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One of the reasons why many people struggle financially is because they’re not using enough leverage.
For those of you who are not familiar with this word, it’s the most important word to get to know.
Leverage is simply the ability to do more with less effort.
For instance, if I wanted to throw a party and the mission was to sell out its tickets, to be effective I would need leverage.
If I print hundreds of flyers to hand out, it may take me days, maybe weeks to distribute.
Not only is this process slow, it gives me no leverage towards reaching my goal. If you look at this a bit closer you’ll realize that I am the one being leveraged.
Not only is this process slow it’s also tiring simply because I’m the one doing all the work.
Now let’s say I use a different approach, and market on social media sites, radio stations, and big name web giants like twitter.
At this point I’m using leverage, and the leverage I’m using is social media.
By using these vehicles I can reach more people in less time.
Not only is this process effective, it’s smart, simply because it increases my ability to promote quicker using less time.
The point is, one process takes longer while the other takes less time.
To do well financially, it is important to tab into leverage tools that saves you time.
Leveraging the stock market
In the stock market people think it is smart to buy a bulk load of stocks outright. The problem with this is, you risk a lot of money to make money.
When it comes to the masses most are not aware there are two markets.
First there is the stock market, and then you have the option market.
To do well in stocks one must learn to leverage both markets.
For example, instead of buying 100 shares of stocks in the stock market, you could buy the right to buy a hundred shares of stock using options paying a small premium in the options market.
For those of you who are not familiar with this type of vehicle it’s one of the best vehicles you can learn.
This is simply because options are not only power vehicles towards stock, they’re also power vehicles for speed if you know what you’re doing.
Below are example how options can be use. I will start with the basic, using puts and calls.
Put Option
A put option gives the owner of the option the right but not the obligation to sell stock at a set price known as the strike price.
For example lets say you purchase 100 shares of At&T at $30 a share, giving you an investment of $3000 ( not including broker fee for the sake of this example).
Now let’s say you wanted to protect your $3000 investment just in-case the market were to take a dive.
You could go to the option market and purchase an option for lets say $1.50 which would cover 100 shares of stock.
For an investment of $150 you have secured the price of At&t at $30 share. Since each option covers a hundred shares your transaction would look like this, $1.50 x 100 = $150.
Now lets say At&t drops to $25, the markets takes a hit and you just discovered that this happened.
At this point you’re not worried because you own a “put option” stating you could sell At&t for $30.
In the stock market they call this process hedging which can be useful especially in volatile markets
Call Option
In a call option, you have the right to buy a stock at its strike at a later date but you’re not obligated to do so.
This means you don’t have to buy the stock if you don’t want to, you can simply sell your option collect your profits and walk away.
Below is an example of how a call option could be used.
Lets say you were going on vacation and you spot Johnson & Johnson at a smoking deal of $55 per share. You wanted to purchase 100 shares of the stock but didn’t have the full amount but knew you would have it once you came from vacation.
At this point you purchase a 3 month call option with a strike price of $55. What you are buying is the right to purchase Johnson&Johnson for $55 even if it’s at a higher price when you get back.
If Johnson & Johnson edge up to $60 by the time you got back, you could still purchase its stock at $55.
The best thing about this is, you could buy the stock at $55, turn around and sell it at $60 and take profit.
These are one of the over simplified examples of how leverage can be use as insurance in markets.
For those of you interested in these techniques pick up your copy of option boost below.
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Manny
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