EP 114: The Correct Way To Use Options – 3 Strategies To Use Right Now

A lot of people hear the word options and immediately think, “That sounds risky.”

But here’s the truth: options are not automatically risky. The real risk comes from using options the wrong way, without education, without a plan, and without understanding the strategy behind the trade.

When used correctly, option trading can help you do three powerful things in the stock market:

Protect your portfolio from downside risk
Buy stocks at a discount
Generate income from stocks you already own

That is why learning how to trade options the right way can be such a game changer for everyday investors and beginner traders.

Let’s break down three of the smartest ways to use options in the stock market.

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One of the best ways to use options is to hedge against risk.

In simple terms, hedging means protecting yourself in case the market moves against you. Just like you buy insurance for your car, you can use options as a form of insurance for your stock portfolio.

For example, if you own a $100,000 portfolio, you may be concerned that the stock market could fall. Instead of just sitting there watching your account drop, you can use a strategy called buying a put option.

A put option gives you the right to sell a stock or investment at a specific price for a specific period of time.

Think of it like car insurance.

If you have a $100,000 vehicle and you pay $300 per month for insurance, you are paying for protection. If nothing happens, that $300 is gone. But if the car is totaled, the insurance company helps make you whole.

A put option can work in a similar way inside the stock market.

If your portfolio starts falling, the put option may increase in value and help offset some of those losses. That is why options can be used not just to make money, but to help protect the money you already have.

This is one of the most important lessons for beginner option traders: options are not just about chasing big gains. When used properly, options can help manage risk.

This is one of the top strategies we teach at Power Trades University.

This is where a lot of beginners are surprised, because most people think the only way to buy a stock is to simply pay the current market price.

But with options, you can sometimes get paid while waiting to buy a stock at a lower price.

This strategy is commonly known as selling a cash-secured put.

Here’s a simple example.

Let’s say Apple is trading at $100 per share, but you do not want to buy it at $100. You would rather own it at $95.

Instead of just waiting and hoping the price falls, you could sell a put option at the $95 strike price. In plain English, you are saying:

“I am willing to buy this stock if it falls to $95.”

In exchange for making that agreement, the market pays you a premium.

Now there are two possible outcomes:

If the stock falls to $95, you may be required to buy the shares at that price. That is okay if you already wanted to own the stock at $95.

If the stock does not fall to $95, you may not have to buy the stock, and you may still keep the premium you collected.

That is why this strategy can be so powerful. You are not just randomly buying stocks. You are identifying a stock you would like to own, choosing the price you are willing to pay, and potentially getting paid while you wait.

Of course, this does not mean the strategy is risk-free. You still need to understand how to choose the right stock, the right strike price, the right expiration date, and how to manage the trade if it moves against you.

But for investors who want to build long-term positions in quality stocks, this can be a smarter way to approach the stock market.

The third option trading strategy is one of my favorites because it helps investors look at their stocks differently.

Instead of just watching your stocks go up and down every day, you may be able to use those shares to generate income.

This strategy is called a covered call.

A covered call is when you own at least 100 shares of a stock and sell a call option against those shares.

Think of it like treating your stock as a rental property.

If you owned a house, you might rent it out and collect income every month. With covered calls, you are doing something similar with your shares.

You are basically saying:

“I own this stock, and I am willing to sell it at a certain price if it gets there.”

In exchange for making that agreement, you collect premium income.

If the stock does not reach that price, you typically keep the premium and still own your shares. Then you may be able to do it again.

If the stock does reach that price, your shares may be called away, meaning you sell them at the agreed-upon price.

This is why covered calls can be a useful strategy for investors who already own stock and want to create potential income from their portfolio.

Instead of just asking, “Should I buy or sell this stock?” you can start asking a better question:

“How can I make this stock work for me?”

That shift in thinking is powerful.

You can read more about covered calls and passive income by checking out the blog post and video about them specifically here. 

The stock market can feel intimidating when you are just getting started.

You may wonder:

When should I buy?
When should I sell?
What if the market drops?
How do I make income from my portfolio?
How do I avoid making emotional decisions?

That is why education matters.

Options are powerful tools, but they need to be used with structure. The goal is not to gamble. The goal is to learn how different strategies work, when to use them, and how to manage risk if the trade does not go as planned.

Used correctly, options can help you become a more strategic investor.

They can help you protect your portfolio, potentially buy stocks at better prices, and generate income from shares you already own.

Consider checking out our Options Explained course to learn more and make this strategy work for you, not against you. 

We break down how options work, when to use them, how to manage them, and how to avoid common beginner mistakes.

Because once you understand how to use options the right way, you can stop feeling confused by the stock market and start making more informed, confident decisions.

Options do not have to work against you.

With the right knowledge, they can work for you.

What is option trading?

Option trading is the process of buying or selling options contracts. An option gives a trader the right, but not the obligation, to buy or sell a stock at a specific price before a specific expiration date.

Is option trading good for beginners?

Option trading can be useful for beginners when it is taught properly and used with risk management. Beginners should start with education, simple strategies, and a clear understanding of how each trade works before risking real money.

How can options protect my stock portfolio?

Options can help protect a stock portfolio through strategies like buying put options. A put option may increase in value when a stock or market falls, helping offset some losses in the portfolio.

What is a covered call?

A covered call is an option trading strategy where you own at least 100 shares of a stock and sell a call option against those shares. This allows you to collect premium income while agreeing to potentially sell your shares at a specific price.