342: Options Trading 101: 8 Rules for Success for Total Newbies

Is options trading legit? Is it a viable side hustle?

In this episode, we’re tackling trading options -- a topic that’s been frequently requested by listeners, but is somewhat foreign to me.

To help school me on this, I’m excited to welcome my friend Kirk DuPlessis to the show. Kirk runs the super popular site OptionAlpha.com, where you can get all sorts of free options trading training. He’s been at this for over 10 years and the site has over 150,000 members.

Options trading (when done right) is a high probability form of investing, but as with all investments it’s based on risk.

Kirk explained options contracts are like insurance. As a trader, you can either be a buyer of insurance or a seller of that insurance.

On the buying side, it’s a way to kind of amplify your trading power through leverage. Instead of buying 100 shares of a certain stock and hoping it goes up, for example, you could buy contracts for a fraction of the share price that give you the option to buy the stock at today’s price should it go up by a defined amount in a certain amount of time -- the contract term.

If it does, you exercise your option and make a big gain on a small initial investment. If it doesn’t, you just lose your initial option contract purchase price, kind of like your car insurance premium if you don’t get into a wreck.

On the seller side, you’re the person selling that insurance. You collect the cash upfront, and as long as the trigger event doesn’t happen, you keep it. Kirk argues that just like insurance companies are some of the most profitable in the world, option sellers are most often the winners in the options trading game.

In this post and podcast episode, Kirk explains in more detail about how this all works in practice and shares his 8 rules for success in options trading.