Many people believe that when it comes to investing their most important question is “which stock should I buy?” or “which property should I purchase?”
However, while it may sound complicated, trading options offers investors with better returns while reducing risk.
By trading derivatives, investors are able to generate income without taking ownership of the underlying asset.
I had the pleasure of speaking with David Jaffee from BestStockStrategy.com
David Jaffee Biography
David Jaffee teaches options trading.
He graduated from Cornell University with honors and worked as an investment banker for over 5 years.
Mr. Jaffee began trading options as a way of generating superior returns while reducing risk.
I sat down with David Jaffee for a few questions:
Questions about Options Trading with David Jaffee
Question: Why should investors choose options trading over owning stocks?
Answer: I believe that investors should choose to SELL options, not buy options. When selling options, you realize much greater capital efficiency (via reduced buying power reduction) and also a much higher win rate.
Question: Why will investors have a higher win rate when selling options?
Answer: When selling options, investors and traders receive option premium. They turn themselves into an insurance company.
When selling options, investors are selling time.
In a nutshell, the expected move is almost always higher than the actual move.
As a result, option premium is almost always overpriced — which is why we sell it — and most options end up expiring worthless.
Question: Why do many people believe that buying options is better than selling options?
Answer: People enjoy taking shortcuts. Buying options is like buying lottery tickets. Your win rate will be substantially below 50% (likely closer to ~30%), but when you win, you may win a lot of money. Unfortunately, even with the large wins, the longer you play, the higher statistical likelihood you’ll have of losing everything.
However, people become tempted by the large wins. They believe that they can use technical analysis, charts and patterns to increase their win rate.
Question: Do you believe that technical analysis, charts and patterns work?
Answer: Definitely not
Question: What about day trading?
Answer: There are numerous scientific studies that prove that day trading is a scam and that it does not work.
I believe the studies indicate that day traders are “virtually guaranteed” to lose money and that 99.9% of day traders lose money.
Also, the studies indicate that 97% of day traders lose everything and that the very few who made money ended up making less than minimum wage.
Question: Do you have a link so that our readers can view these day trading studies?
Answer: Yes, right here: https://drive.google.com/drive/u/0/folders/1Tbd0vw8a-K0lxTF1nQ_dh-k6Qd0SDqsI
Question: How many students have taught at BestStockStrategy.com?
Answer: I’ve taught over 1,000 students how to trade options
Question: How do you differ from your competitors?
Both of them encourage their followers to “trade often” and to sell both sides of the market.
The problem with their trading style is that their followers will lose money.
Selling calls in a bull market is a horrible strategy because you’re fighting against the market trend.
By trading often, you’re increasing your trading commissions while also entering trades that you never should have entered.
Instead, a much better strategy is to be patient and disciplined, trade with the market, and only enter trades that have the best setups.
This is what I teach at BestStockStrategy.com
Question: Thank you to David Jaffee for joining me and answer my questions. If readers want to enroll as a student to learn about options trading, where should they go?
Answer: They can visit BestStockStrategy.com/memberships