The Search for Equity Continue – Stock Option?

Two way you could make money in any investment

  1. The yield from the investment  – aka cash flow
  2. Equity increase from the investment – aka capital gain

With yield at record low. I began my quest again to look for other alternative. Just like anybody – I attempted the stock market before and got burned badly in the past. Now i am attempting again but this time i have a different background – I’m an experienced Investor in general, and Real Estate to be specific

I wrote an article earlier this year on how to protect your current stock with an insurance policy. This is good if you already own stock and simply want to protect it. However, if you keep buying the stock and then also buy the put to protect it. It will cost you a whole lot of capital and just like real estate you will soon run out of money to buy more stock. What is the solution to this problem? I want to own more stock but want to put less money up front. Could this be possible?

In Real Estate, we don’t just go give the seller the money to buy the house immediately. What do we do?

We put a CONTRACT in.

A contract let the buyer have control of the property to do necessary inspection and if it turned out that the house is a piece of shit. you make the seller either lower the price or back out. All that the buyer lost is the option money, which is usually 10$ per day. 100$ for 10 days as usual.

Could we do the same thing with stock? Absolutely. we can do it with a CALL contract.

1 Call contract represent 100 stock. It is an agreement between the buyer and the seller of the stock. contain the agreement price (strike price) just like real estate. and the option period that you can back out for, and the only thing you will lose is the option money.

I am very surprise to find out that for a 18 months contract of symbol USO at strike price of $10, the market was selling it for $178

wait…what??? $178 for a 18 months option period?? which is ~30 cents a day.  How come this sound so cheap compared to $100 for 10 days – 10$ per day?

So that’s what i did. i bought a bunch of contract of USO just to test out this theory. what’s there to lose? $30cents a day until  January of 2018 with the opportunity of making a lot more if oil came back?

If oil doesn’t come back then oh well..i lost my option period money.

 

uso

I will keep update my progress. probably adding a few more contract next week or so….

Also forgot to say what will happen to the call contract when the “option” period end?

Well you can either “wholesale” it to other investor just like real estate with a click of a button

Or – you executed the contract and get the house at the contracted price. Oh i’m sorry, I mean get the stock at the strike price

The broke i use is Thinkorswim. they are awesome as far as option goes. If you do sign up, let me know, we can split the referal bonus