Easy Options Trading is about finding and understanding the simple ways to use option contracts to either increase profits or prevent losses. Easy options trading aims to help traders discover their own methods and expertise in order to improve their own trading results. But first you really ought to understand a few things.
First: Options Trading Involves High Levels of Risk
First, don’t kid yourself. Options trading involves high levels of risk. You WILL lose money at least some of the time. Sometimes you will lose your entire investment in a particular position. You HAVE to be prepared to face these kinds of losses – whether your experimenting with easy options trading or not. The risk of incurring a complete wipe-out in any given position are higher than the risk of a stock going belly-up or a bond default.
Second: Returns on Investments in Options Are Not Linearly Related to the Underlying Stock
This second concept may not sound like easy options trading to you, but you need to understand it – namely that just because a stock price goes up a dollar does not mean all the options trading on that stock will go up a dollar. More often than not, the price of the stock option will move slightly less than the price of the underlying stock – but fear not, you are more than compensated for this seeming unfairness by means of leverage.
Third: Options Contracts Provide You with Implied Leverage
What does this mean? Easy: If you have $1000 to trade and want to buy a $10 stock, you can buy (and more importantly control) 100 shares. If you use an options contract to do the same, you might be able to buy 10 contracts for $1 per contract controlling 100 shares each. That implies that you control (remember the importance of control) 1000 shares instead of 100. That implies 10:1 leverage in that trade.
How on Earth Can You Call This Easy Options Trading?
How can I be calling this easy options trading when I’m explaining all these complicated terms? Simple: an effective (if even basic) understanding of a few simple terms like what we describe here will remove the fear and mystery surrounding this powerful investment vehicle and unleash your ability to use it wisely.
We have explained to you that there is risk. We have explained the likelihood of losses. Why then do people still use them? Easy. Options trading provides LEVERAGE, and leverage can be your friend. When you understand risk, are not intimidated by potential losses, and make sensible choices about using leverage, you can make money trading options.
