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.

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.

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.

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.

Of course there are ways to manage risk, but in general if you are having trouble making money by trading stocks, then switching to options will only increase your losses.

On the other hand, if you are making money then stock options can be extremely powerful and can even help you to increase your returns and control more shares with less money. Just remember that you have to use these tools carefully and have a plan.

If on the other hand you are just trying to use them to get rich quick without a plan or experience, I would reconsider.