Financial Topics Archives | Page 741 of 800

Jul

2022

10 Options Trading Strategies for Beginners

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

While the options market is risky and not suitable for everyone, these contracts can be a tool to make a speculative bet or offset risk in another position.

Many option strategies can involve one “leg,” meaning there’s only one contract that’s traded. More sophisticated strategies involve buying or selling multiple options contracts at the same time in order to minimize risk.

Here’s a guide that covers 10 important options trading strategies–from the most basic to the more complex and advanced.

10 Important Options Trading Strategies for Every Investor

When trading options, investors can either buy existing contracts, or they can “write” or sell contracts for securities they currently hold. The former is generally used as a means of speculation, while the latter is most often used as a way of generating income.

Here’s a closer look at important options strategies for beginner, intermediate and more advanced investors to know.

Long Calls
Long Puts
Covered Calls
Short Puts
Short Calls or Naked Calls
Straddles and Strangles
Cash-Secured Puts
Bull Put Spreads
Iron Condors
Butterfly Spreads

1. Long Calls

Level of Expertise: Beginner

Being long a call option means an investor has purchased a call option. “Going long” calls are a very traditional way of using options. This strategy is often used when an investor has expectations that the share price of a stock will rise but may not want to outright own the stock. It’s therefore a bullish trading strategy.

Let’s say an investor believes that Retail Stock will climb in one month. Retail Stock is currently trading at $10 a share and the investor believes it will rise above $12. The investor could buy an option with a $12 strike price and with an expiration date at least one month from now. If Retail Stock’s price rises to hit $12 within a month, the value or “premium” of the option would likely rise.

2. Long Puts

Level of Expertise: Beginner

Put options can be used to make a bearish speculative bet, similar to shorting a stock, or they can also function as a hedge. A hedge is something an investor uses to make up for potential losses somewhere else. Here are examples of both uses.

Let’s say Options Trader wants to wager shares of Finance Firm will fall. Options Trader doesn’t want to buy the shares outright so instead purchases puts tied to Finance Firm. If Finance Firm stock falls before the expiration date of the puts, the value of those options will likely rise. And Options Trader can sell them in the market for a profit.

An example of a hedge might be an investor who buys shares of Tech Stock C that are currently trading at $20. But the investor is also nervous about the stock falling, so they buy puts with a strike price of $18 and an expiration two months from now.

One month later, Tech Stock C stock tumbles to $15, and the investor needs to sell their shares for extra cash. But the investor capped their losses because they were able to sell the shares at $18 by exercising their puts.

3. Covered Calls

Level of Expertise: Beginner

The covered call strategy requires an investor to own shares of the underlying stock. They then write a call option on the stock and receive a premium payment.

The tradeoff is that if the stock rises above the strike price of the contract, the stock shares will be called away from them, and the shares (along with any future price rises) will be forfeit. So, this strategy works best when a stock is expected to stay flat or go down slightly.

If the stock price of Company Y stays below the strike price when the option expires, the call writer keeps the shares and the premium and can then write another covered call if desired. If Company Y rises above the strike price when the option expires, the call writer must sell the shares at that price.

4. Short Puts

Level of Expertise: Beginner

Being short a put is similar to being long a call in the sense that both strategies are bullish. However, when shorting a put, investors actually sell the put option, earning a premium through the trade. If the buyer of the put option exercises the contract however, the seller would be obligated to buy those shares.

Here’s an example of a short put: Shares of Transportation Stock are trading at $40 a share. An investor wants to buy the shares at $35. Instead of buying shares however, the investor sells put options with a strike price of $35. If the shares never hit $35, the investor gets to keep the premium they made from the sale of the puts.

Should the options buyer exercise those puts when it hits $35, the investor would have to buy those shares. But remember the investor wanted to buy at that level anyways. Plus by going short put options, they’ve also already collected a nice premium.

5. Short Calls or Naked Calls

Level of Expertise: Intermediate

When an investor is short call options, they are typically bearish or neutral on the underlying stock. The investor typically sells the call option to another person. Should the person who bought the call exercise the option, the original investor needs to deliver the stock.

Short calls are like covered calls, but the investor selling the options don’t already own the underlying shares, hence the phrase “naked calls”. Hence they’re riskier and not for beginner investors.

Here’s a hypothetical case: Investor A sells a call option with a strike price of $100 to Trader B, while the underlying stock of Energy Stock is trading at $90. This means that if Energy Stock never rises to $100 a share, Investor A pockets the premium they earned from selling the call option.

