If you’ve read any of my blog posts, you know that I’m on a $30,000 Journey to Debt Freedom. Part of that journey involves me seeking new ways to earn extra income. And, a little over two months ago, I came across Robinhood. If you haven’t heard of it, it’s an amazing app that allows you to trade stocks, stock options and cryptocurrencies for free. It works with both Android and iPhone. And, it has simplistic tutorials that can help in your decision-making.
Let me just preface the rest of this post by saying that I’m not a financial advisor and I would never tell anyone to buy this stock or that option. But, I am going to share with you what I’ve learned using Robinhood and hope that it encourages you to do your research and act accordingly.
What I Learned Using Robinhood
Options offer more leverage than stocks.
With options, you’re able to purchase contracts that allow you to effectively control 100 shares of a certain stock, at a certain price, up until a certain date for a fraction of what it would cost to actually own the shares. I know that may sound a bit confusing, but I want you to do some research on options so that you can be informed for yourself.
In the meantime, here is an example: 100 shares of NKE (Nike) at $75 a share would cost $7,500. Not everyone has that just sitting around to invest, but if you were to purchase one call option for NKE at $75 that expires 6/22, it would allow you to benefit from any price increase in the stock until that date for $1.26/share or $126 because each contract is for 100 shares.
If NKE were to increase by $2 before 6/22, you could sell that option for $294. That means you would profit $168 from that transaction. If the price were to fall below $75 to $73 your option would lose some of it’s value and may only be worth $28 if you were to sell it.
With options, your loss is limited to the cost of the contract.
If you purchase $200 worth call options for a certain stock and the price of the stock drops drastically, the most you can lose is the $200 that you paid for the options. On the flip side of that, the gains could be unlimited.
Example, if you purchase one call option of NKE at $75 a share for $200 and the price drops to $60 you’re options would expire worthless and you would be out of the money (a term which you need to know about BTW). If however, NKE skyrockets to $200 and continues to grow (which is highly unlikely), but if it does you’re gains would increase as the stock price increases.
Bottom Line: I was able to make more than $5,000 by researching various companies and their likelihood of price increases and/or declines using options trading. Not every option I traded was a success, several of them expired worthless in fact, but the gains that I made far outweighed the losses.
To see what all the fuss is about visit Robinhood. You’ll receive a free stock for signing up using the link I’ve provided.
Feel free to ask questions or provide comments below.