Written by A.J. Brown

3 Wealth Principles for Option Traders

Last week I took a short road trip to Boise, Idaho. On the way up, my friend asked me what my most important wealth principles are.

I told him I don’t normally give financial advice unless I’m asked… people don’t like unsolicited advice. But since he asked, I told him.

On the surface, these rules may seem simple. Possibly too simple. But I’ve found that almost nobody recognizes these rules or even follows them.

Wealth Principle #1: Understand how spreads work and use them to your advantage.

Is debt bad?

Not always.

Let’s say you can consistently earn 5% on your money every month. This is a conservative number for a savvy option trader, and many people should be able to achieve this kind of growth.

Now let’s say you have access to a line of credit at 2% interest.

If you can make 5% a month and borrow money at only 2% a month, you can borrow the cash and keep the spread, which in this case is 3%.

This is a form of arbitrage and I do not recommend it for everyone. But it is an extremely important concept to understand. Because if you understand it and are able to leverage it, you could very quickly ratchet up your net worth without even using your own money.

Wealth Principle #2: Don’t trust the talking heads on TV to give you sound investment advice.

Once something hits TV, it’s too old to be of any value. The institutional investors like Warren Buffett have already made their moves.

Most of us already know this, but it’s still tempting to think you’ve gotten a “hot tip” when you hear a “stock expert” pontificating on the tube.

Don’t be fooled.

The best investors lead the market… and then the media comes along and reports on what’s already happened. If you really want to become wealthy, you must become a leader, not a follower.

Wealth Principle #3: Develop resistance to society’s influence over your buying habits.

Humans are naturally competitive creatures. When a neighbor buys a Lexus, all of a sudden we want one too. And when a friend upgrades into a McMansion, we develop a hankering for a big home with curb appeal–just like our friend’s new house!

That’s just the way we work.

But there is no greater wealth-eroding power than unbridled consumerism. At some point, you have to develop resistance to the media… to how society tells you to live… to always buying bigger, better, fancier things.

Get a handle on this and you’ll be far ahead of the maddening crowds.

These are three wealth principles I’ve tried hard to live by, and they have served me well. What wealth principles do you live by?

Best regards always,

A.J. Brown

5 Responses to “3 Wealth Principles for Option Traders”

  1. mark @ 11:52 am:

    Since, I’ve always believed in living within my means (goals i had set), not over them, I adhere to your wealth principle #3…I’ve learned this over the years growing up as a kid in a middle class family with friends whose families were financially better off than mine, as they were always trying to do “one up” on each other…and I must say I am financially better off (that being my own money which includes salary, investments, etc. and not any “inherited” money) than most of them…I achieved this by not setting any lofty goals, but goals that were a little more than my parents had done for themselves…

    Since I’ve been burned by too many in the past, I now take control (lead), and only use any recommendations as a “sort of a guide”, for if my criteria isn’t met, then I pass…so your wealth principle #2 has set me on the right path…

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  2. Invest Tool @ 6:57 pm:

    I prefer not to use debt for investing, especially a risky one.

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  3. Wealth @ 11:40 pm:

    This blog is very interesting that it puts light on the principles of Wealth such as understand how to spread work and use them to our advantage, don’t trust the talking heads on TV to give you sound investment advice, develop resistance to society’s influence over buying habits.

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  4. Smokey @ 4:53 pm:

    If your not a buy and hold forever trader, then everything you need to know is in the charts, you just need to learn to read them and keep the radio and TV off unless you want to see your account go down. Once you hear the news it is old news and you are too late and you are just buying from those that already bought before the news came out, because they are selling the news. You need to be quick in this market and don’t be afarid to take a small loss and admit to yourself when a trade goes against you. Your wealth can only grow if you keep your losses small and don’t fall in love with a stock thats going against you, sell it and live to play another day.

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  5. Michael @ 5:50 am:

    AJ

    What’s going on with your example portfolio?

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