However, if shares of Energy Stock rise above $100 to $115, and Trader B exercises the call option, Investor A is obligated to sell the underlying shares to Trader B. That means Investor A has to buy the shares for $115 each and deliver them to Trader B, who only has to pay $100 per share.

6. Straddles and Strangles

Level of Expertise: Intermediate

With straddles in options trading, investors can profit regardless of the direction the underlying stock or asset makes. In a long straddle, an investor is anticipating higher volatility, so they buy both a call option and a put option at the same time. Short straddles are the opposite–investors sell a call and put at the same time.

Straddles and strangles are used when movement in the underlying asset is expected to be small or neutral.

Let’s look at a hypothetical long straddle. An investor pays $1 for a call contract and $1 for a put contract. Both have strikes of $10. In order for the investor to break even, the stock will have to rise above $12 or fall below $8. This is because we’re taking into account the $2 they spent on the premiums.

In a long strangle, the investor buys a call and put but with different strike prices. This is likely because they believe the stock is more likely to move up than down, or vice versa. In a short strangle, the investor sells a call and put with different strikes.

Here’s an example of a short strangle. An investor sells a call and put on an exchange-traded fund (ETF) for $3 each. The maximum profit the investor can make is $6 — the total from the sales of the call and the put options. The maximum loss the investor can incur is unlimited since the underlying ETF can potentially climb higher forever. Meanwhile, losses would stop when the price hit $0 but still be significant.

7. Cash-Secured Puts

Level of Expertise: Intermediate

The cash-secured put strategy is one that can both provide income and let investors purchase a stock at a lower price than they might have been able to if using a simple market buy order.

Here’s how it works: an investor writes a put option for Miner CC they do not own with a strike price lower than shares are currently trading at. The investor needs to have enough cash in their account to cover the cost of buying 100 shares per contract written, in case the stock trades below the strike price upon expiration (in which case they would be obligated to buy).

This strategy is typically used when the investor has a bullish to neutral outlook on the underlying asset. The option writer receives cheap shares while also holding onto the premium. Alternatively, if the stock trades sideways, the writer will still receive the premium, but no shares.

8. Bull Put Spreads

Level of Expertise: Advanced

A bull put spread involves one long put with a lower strike price and one short put with a higher strike price. Both contracts have the same expiration date and underlying security. This strategy is intended to benefit from a rising stock price. But unlike a regular call option, a bull put spread limits losses and can also profit from time decay.

Let’s say a stock is trading at $150. Trader B buys one put option with a strike of $140 for $3, while selling another put option with a strike of $160 for $4. The maximum profit is $1, or the net earnings from the two options premiums. So $4 minus $3 = $1. The maximum profit can be achieved when the stock price goes above the higher strike, so $160 in this case.

Meanwhile, the maximum loss equals the difference between the two strikes minus the difference of the premiums. So ($160 minus $140 = $20) minus ($4 minus $3 = $1) so $20 minus $1, which equals $19. The maximum loss is achieved if the share price falls below the strike of the put option the investor bought, so $140 in this example.

Recommended: A Guide to Options Spreads

9. Iron Condors

Level of Expertise: Advanced

The iron condor consists of four option legs (two calls and two puts) and is designed to earn a small profit in a low-risk fashion when a stock is thought to have little volatility. Here are the four legs. All four contracts have the same expiration:

1. Buy an out-of-the-money put with a lower strike price

2. Write a put with a strike price closer to the asset’s current price

3. Write an call with a higher strike

4. Buy a call with an even higher out-of-the-money strike.

If an individual makes an iron condor on shares of Widget Maker Inc., the best case scenario for them would be if all the options expire worthless. In that case, the individual would collect the net premium from creating the trade.

Meanwhile, the maximum loss is the difference between the long call and short call strikes, or the long put and short put strikes, after taking into account the premiums from creating the trade.

10. Butterfly Spreads

Level of Expertise: Advanced

A butterfly spread is a combination of a bull spread and a bear spread and can be constructed with either calls or puts. Like the iron condor, the butterfly spread involves four different options legs. This strategy is used when a stock is expected to stay relatively flat until the options expire.

In this example, we’ll look at a long-call butterfly spread. To create a butterfly spread, an investor buys or writes four contracts:

1. Buys one in-the-money call with a lower strike price

2. Writes two at-the-money calls

3. Buys another higher striking out-of-the-money call.

The Takeaway

Options trading strategies offer a way to potentially profit in almost any market situation—whether prices are going up, down, or sideways. The market is complex and highly risky, making it not suitable for everyone, but the guide above lays out different trading strategies based on the level of expertise of the investor.

