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Why Options

What Makes Options So Special?

financial-markets

Well, let’s take a look at the difference between buying a share of stock and buying an option.

Let’s say you get a hot tip. Your buddy tells you about a stock that’s just getting ready to take off. You know that everything your buddy touches turns to gold, so you decide to invest $10,000 in the stock.

Let’s assume the stock is priced at $100 per share, so you end up with 100 shares of the stock.

Now, let’s say your buddy is right and the stock takes off. It increases in value by fifty percent.

Not bad. Your stock went up by $50 a share. So if you decide to sell your 100 shares, you’ll profit $5000 ($50 X 100 shares).

Now, let’s go back to the beginning and consider what would have happened if you had invested your $10,000 into options to buy the stock, rather than investing in the stock itself.

Let’s assume you could purchase an option to buy a share of the same hot stock for $5 each (you are paying a $5 “premium” for the right – but not the obligation – to buy the stock). So now, your same $10,000 would get you the option on 2000 shares of stock.

Once again, we’ll say your buddy knew what he was talking about and the stock went up by fifty percent.

So, once again you made a killing. However, because we’re dealing with options, we have to calculate your profits a little differently this time. We have to figure in the price of the premium you paid for the option. So instead of making a profit of $50 on each share, you only made $45 on each option.

But wait a minute, since you were able to purchase the option on 2000 shares of stock, your profit jumps to $90,000!

Yes, Your Profit Jumps to $90,000!

Now that illustrates the Power and Leverage you get with options.

And get this, that’s just one of the reasons options have become increasingly popular recently. There are many more including:

– You get unlimited profit potential… five-figure monthly incomes are realistically within reach!

– You can easily limit your risk and make losses virtually nonexistent!

– You get the ability to profit whether the market is falling or rising (In fact, smart investors can make oodles of cash even during a market crash!)

– You can easily diversify your portfolio… options are readily available on stocks, indexes, futures and currencies.

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