Your Wealth, Health, And Lifestyle Newsletter

How To Profit With Stock Options

By Jason Markum

Investing in the stock market is one of the hardest things on this planet to do. Let me rephrase that… SUCCESSFUL investing in the stock market is one of the hardest things on this planet to do! Anybody can invest in the stock market but doing it successfully and making a ton of cash is quite a different matter.

The reason why this is the case is that the stock market can be very complicated. One part of stock market investing that seems to give individual investors the most problems is investing in options. There are a number of reasons why this is the case, some of which involves the math that you have to deal with, some of it simply comes from the fact that options are tricky and hard to wrap your brain around sometimes.

In this article I want to give you a few basics to help you understand the options market so that you can invest successfully without losing your shirt.

The reason why the people lose so much money investing in options is because they don’t often take the time needed to learn about them correctly. You have got to learn the basics down pat, that is you have to learn this stuff cold at the most basic level in order to stay safe.

For the most part options serve two or three main purposes. The first is in order to lever up high-risk speculation based on the direction of the current market (advanced). The second is to supplement current dividends and interest with another form of income derived from your current portfolio (intermediate). The third purpose is to hedge against different portfolio risks (beginner to intermediate).

So what is an option?

An option is really not much more than a simple contract that will give you the right to buy or the right to sell a specific security at a set price on a specific day in the future. That’s about it!

There are two main types of options; the first one is called a “call” option and the second one is called a “put” option.

The call option gives you the right to buy a security at a specific price in the future. A put option gives you the right or obligation to sell a security at a specific price sometime in the future.

Many investment newsletters and gurus and even the financial press would lead you to believe that options are much more complicated than that, but the fact of the matter is, they’re not! The government may have you believe that options trading is somehow evil and that options allow leverage to run crazy which makes the stock market more dangerous for the ordinary investor but from the definition I just gave you, hopefully you can understand now what a load of horse hockey that is!

Sure, the mechanics of option investing is more complicated than that, but the definitions for call and put options that I just gave you will give you a solid groundwork to get started. Unfortunately I’ve run out of space for this article to get into any further discussions on mechanics; but now that you know the types of options available you could run a quick search online to find out more.

Options trading is an important part of every investment strategy and if you’re not taking advantage of them in your portfolio then you are missing out on a significant source of income and a significant safety net as far as hedging goes. Take some time to learn everything you can about them and you will thank me!

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