When it comes to building wealth, most people think of the traditional buy-and-hold method for stocks. You invest your money and hope for the best over the long run. But what if you could achieve better returns with less capital at risk? This is where understanding some options trading basics can completely change your perspective on stock market investing. Instead of needing thousands of dollars to buy shares, you could use a fraction of that to purchase a call option and potentially double or triple your investment, turning small sums into significant returns.

This isn't just theory. Let's walk through how it works, what to look out for, and a straightforward strategy that reframes options from a risky gamble into a calculated tool for personal finance & wealth building.

Understanding the Basics of Call Options

Before diving into specific investment strategies, it's crucial to grasp what a call option is.

Buying a call option gives you the right, but not the obligation, to buy shares of a stock at a set price (the strike price) on or before a specific date. In simple terms, you buy a call when you believe a stock's price is going to go up.

Here’s a quick example. Let's say you think IBM stock is poised for growth. You buy a "17 December 95 call option." This contract gives you the right to buy IBM for $95 per share anytime before December 17. Now, imagine IBM releases a great new product, and the stock price jumps to $125.

Because of your contract, you get to buy the stock for $95, a $30 discount from its current market price. As the stock’s price increased, the value of your call option contract also increased. Conversely, if IBM’s stock had fallen to $75, your option to buy at $95 would be worthless—why pay more than the market price?

Risk and Reward One of the biggest advantages is an unlimited profit potential. Since a stock can theoretically rise indefinitely, so can the value of your call option. On the downside, your maximum loss is capped at the price you paid for the option. If the option costs you $500, that’s all you can lose, which is often far less than you would lose if you bought 100 shares of the stock outright and it tanked.

This brings up an important point. Many people consider options risky, but let's re-examine that. Which is riskier: buying $9,500 worth of stock and hoping it goes up, or placing a $500 bet that benefits if the stock rises but only loses $500 if it doesn’t? When used correctly, options can be a tool for risk management in trading, not just speculation.

Trading Options Like a Long-Term Investor

I spent over a decade as a short-term options trader, and while it worked, I eventually discovered that the easiest and most profitable strategy I've ever used didn't come from a fast-paced trader. It was modeled after a billionaire investor who hardly ever uses a computer: Warren Buffett.

This led to a profound mindset shift: I started trading options like a buy-and-hold investor. The goal is no longer to predict short-term market swings but to capitalize on the long-term upward trend of the market. This approach uses something called LEAPS (Long-term Equity Anticipation Securities), which are simply options with expiration dates that are more than a year away. This gives your trade plenty of time to ride out market corrections and benefit from broader economic growth.

The 10-Minute Annual Trading Strategy

This strategy is incredibly simple because it focuses on one stock index, requires no complex research, and takes about ten minutes a year to manage. Here’s how it works, using a hypothetical $50,000 account as an example.

Before starting, a crucial disclaimer: do not use real money with this initially. Practice on paper first, a process called virtual trading or paper trading, to understand the mechanics without financial risk. This is fundamental for anyone serious about investing for beginners.

The Tactic: Instead of picking individual stocks, I prefer using an ETF that tracks the S&P 500, like SPY. It’s diversified, less volatile than a single company, and can handle large trade sizes as your account grows.

• Step 1: Invest about 20% of your account (or 10% if you're conservative) into the longest-dated December SPY call option you can find, usually two to three years out. For our example, let’s say on January 4, 2021, you buy two December 2023 370 call options at $47.95 each. Since each contract represents 100 shares, your total investment is $9,590. This is an "at-the-money" (ATM) option, meaning its strike price is very close to the current stock price.
• Step 2: Leave the remaining 80% of your account—$40,410—in cash.

Yes, you read that right. Leaving the majority of your account in cash is a core part of this strategy. It’s your most important tool for capital protection. People focus on the huge gains from options and forget you can lose money just as fast. You leave most of your account in cash because you will one day have a trade that loses 100% of its value. When that happens, you simply deploy another 20% and continue the strategy.

The secret to getting rich with options is often to risk less money, not more.

Analyzing the Results

Let's fast forward to the end of the year, December 31, 2021. The SPY ETF rose 28.8% that year. That’s the return for a traditional buy-and-hold investor.

Your SPY call option, however, is now valued at $126.12 per contract—a 163% increase. The value of your two contracts is now $25,224. Your profit is $15,634 ($25,224 - $9,590).

To find your total account growth, you divide that profit by your starting account value: $15,634 Profit / $50,000 Account = 31.3% Account Growth

You beat the market’s return (31.3% vs. 28.8%) while only risking 20% of your capital. Over time, those few percentage points make a massive difference. A $50,000 account growing at 31.3% annually for ten years becomes $761,407, compared to $628,244 at 28.8%. That's an extra $133,000.

How to Pick the Right Option

When you look at an options chain, you'll see hundreds of choices. They generally fall into three categories relative to the stock's current price:

• In-the-Money (ITM): For a call, the strike price is below the stock price. These are more expensive because they have intrinsic, or real, value.
• At-the-Money (ATM): The strike price is at or very close to the stock price.
• Out-of-the-Money (OTM): The strike price is above the stock price. These are cheap because they have no intrinsic value, only time value (the hope they'll become profitable).

Using our 2021 example, here’s how the returns would have differed:

• ITM Call: Made the most money in dollars ($9,402 profit) but had the lowest return on investment (99.6%).
• ATM Call: Delivered a solid profit ($7,817) and an excellent return (163%).
• OTM Call: Made the least money ($5,731 profit) but had an astronomical return on investment (316.5%).

For beginners, the ATM option is the sweet spot. It balances a good dollar profit with a strong percentage return, removing the analysis paralysis that comes with having too many choices.

Putting It to the Test Without Risk

The only way to know if a strategy works for you is to try it. This is a simple proof-of-concept exercise you can do anytime to verify the claims yourself.

1. Go to a financial website like Yahoo Finance.
2. Type in the symbol SPY.
3. Pull up a one-year or five-year chart. If the overall trend is up, proceed.
4. Find the "Options" link to view the option chain.
5. Select the expiration date that is farthest in the future (usually 2-3 years out).
6. Find the At-the-Money (ATM) call option—the strike price closest to SPY's current price.
7. Write down the "Ask" price. This is what you would pay to buy it.
8. That's it. You've simulated your entry. Now, monitor the "Bid" price over the coming weeks and months to see how your paper trade performs.

Your goal is to exit when the trade hits a 100% gain or if it reaches a 50% loss. Leave it alone otherwise. This simple exercise will show you the power of leverage and help you decide if this approach to investing as a side hustle is right for you, based on your own findings, not on anyone else’s promises.