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<\/p>\n\tI was only 19 years old when I made my first options trade.<\/p>\n
\tI had a gut feeling the market was going to go higher… so I bought four S&P 100 call options at $1.50 – a total investment of $600. A few hours later, the options were trading at $4.50. I sold and took the $1,200 profit – a 200% gain. And I was hooked on options forever.<\/p>\n
\tMy next trade was in IBM. I bought 10 calls for $1. This time, it took a couple days to double my money. Next, I bought Digital Equipment put options… which nearly tripled in just a few days.<\/p>\n
\tI made 17 trades during my first six weeks as a trader. Every single one was a winner.<\/p>\n
\tGoing 17 for 17 was a remarkable feat for a rookie trader – especially since I wasn't using any sort of fundamental or technical analysis. I was just going with my gut. But I was careful not to put more than $1,000 or $2,000 into any single trade. And I still managed to turn my $5,000 brokerage account into $50,000 in just six weeks…<\/p>\n
\tAnd then I decided it was time to get serious. No more tiny trades. I was too good for the small stuff. For whatever reason, I had figured out a way to beat the market. Heck, I had just rattled off 17 straight triple-digit winners. So I decided to take the $50,000 in my account, add to it my $25,000 in savings, and put it into a handful of options trades.<\/p>\n
\tYou can probably guess what happened next.<\/p>\n
\tThe stock market has a habit of humbling folks who think they've figured it out. For me, the humbling started right away.<\/p>\n
\tAt first, the positions started slightly moving against me. It was nothing to be concerned about. One good day would put everything back in the profit column.<\/p>\n
\tBut then, one by one, each position blew up on me. It was too painful to watch. I kept the television off and avoided reading the newspaper for fear I'd see something bad about the stock market and my positions. When I finally got up enough courage to call the branch manager and check on the status of my account, I learned all the gains I had built up over the previous six weeks were gone.<\/p>\n
\t“Just sell everything,” I said.<\/p>\n
\tThat was an expensive lesson to learn. But it's one every options trader learns at some point. I was just fortunate it happened to me early in my career.<\/p>\n
\tYou see, that experience changed how I looked at trading. Instead of using options as vehicles for speculation – a way to juice my returns and get more bang for my buck – I started using them the way they were intended to be used: as a way to reduce risk.<\/p>\n
\tToday, I still do my fair share of speculating. But I'm not focused on how much money I can make. I'm focused on how little I can lose.<\/p>\n
\tThat's a huge difference. It has allowed me to trade options successfully for nearly three decades. And it allowed me to retire at 42.<\/p>\n
\tBest regards and good trading,<\/p>\n
\t<\/p>\n
\tJeff Clark<\/p>\n
\t[Essay originally published by Stansberry Research<\/a>.]<\/p>\n