Most people that invest in the stock market do so through their 401K or retirement accounts. They designate a certain percentage to be taken out of their check and automatically put into a mutual fund like fidelity or a S&P Index fund. Over time it typically makes 7-10% like the S&P.
However, what if you want to grow your money faster than the S&P?
In this video we discuss:
- What is Passive and Active Investing?
- Is Passive or Active Investing Better?
- What is the Best Way to Actively Invest?
And we show you a real example on the option trading platform
Hey guys, Darren here.
We talk about action steps you can take today to increase profits and reduce risks in your portfolios by trading options.
Real quick: Please check out and download the FREE options Workshop in the link below. It talks about the two main reasons why options can be less risky and more profitable than just buying stocks alone. It also details how to profit in both directions and pick your win percentage which you can’t do just buying stocks alone.
Also, please hit the like and subscribe button below! I appreciate it as it helps to get the video out to more people.
DISCLAIMER, I am not a financial planner and I am not recommending trades. Please do your own research and if you are new or learning options, I recommend you start small.
What is Passive and Active investing?
Passive Investing
Passive investing is a long-term strategy in which you buy stocks and hold them for an extended period, usually years or even decades. The goal of passive investing is to ride the ups and downs of the stock market over time and ultimately end up with more money than you started with.
Many passive investors believe that trying to beat the market is a fool’s game and that the best way to make money in stocks is to buy them and then let time do its work.
Active Investing
Active investing is a short-term strategy in which you buy and sell stocks frequently to make money from the market’s ups and downs. Active investors believe that they can beat the market by timing their trades and making smart decisions about when to buy and sell. Many active investors use stock options to increase their profits.
Is Passive or Active Investing better?
It depends since there are advantages and disadvantages to both passive and active investing.
Passive Investing Advantages and Disadvantages
There are a few advantages to passive investing. First, it’s a relatively simple strategy to implement and maintain. You could put your money into a SPY ETF fund that mirrors the S&P 500 and be done. You could also hire a financial planner and have him/her manage your portfolio for you. This is another way to passively invest.
It also doesn’t require a lot of time or effort to be successful over the long term. Stocks have proven to go up over time 7-10% on average. With some years more and some less. However, it can be a very effective way to build wealth over the long term.
The main disadvantage of passive investing is that it can be difficult to achieve above-average returns. Since you’re not actively trying to beat the market, you’re likely to end up matching the market’s performance. And if the market goes through a prolonged period of decline, as it did during the financial crisis of 2008-2009, or the Covid Pandemic in 2020, your portfolio will suffer as well.
Active Investing Advantages and Disadvantages
Active Trading has several advantages over passive investing. First, it can potentially generate much higher returns. It does take some skill and experience to outperform the market or the S&P. However, if you study the market and follow a disciplined set of rules it is possible to beat the stock market.
Second, it can protect against market declines. Of course, no one typically sees market declines coming. So, for active investing to have a leg up in this area, you have to be able to either pick the direction of the market. Or use a smaller percentage of your available cash to make the same or better returns as you would if you were passively investing.
It is difficult if not impossible to correctly predict directional market movements. Even the best active investors only get it right about half the time. A set of rules and always having money on the sidelines is the key to being successful.
Lastly, Active Trading can be an exciting and engaging way to invest. It’s much more fun to be engaged in the stock market! Knowledge is good and more people trading options means more liquidity, growth and stability for the market.
The main disadvantage of active investing is that it’s a more time-consuming and resource-intensive strategy. You need to monitor the market and make trades when opportunities arise.
What is the Best Way to Actively Invest?
Selling Option Premium
Selling option premium is much more profitable over the long run that buying options. If you want to know more about that download the Free Workshop.
Here is an example of how to actively Sell a Strangle in Bank of America.
We go to the Tastytrade options trading platform. I’ll put a link down below. It’s the best and most intuitive option trading platform.
We punch in Ticker BAC in the upper left and see the Implied Volatility ranking is 62 which is high and good for selling a strangle since we can collect more premium with high IV.
We open the option chain that is closest to 45 DTE as that is the sweet spot. So we open the May 2023 chain with 57 DTE days to expiration.
We click on the bid to sell the 25 strike put option since it is closest to the 25 delta and the bid on the 31 Call option. We collect $1.35 or $135 since 1 option contract controls 100 shares of stock.
We switch to the curve mode and see the profit zone in green. As long as we stay above the 25 short put strike and below the 31 call strike at expiration in 57 days we keep the entire $135 collected upfront when we place the trade.
In reality we most likely won’t hold the trade that long. At 15-21 days to expiration or when we receive about ½ the profit we will either close the trade for a winner or roll to the next month and adjust by centering the strikes if the IVR is high and we still like the trade.
There is a Place for Both Active and Passive Investing
I recommend always first investing passively in your retirement and or 401K account. You just take 10-15% (the max if possible) out of your check every month and let it passively earn 7-10% mimicking the S&P 500. Over time it will grow.
If however, you are extremely interested in companies, stocks and the financial markets, then actively investing can be a business in itself for you. Businesses can go bankrupt and they can also make a lot of money. You need to always remember that and run your active option trading account just like a business.
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Alright guys, I’ve put a link down below for the FREE Options Workshop. Be sure to grab that.
Remember to please let me know your thoughts in the comments.