Investors who are ready to dip their toe into options trading might consider SoFi’s options trading platform, where they’ll have access to a library of educational content about options. Plus, the platform has a user-friendly design.

Pay low fees when you start options trading with SoFi.

Photo credit: iStock/Rockaa
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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN20255

Jul

2022

Best Entry Level Jobs For Antisocial People

15 Entry-Level Jobs for Antisocial People

By Anil Sharma | Building Your Career, Life & Career, relay | Comments Off

Antisocial people tend not to like being around others, which can sometimes be a barrier to getting certain jobs. In reality there are plenty of jobs that do not require any social interaction, making them perfect for an antisocial person.

Key Points

• Antisocial individuals prefer jobs with minimal or no social interaction.

• Ideal roles for antisocial people include computer programming, farming, and writing, which require limited public engagement.

• Such positions often allow for remote work or solitary environments.

• Entry-level jobs well-suited for antisocial personalities include truck driving and craft artistry.

• These jobs provide opportunities to work independently, away from team settings or customer interactions.

What Does It Mean to Be Antisocial?

The clinical definition of “antisocial” is someone that shows no regard for others and does not want to be in the company of other people. However, in common usage, antisocial can be used to describe someone that prefers to be alone most or all of the time.

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Why It Can Be Difficult for Antisocial People to Find Work

Most jobs require at least some form of interaction, either with customers or coworkers. This can be a struggle for an antisocial person, who would likely prefer to find work that requires limited or no interpersonal interaction.

Antisocial people may also experience anxiety about job interviews, which are typically a prerequisite in the hiring process for many jobs.

What Makes the Ideal Job for an Antisocial Person?

An antisocial person may want to find a job that requires no interaction and can be done from a quiet and isolated location at their leisure. Self-employment can be a career path for antisocial people to consider or jobs that only require interaction through virtual (email, text, etc.) correspondence.

What Kind of Work Does Not Suit an Antisocial Person?

Any job that requires a lot of engagement with others, such as customer service or retail, would likely not be a good fit for an antisocial person. At the same time, any job that requires a lot of on-the-job training or management would likely not be ideal.

15 Entry-Level Jobs for Antisocial People

Antisocial disorder is often diagnosed at a young age. For those looking to start an entry-level career, here are 15 jobs that are well-suited to an antisocial person (with salary data from the Bureau of Labor Statistics):

Computer Programmer

2021 median salary: $93,000
Primary Duties: Write and test code and scripts that enable computer software to function.

Farmer or Rancher

2021 median salary: $73,060
Primary Duties: Oversee the production of crops, livestock and dairy products.

Writer and Author

2021 median salary: $69,510
Primary Duties: Write original copy for personal or business websites.

Aircraft Mechanic

2021 median salary: $65,550
Primary duties: Repair, inspect and perform maintenance on various aircraft.

Craft Artist

2021 median salary: $49,960
Primary Duties: Create original works of art for sale and exhibition using a variety of materials.

Truck Driver

2021 median salary: $48,310
Primary Duties: Pick up, transport, and deliver packages or goods from one location to another.

Machinist

2021 median Salary: $47,940
Primary Duties: Operate mechanical- and computer-controlled equipment used to manipulate metal parts, instruments, and tools.

Embalmer

2021 median salary: $47,780
Primary duties: Prepare the bodies of the deceased for interment.

Medical Transcriptionist

2021 median salary: $30,100
Primary duties: Transfer voice recordings from physicians and other healthcare professionals into formal reports or other documents.

Proofreader

2021 median salary: $43,940
Primary duties: Read content and correct for spelling, punctuation, and grammatical errors.

Assembly Line Worker

2021 median salary: $37,170
Primary duties: Use hand tools or machinery to produce vehicles, electronic devices and other materials and goods.

Animal Trainer

2021 median salary: $31,280
Primary duties: Teach animals skills such as obedience, performance, riding, security, and assisting people.

Veterinary Assistant

2021 median salary: $29,780
Primary duties: Feed, bathe and take care of animals in need of treatment.

Janitor

2021 median salary: $29,760
Primary duties: Clear and sterilize buildings, schools, hospitals and other commercial businesses.

Crematory Operator

2021 average salary: $37,490
Primary Duties: Perform cremations, including the preparation and transfer of the body post-service.

Recommended: High Paying Trade Jobs in Demand

The Takeaway

Having antisocial tendencies doesn’t mean you can’t find a fulfilling career. In fact, many jobs offer solitude and limited people interaction, which can appeal to many antisocial and introverted individuals.

