Many would be thrilled to earn a 43% return from their investment account in one year. But to achieve that sort of return in one month? It sounds borderline impossible.
Yet one man accomplished precisely that in late 2022. And he did it by investing in stock options.
Meet Eric Ferguson
Eric Ferguson runs a stock market education business called Mindful Trader. His service allows subscribers to follow along as he makes trades in the stock market. He invests in both stocks and options.
A log of his trading activity shows that his options account grew by 43% in a 30-day period near the end of 2022.
Ferguson says, “I take an aggressive investing approach with stock options, and in November, it paid off. Not every month is like that. I've taken my lumps too. But November sure was a fun ride.”
Readers should note that Ferguson is not a financial advisor. The information shared in this article and through his service are for informational purposes only and should not be construed as financial advice.
Leverage for Explosive Gains
Stock options, or just options for short, give someone the right to buy or sell a stock at an agreed-upon price and date.
Options are typically less expensive than stocks themselves. As a result, stock options offer more leverage than stocks. They effectively allow an investor to benefit from a stock's price movement for less money than it would cost to buy the stock itself.
The increased leverage comes with the potential for additional risk and reward. Options effectively allow you to control more shares of stock than you could if you just bought the stocks themselves. That means you could have more significant swings in your account balance by using options if you take on enough positions.
This is the balancing act that Ferguson manages when he invests in options. He's taking on additional risk intending to amplify his returns.
He explains, “I can get a bigger impact on my account balance from a stock option purchase than I can with a plain stock purchase. I try to put the odds in my favor so that I win more often than I lose, which could make the extra leverage pay off. But it certainly comes with risk.”
An Investment Strategy Based on Statistical Research
Ferguson's expertise is based on years of statistical stock market research. A self-proclaimed “numbers guy,” he uses historical price patterns to give him an idea of the odds of profit on any given investment.
Ferguson says his investment strategy is formulaic. If a particular stock or stock option meets the mathematical criteria for his investing approach, he feels comfortable buying it.
He says his investments are all managed by rules and that he uses very little personal intuition. “I let the historical research do the work on managing the trade for me. That makes it very easy to manage my investments because it's just a matter of following the rules of the investment strategy.”
Ferguson says that history gives us a lot of information about how to make money in the stock market. He teaches his investing strategy through his educational service at Mindful Trader.
Market Conditions Were Not Friendly in 2022
It's no secret that the stock market didn't perform well in 2022. The S&P 500, a major market index, ended the year down 19.6%.
Ferguson said it was a rough year for his stock options investments in many respects.
“November's strong profit was a welcome change for me. I had a number of losses earlier in the year on my stock option trades. It required a lot of patience for me to take advantage of the investment opportunities that the market gave us in November.”
His investing approach bets on particular stocks or options going up in price. He points out that across the entire history of the stock market, stock prices have shown a tendency to go up more often than down.
“That means that over the loan haul, it might pay off to make investments that profit from an increase in stock price. There will certainly be atypical periods relative to the historical trend, and 2022 was an example of that for the most part.”
Ferguson continues, “The big challenge for all of us is that no one knows what will happen next with the stock market. I like to lean on historical stock price tendencies and take a big-picture approach with investing.”
Earning a 43% return on an investment account in 30 days is noteworthy and may not occur often. Eric Ferguson from Mindful Trader knows that and is savoring the success.
This article was produced and syndicated by Wealth of Geeks.