thought it was time we crushed some myths about Options. Originally designed as a hedging or an insurance vehicle, they have matured into a mainstream investing instrument in their own right. You may have heard they are Risky or they are complex or they are difficult to learn. In my manual ‘Trading Options for Beginners to Pros’ I take complicated professional options strategies and I simplify them so all can understand and use them. And these days you need to know and use them more than ever.

In my lectures around the world, I have convinced many people how options should be a part of their investment portfolio. Unfortunately, people buy stocks when the news is great and the prices are high. Then after a crash when panic is in the air, they sell out in fear only to watch the stocks later rebound without them. They have already locked in their losses by selling their stocks and the bounce only adds insult to injury.

Every lecture I would get the people who still believed that stops would save them if there were a problem. Most do not realize that stops are simply a request to get them out of a stock position at a certain price. They work well under most normal market circumstances but not when there is a problem in the markets. And that is when they are needed the most.

It is even more startling when I realize that they do not understand the short comings they are betting their financial futures on. It is even worse when I query them further and they admit how many times stops have already failed them in the past but still believe somehow these stops will help them in a jam. The stock market is not some kind of supermarket where you can return your stock to get your money back because you are no longer happy with that stock. It is more like a flea market where you have to find someone to buy it from you. Under normal market circumstances there will be someone who will pay you $50 for that $50 stock. However, in times of panic, they may only offer you $25 for your $50 stock. Now what do you do? Do you take that $25 loss or do you close your eyes and hold on to the stock in hopes it all gets better?

The latter did not work well for stock holders of Fannie Mae, Freddie Mac, GM, Enron, Worldcom, Citibank, and Lehman. The list could go on and on. These were all top rated AAA stocks in their time that people could buy and forget about until they were ready to retire. Now they can’t retire because they were wiped out of those stocks. The exit doorway to get your money out of the market in a panic is not nearly wide enough for all. Most will have their money trampled on in the stampede to get out. Options can save your money and your sanity in these times of panic. It drives me crazy every time I see some analysts advise people to persevere capital after their position has lost 70 or 80% or more. Where were they when your position was down only 10 or 20%? Now they give you this great advice to persevere your capital and bail out of the investment. Today there may not be a good reason to buy and hold stocks other than for a hedge against an options position or a dividend.

Suffice it to say there are too many issues with stops to cover here. This is why I think everyone needs to learn a little about options. Options are contracts that cannot be circumvented like stops. They offer you protection that the stops simply cannot. Options are the professional way of controlling your risk and defining your risk while still making as much as the guy that buys the stock itself. And since you are always using less money with options, your Return On Investment will be much better.

I have worked with people all over the world and showed them how to take their favorite strategy and improve it by using options rather than the stocks. It is almost always better in ways of profitability, outlay and safety by using options rather than stocks or futures. Options are contracts that must be honored and cannot be circumvented no matter what the market is doing. You can sleep better at night and check in once a week if you would like and not have to worry that you might lose much more than what you intended to risk.

Options can be that simple. You do not need to know all the higher math behind options to use them correctly. A perfect example is when you are flying in an airplane. You don’t need to know that when a pilot pushes the start button on your jet that compressed air floods into the engine and spins up the engine. The spinning of the compressor blades compress the air into the engine. After a few compressor stages, the air is channeled into the hot section where it is mixed with fuel and ignited. The fire creates even more pressure and the only way out for all that hot air is out the back over the turbine sections. And so on the process is repeated as long as there is fuel added to the engine. You don’t need to know all this, but you still use a jet to travel great distances quickly just the same. You know enough how to use the jet correctly to get where you want to go in much less time. The same can be said with options.

Options used correctly can increase your portfolio safety. They can increase your return and control your risk. They can reduce the amount of money needed in most investments. Rather than buy that $50 stock, what if we bought a 45 Call for $5? We only need 10% of the capital to control the same value that the stock trader controls.

Options used correctly can increase your portfolio safety. They can increase your return and control your risk. They can reduce the amount of money needed in most investments. Rather than buy that $50 stock, what if we bought a 45 Call for $5? We only need 10% of the capital to control the same value that the stock trader controls.

The tables below compares the two methods.

If the stock goes up, then we benefit penny for penny just as the stock owner does even though they are taking on much more risk and putting up more money than we did. So if the stock were to rally up $10, then the stock holder and the option holder both make the same $10. In this scenario, neither makes more than the other but the option’s holder risks much less and uses much less capital.

On the other hand, let’s see what happens should the stock drop $15 on us in an overnight crisis or panic. The stock owner loses $15 for the privilege of taking on more risk and using more money. While our option cannot lose more than the $5 we paid to buy that option. In fact, that option may still be worth $1 even after the crash. More on that in another venue. But let’s use the worst case scenario and say it goes worthless, then our total loss on the option trade is only $5 and not the $15 loss the stock holder suffered. Here we can clearly see that we lose less on a loss while we make just as much as the stock owner in the very same scenario.

Now, how hard is it to buy a 45 Call vs the $50 stock? It is still only one trade in both cases. Is buying a Call really that more complex that buying that stock? Of course not. That is why you need to stop listening to hysteria and learn how to use options safely. That is why you should take another look at options to protect your investments.

Buy and hold stock is a generational strategy that has been around for decades. If you bought McDonalds 30 years ago and held it until now then Buy and Hold is a great strategy, but if you bought GM, then you are probably fit to be tied. And there are many others like that. For example, Lehman, Fannie Mae, Freddie Mac, Bank of America, ENRON and Worldcom and so on. These were all stocks that were the best in the day and all one had to do was buy them and forget about them, but here we are and they are not among us in any former image.

No one cares about your money more than you do. When I was a broker many years ago in another life time my job was to get to you and get you to send me money where my duty was to turn it into commissions for the brokerage firm and myself. That was the business. It is time you learned how simple it can be to take care of your own money.

At all my lectures I do a coin flip demonstration where people in the audience throw out stocks at random for me to day trade and then I get another member to flip a coin to decide whether I trade that stock long or short that day. I then use options to trade those stocks. As strange as this sounds, I have about a 60% success rate over all at my lectures. It is a mind blowing demonstration. In fact, years ago I was running an internet trading room where we did this project live everyday over a 6 month period with hundreds of people. The results are laid out again in my options manual but in short, the coin toss gained over 100% in that 6 month period.

My manual is a little more expensive than the average book but it is also some 440 pages of simplified material for the average person to understand. In it I take professional strategies and simplify them so anyone can know what, when and how to use them to protect themselves. The manual breaks it all down to bit size steps ready for you to benefit from.

I do not teach you how a jet engine works but simply how to use that jet to get you where you want to go quickly. I also offer email support. We all have books that sit on the shelf because we were not sure what was really meant within those books. I go further to help people really understand what is in my manual and how to use it. Bottom line, with options we don’t have to worry all night about how much further a stock can sink and how much more it will wind up costing us.

We always know our worst case scenario. We control our risk as well as define our risk. No matter if there is a crash or another flash crash or rumor or whatever. We will not need to wake up many times a night agonizing over the limbo scenario of how low will it go before you can’t take the pain anymore and surrender with the huge loss. While the stock trader continues to feel more and more pain from this limbo action, the options’ holders can hold on and perhaps wait for that market to rebound for them.

If you were to look back at the years when you suffered through crashes and lost less on your losers but made as much on your winners, you would be much better off now. Options can do that for you.


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