Trading Stock Options To Increase Your Returns PDF Print E-mail
Written by Shaun Rosenberg   
Monday, 21 June 2010 14:35
Did you know that there is a way to increase your returns in the market? This method is very powerful and if you already have experience in the market they can be worth looking into. This strategy involves using stock options.
by ShaunRosenberg


Did you know that there is a way to increase your returns in the market? This method is very powerful and if you already have experience in the market they can be worth looking into. This strategy involves using stock options.

Options are securities which give their investors the right to buy/sell a given security at a given price. Because of their nature that can lead to a much higher prices if a trader is right or a much greater losses if a trader is wrong.

Let's assume that you have found a stock (stock XYZ) that you believe, for whatever reason, will make a large move upward in the next few days. You could buy the stock for $48 or you could by the $50 stock option 2 for $4. If the stock moves up to $58 then your option would be worth at least $8 ($58-$50).

What this means is that the option contract would have given you a return of at least 100%, most likely more because of other factors that go into pricing an option. But the stock trade would have only given you a return of about 20%. Both are great returns no doubt. But the option would have given you a larger bang for your buck and in the end would have been more powerful.

But for every upside there is a downside. Since options are actually dated and will eventually expire you may find that your options will simply end up expiring worthless one day.

Of course there are ways to manage risk, but in general if you are having trouble making money by trading stocks, then switching to options will only increase your losses.

On the other hand if you are making money then stock options can be a perfect way of increasing your returns and controlling more with less. As long as you have a plan on using these tools and keeping your losses short they can be extremely powerful.

If on the other hand you are just trying to use them to get rich quick without a plan or experience, I would reconsider.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Now that you know what a Stock Option Investment is here is an interesting article on stock options This and other unique content '' articles are available with free reprint rights.