Options Trading for Beginners

Options Trading for Beginners

It does NOT take money to make money. Discover how trading options can provide the financial freedom you desire.

I often hear people say, "It takes money to make money." This is not true. For Kim and I to go from homeless in 1985 to millionaires in 1989, and then to financial freedom in 1994, it didn't take money. We had no money when we started, and we were deeply in debt.

It also didn't take a formal education. I have a degree, and I can tell you that achieving financial freedom had nothing to do with what I learned in college. I didn't find much demand for my skills in calculus, spherical trigonometry, chemistry, physics, French, and English literature in the real world.

What does it take to get rich?

I'm often asked, "If it doesn't take money to make money, and schools don't teach you how to become financially free, then what does it take?"

My answer: It takes a dream, a lot of determination, a willingness to learn quickly, the ability to use your God-given assets properly, and to understand how money works and can work for you.

Freedom with options trading starts with financial education

All of the qualities necessary for getting rich, start with financial education—a type of education that you can't get in a traditional school. My financial education started with my rich dad, my best friend's dad, and continues today through books, seminars, learned lessons, and mentors. From all these sources, I learned about cash flow, debt, business and investing, taxes, and more—and how to use each to make myself rich.

If you want to be rich, I can't stress the importance of starting your financial education today. Take some classes, read a book, attend a seminar, and find a great coach. It's the most important investment you can make.

The most important thing, however, is to believe it's possible. And believe it's possible for you. You must change your mindset to a mindset of success rather than a mindset of failure. Most people cannot stop the little voices of doubt and fear that stop them from ever getting started.

So for those people, I would like to address the biggest voice, the voice that says, “How can I invest? I don’t have any money.” The truth is it does not take money to make money. It takes a little imagination and a little guts, but it does not take money.

Instead of telling you my stories again, I’ve asked one of my advisors, Andy Tanner, to share a theoretical story, a parable, followed by an example of putting the lessons from the parable into action.

Options trading example: The parable of the suit

Imagine you knew of a simple process to create money almost out of thin air, and you could follow this process again and again whenever you needed it. Let me walk you through a financial parable to explain how this principle works.

One day, a man walked through his town, peering into the different shop windows along the way. At one particular shop, a beautiful suit caught his eye. So he entered the clothing store and asked the clerk in the store the price of the suit.

“Well,” said the clerk, “this is a very nice suit made of the finest wool. The regular price of this suit is $2,000. Fortunately, today is the final day of a special sale, so the suit is available for just $1,000.” The shopper recognized this as a great value. But, he didn’t have enough money to purchase the suit at that moment.

The man asked, “Is there any other way I can have this suit at this discounted price without paying for it now?” The clerk, wanting to preserve the sale, replied, “I’ll propose a gentleman’s agreement. I will create a layaway plan. We will put the suit on reserve so no one else can get it, as long as you return within 30 days to pay for it in full at the discounted price of $1,000.”

The man felt very good about the agreement proposed by the merchant. He was hopeful that he could come up with the money after paying his expenses that month, but he also felt good that he was not obligated to buy the suit just in case it did not work out.

So the man agreed to put the suit on layaway, and the clerk put it in reserve at the discounted price of $1,000. As proof of this arrangement, the clerk gave the man a slip of paper with the store name, the clerk’s name, the terms of the layaway agreement, and his signature.

Options trading simplified (A Promise and A Choice)

The man could present that slip of paper at any time within thirty days to receive the suit at the sale price. The clerk, acting on behalf of the store, made a promise to sell the suit at a specific price for a certain amount of time. The man had the choice to purchase the suit according to those terms. Even more important, the man has no risk of loss.

The next morning, the man woke up and turned on the news. The main story was about a very popular sports star, and the athlete was wearing the exact same suit that he put on layaway.

Later, the man passed the same shop where he purchased the suit. The store was overflowing with people and there was a line forming just to get in. They were all trying to buy the suit that the athlete was wearing.

Upon hearing this, the man asked a young person in line, “You are willing to buy the suit for the full price of $2,000?” At this, the young man laughed, “I wish I could get it for $2,000. The price went up this morning to $4,000!”

Overnight, the price of the suit doubled based on the new demand for it. The man’s mind started turning. He realized that there was now a line of people who were willing to pay up to $4,000 for this same suit. Yet, in his pocket he had a layaway slip which guaranteed him the right to purchase the suit for just $1,000.

