Swordfish: Are Stupid Options Actually Genius?

There are many ways to trade. Most traders gravitate towards options. They can be used to build a position at a lower cost than buying shares of a stock. Or they can offer better returns when there’s a massive move.

Plus, options include both call and put options. So traders can inexpensively bet on a stock declining at a fraction of the cost of shorting a stock. The options market also offers a window into interesting and unusual trades.

For instance, the options market will let investors make trades with expiration dates years into the future.

For investors who predict a multi-year bull or bear market, buying long-dated options can offer massive prospective returns. Even if those trades look impractical or downright stupid now.

Currently, traders can bet five years out that the market will rally as much as another 67%. Over a five-year period, that’s certainly possible.

However, the average five-year rolling period is a bit under 70%. If the bet is correct and stocks return over 67%, the buyer of the options could make 10-60X returns, or up to 6,000%.

If the bet is wrong, it could mean a total loss. That’s the case if stocks trade lower, flat, or up less than 67% by 2029.

While buying long-dated market calls may sound like a potential big winner, the risk of loss remains high. Traders are usually better off making shorter-term trades. But sometimes, even a silly-sounding trade idea could be a big winner.

To watch the full options trade breakdown, click here.