Dear reader.
The top one-percent of Americans control over 80% of the wealth – these wealthy one-percenters hold almost as much wealth as the upper and middle class combined.
A group of these one-percenters were interviewed and expressed some of their habits – like rising at 5:00 am, or reading every day or even saving 20% of their income.
Well, while it’s nice to know the habits of rich people, I don’t really care if they feed their pets the best dog food or wear black turtlenecks every day.
What I care about is what got them there; to their wealthy lifestyles.
THAT’s what we’re going to talk about today…
Let me start by using a dirty word – leverage.
Without thinking about it, you’ve probably used leverage in your life, which is something that makes the rich even richer.
Any time you’ve purchased an automobile with a small down payment while letting the bake cover the rest for you, you’ve used leverage.
Or perhaps you’ve purchased a house with a down payment while the lender puts up the rest – if so, you’ve used leverage.
With many things in life, there are those people who are paying interest and then there are those who are collecting interest.
It’s time to start thinking like the one-percenters of America and make profits by using leverage.
The mindset of the one-percenters is to use leverage to their advantage – interest collectors, so to speak.
But the type of leverage I’m talking about here doesn’t involve either borrowing or lending money to others and collecting interest – instead, I’m talking about a kind of leverage that allows you to make greater returns while investing less money.
The tool to accomplish this goal is equity options.
Trading options gives you the ability to use less money in order to make more money.
Let me explain, and I’ll show you how you can use the leverage of options and apply the mindset of the one-percenters to make you money.
Stock vs Option Investing
Buying a stock is pretty easy to understand: You’re able to invest smaller or greater amounts when buying shares.
At $12 per share, you can acquire 100 shares of Ford by investing $1200. Or, if you’re feeling really good, 100 shares of Berkshire Hathaway will cost you over $47 million.
There’s a wide range of stocks prices to choose from, but whether the investment is Ford or Berkshire Hathaway, if the stock’s price rises by 10%, your return on the investment is still just 10%.
So, let’s talk about the idea of leveraging with options – which is a smart way to invest smaller amounts with the potential to make greater returns.
The Option Trade
On September 30, 2022, Ford’s stock was trading at $11.20 per share, so a 100-share investment would cost $1120.
On this same day, however, Ford’s $11 call option contract was trading at $0.63 per share, so one option contract would cost the trader 63 bucks.
Five days later, Ford’s stock had risen to $12.51 per share – an impressive 11.7% return on investment in a matter of days.
Now, the call trader, who’s thinking like a wealthy one-percenter by using options as leverage, is smiling all the way to the bank. Instead of taking the 11.7% return on the stock investment, the alternative $63 call option investment realized a 173% return over this same five days.
You heard me right…. 173% in 5 days.
The one-percenter mindset is powerful and rewarding, and having a mega-size portfolio is not a requirement to apply the mindset of the wealthy – instead it just takes a willingness to apply the mindset.
Trade Both Sides of The Market with Calls and Puts
In the examples I used above, profits were made using either stocks or call options. In either scenario you could be profitable, but this year has been different – the market has fallen more than it has risen.
An options trader can trade both calls and puts – calls for rising markets, puts for declining markets.
This means you’ll again place odds in your favor because by trading both calls and puts there’s no need to sit around waiting for the market to turn in your desired direction in order to capture profits.
So, have the mindset of the one-percenters, use leverage to your advantage and increase your trading potential using both call and put options.
Until next time,
Tom Gentile
America’s #1 Pattern Trader
Join Tom each Monday through Wednesday at 12:00 p.m. ET as he discusses a range of strategies to make money in a strained market environment.
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