Options the Easy Way: Turbocharge Your Profits With 1 Click

To read transcripts of these videos, follow these links: Introduction | Part One | Part Two | Part Three

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Introduction

Hi, I’m George Rayburn, Executive Vice President of The Oxford Club. 

Welcome to Options the Easy Way: Turbocharge Your Profits With One Click. 

In this video series,  I’ll be showing you the basics of options trading so you can maximize your gains on every one of Chief Investment Strategist Alexander Green’s  plays.  

Options sound scary to many,  but they’re  actually  really easy… 

So easy that anyone can trade them… 

Even if you’ve never invested in anything in your entire life. 

By the time you’ve finished watching  Part 3  of this series, you’ll be well on your way to being an options trading pro. 

What you’ll find is that options are just as easy to trade as stocks. But they offer the opportunity for bigger, faster gains  all  while putting less money at risk. 

However, they are more volatile than stocks. They can move down just as quickly as they shoot up, so you shouldn’t bet your retirement  on a single play. 

But I digress. Options are a great way to leverage Alex’s plays with just a couple of hundred dollars. 

You don’t have to trade Alex’s options recommendations every time. They’re completely optional, and you can make plenty of money if you ignore them completely. 

But for speculators, the buy-in is fairly cheap. Most options trade for well under the market price per share of their underlying stock, and the potential upside of options is enormous, to say the least. They’re an incredibly  fast, if risky, way to collect money. 

In this guide, you’ll learn everything you need to know. 

When Alex recommends a stock, he will usually  recommend a corresponding option. While these won’t be listed in the portfolio, Alex will let you know exactly when to buy and sell to maximize your profits in each options position. 

There’s no guesswork for you. Even if you forget everything you learn in these videos,  you can still trade options if you follow Alex’s recommendations. 

That said, these videos will always be here for you on  The Oxford Club website for as long as you’re subscribed to this service. 

Now  click on Part 1 of this guide below to get started.  I’ll see you there… 

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Part One

Hi, welcome back to Options the Easy Way: Turbocharge Your Profits With One Click. Once again, I’m Executive Vice President George Rayburn. 

In this video, you’ll learn what options are, how they work in relation to their correlating stocks and the two different types of options you can buy… 

So without further ado, let’s get started. 

First, there are a couple of things you should know up front. Alex considers all of his services to be stock trading services. The options plays are for those who want to play his picks more aggressively. 

That’s why he always recommends options with the language “Speculators may want to take a look atAT the XYZ calls.” 

Alex calls options a “no-tears investment.” They can quickly double or triple your money – or just as quickly make it vanish. Know this up front. While time is your ally with stocks, it is your enemy with options.  A recommendation has to move up sharply in a short period of time to make money. 

Alex’s option trading subscribers often brag that they earn bigger profits trading the calls than  they do  buying the recommended stocks. But Alex’s stock trading subscribers can brag that they make money more frequently with the stocks than with the options. So caveat emptor – buyer beware. 

Also, you will need to open an options account with your broker to get started.  If you are new to option trading, make sure to read the account-opening material your broker sends and direct any questions you have on a particular options trade to your broker. 

Without further ado, let’s take a look at an option listing and learn some basic terms... 

AAPL  July  20XX $140  Call 

This one is for Apple, obviously. We  trade  only  monthly options, and those expire on the third  Friday of every month. So these would expire on the third  Friday in July.  

On the expiration date, the options become worthless and you will  be left with the choice of either  buying shares at a premium or  selling shares at a discount. But we’ll get to that in a bit. 

The number next to the expiration date is the strike price. That’s essentially the price you’re betting on the underlying stock exceeding or falling below. 

So in our example, it’s a bet that  Apple’s shares will exceed $140  per share. The higher the share price goes over the strike price,  the more money we make. 

That’s all great, but what is an option really? 

In short,  it’s a contract.  

An option  gives its holder the right – but not the obligation – to buy or sell 100 shares of a given stock at a specified price on a designated date. 

An option is essentially a tool to magnify movements in the stock market. 

For example, if  the value of an option’s underlying shares moves just 5%  to  10%,  the options associated with it could move 50%,   100% or more. 

They may seem intimidating at first, but they’re not nearly as complicated as they seem. 

Now, options come in two varieties – calls and puts. I will only ever recommend calls, though,  so for now we’ll  worry  only about them. 