Regardless of your chosen career path, it’s important to exercise responsible spending and money habits and keep track of your financial goals.

SoFi can help you track your money like a champion, with tools for monitoring your credit score, setting financial goals and monitoring your spending.

FAQ

What jobs require no social interaction?

Computer programmers that work from home, janitors that work night shifts, and farmers and ranch-hands typically have little to no social interaction in their day-to-day work.

What is a good job for antisocial people with no experience?

Artisan jobs, online bloggers, and transcriptionists all provide strong starting salaries and require no formal degree or experience.

Photo credit: iStock/ferrantraite

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL0522025

Jul

2022

Exercising in Options? What Does It Mean & When to Exercise

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Investors in stock option contracts have the right to buy or sell underlying stocks (or other assets) at a predetermined price within a certain time period. When an investor decides they want to take action on their right to buy or sell, it’s called exercising. There are a number of ways investors can choose to exercise their options contract, depending on their individual goals and financial situation.

Option contracts are complex investment vehicles. They’re a multi-faceted tool that involves precise timing and are backed by lots of strategizing. While options are not for all investors, if handled by experienced traders, options could add diversity to a well-diversified portfolio.

In this article, we focus on the concept of exercising in options. What does it really mean to “exercise an option?” And how do you do it?

What Does Exercising Mean?

Exercising a stock option means that a trader purchases or sells the underlying stock associated with the options contract at the price set by the contract, which is called the strike price. This price may differ from the current market price of the stock.

Options contracts are valid for a certain amount of time. So if the owner doesn’t exercise their right to buy or sell within that period, the contract expires worthless, and the owner loses the right to buy or sell the underlying security at the strike price.

There is also an upfront fee, called a premium, that gets paid when a trader enters into an options contract. If the trader doesn’t exercise the contract, they forfeit that fee along with any other brokerage fees. Most options contracts never get exercised. Some contracts are sold instead of exercised, because the contract itself has value if it has the potential to be exercised later.

There are two main choices of types of options contracts, call options and put options. Purchasing a call option gives traders the right, but not the obligation, to purchase the underlying security at the strike price. Selling put options gives traders the right to sell the underlying security at the strike price.

Each contract is different, and there are also different types of options. American-style options let traders exercise them prior to the contract’s expiration date, while European-style options can only be exercised after the expiration date.

How Do You Exercise an Option?

Generally, traders have several choices when it comes to exercising their stock options. When a trader is ready to exercise an option, they can let their brokerage firm know. The broker will create an exercise notice to the Options Clearing Corporation (OCC) to let the individual or entity buying or selling the underlying stock know that the trader wants to execute a trade on a particular date. The option seller is required to fulfill the obligations of the contract.

The OCC assigns the exercise notice to one of their clearing members, which tends to be the trader’s brokerage firm. The broker then assigns the option to one of their customers who has written an option contract that they have not yet covered. Depending on the broker, the customer they choose may either be chosen randomly or picked on a first-in-first-out (FIFO) principle .

Holding

If a trader thinks a stock will go up in value, they can purchase options at a lower market price, then wait until the market price goes up to exercise the option. Then they purchase at their original lower price and can decide to sell at the new, higher market price. This is one of the benefits of trading stock options. However, traders can’t wait forever, because options contracts do have expiration dates.

Exercise-and-Hold

It is common for company employees to receive stock options, which give them the right to purchase company stock. They can purchase the stock and then hold onto it if they think it will rise in value. However, it’s important for employees to understand the rights they have with their options. Often, stock shares are vested for a certain amount of time, so an employee has to wait for that time to end before they are allowed to exercise the option.

Exercise-and-Sell-to-Cover

Sometimes there are fees, commissions, and taxes involved in exercising company stock options. To cover those fees, traders can exercise options, purchase shares of company stock and simultaneously sell some of those shares to cover the expenses.

Exercise-and-Sell

If a company employee wants to immediately sell their stock options after exercising their right to buy the stock, they can choose to exercise and sell. They will receive the cash amount of the current market value of the stock minus any fees and taxes.

Early Exercise

In addition to profiting off of a stock’s price increase, options traders may want to exercise early so that they can earn dividends off of the underlying security. Traders who write call options should be prepared to close out a trade at any time prior to the contract’s expiration date, especially if the contract is in-the-money. If a put option is in the money, most likely the owner will exercise it before it expires.