Even more interesting was the fact that those people in line were nervous that the store may sell out of all the suits before they get a chance to buy one. His suit was put away safely in the back of the store where no one else could buy it.

He considered what someone might pay him for his suit that was on layaway. He had two possible ways to take advantage of this situation: He could go into the store, buy the suit for $1,000, and then turn around and sell it to someone else for $4,000. Or, he could just sell his layaway slip for $3,000.

Both scenarios would result in him pocketing $3,000. But the first one would also require that he use $1,000 of his own money to get the suit out of layaway. He realized selling the slip of paper in his pocket for $3,000 was the best choice for him since he didn’t have $1,000 of his own money to start the transaction.

He approached the young man in line again and asked him if he would be interested in making a deal. He explained that he will sell his layaway contract for $3,000, which will entitle him to get the suit for $1,000, and he is guaranteed to get the suit. The young man quickly realized the value of that slip of paper and agreed to buy it. Without spending a penny of his own money, the man made $3,000 in a day.

This is an illustration of how options trading works.

How options trading works

Referencing the story above, consider if this man was looking to flip a house, buy stock, or buy gold. This is the same scenario that investors exploit every single day. Amateur investors ask amateur questions like these:

“Should I use my own money to buy this house and then hopefully flip it for more?”

“Should I buy 1,000 shares of this stock and hopefully sell it later for more?”

This type of investment profit is called a capital gain. It’s when your ending investment value is worth more than what you paid for the investment. It’s the increase in your investing capital. And it’s the approach which follows the “it takes money to make money” path.

Most people believe that you find a good potential investment, pull money from your bank account to pay for it, and then hope it goes up in value so you can make more money than your initial investment.

However, remember that we didn’t ever buy the suit. All we did was enter into an agreement with someone else. And this agreement cost us no money. The store clerk gave it to us. Instead of requiring money, all we needed was a simple negotiation. The layaway agreement gave us the flexibility to decide if it was valuable enough for us to take action. It didn’t require any money from us—either from our own account or from a loan. Trading options works the same way.

Options trading works the same way. You never need to actually buy a stock trading with options. Instead, options trading allows you to enter into an agreement with someone giving you the choice to purchase the stock at a specific price at a specific date in the future.

It’s not easy, of course, to always know where the price of something will be next month or next year, but it might be very exciting for you to discover that in real life there are deals you can do that don’t require you to buy anything. Watch Andy's webinar to learn more about these deals.

Options trading conclusion

The story above is an example of making money with intelligence and imagination. That is not just a story. Whether you realize it or not, opportunities to take very similar actions are presented to you every day. You just don’t see them… yet.

Since birth, and especially since attending school - we have been convinced that it takes money to make money. That is a very dangerous belief. That belief alone will keep most people from ever finding success.

One of the real dangers of that belief is that it makes most people a victim. They believe they do not have a chance since they were never given the same opportunity and tools (money) as others. Once you accept that you are a victim, you will never be in control of your life again. If you are not in control, then you must patiently wait for luck to make you wealthy. Chances are that is a losing strategy. Do not be a victim. Banish this belief from your thoughts.

Another danger of that belief is the pain it causes. If you become a victim, you feel helpless, but you also become angry. Angry at the world for placing you in this unfair situation. Angry at your parents for not being more successful. Look around. Does the world need more angry people? No. Banish this belief. Free your soul of the negative chains that weight you down. Accept responsibility for your own life.

The last point I want to highlight regarding the evil belief that it takes money to make money, is the power it gives you to fail and keep failing. Excuses are dangerous things. And this belief is the mother of all excuses. The power of an excuse is the permission it gives you to never even try.

I don’t care how great your excuse is, it is never going to help you create your success. Have you heard this quote:

“Don't let life discourage you; everyone who got where he is had to begin where he was.” —Richard Evans

Just let that sink in for a moment. Everyone starts out with challenges, even the most successful people. Overcoming those challenges and reaching one's goals despite the odds stacked against them, is what propels some people to success. For those who buy into the excuses about why they can't achieve something, their thoughts become a self-fulfilling prophecy.

Change your mind. Change your life. Understand that you can make money without money. Andy showed you how to do it with a suit. He also does the same strategy nearly everyday in the stock market. So if your new excuse was, “I don’t have a tailor shop nearby” or, “I can’t find any deals like that one,” then you are in luck. There are millions of those deals in the stock market every day.

I encourage you to watch this FREE training Andy made for you. Watch this and then see if no money deals are something you’d like to pursue. Because I know you can.

Original publish date: April 30, 2013