Call options are contracts that give their holder the right – but not the obligation – to buy shares  at a certain price. 

It’s essentially a bet that the price of the underlying stock will rise above the option’s strike price and the contracts will give their owner the ability to buy at a discount. 

When that happens, those calls are referred to as “in the money.”  If a call option’s strike price is above the price of its underlying security, it’s referred to as “out of the money.” 

Puts are the opposite of calls. They give their holder the right – but, again, not the obligation – to sell shares of stock at a certain price. 

A put is a bet that the price of the underlying shares will go below the option’s strike price and allow the holder to sell the options at a premium. 

They’re the inverse of calls… 

If a put’s strike price is more than the market value of its underlying stock, it’s in the money. If the strike price is less than the market price, it’s out of the money. 

We touched on this before, but here’s the trick: We never exercise the  right  to buy or sell shares. 

That’s right, we never have to own a single stock to make huge gains from options. We simply buy the option, watch the price rise and then get out before it expires. 

Here’s an example of how options work in practice… 

Say we want to buy stock in a company trading for $10 per share. This company has great fundamentals and huge sales growth. In short, it’s going places. 

We think we can leverage this by buying the company’s call options,  which expire in about  two  months and have a strike price of $12. They’re  trading for a premium of $0.50.  

That’s the price per–share. Remember, an options contract represents 100 shares, so the full entry price of this trade would be $0.50 multiplied by 100, or $50.  

We’re betting that the company’s share price will exceed $12 two months from now. To break even on this trade, the underlying share price of our options would have to exceed our per-share premium plus the strike price, or $12.50.  

Let’s say that, over the month after we entered our position, the company’s share price shot up 40% to $14. With one month to go, our call has gone up to $2 per share, or $200 for the whole contract. 

Now, $2 might not sound like much, but it’s a 300% gain from our $0.50 per share buy-in. 

Just a $500 investment would have become $2,000 in a single month. 

That’s really the benefit of options.  They work best when paired with stock picks,  giving  you leverage on the markets to help you in maximizing your gains. 

All  of  Alex’s options  recommendations will be  calls. He  recommends only stocks he expects will go up in value. 

That’s all for this video. 

Please join me in Part 2, where we’ll discuss the particulars of actually buying options and which numbers you should keep track of when doing so. 

Until then, good investing. 

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Part Two

Hello again,  Executive Vice President George Rayburn, here. Welcome back  to Options the Easy Way: Turbocharge Your Profits With One Click. 

In this video, you’ll learn how to buy options and some other key terms that will help you understand them. 

So let’s get started. 

Buying options is really no different from buying stocks, at least in terms of how you do it. Most online brokers will let you trade them. You don’t need some special permit or title. 

Once you’ve set up your brokerage account to trade options, in almost every case, it’s as simple as clicking “Buy.” More on that in Part 3 of this video series. 

But there are some more key terms to understand before you can trade options effectively. 

First, what makes up the price of an options contract? 

Well, there are three parts to it. The number you see next to the option listing is its premium. That’s the amount you pay for each contract. It’s always significantly lower than the price of the stock that it tracks. 

The premium is made up of two factors:  the option’s intrinsic and extrinsic value.  Intrinsic value is how much of the premium is made up of the difference between the current share price and the strike price. 

For example, let’s say you bought a call option for $3. The strike price of the option is $25,  and the stock is currently trading for $27. 

The share price is $2 higher than the strike price. That means $2 of the premium is the intrinsic value of the option. 

With the intrinsic value, we can also understand how much the share price needs to move before we can profit. To do that, we add the price of the premium to the strike price. 

In the case of our example, that would be $3 plus $25, or $28. That means the share price must be above $28 for us to make a profit. 

Now, say the share price leaps up to $35. Then the intrinsic value of our option would leap to $10,  leaving us with a  233.3% gain. 

The remaining value of an option premium is its extrinsic value. It’s also referred to as the time value of the option.  It’s composed of implied volatility that fluctuates along with market demand for options. 

Extrinsic value decreases the closer you get to the option’s expiration date. So how does all this work? 

Well, let’s take our previous example… 

Say we buy in at $3 like before with an intrinsic value of $2. 

If the share price doesn’t move but the price of our option goes up to $4, then only $2 of that is intrinsic value. The extrinsic value will slowly degrade to $2 at expiration. 

