Recently my wife and I were talking about a Bible study she attends every Tuesday morning. I have spoken at length with the person leading the Bible study
so I had a good idea of where the study would go. While I enjoy every conversation I have with this person and every study they are involved with, they
have pretty much made up their mind. You see the person leading the study has a Masters in Divinity so they are VERY knowledgeable and have a wealth of
information to share. They also hear and read everything with an end in mind. I confess, I’m not much different, except I don’t have a Masters in Divinity
just a lot of time spent reading and studying. It seems we can read the exact same material and draw different conclusions. I can see their point, I just
don’t agree with it. But I certainly enjoy talking about it and respect their position. We both think we’re open minded, I’m just not sure we are. While
some of my views have changed over the years, some of my views will never change, at least not while I’m alive.
So what does that have to do with trading? I see strong parallels. Fortunately for me I knew very little about trading before I learned about options
trading so I had not draw many conclusions. I had no preconceived conclusions. So I wasn’t open minded, I was empty minded. But now that I’ve been trading
for a bunch of years I have settled on my own style. Every time someone asks me about a stock and how to trade it I immediately go to my favorite trades. I
look at it with a conclusion already in mind. That is, after I look at the options chains to see if I would trade it. So I’m pretty close minded about
trading stocks without options. I do not even consider a stock that does not have great option chains. I don’t ride my motorcycle without a helmet, I don’t
weld without a helmet and I don’t trade stocks without options.
I look at stocks in the context of what has worked for me and what I already know. I know that I am not good at picking momentum stocks but I am good at
finding option trades on stocks with chart patterns. So recently when a person asked me what was the best of three stocks to use as a cloud play I looked
at the options chains and picked the stock with the best chains. I also told him to ask one of the other coaches because they are far better at picking a
stock that will move. It is just not my style.
That is just one of the many reasons I love options. I don’t have to be great at picking stocks to make returns people just don’t believe. That might be
the hardest part of trading options, people don’t understand them and have opinions based on no knowledge. They had already drawn their conclusions before
they have studied. I think that is where we started this blog right? Drawing conclusions at the start?
I’ve been teaching options for several years now. I’m always glad to see new members. I’m glad to say many seem to enter without preconceived conclusions
on how to use options. But I do see members with the conclusion in mind before they even know what an option is. They may have experience in the market or
not. We have all been raised on buy low and sell high so some enter the program looking to see how they can get better at buying low and selling high or
how they can make more money buying low and selling high. And that can work but it leaves out a huge area of potential profits.
How about selling high and buying low? How about selling for a lot and buying back for much less. Now some will read that as shorting a stock. The idea
there is that you sell a stock, it drops and and you buy it back for less. I’m not talking about selling stock. I’m talking about trades with a great deal
less risk but still big rewards. You sell an option spread and either let it expire worthless, just like my car insurance, or buy it back for less. I can
also buy an option spread and sell it for more. I can do that if I expect the equity to drop or if I expect it to rise, I can even do it if I expect the
equity to not move. I can do that because no matter what the equity does, time is going to pass. I make a lot of money with time passing.
So don’t begin with the conclusion. Begin with an open mind and see what you can think of. Options present many ways to make money. You don’t have to
be exactly right to make money, you just can’t be completely wrong.