You might be wondering if there are really some best investment opportunities for $100 in the stock market. Which would prompt you to start asking some important questions like "What are some of the best investment choices with very small amounts of money where you stand to make a decent profit?"
Well, there are so many investment opportunities for 2020, which can earn you a decent amount of money just with your $100 investment. However, some of these investment opportunities either present commonplace gains or high risk to reward ratios.
Investment Opportunity for Only $100
If you only have $100, you need to be extremely cautious with your capital. Below are some concerns when investing with such a limited amount:
- Initial capital requirement
- Brokerage transaction fees.
Overcoming the Trading Obstacles
The first hurdle is finding a broker that will allow you to open an account with no minimum requirements. Many of these accounts exist, but you will still need to search for one.
The second hurdle is finding an online brokerage firm with deficient transaction fees. If you are only investing $100 and it costs $45 to buy an investment opportunity, there is little left over to generate profits from.
Many accounts will offer a very low fee for active buyers. However, with $100, you likely be making one small trade. Try to find a discount broker that allows infrequent trading with commissions of $15 or less per transaction.
Even better is if you can find a promotional deal that enables you to get your first 5 or 10 trades for free. What can you invest in for $100? One choice is to buy stock options.
Buying Stock Options With $100
It would be best if you tried to avoid making mistakes. Stock options carry high risk. There are possibilities that you could lose all of your investment. On the other hand, you could also make multiple times your investment back. What is the idea behind buying call stock options?
For instance, stock XYZ is trading at 10 dollars per share. You buy a call options contract that allows you to buy the stock anytime over the next year if it rises above 15 dollars per share. You pay 80 dollars plus commissions for this contract.
You really have no intention of turning this options contract into shares. In fact, you don’t even have the money to do so. You hope the stock rises, and your highly leveraged call option will also appreciate it. Then you will turn around and sell your call option to another trader.
How Much Can the Small Amount Grow in 6-Months?
How much can you make? Every stock is different based on historical and implied volatility. I will calculate how much gain can be made if you buy a call option with:
- 15 months of the time value
- $24/share stock
- Implied volatility of 31%
You purchase an out-of-the-money call option with a strike price of $35. Your outlay of capital is $85 for the call options contract and $15 for transaction fees, which total $100.
In the below scenario, we will assume six months have passed. Remember that much value is depleted due to the passing of time, which is also known as time decay.
- Stock rises from $24/share to $27 = Option still only worth $84
- Stock rises from $24/share to $30 = Option is worth $174
- Stock rises from $24/share to $35 = Option is worth $400
- Stock rises from $24/share to $40 = Option is now worth $730
Of course, since you purchased the options with an implied volatility of 31%, it is unlikely that the stock will jump over 50% in 6 months. Still, it could happen. If some unexpected events occurred that jumped the stock value up to $35, the market expectation might also jump.
If the implied volatility jumped up to 50%, your options would look like this in 6 months:
- Stock rises from $24/share to $27 = Option is worth $184
- Stock rises from $24/share to $30 = Option is worth $376
- Stock rises from $24/share to $35 = Option is worth $631
- Stock rises from $24/share to $40 = Option is now worth $972
The other possibility is that the stock does not rise, or it even drops in value, thus taking your $100 investment with it.
Tips on Buying Call Options
Here are some simple tips if you are buying call options, and you want to maximize your money.
- Buy near the beginning of a new bull market.
- Pick stocks with a blend of growth and value. You can screen for such stocks here.
Options are risky. On the positive side, you could make a substantial gain, and you cannot lose more than you invest. There are only a few legitimate ways to turn $100 into something much bigger in 6 months. I am one of many traders using the options market that feels this is probably the best investment opportunity for $100.