When you have a thorough understanding about Options and how they
work, you can actually use Options to REDUCE RISK! Yes, that's
right...reduce your risk (I thought I would say it again in case you
thought it was a typo).
In fact, when used in the right way, Options can actually be less
risky than stocks and at the same time, result in 5-10 x greater
returns than buying stocks. In addition, Options allow you to make
money no matter what direction a stock price takes. This means you
can make profits when the stock price goes up, goes down and even
if it doesn't move at all.
What is an Option?
An option is a contract that is written on a specific asset like a
house, a car or a stock. In the English language, an 'Option' is
defined as the 'right to make a choice'. So an Options contract
usually gives you the right to buy a specific asset at a
pre-determined price.
For example, if you have an option to buy a car at a pre-determined
price of $50,000, it means that you have the RIGHT to purchase the
car at $50,000 within a specific time period. An option written on
a particular house means that you have the RIGHT to purchase that
house at $1 million within a specific period of time.
Note that an Option gives you the RIGHT to purchase the asset and
NOT the OBLIGATION. In other words, you can choose to exercise your
right to purchase the asset within the time period or choose not to.
Similarly, when you have a 'Stock Option' written on a stock like
American International Group (symbol: AIG), you have the right to
buy AIG stock (usually in lots of 100 shares) at a specific price
(e.g. $65) within a fixed period of time (e.g. one month). This
type of stock option that gives you the right to buy a stock at a
particular price is called a CALL OPTION. (i.e. you have the right
to call the stock from someone).
Another kind of Stock Option is known as a PUT OPTION. This type of
option gives you the right to SELL a particular stock at a
pre-determined price (e.g. $65). So if you have a PUT OPTION
written on AIG stock, you have right to sell the AIG stock at $65
or choose not to. (i.e. you have the right to 'put' the stock to
someone else).
By exploring these two types of options in greater detail,
investors who know exactly how to use this powerful instrument in
the right way can be successful in accumulating huge returns.
work, you can actually use Options to REDUCE RISK! Yes, that's
right...reduce your risk (I thought I would say it again in case you
thought it was a typo).
In fact, when used in the right way, Options can actually be less
risky than stocks and at the same time, result in 5-10 x greater
returns than buying stocks. In addition, Options allow you to make
money no matter what direction a stock price takes. This means you
can make profits when the stock price goes up, goes down and even
if it doesn't move at all.
What is an Option?
An option is a contract that is written on a specific asset like a
house, a car or a stock. In the English language, an 'Option' is
defined as the 'right to make a choice'. So an Options contract
usually gives you the right to buy a specific asset at a
pre-determined price.
For example, if you have an option to buy a car at a pre-determined
price of $50,000, it means that you have the RIGHT to purchase the
car at $50,000 within a specific time period. An option written on
a particular house means that you have the RIGHT to purchase that
house at $1 million within a specific period of time.
Note that an Option gives you the RIGHT to purchase the asset and
NOT the OBLIGATION. In other words, you can choose to exercise your
right to purchase the asset within the time period or choose not to.
Similarly, when you have a 'Stock Option' written on a stock like
American International Group (symbol: AIG), you have the right to
buy AIG stock (usually in lots of 100 shares) at a specific price
(e.g. $65) within a fixed period of time (e.g. one month). This
type of stock option that gives you the right to buy a stock at a
particular price is called a CALL OPTION. (i.e. you have the right
to call the stock from someone).
Another kind of Stock Option is known as a PUT OPTION. This type of
option gives you the right to SELL a particular stock at a
pre-determined price (e.g. $65). So if you have a PUT OPTION
written on AIG stock, you have right to sell the AIG stock at $65
or choose not to. (i.e. you have the right to 'put' the stock to
someone else).
By exploring these two types of options in greater detail,
investors who know exactly how to use this powerful instrument in
the right way can be successful in accumulating huge returns.
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