Using Stock Options to Increase Your Returns
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.
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.
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).
This means that the option contract would have given you at least a 100% return whereas if you had simply bought the stock instead you would have made a 20.83% return. Of course both are great returns, but the second one will affect your account much more and will help you to achieve your financial goals 5 times faster than the first option.
However, there is a downside to options as well. Because options do eventually expire you might find your investment expiring worthless one day.
There are always ways to manage your risk, but if you are unable to trade stocks profitably then investing into stock options will pretty much 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.
Now that you know, What is a Stock Option here is an interesting article on stock option trading. Unique version for reprint here: Using Stock Options to Increase Your Returns.
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