How To Make Money Off A Stock Tip

Dollabuzz Shows You How to Make Money Off a Stock Tip

Dollabuzz readers what it is what be!? Today we discuss how to make money off a stock tip. Dollabuzz has covered opening a traditional investment account such as a  401k or a Roth IRA. How about taking on a little more risk for the chance at a greater return? Suppose you discover a hot stock tip. How do you capitalize on this information and get paid?

You capitalize by purchasing call options. If you are new to investing through options a good place to start is with an in depth review of options.

There are numerous option strategies but we want to keep this post as simple and short as possible. Therefore, we will focus on one aspect of options (buying “calls”). In this post, Dollabuzz will provide an easy three step overview of how to make money off a stock tip by purchasing call options.

The first step is opening a brokerage account, step two is buying calls, and the final step is locking in your gains by “selling to close.” Let’s see how to make money off a stock tip by walking through an actual trade I made.

What Are Options: A Get Money Overview

Options: A Contact That Gives You Rights

When buying call options you are buying contracts and one contract is equal to 100 shares. This contract gives you a right to purchase shares of stock at a predetermined price (strike price). This right expires at a specific future date (expiration date). For this right, you pay a premium to the seller. As the stock price rises, so does the value of the premium. Money is made when you sell your right for a premium that is higher than what you paid for it. Sounds simple, right?

Two Advantages of Call Options

Two advantages to investing through options are less risk and the power of leverage. Call options are less risky because you can only lose as much as you paid for the premium. Leverage allows you to control a large number of shares on the low. For example, in this trade, I pay a premium of $219 to control 300 shares of stock. If I were to buy 300 shares of stock it would cost me about $2500.

Key Definitions That You Need To Know

Call Options

If you think the share price of a stock will increase you buy call options.

Strike Price

The strike price is simply the price you have the right to purchase the stock. Strike prices higher than the current share price are “out of the money.”

Expiration Date:

The date that the contract expires or becomes worthless.

How to Make Money Off a Stock Tip Step #1: Open a Brokerage Account

There are numerous online options and you will need to complete paperwork acknowledging the risks associated with options trading. About $500-$1,000 investment is needed to start. But to get RICH off of one stock tip you’ll need a few thousand dollars. Remember: Never invest money you can’t afford to lose.

How to Make Money Off a Stock Tip Step 2: Your Call Strategy

Important Information for this Example

  • Date: 9.1.17
  • Stock: NEOS Therapeutics Inc (NEOS)
  • Stock Price at Time of Trade: $8.32
  • Options Purchased: $10 calls expiring on 10.20.17. Please note the $10 strike price is “out of the money.”
  • Premium paid: $219 for 3 contracts (300 shares)

What the hell does all this mean? I just wanna make some money!

Great question! What this trade says is that I think by 10.20.17 the share price of NEOS will be $10 which is a 20% increase. I bought (paid a premium) for the right to control 3 contracts (300 shares) at $0.70 a share for $210 plus $9.00 commission. As the share price increases so does the premium associated with these contracts and this is where money is made.

Initiating the Trade: Learn With Virtual Money

Before investing with real money it would be a Dollabuzz move to practice buying calls online with virtual money. For those new to investing, buying calls can be confusing. Therefore, learning the rules and placing trades with virtual money is highly recommended. Once you get the hang of it, the next step is to execute the trade with real money. Here the steps needed to execute your trade.

  1. Enter ticker symbol
  2. Pull up “options” chain
  3. Look for strike price of out of the money
  4. Select desired strike price
  5. Select “buy to order”
  6. Enter number of contracts
  7. Set price to pay for each contract
  8. Review and hit enter

How to Make Money Off a Stock Tip STEP 3: LOCK IN GAINS

Now that you have a position you really need to monitor it closely. As the stock price increases so will the premium you paid. NEOS is expected to announce positive results around September 15th and closing my position on or around that time is my exit strategy. It is important to determine your exit strategy BEFORE investing. What gain or loss are you willing to accept? That is your strategy.

You Can’t Go Broke Taking Profits

A premium can decrease in value just as quickly as it increases. It is important to monitor your position closely and be ready to lock in your gain. If the trade is not working as planned, you can always “sell to close” and exit your position.

How To Find stock tips

How to find stock tips is a common question we come across. This stock tip came from Seeking Alpha (SA). SA is an investment blog whereby people post their thoughts and ideas on investing. One SA blogger I follow is Bret Jensen and his recent post inspired today’s trade.