Advantages and Disadvantages of Exercising an Option

Exercising options presents opportunities to earn a profit, but there also are potential downsides to exercising options.

Exercising Options

Advantages	Disadvantages
Earn dividends from owning the underlying stock.	Fees, taxes, transaction costs potentially could cancel out any profit.
Sell the underlying stock for a profit.	Increases chance of risk: margin call, stock’s value could decrease.
In general, traders can make a greater profit via closing positions — by buying or selling options rather than exercising them. One of the few instances where it could be advantageous to exercise a contract is if you’d like to own the stock outright instead of basing a contract on it.	The one way that exercising a contract could actually make you lose out on money has to do with the complicated price structure of options, which consists of two components: extrinsic (time value) and intrinsic value. If you own options contracts that are in the money, then the price of those contacts will comprise both extrinsic and intrinsic value. If you sell these options, you’d benefit from both the intrinsic and the extrinsic price components. But if you exercised them instead, you would only benefit from the intrinsic value. Why? Extrinsic value serves to compensate the writer (seller) of options contracts for the risk they are taking. Once you exercise an options contract, the contract itself effectively ceases to exist, so that all extrinsic value is lost.

Advantages

Disadvantages

Earn dividends from owning the underlying stock.

Fees, taxes, transaction costs potentially could cancel out any profit.

Sell the underlying stock for a profit.

Increases chance of risk: margin call, stock’s value could decrease.

In general, traders can make a greater profit via closing positions — by buying or selling options rather than exercising them.

One of the few instances where it could be advantageous to exercise a contract is if you’d like to own the stock outright instead of basing a contract on it.

The one way that exercising a contract could actually make you lose out on money has to do with the complicated price structure of options, which consists of two components: extrinsic (time value) and intrinsic value.

If you own options contracts that are in the money, then the price of those contacts will comprise both extrinsic and intrinsic value. If you sell these options, you’d benefit from both the intrinsic and the extrinsic price components.

But if you exercised them instead, you would only benefit from the intrinsic value. Why?

Extrinsic value serves to compensate the writer (seller) of options contracts for the risk they are taking. Once you exercise an options contract, the contract itself effectively ceases to exist, so that all extrinsic value is lost.

How Do You Know Whether to Hold or Exercise an Option?

It can be difficult to know when and whether to exercise an option. There are different options trading strategies that can prove beneficial to exercising early, or to waiting or even selling the option contract itself. Many factors come into play when making the decision to exercise an option, such as

• the amount of time left in the contract,

• whether it is in-the-money and if so by how much, and

• whether the trader wants to buy, sell, or hold shares of the underlying security.

Time Value

One key thing to know about options trading is how options pricing works. Options lose value over time until they are finally worth nothing at their expiration date. If a trader owns an option that still has time left on it, they may consider selling the option or waiting to exercise it. Often it is more profitable to sell the option than to exercise it if it still has time value. If an option is in the money and close to expiring, it may be a good idea to exercise it. Options that are out-of-the-money don’t have any intrinsic value, they only have time value.

Transaction Costs

In addition to the premium a trader pays when buying an option, they must also pay transaction and commission fees to their broker. There can be fees both when exercising an option and when buying or selling the underlying shares.

Increased Chance of Risk

Buying a call option is fairly low risk because the most a trader can lose is the premium amount they paid when they bought into the contract. Exercising an option increases risk, because even if the trader profits in the short term by exercising and buying the stock at a good price, the stock could decrease in value any time. Because the trader already lost the premium amount, they would need to earn at least that amount back to break even on the trade.

Exposure to Margin Risk

To purchase the shares of the underlying security, a trader needs to use cash from their account or take out a margin loan from their broker. If they take out a loan, they increase their chances for risk and greater expenses.

Options Obligations

The owner of a long option contract has the right to buy shares of the underlying stock if they choose to exercise it. The selling trader on the other side of the contract is obligated to fulfill the contract if the owner decides to buy. If the buyer exercises their right, the seller must deliver the number of shares — generally 100 shares per contract — for the strike price set by the contract. If the buyer does exercise the contract, they are then obligated to pay the seller for those shares.

The brokerage firm gives notice to a random seller when a buyer exercises an option that fits the transaction parameters. This could happen at any time prior to the expiration date. A seller can close out their option contract early if it hasn’t been exercised yet. The process of assigning and exercising options is all automated. So if a trader sells an option, when it gets exercised the stock will automatically be removed from their account, and they receive cash in their account in return. The buyer will receive the shares in exchange for cash from their brokerage account.

