Editor's note: Everything you think you know about options is wrong...

Most investors think of options trading as making highly risky bets with massive downside potential. But Retirement Trader editor Dr. David "Doc" Eifrig says that perception couldn't be further from the truth...

When used correctly, Doc explains that this type of trade won't just boost your returns – it can significantly reduce your risk, no matter what happens with the market. And if you've been avoiding options up to this point, you've likely been leaving a lot of money on the table...

In today's Masters Series, originally from the March 17, 2017 Digest, Doc shares why most investors have a bad impression of options... and details a better way to invest using this misunderstood trading tool...

How to Flip the Poker Game

By Dr. David Eifrig, editor, Retirement Trader

Today, I want to talk about options...

Go ahead – you can stop reading this piece. I know that most of you probably know enough about options to think they're complex and risky. That's because you didn't dig deep enough.

But then again... the first time you tried to drive a car, it seemed complex and risky, too. Now, you do it every day. You put the time into learning how to drive because it made your life better.

Options will do the same for your finances. And just like learning to drive when you were 16 years old, better finances and larger income streams give you more freedom.

I don't blame options skeptics.

I blame those who taught them options. Most folks get introduced to options the exact wrong way... as a strategy for making big, fast gains in the stock market. But when put into practice, this "big gain" tactic leads to big losses.

That's why we take the opposite approach in my Retirement Trader service. We use options to reduce the risk of our investments while creating returns that don't exist for other investors.

As Stansberry Research founder Porter Stansberry likes to say, "There is no such thing as teaching. There is only learning." This weekend, I'm going to show you the right way to use options. If you choose to learn, please read on...

If trading options doesn't scare you, does the word "derivatives"?

Options are considered a type of derivative – a broad term for investments that are based on other investments. With derivatives, you don't invest in an asset. Instead, you bet on a contract that "derives" its value from something else.

During the 2008 to 2009 financial crisis, you couldn't find a word scarier than derivatives. Remember hearing about those credit-default swaps that nearly blew up Wall Street? Those were derivatives. They were bets that tied their payoffs to the default status of mortgage bonds.

Perhaps you read about rogue trader Nick Leeson blowing up Britain's Barings Bank in 1995. He was using derivatives. Or maybe you remember Jérôme Kerviel, who lost 4.9 billion euros for French bank Société Générale with derivatives. And you likely recall when U.S. financial-services giant JPMorgan Chase (JPM) lost $2 billion to the "London Whale" in 2012, again due to derivatives.

These guys give options and derivatives a bad name. They used them as a way to load up on risk and leverage, allowing them to make massive bets with little capital up front. Of course, their bonuses depended on taking stupid risks.

That's the perception novice investors have regarding options... But it's flat-out wrong.

With options, you can make a bet on whatever sort of market activity you expect.

A typical investor has two ways to play the market: He can buy stocks he thinks will rise, or short the stocks he thinks will fall.

An options trader adds several more tools to his bag. He can bet that stocks will rise, fall, stay the same, move within a certain range, rise then fall, and just about everything in between. Options can be used to increase leverage and risk... or just as easily, to reduce it.

But most investors do it the wrong way.

The standard options pitch goes something like this...

Let's say you think a $20 stock is going to rise. Well, you could buy 100 shares for $2,000. If the stock rises to $25, then you'll have $2,500... a profit of $500. That's a gain of 25%.

Instead you can buy a call option on that stock for just $150. Since each option contract represents 100 shares of stock, with your $2,000 investment, you can now "control" 1,300 shares instead of 100. (Remember, each options contract covers 100 shares.)

Based on this particular option, if the stock rises to $25 within the month, you'll turn your $2,000 into $3,250. That's a 62.5% return. Phew!

Who wouldn't be interested in boosting their returns like that?

The trouble comes with the first assumption. You may think a stock is going to rise... But when you trade options like this, you're making a leveraged bet that a stock will make that move in a very specific period of time.

No matter your investing prowess, you're going to get that wrong most of the time. And when you get it wrong, you'll likely lose your entire investment.

People who learn to use options this way often lose their shirts on the first trade and quickly give up.

But there's a better way...

At Stansberry Research, we love to earn higher returns – but we know that true investment success comes from obsessing over risk. In my newsletters, that's what we do all day long.

We reduce our risk by employing the best analysts, focusing on quality and value, monitoring our position sizing, owning what we call "chaos hedges" for protection, and using options to custom tailor our returns.

That allows us to consistently make gains month after month, keeping our capital growing... and keeping our readers in the market.

We accomplish this by doing the exact opposite as the folks who lose money trading options.

Let me ask you a question... Is poker a game of skill or chance?

On the one hand, you need to get great cards. You can make all the right moves but still end up busted by a straight flush. On the other hand, making careful moves and controlling your risk tends to pay off in the end.

People argue over poker because it's hard to prove that skill beats luck. Over any single game, months of games, or even years of games, the best player can lose.

But here's the question that settles it for me: Can you sit down at a poker table and intentionally lose all your money?

Stupid question, right? Of course you can. The reason poker is a challenge is because everyone is pursuing the same strategies and the same ultimate goal. That competition makes any edge you hold a small one.

But when you take the opposite strategy as everyone else... it's easy to succeed. It's easy to reach your goal.

My options strategy makes it easy to reach your goal, too.

Now, obviously, we're all about making money. My options strategy flips the game so that we're the only ones playing a certain way...

In short, most individual traders buy options. And most of the time, they lose money. Instead, we sell options... And we almost always make money (since 2010, 94% of our positions have been winners).

That's the key to our strategy. Selling something you don't own sounds like an impossible arrangement. But it's just the vocabulary that makes it confusing.

If you knew you could make double-digit returns in stocks... while reducing your risk... and do so even if the market goes nowhere for the next few years... would you take an hour to learn how?

My bet is you would. The only thing holding you back is what I call "options baggage." Options trading looks difficult, and many people have traded options improperly in the past and lost money.

Drop that baggage.

Keep an open mind, and I promise you that absolutely anyone can learn how to make conservative, risk-reducing options trades.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Doc's options-trading strategy has locked in 116 straight winners with a 94% win rate over the past 12 years. If you're ready to set aside your "options baggage" and invest using the most successful strategy at Stansberry Research, he says now is the perfect time to start...

Doc put together a special free presentation detailing exactly how his approach can help you reduce your risk exposure – and even profit from market uncertainty. Plus, he explains why this could be one of the best moments ever to implement it in your portfolio. Learn more here.