Options Trading is an extremely interesting field… Simply because of the way options work and are structured, you can be extremely versatile on how your profit off them.

Before we move forward, I would like to say that our core strategy still lies in Value Investing and picking fundamentally good businesses. However, using options on fundamentally good businesses is something we have been practicing for years. While purists in investing may not agree with the use of options, the beauty of it is that you are able generate cashflow while still holding on to good businesses.

options tradingOptions plans such as employee options are being used in many businesses out there, so there’s no reason why we cannot tap into the power of options ourselves. In a famous shareholder’s letter, Buffett spoke about selling put options to generate almost 5 Billion worth of cash as capital.

What is an “Option”?

An option is simply a promise between buyer and seller of the option to carry out an exchange of stocks at a pre-determined time. The expiry date of the option, and the price at which the stock exchange is stated will influence the pricing of the option itself.

What is an Option Premium?

The option premium is simply the price that the buyer pays to the seller of the option for the promise. This is not to be confused with the stock price that the two have agreed on to exchange the stocks at.

Why are Options so versatile?

By using options, savvy investors can reduce risk, leverage in a controlled manner and even earn powerful profits in flat market conditions, or stocks that don’t move. There are many ways to combine the building blocks of options to create scenarios that win in your favour.

What is Options Trading?

As per stock trading, buying and selling decisions are decided by traders looking at charts. Typically, trades are made in short periods. For us at Value investing College, we do not actually trade based on technical signals, but we use Options on fundamentally good businesses to increase our chances of making money.

Here at Value Investing College, a trademarked strategy that we teach is called the VIOS (Value Investing Options Strategy). By dedicating a portion of our portfolio to Options Premium Generation, we can help retail investors who are more keen on cashflow generation on their portfolio. This strategy has been immensely powerful for us in cash generating and producing powerful returns!

To find out more on how you can use VIOS to your extreme advantage and start investing in Singapore, join us at this free workshop today:

CTA Button

This article was written by Aaron Tan