Trading Options ” Highway To Wealth Or Short Cut To Impoverishment?
Feb 8, 2010 Stock Investment
Trading options holds several advantages over trading shares. It also has major risks though, of which investors should be aware before using this investment tool.
The biggest advantage of trading in options over trading in shares can be summarized in one sentence; you can make a lot more money. Options trading involves what traders refer to as leverage - a powerful double-sided sword that can help you to make large amounts of money in a short time or lose everything you have if you don’t know what you are doing.
This means that you can either spend $100 to own just one share of the stock or you can buy one Call contract and control 100 shares for just $20. In this scenario, if there is a large and quick move up, the option investment could potentially make a much larger return on investment. Unfortunately the opposite is also true.
Buying just calls and puts can be a very risky business. We find that it is much safer to trade option spreads. To learn more about option trading, there are many free videos on Youtube. Some of the best will be by sjoptions. They focus on safety and low risk trades.
The traditional function of trading options used to be to hedge an existing investment. If you, for example, had shares in a certain company of which the share price recently went up quite a lot, you can hedge your position by buying put options on that stock. Should the price go down, you will lose money on the shares themselves, but make money on the put options. This is a basic way to protect your investment. The downside is that if the share price should rise, you will in turn make a profit on the shares themselves but lose money on the put options, which will cut into your profits. There are many other ways to hedge with options than this type of option trade.
Learn more about option trading and how it works. With the right option trading system in place you can make money. Set up your future today with a fantastic way to earn cash!
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