Did you know that there is a secrete way of increasing your stock market returns? If you are already making money by trading stocks you may want to consider looking into trading stock options.
Stock options are securities that give their investors the right to buy or sell a given stock at a given price on or before a given date in time. If you find a stock that is going to make a big move, (either up or down) there is a way to make a lot of money with a stock option.
For example, say you are buying a $50 stock option contract on stock XYZ for $4. Now stock XYZ is already trading at $48 and you expect it to go up in the short term. It finally moves up to $58 and your option contract is worth at least $8 ($58-$50). It is probably even worth more.
The option trade in this example would have returned it's investors over a 100% return (most likely more), while the simple stock trade (while still very profitable) would have only returned about a 20% return. This is only 1/5 of what the leveraged option play would have made.
But there is a downside to options. Since options are dated there is a chance that your option will simply expire worthless and you will lose all of the money you invested into it.
It is always possible to manage your risk, but in general options will just increase what you are doing already. If you are losing money stock options will simply make you lose it faster.
If you are, however, making money in the stock market then options can be a great alternative to traditional stock. They allow you to increase your return and control more with less. As long as you actually have a plan to manage the risk they can be powerful tools.
If on the other hand you are just trying to use them to get rich quick without a plan or experience, I would reconsider.
Stock options are securities that give their investors the right to buy or sell a given stock at a given price on or before a given date in time. If you find a stock that is going to make a big move, (either up or down) there is a way to make a lot of money with a stock option.
For example, say you are buying a $50 stock option contract on stock XYZ for $4. Now stock XYZ is already trading at $48 and you expect it to go up in the short term. It finally moves up to $58 and your option contract is worth at least $8 ($58-$50). It is probably even worth more.
The option trade in this example would have returned it's investors over a 100% return (most likely more), while the simple stock trade (while still very profitable) would have only returned about a 20% return. This is only 1/5 of what the leveraged option play would have made.
But there is a downside to options. Since options are dated there is a chance that your option will simply expire worthless and you will lose all of the money you invested into it.
It is always possible to manage your risk, but in general options will just increase what you are doing already. If you are losing money stock options will simply make you lose it faster.
If you are, however, making money in the stock market then options can be a great alternative to traditional stock. They allow you to increase your return and control more with less. As long as you actually have a plan to manage the risk they can be powerful tools.
If on the other hand you are just trying to use them to get rich quick without a plan or experience, I would reconsider.
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Now that you know, What is option trading here is an interesting article on stock options. This article, Using Stock Options to Increase Your Returns is available for free reprint.
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