The Takeaway

Stock options are a popular investing tool to gain exposure to securities with a smaller upfront cost and level of risk. If you’re interested in starting to build a portfolio, a great tool to use is SoFi Invest. The online trading platform lets you research, track, buy and sell stocks, ETFs, and other assets right from your phone — all with 24/7 convenience.

More ways to invest — all in one place. You can connect your banking and any other investment accounts to the SoFi Invest app to see all your financial information easily in one simple dashboard.

Get started trading on SoFi Invest today.

FAQ

How can you tell when to exercise an option?

It could be beneficial to exercise an option if the underlying security’s price is more than the strike price of a call option; or the underlying security’s price is less than the strike price of a put option.

How are early-exercise options different from exercise options?

Early-exercise options differ from exercise options in one way: Early exercise is possible with American-style option contracts only. You cannot do this with European-style option contracts, as they rule that you may exercise on the expiration date only.

What is a cashless exercise in options?

Also called the “same-day sale,” a cashless exercise is when an employee exercises their stock options via a short-term loan provided by a brokerage firm.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
*Borrow at 12%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Photo credit: iStock/whyframestudio
SOIN0122054

Jul

2022

Guide to Saving Money on Hotels for Your Next Vacation

By Dan Miller | Credit, Family Finances, money | Comments Off

Along with flights, lodging costs are one of the biggest expenses for many vacationers. As such, savvy travelers are likely on the lookout for how to save money on hotels when planning their vacation.

While hotel prices often rise and fall over time based on supply and demand, there are ways to save money on hotels on vacation. This ranges from being flexible about when and where you travel to getting a hotel credit card and taking advantage of cashback rewards. Read on for a full rundown of the best ways to save on hotels for your next vacation.

Recommended: Can You Buy Crypto With a Credit Card

Tips to Save on Hotels While Traveling

Wondering how to save on hotels when traveling? Here are some tips to try.

Getting a Hotel Credit Card

Using credit card rewards to travel for less is one way to save money on hotels while traveling. Most major hotel chains have a co-branded credit card that allows you to earn points for staying with them as well as on your everyday spending.

Additionally, many of these hotel credit cards offer sign-up bonuses. With these bonuses, you may be able to earn enough credit card points for a few free nights just by meeting a minimum spending amount.

There are different credit card rewards programs, so just make sure to choose the one for the hotel where you’re wanting to stay.

Earning Hotel Cashback

One of the downsides of getting a hotel credit card is that in most cases, you’re limited to using your points to stay with that particular hotel chain. If you have a Marriott credit card that earns Marriott Bonvoy hotel points, for instance, you can’t use them to stay at a Hilton or Hyatt.

One way to get around that is to use a credit card that offers cash back rewards. These cards allow you to redeem cash rewards from your everyday purchases that you can then use to pay for any hotel you want.

Recommended: What is the Average Credit Card Limit

Keeping an Eye Out for Deals

Flexibility is key to saving money on hotels, and the earlier you start planning your vacation, the more luck you’ll have in finding travel deals. Many successful vacationers start planning their trips up to a year before they actually plan to travel. That gives you plenty of time to explore your options, wait for deals to pop up, and keep an eye out for sales.

Checking All the Conditions While Booking the Hotel

When you’re booking a hotel room, you’re generally presented with several different room rates. You might have a different rate if you’re a member of the hotel loyalty program, if you prepay for your stay, or if you belong to a specific organization.

These different rates also usually come with different cancellation policies. Make sure to read the fine print before you book, so you can know what to expect during your stay. The fine print could also detail additional fees that the rate doesn’t clearly include.

Looking Out for Free Breakfast

One way to plan a budget family vacation is to look for hotels that include complimentary breakfast with the room rate. If you’re traveling with a family, getting the breakfast that’s included in your hotel reservation might save you anywhere from $20-$50 per day. This can free up some of your hotel funds for other vacation activities, and can make a difference when comparing rates from different hotels.

Joining a Hotel Points Program

Even if you don’t sign up for a hotel chain’s co-branded credit card, you’ll want to make sure to join their loyalty program. There’s typically no cost to join the hotel’s loyalty program, and you’ll generally get perks like lower nightly rates or complimentary Wi-Fi. This can be a great way to save money for a trip.

Taking Advantage of Falling Rates

One strategy for saving money on hotels is to only book a refundable rate that you can cancel at any time. Then, periodically check back to see if the rate has fallen. If the rate is lower than when you first booked the hotel, cancel your original reservation and book at the new lower rate.

