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1700% ROI

1,700% ROI in 3 Weeks

In one other worst markets in a generation, where stocks are losing 5-10% of their value every day, I have a stock asset that has now increased in value more than 1700%. In a matter of just a few weeks I was able to turn a small $2,000 dollar investment into over $35,000 and still growing. I know this sounds like a scam, but trust me it’s not, and to prove it I have attached a screen shot of my own personal Ally investment account below. In this article I will explain a bit more about what exactly this asset is and how you can also use this same type of vehicle to take full advantage of large market swings in both the positive and negative direction.

Options

The specific asset vehicle I am using in this case is called an option, and you can buy these with any standard online trading account as simply as you can buy and sell a stock. There are two primary types of options called “CALL” and “PUT” options. In general options allow you to pay a small amount of money for the option to purchase (CALL) or sell (PUT) a specific stock at a set price “STRIKE PRICE” by some specified date. In simple terms if you think a stock will go up you buy CALL options if you think it will go down you buy PUT options. If the option is not exercised or sold before the expiration date then you lose the entire amount of money invested in that option. Again, in simple terms if the stock stays more or less flat or moves opposite the direction you expect then you option losses value and eventually goes to zero value by expiration date. That makes options a speculative asset since they aren’t themselves directly providing ownership in a specific asset and can, and frequently do, end up expiring worthless. It is for this reason that most investment advisors recommend to only invest amounts you can afford to completely lose in options since in many cases the end result will be the loss of your entire investment in that option. However, when things do go the way you predict, and the market moves sharply in favor of your option the payout can be tremendously high as illustrated by the personal example I am sharing in this article.
Screen Shot from Ally Account Showing the UBER PUT Option Value Increase

UBER PUT Option

To simplify further let me explain exactly what my PUT option play on Uber was and how it works. As you can see from the screen shot, I selected to purchase “PUT” options on the ride share app company UBER. I purchased this option on Feb 21st 2020 when UBER’s stock price was at approximately $40/share and set a strike price of $20/share with an expiration date slightly less than a year in the future on Jan 15th 2021. So basically, my option purchase was a bet that Uber’s stock price would drop dramatically between now and Jan 15th of 2021. I did this because For a PUT option to be worth exercising you need the stock price to fall below the strike price before the option expires and then once exercised you can pocket the difference. In the extreme case that Uber’s stock value fell to say $1/share then I would be able to purchase shares of Uber for $1 and force the PUT option seller to buy back those shares from me at $20. Since I own 75 contracts, and each contract give me the right to sell 100 shares, this means I could in that scenario pocket $19 per share of Uber sold x 7500 shares which would equal $142,500 of profit on these options. Of course, the chance that Uber drops all the way to $1 or less is still low right now and that is why my options are currently valued by the market at $35,500. One other very useful and exciting aspect of options is you don’t have to wait until the stock drops below the strike price to make money. As you can see, I can already sell my options today if I would like for $35,500 and make over a 1700% return on my small $2,000 investment. Or I can continue to see how this plays out and hope that Uber’s stock continues to drop as more and more people move away from travel and utilization of ride sharing apps.

Options Post-Coronavirus

I am an optimist in general though and I hope that the coronavirus out break is short lived and the stock market rebounds soon. I have personally lost much more in my broader stock portfolio than I have made in this one PUT option play, but this PUT option certainly did helped cushion the blow and offset some of those loses. When the coronavirus starts to slow down and the market picks up again, I will also be looking to do the same thing in reverse by buying CALL options in stocks that have been hammered during this crisis and are ready to rise quickly as people go back to their normal routines. Most likely I will look at buying CALL options in Airlines (Southwest), Disney, and Oil Companies (Exxon and Apache) for example. Oil companies specifically might be a very interesting play because if the coronavirus concerns subside and Saudi Arabia ends its price war with Russia then these stocks could rise very quickly which means CALL option values would rise even more aggressively as well. Feel free to leave a comment if you have had similar successes with options during this or other major market events. I would also be interested to hear any other specific stock/option plays people are considering now and in the short-term. If you are interested in real world examples of other stock market trading systems in action feel free to check out my article comparing the performance of the Magic Formula Investment Strategy to Vanguard ETF. You might be surprised by which one faired better in my own head to head comparison.   Disclaimer: This article was not intended to represent specific financial advice or guidance and instead is simply an explanation of my own personal investment experience in one specific option asset. Please consult your own personal financial advisor before making any major investment decisions.

ExpatFIRE

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