How to Make Money Off a Stock Tip: Conclusion

Investing through options involves selecting the right stock and having belief in yourself. Ideally, you need a stock that will go up and go up fast by a specified date. The first step is opening a brokerage account. The second step is buying calls and the final step is locking in your gains by “selling to close”.

There numerous option strategies and the one presented here is a simple beginner strategy. If you are looking for an easy read on investing through options be sure to check out Understanding Options by Michael Sincere. It is a MUST read and a great resource. I used this book to learn how to invest in options and reference this book quite a bit.

Purchase the book here

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Why You Should Open a Betterment Account

Taking the First Step Toward Wealth with Betterment

Welcome to Dollabuzz! For those just off the bench and new to the game, investing in the stock market can be confusing and intimidating. But don’t worry—it’s actually pretty simple. Here at Dollabuzz, we believe that investing in the stock market for the LONG term is essential. We’re not about get-rich-quick scams here; we’re about building wealth over the long term, which is done by investing through Betterment.

one hundred dollar bills wrapped in a rubber band
Investing for the long haul will allow you to Get.Your.Money.Right

Opening a Betterment account is a great way to get started, no matter how much money you have. Betterment is a low-cost investing service that can get you on the path toward achieving your investing goals. Start your Betterment journey NOW and you’ll be feeling a strong Dollabuzz in no time.

Why I Recommend Betterment

I discovered Betterment when I was 19 years old. I started by putting $100/month into a Roth IRA account. The cost was low, the interface was easy to use, and it had the account types I was looking for. For the first year of my Betterment account, I paid less than a crumpled-up Lincoln in fees.

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For the first year of my Betterment account, this is how much I paid in fees.

That’s a Dollabuzz right there. This is dirt cheap compared to many other accounts. Their website and mobile app are really simple and easy to use, especially for beginners. Betterment makes it painless to open the account type you want and check up on your investments.

Betterment’s Available Options

Betterment is a straightforward service, and you DO NOT have to hand over bags of cash. At Dollabuzz, we recommend opening an IRA or 401k as soon as you can. The Roth and traditional IRAs have different tax advantages, so you have to find which works best for you. Just remember, in the long-term, every dolla bill adds up!

How Does Betterment Work?

Betterment uses Exchange Traded Funds (ETFs) as their investments vehicle. This includes four bond ETFs and six ETFs that are made up of different stocks. This simplifies your investing portfolio, and you get to decide what percent you’re invested in each. If you’re not sure how aggressive or conservative you should be, Betterment will start you off with their best recommendation. Keepin’ it simple!

How to Join Betterment

Betterment.com is the website, and you’ll find a “Get Started” button right on the homepage. This will get you rolling with the sign-up process and you’ll be asked a few questions. These are designed to give them a better understanding of the kind of investor you are, as well as your risk tolerance.

sign that says investment

After Creating Your Betterment Account

Once you sign in, you’ll connect your checking account in order to transfer funds to your account. Next, you’ll select the type of account you’d like to open; this will vary for everyone depending on their individual situation.

Keep in mind that just because you’re invested in ETFs and not picking individual stocks/bonds, this is still the stock market. Whenever you invest in the stock market, there’s always a chance you could lose some or all of what you have invested. Check back in periodically and adjust your investing strategy as your life and the market changes.

Other Ways to Dollabuzz

I recommend Betterment because it’s an investing service that I use myself—and I have for a long time—but I understand that it’s not right for everyone. There are similar sites (like Wealthfront.com) which are also popular, but I don’t have any money invested there myself. It’s impossible to keep track of all the options out there, so if you know of any that should be mentioned, please send me an email and I’ll check it out!

wealthfront logo
Wealthfront is another investing platform.

Dollabuzz Takeaway

We believe that investing in the stock market for the long-term is essential to a strong Dollabuzz, and historically the stock market has provided a way to build wealth. Will there be bumps in the road? You bet—it’s always been this way, and it won’t stop anytime soon. Some years are better than others, but in the long term, the stock market is a smart way to make money.

Making smart money decisions and having a money plan are the keys to financial success. If you have any other questions about Betterment or any other topics I’ve discussed, I would love to hear from you. Shoot me an email and I’ll respond as soon as possible.

Dollabuzz Update: Good thing you stuck around until the end, because we have something new to share. Ever heard of the stock-trading app Robinhood?! As a special reward, check out the new post on Robinhood and find out why it is the HOLY GRAIL for new investors! Commission-free, of course!