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Editor's note: Below, you'll find the first installment of master trader Jeff Clark's series on a unique options strategy. As we explained in our note earlier today, this strategy can reduce risk and increase returns on your options trades. It's not for everyone... but it's more than worth your time to learn more about it.

How I Retired at 42

By Jeff Clark
Monday, December 24, 2012

I was only 19 years old when I made my first options trade.
I had a gut feeling the market was going to go higher... so I bought four S&P 100 call options at $1.50 – a total investment of $600. A few hours later, the options were trading at $4.50. I sold and took the $1,200 profit – a 200% gain. And I was hooked on options forever.
My next trade was in IBM. I bought 10 calls for $1. This time, it took a couple days to double my money. Next, I bought Digital Equipment put options... which nearly tripled in just a few days.
I made 17 trades during my first six weeks as a trader. Every single one was a winner.
Going 17 for 17 was a remarkable feat for a rookie trader – especially since I wasn't using any sort of fundamental or technical analysis. I was just going with my gut. But I was careful not to put more than $1,000 or $2,000 into any single trade. And I still managed to turn my $5,000 brokerage account into $50,000 in just six weeks...
And then I decided it was time to get serious. No more tiny trades. I was too good for the small stuff. For whatever reason, I had figured out a way to beat the market. Heck, I had just rattled off 17 straight triple-digit winners. So I decided to take the $50,000 in my account, add to it my $25,000 in savings, and put it into a handful of option trades.
You can probably guess what happened next.
The stock market has a habit of humbling folks who think they've figured it out. For me, the humbling started right away.
At first, the positions started slightly moving against me. It was nothing to be concerned about. One good day would put everything back in the profit column.
But then, one by one, each position blew up on me. It was too painful to watch. I kept the television off and avoided reading the newspaper for fear I'd see something bad about the stock market and my positions. When I finally got up enough courage to call the branch manager and check on the status of my account, I learned all the gains I had built up over the previous six weeks were gone.
"Just sell everything," I said.
That was an expensive lesson to learn. But it's one every options trader learns at some point. I was just fortunate it happened to me early in my career.
You see, that experience changed how I looked at trading. Instead of using options as vehicles for speculation – a way to juice my returns and get more bang for my buck – I started using them the way they were intended to be used: as a way to reduce risk.
Today, I still do my fair share of speculating. But I'm not focused on how much money I can make. I'm focused on how little I can lose.
That's a huge difference. And it has allowed me to trade options successfully for nearly three decades.
You see, most folks lose money in the options market – which makes perfect sense if you understand probability. Think about it... A stock can do one of three things. It can go up. It can go down. Or it can stay the same. When you buy an option, you are betting on one of those three outcomes. You have, generally speaking, a 33% chance of being right and a 67% chance of being wrong on the trade.
My S&A Short Report subscribers have done considerably better than that. Over the past several years, nearly 60% of our trades have been winners. That's an outstanding track record. And we've accomplished it because we look for trading setups that increase the probability of a profitable trade.
But there's a way to do even better. With the right strategy, you can push your win rate up to 70%... or even 80%. You just need to take each option trade and add another element designed to further reduce your risk. It's how I trade with my own money. And it's what I recommend other people do with theirs.
I'm not naïve. I know most people won't take the time to learn this strategy. I've made these types of recommendations to subscribers before, and my inbox gets flooded with e-mails that read, "Please just give me something simple." 
So the "simple" trades are the trades I recommend most of the time. But like I said... folks willing to learn a few new techniques could make even more money – with even less risk.
In the next four essays, I'll explain this strategy in detail... and show you how to get started using it yourself.
Best regards and good trading, 
Jeff Clark

Further Reading:

If you missed this morning's note about our five-part holiday series, you can read it here.

Market Notes
Homebuilders Pulte Group, Toll Brothers, and Lennar finish the year up 55%-plus.
A good year for paint companies... Sherwin-Williams and Valspar are up more than 50% in 2012.
Home improvement stores Home Depot and Lowe's are up 40%-plus this year.
Best of the Crux: 2012
The demise of the U.S. dollar 
Tuesday, February 07, 2012 
"If we don't begin to solve these problems, they will certainly destroy our country..." 
Tuesday, February 14, 2012 
"After its latest two-day meeting, it announced its goal to devalue the dollar by 33%..." 
Thursday, April 26, 2012 
"There's a major shift underway..." 
Friday, June 01, 2012 
"This isn't going to happen in the future... This is happening right now..."