There are also services that you can take advantage of if you don’t want to stay on top of price tracking yourself. For example, websites and apps like Hopper and Rebookey can monitor hotel prices and notify you if the price drops after you’ve booked.

Recommended: How to Avoid Interest On a Credit Card

Making Payments in Advance

Alternatively, you can prepare financially for travel by making your hotel payments in advance. Many hotels offer a lower rate when you prepay as compared to a refundable hotel rate where your credit card isn’t charged until your stay. You could save anywhere from $10 to $20 per night by prepaying in advance.

Plus, if you pay with a credit card that offers credit card travel insurance, you’ll have peace of mind that your prepaid funds aren’t lost if your travel plans change unexpectedly.

Recommended: When Are Credit Card Payments Due

Sticking to Your Budget

Like most financial purchases, one of the best ways to save money is to establish a written budget and then stick to it. If you plan for a trip a year in advance, you can make a budget for your trip and then create a travel fund where you put 1/12 of the cost into your travel fund each month.

Being Spontaneous

While hotel prices go up and down — sometimes multiple times per day — based on supply and demand, you can sometimes get great deals by booking at the very last minute. If you have a ton of flexibility, you can sometimes find cheap cruises or outstanding last-minute weekend hotel deals. This strategy is best used if you don’t have concrete plans and don’t have a strong preference for where you go.

Using Discounts You Already Have

If you’re a frugal traveler, you’ll want to also take advantage of any discounts that you already have. This could include saving on gas using grocery fuel points, buying discounted gift cards, or using credit card points to offset some of your travel costs.

This is another reason why planning in advance and being flexible can help — the more time you have to plan, the more time for you to take advantage of some of these deals.

Apply for a New Rewards Credit Card With SoFi

Lodging costs can be one of the most expensive parts of any vacation, so it’s a good idea to know how to save money on hotel rooms. Hotel prices fluctuate often based on supply and demand, so plan as far in advance as your schedule allows. The more flexible you can be in terms of when you travel, where you go, and what hotel you want to stay at, the more likely it is that you’ll be able to save money on hotels.

FAQ

What days are the cheapest to stay in hotels?

Determining which days are the cheapest to stay in hotels depends quite a bit on where the hotel is and who their clientele typically is. If you’re looking to stay in a tourist-heavy vacation spot, it’s likely that weekends are most expensive. On the other hand, a hotel that caters to business travelers might be more expensive during the week and cheaper on weekends.

What time of the year do hotel prices drop?

There isn’t a set time of day or year when hotel prices drop. Instead, hotel prices vary according to supply and demand. One strategy to save money on hotels is to book a refundable rate initially. Then, you can monitor prices and if the price goes down, you can just rebook.

Are hotels cheaper last minute?

Hotel prices vary all the time, both up and down. It’s possible for hotel prices to go down if you wait until late in the day on the night you want to stay. This can be an option if you have flexibility in your plans.

Photo credit: iStock/aquaArts studio

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

¹See Rewards Details at SoFi.com/card/rewards.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Jul

2022

Investing With Credit Card Rewards: Tips for Maximizing Cash Back Earnings

By Dan Miller | Credit, Financial Independence, money | Comments Off

Responsible credit card usage can add hundreds if not thousands of extra dollars to your bottom line each year. Many credit cards offer rewards that you can earn with each and every purchase. You can choose a credit card that helps you earn airline miles, travel rewards, or cash back.

Before applying for or using a credit card, you’ll want to make sure that you have the financial ability and discipline to pay off your credit card statement in full, each and every month. If you don’t, the interest and/or fees will likely exceed any rewards you might earn. But if you do, you might consider investing with credit card rewards to further grow your funds.

What Are Credit Card Rewards?

Just like knowing what a credit card is, it’s important to understand what credit card rewards are. Many credit card companies offer credit card rewards as an incentive for you to apply for and regularly use their credit card.

These rewards can be airline miles, other types of travel rewards, bank-specific points, or straight cash back. The credit card you choose determines the kind of credit card rewards that you’ll earn.

Types of Credit Card Rewards

If you have a rewards credit card, there are several different kinds of credit card rewards that you can earn.

Cash Back Rewards

If you have a cash back credit card, you’ll earn cash back with every purchase. Some cash back credit cards earn different rates of cash at different types of merchants, while others earn a flat cashback rate no matter where you use the card.

Travel Rewards

Another popular type of credit card rewards are a variety of different kinds of travel rewards. You might get an airline credit card that earns airline miles for a specific airline or hotel points good for stays at a particular chain of hotels. Other travel rewards credit cards offer rewards points that you can use at a flat rate on any type of travel purchase.