That’s because the extrinsic value is all about potential. It’s based on the chance the underlying stock has of moving up or down. 

As such, the closer to expiration an option gets, the less chance there is for its underlying stock to move and the less potential the option has of being in the money. 

That’s why you should always set a clear exit strategy before buying an option.  You can’t rely on the option’s potential forever,  and you don’t want to be left holding the bag when it expires. 

That said, there is somewhat less risk with options in the sense that there’s less money on the table. 

Sure, they’re more volatile,  but if you buy a $3 call on a stock that trades for $10,  for example, you’ve put $300 on the table, while a shareholder with 100 shares is on the hook for $1,000.  

If that stock were to suddenly dip by 40%, the most money you could feasibly lose is $300, while stock–holders’ would lose $400 or more if the share price continued to dip.  

You position yourself to reap massive gains while putting less money up front. 

Now that you understand what goes into the price you pay for an option contract, let’s talk about how the  market buys and sells options. 

Each option contract has a bid price and an ask price. They’re also known as the bid and offer. It’s a two-way price quotation that illustrates the best price the option can be bought or sold  for  at any  given time. 

The bid price represents the maximum price that a buyer is willing to pay for an options contract. 

The ask price or offer price represents the minimum  a seller is willing to take for the same options contract. 

A trade can  occur  only  after the buyer and seller agree on a price for the option,  which is between the bid and the ask. 

The difference between the bid and the ask is called the spread. The smaller the spread, the easier an option is to trade. 

To the average investor, the bid and ask spread is an implied cost of trading. 

For example, if you’re looking at an option that reads $1 to $1.05, someone looking to buy the option would pay $1.05,  while the person selling it would receive $1. 

The $0.05 difference is pocketed by the market maker. 

Alright, I think I’ve thrown enough at you for one video. Please join me next time for the conclusion to this series. I’ll tell you how to keep your fees low when trading options  and give you more detail on how to trade them. 

For now, good investing! 

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Part Three

Hi everyone,  Executive Vice President George Rayburn  here again. Welcome back for the third and final installment of Options the Easy Way: Turbocharge Your Profits With One Click. 

Today I’ll be teaching you how to actually buy an option and how to keep your trading fees to a minimum. 

Now, here’s the thing. If you have an account already and some money to trade with, you’re already set. 

You just have to let them know you’d like to trade options. You can  do so  either  on your account or  by  setting  up an account specifically for options trading. To trade options, your account needs to be  Level 2  to Level  5. 

If you’re new to options trading, again, read all the material your broker sends you. Before you start trading,  you should also talk to your broker. 

It might take some time to familiarize yourself with all the intricacies of options trading,  but  setting  up an account to trade can be done in as little as  five  minutes. 

If you don’t have a brokerage account, get one as soon as possible. Time is money – don’t waste it. 

You can use any online brokerage to trade options. If you work with a full-service broker, that’s fantastic,  but really, any broker will do. Charles Schwab, Fidelity, TD Ameritrade – all of them will get the job done.  

None of them charge commissions on trades anymore either. So it’s now easier than ever to get into investing and options trading.  

Now, buying stock is simple. You just log in to your brokerage account, search by the company’s symbol or name, select the number of shares you want, and click “Buy.” 

Buying options is just as easy. It has a couple of extra steps,  though. Start by looking up the options available for the stock you want. Be sure you look for the calls, not the puts. Alex won’t be recommending any puts. 

Once you’re looking at the list, find the one that matches the expiration date and strike price Alex recommended. 

Once you’ve found the option you want, select the number of contracts you want to purchase and click “Buy to  Open.” 

It’s that simple.  Just one click and you can turbocharge your profits in a short span of time. 

Alex will let you know when to sell and in what quantity. You can actually get multiple gains out of a single options play. 

Say your options are up 100%. There’s a lot of money on the table there,  but they still have the potential to move higher. 

Alex might say to sell half or one-quarter of your position. Selling a portion of your options contracts allows you to lock in those gains while still allowing you to take advantage of their remaining potential. 

Now, there are other strategies aside from partial selling, but that’s the only one Alex uses in his services. It allows you to reduce your risk while still taking massive gains. 

And that’s about it. With these videos, you’re set to take your first steps into the world of options trading. 

You can always return to this series  to refresh your memory. That’s all for Options the Easy Way: Turbocharge Your Profits With One Click. 

I’m George Rayburn.  Good investing.