The Epiphany

After holding my stocks for a while and being fairly content with my choices to be up 8% in a month I started to read into options a bit more. Most things I read were actually very confusing, they made it seem like you had to hold options until expiration and if you didn't hit your strike price they were worthless. This makes me understand why more people do not trade them. However, I went to my grandma to ask her if you could in fact trade them like stocks, she said sure there is no reason to hold them, in fact you shouldn't hold them into expiration unless you have the money.

After clarifying that and reading a book called "All About: Options" I felt I had enough info to get my feet wet. I had been watching Apple for a bit and liked the company and figured they would do well on their upcoming earnings and had many more catalysts to come during the year. I decided to buy some options right before earnings(we'll get to why this screwed me later). I bought 2 contracts of the 95 June calls, it would have been 10 but the price ran up on the stock in the 15 mins I was finalizing what I was going to do. Apple reported and blew estimates away and the stock jumped 7 dollars the next day. I had instantly doubled my money and made 1,200 into 2,400. Obviously I liked earnings 1,200 in a day instead of a month's time. I at that point also had enough knowledge to know stocks will then usually pull back, so I sold my calls on the open and bought puts, this time the 10 contracts I wanted originally, and actually made another 2,900. WOW, I was excited and proud of myself for predicting how the stock would move. I was off to a good start, which we will find out later why this is not necessarily a good thing.

What most people do not understand about options is they can be as risky or as conservative as you want, I was fairly conservative since I was still new. Leverage can be your friend if you know how to use it properly. Options give you limited risk with unlimited reward which again, can be very useful if you know what to do. Options do have more risk though as they can technically go to zero value and the leverage gives you bigger gains or losses in shorter amounts of time. I'll touch more on what I did in the next post and how my initial success actually set me back and how trading rules must always be followed. Stay tuned....