We Answer These Three Questions on Options Trader

Discounted memberships to our Options Trader service close at midnight tonight.

Not surprisingly, we have received several letters asking some key questions about the service, and options trading in general.

I’ll show you a handful of those below, and my answers to them. But first…

Markets

Overnight, the Dow Jones Industrial Average gained 49 points, or 0.3%.

The S&P 500 index added six points, or 0.3%.

In Europe, the Euro Stoxx 50 index closed up 49 points, or 1.6%.

The FTSE 100 index gained 0.8%, while the German DAX added 2.3%.

In Asian markets, Hong Kong’s Hang Seng index is down 1.3%. China’s Shanghai Composite index is down 3.8%.

In Australia, the S&P/ASX 200 index closed up 27 points, or 0.5%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$39.97 per barrel. Gold is trading for US$1,254 per ounce.

The Aussie dollar is worth 77.83 US cents.

Questions about Options Trader

The discounted rate for subscribing to Options Trader closes at midnight tonight. Also closing tonight is the six-month, money-back guarantee to trial the service.

That means you can pay upfront now, trial the service for six months; if you feel it isn’t for you, you can call our Customer Service team and ask for your money back — no questions asked.

It’s a darn good deal.

Even so, we’re still getting questions from folks who are interested in the idea, but haven’t yet taken the plunge.

One reader, EW, writes:

What about being completely ignorant to trading! Is there an automated system that can be used to trade for you, as I have no idea.

Before you scoff at the question, you should congratulate the gentleman (or lady, the gender of the emailer wasn’t clear from the email) for having the honesty to admit what few dare admit — that they don’t know as much as they’d have people believe.

Anyone who is completely ignorant to trading should give Options Trader a miss. In fact, they should avoid all of our premium investment advisories.

I’ll go further. They should probably avoid several of our entry-level advisories too.

If your goal is to be an independent investor, you can’t declare ignorance and just hope for an automated system to rescue you.

Because, guess what? Even automated systems require a human element. We’ll take Jason McIntosh’s Quant Trader as an example. The trades it generates are automated.

However, either side of that automation is a human element. In order for the system to be successful, it needs Jason to develop the idea, and then program his computer software with instructions to find the trades.

Then, after the system spits out the trades, it’s then up to the trader to decide whether they place the trade or not.

And even if they place the trade, there is still a human element around whether the trader uses the stop-losses that Jason recommends.

Most probably do. But a large percentage won’t.

I know that based on the feedback I’ve received from my Microcap Trader subscribers.

I recommended that subscribers lock in a quadruple-digit percentage gain. But within hours of emailing that advice I received emails from subscribers telling me there was no way they were selling. They had their eye on the stock tripling from the current price!

If they’re right, the returns would be unthinkably large. Good luck to them. I hope they’re right. But, for me, I was happy to recommend taking a 1,120% gain. I didn’t want to be greedy, and I also didn’t want investors to give up such a big gain if the stock happened to fall.

I know that’s a long answer; but, to put it simply: if you can’t spare the time to rid yourself of ignorance, being an independent investor probably isn’t for you.

Maybe that’s harsh, but that’s how it is.

Another question, this time from Chris S:

With a $20,000 account, what is the likelihood that I would make a profit exceeding the subscription cost?

That’s a great question, because Options Trader editor Matt Hibbard says $20,000 is the minimum capital any investor should have before following his service.

As to the likelihood of covering the cost of the service, in truth, that’s a hard one to answer. This is the stock market, after all.

If we’re just talking about the income you could earn from selling put and call options, I’d say the chances are pretty good. As I mentioned last week, on the trades that Matt has sent out so far, his subscribers should have been able to bank over $2,000 in premiums in six months.

That covers the cost of the service on its own. In addition, there’s what I believe to be an even bigger benefit of having Matt teach you how to trade options for yourself.

If you add in dividends, and any capital gain you may have received after being exercised on a stock, then that could add to your bottom line too.

However, this isn’t a one-way street. As I say, this is the stock market. It’s possible that, after selling a put option, and being exercised, the value of the stock could be significantly below the price you paid.

That, of course, is a potential risk with buying stocks outright. But it could mean that the losses on even one position may not be enough to cover the premium income you receive, nor cover the cost of the Options Trader service.

Another question. This one from Peter M:

Not an answer but a question.

I am interested in this options trader. I have seen a similar arrangement before with 21st century. They used an additional assurance.  While selling a put option, you purchase a call option for a smaller price (and vice versa). This reduces your profits but also reduces exposure to large changes in share price. But I cannot remember exactly how it worked.

I would be more willing to take lower profits if it means reducing risk.

Do you have this arrangement?

I think Peter has muddled his options strategies there. But that’s OK, it’s easy to do. The strategy he probably means would involve buying a put option at a lower price, in order to reduce your risk if the share price fell further.

But that would cut into the income received. For that reason, Matt doesn’t use this strategy. The purpose of Options Trader is to sell puts on stocks Matt believes are good companies to own, if the puts are exercised.

Because of that, Matt not only assesses the risk and reward of each options contract, but he analyses the underlying stock too. He’s always asking himself: ‘Is this a stock I would be happy to own if I had to buy it?’

If the answer is yes, and providing the payoff is right in terms of the income, then Matt is happy to send the trade idea to his subscribers.

That’s not to say buying put protection is a bad idea. It certainly has benefits if you’re using leverage, as that would reduce the risk exposure to a falling share price. But Matt’s strategy doesn’t involve leverage. His strategy is for cash-covered put selling only.

Those are just a few of the questions we’ve received about Matt Hibbard’s Options Trader service. As we’ve said many times, it’s not for everyone. But, if you’re looking for new ways to earn an income from this market, and you have some experience investing in stocks, it could well be worth your time checking out Options Trader.

For details, go here.

Cheers,

Kris

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End of day market data

If you have any ideas about what you would like us to include in our end of day market data drop us a line at letters@portphillipinsider.com.au, and type ‘Market data’ in the subject line.

52-week highs: 47 stocks, including Corporate Travel Management Ltd [ASX:CTD], Doray Minerals Ltd [ASX:DRM], N1 Holdings Ltd [ASX:N1H], Fortescue Metals Group Ltd [ASX:FMG], Recall Holdings Ltd [ASX:REC], and Resolute Mining Ltd [ASX:RSG].

52-week lows: 18 stocks, including Jayex Healthcare Ltd [ASX:JHL], ZipTel Ltd [ASX:ZIP], and Keybridge Capital Ltd [ASX:KBC].

Note: The stocks listed above are stocks that hit an intra-day 52-week high or low during today’s trading. The stocks didn’t necessarily close at the 52-week high or low.