Trading Options - Top 7 Reasons To Trade Options
- By Bill Achola
- Published January 21st, 2012
- Finances
- Unrated
100% Guaranteed Approval! Your $$$ in hours. Even with Bad Credit!
You may be asking yourself the question: Why should I be interested in trading options? Well, here are seven reasons you should consider it:
1. Options offer the potential for huge returns.
Options offer the potential to make a 200% or even 400% return on your investment in a matter of days. Though stocks can offer good returns, there is no trade in the stock market that has the potential for such huge percentage returns within such a short period of time.
For example, last fall, we had the pleasure of enjoying option trades that realized 400% and 800% returns on our investment in just eight hours. Most months, we are involved in option trades that bring us 100%-200% returns on our investment.
However, keep in mind that with this potential for high returns comes high risk.
2. Options can be profitable even when stocks are going nowhere.
While stocks require movement either up or down to make money, options can pay off when stocks are in a holding pattern or going nowhere in terms of price.
When you write an option, stock neutrality can be one of your best friends. So, while everyone else is watching paint dry, you can be making money.
3. Options can function as insurance.
If you are holding stocks for an extended period of time and are concerned about significant price fluctuations, you can purchase options to offset any potential losses due to price drops for a minimal amount of money. Options can give you the opportunity to reap the rewards of riskier investments while limiting your losses.
4. Options are a good add-on.
If you are planning to hold a stock for a number of months, or even years, writing options can be an excellent way to add value to your investment without selling your stock. Of course, you will have to choose the right option, but if you do, you can pocket most of the premiums (cash), if not all of them.
5. Options are affordable.
If you are fully invested in other areas, options can be a
way to invest in stocks without having to fork over a lot of cash. At the same time, they limit your losses if the trade goes against you.
6. Options offer flexibility.
While stocks can only be purchased at the current market price, options offer a variety of packages based on different strike prices and expiration dates. Because of this unique feature, you can implement a number of different strategies and tactics to generate income.
7. Options are leverage.
When you buy an option contract, you have bought the ability to control 100 shares of stock. It's a form of leverage, and it gives you the potential for significant returns.
I don't have any secrets or special insight into what the markets, stocks or options are going to do. Quite simply, I'm just a math geek at heart. Patterns and probabilities are my comfort zone, as analyzing charts opens up my trading account to endless possibilities.
The more you know about the securities you're trading, the better your returns will be. Understanding how they've traded in the past, what their trigger points are, what the classic chart formations mean and the time they take to play out, and which signals mean a stock is going to plummet or soar mean that there's no reason to guess where a stock's heading next.
And when you're anticipating a significant stock move in a short period of time, well, what better way to play it than by leveraging your gains by 5-10 times by buying options instead of spending tens or hundreds of thousands of dollars on the shares?
As an investor, no doubt you have a handful of favorite stocks that you just can't cut loose-whether they're great performers or whether you're "hanging in there" till they do what you expect them to.
As a trader, though, you never want to get "attached" to a stock. You've got to be ready to cash out quickly when you've made your gains, and you've got to cut loose those under performing positions to keep your capital intact for those trades that will behave-and pay off!
If you consider option trading, then you should choose your investment tool cautiously and create a broadly diversified portfolio so that you can minimize your risk.
1. Options offer the potential for huge returns.
Options offer the potential to make a 200% or even 400% return on your investment in a matter of days. Though stocks can offer good returns, there is no trade in the stock market that has the potential for such huge percentage returns within such a short period of time.
For example, last fall, we had the pleasure of enjoying option trades that realized 400% and 800% returns on our investment in just eight hours. Most months, we are involved in option trades that bring us 100%-200% returns on our investment.
However, keep in mind that with this potential for high returns comes high risk.
2. Options can be profitable even when stocks are going nowhere.
While stocks require movement either up or down to make money, options can pay off when stocks are in a holding pattern or going nowhere in terms of price.
When you write an option, stock neutrality can be one of your best friends. So, while everyone else is watching paint dry, you can be making money.
3. Options can function as insurance.
If you are holding stocks for an extended period of time and are concerned about significant price fluctuations, you can purchase options to offset any potential losses due to price drops for a minimal amount of money. Options can give you the opportunity to reap the rewards of riskier investments while limiting your losses.
4. Options are a good add-on.
If you are planning to hold a stock for a number of months, or even years, writing options can be an excellent way to add value to your investment without selling your stock. Of course, you will have to choose the right option, but if you do, you can pocket most of the premiums (cash), if not all of them.
5. Options are affordable.
If you are fully invested in other areas, options can be a
6. Options offer flexibility.
While stocks can only be purchased at the current market price, options offer a variety of packages based on different strike prices and expiration dates. Because of this unique feature, you can implement a number of different strategies and tactics to generate income.
7. Options are leverage.
When you buy an option contract, you have bought the ability to control 100 shares of stock. It's a form of leverage, and it gives you the potential for significant returns.
I don't have any secrets or special insight into what the markets, stocks or options are going to do. Quite simply, I'm just a math geek at heart. Patterns and probabilities are my comfort zone, as analyzing charts opens up my trading account to endless possibilities.
The more you know about the securities you're trading, the better your returns will be. Understanding how they've traded in the past, what their trigger points are, what the classic chart formations mean and the time they take to play out, and which signals mean a stock is going to plummet or soar mean that there's no reason to guess where a stock's heading next.
And when you're anticipating a significant stock move in a short period of time, well, what better way to play it than by leveraging your gains by 5-10 times by buying options instead of spending tens or hundreds of thousands of dollars on the shares?
As an investor, no doubt you have a handful of favorite stocks that you just can't cut loose-whether they're great performers or whether you're "hanging in there" till they do what you expect them to.
As a trader, though, you never want to get "attached" to a stock. You've got to be ready to cash out quickly when you've made your gains, and you've got to cut loose those under performing positions to keep your capital intact for those trades that will behave-and pay off!
If you consider option trading, then you should choose your investment tool cautiously and create a broadly diversified portfolio so that you can minimize your risk.
Written by Bill Achola
The author is an expert at using Automatic Trading systems for currency trading. He suggests you to visit Automatic Trading Tool for the best forex expert advisor software.