Bank Points

Some banks offer credit cards where you earn points that are proprietary to that bank or credit card company. Many times, these points can be used like cash on purchases, or for travel-related purchases.

Guide to Investing Your Credit Card Cash Back Rewards

If you have a credit card that earns cash back rewards, you can often redeem them in many different ways.

Direct Deposit

One way to get your credit card cash back rewards is through direct deposit to a checking or savings account that you own. You might set up your cash back rewards to automatically transfer to your account once they reach a certain threshold, like $25. You might also be able to set up your account to regularly transfer your cash back rewards every month or every quarter.

Paper Checks

If you prefer something that you can tangibly hold, you can also request that your credit card cash back rewards are mailed to you via a paper check. Some credit card companies may charge a fee for mailing paper checks, so make sure you won’t be charged a fee before choosing this option.

Recommended: What is a Charge Card

Statement Credits

Another way you might access your cash back rewards is through a statement credit. With a statement credit, your cash back rewards are applied directly to your credit card balance. This will lower the amount that you need to pay in order to completely pay off your balance off in full.

How Do Credit Card Rewards You Can Use for Investing Work?

Before using one, it’s important to understand how credit cards work, and how credit card rewards that you can use toward investing work. An investment credit card is similar to a cash back credit card in that you earn rewards that work like cash. But instead of redeeming your rewards for a statement credit or via direct deposit, you invest your cash back rewards in an investment account.

Tips for Maximizing Your Credit Card Cash Back Reward Earnings

Enjoying credit card bonuses is one way that you can maximize your credit card cash back earnings.
Many credit cards offer an initial welcome offer where you get a bonus amount if you meet certain spending or other criteria in the first few months of having the card. That can really supercharge your credit card cash back reward earnings.

If your cash back credit card earns a higher rate in certain categories or at certain merchants, make sure to use it where it gets the highest value.

Recommended: Can You Buy Crypto With a Credit Card

Pros and Cons of Investing Your Credit Card Cash Back Rewards

Here is a look at some of the pros and cons of investing your credit card cash back rewards:

Pros of Investing Your Credit Card Cash Back Rewards	Cons of Investing Your Credit Card Cash Back Rewards
Cashback and other rewards are not taxable.	If you’re not paying off your balance in full each month, interest and fees can offset any rewards earned.
Investing your rewards can help supplement other investing efforts.	It’s hard for small amounts to make a meaningful impact on overall investing goals.
Investing your credit card rewards doesn’t require dipping into your budget.	If your brokerage doesn’t support fractional shares, your investment options might be limited.

Recommended: How to Buy Stocks With a Credit Card

Other Investment Options

One of the best things about the cash that you earn from cash back rewards is that it’s actually cash. Cash can be used for just about anything in your budget, and so can cash back rewards.

For example, you can use your cash back rewards in an online trading platform to invest in stocks or index funds. You can also use them to invest in real estate or other types of investments, or even use them to invest in yourself through education or job training classes.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

If used wisely, credit cards and credit card rewards can serve as a valuable addition to any financial plan. Cash back credit cards allow you to earn money back on every purchase, as well as possibly a larger initial bonus. It’s a good idea to have a plan for how you want to use your cash back rewards, and always make sure to pay off your credit card statement in full, each and every month.

One way to use credit card rewards to fund your investments is to get a cash-back credit card like the SoFi Credit Card.

FAQ

Should you invest your cash back rewards?

One of the best things about cash back rewards is that they function pretty much the same as cash in any other format. So whether you directly invest your cash back rewards or use them as a statement credit and invest money from your checking account, it works out pretty much the same. The important thing to do with your credit card rewards is to not spend them mindlessly. Be intentional and make a conscious decision on the best way to spend them for your specific financial situation.

Can I buy stocks with my credit card?

Most brokerages will not allow you to directly buy stocks with a credit card. Instead, one way to invest your credit card rewards is by using a cash back credit card like the SoFi credit card. You can earn cash back with each purchase and then directly invest those funds with your SoFi Invest account.

What is the smartest way to use a credit card that has rewards?

The first thing that you’ll want to do when using a credit card is make sure that you have the financial discipline and ability to pay off your credit card in full each month. This ensures that you won’t be charged any interest or fees. Then, decide how your credit card rewards will make the biggest impact in your financial life.

Photo credit: iStock/MStudioImages

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

¹See Rewards Details at SoFi.com/card/rewards.

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet

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