Tips For Better Options Trading

[davidjohn6366]

If the underlying stock stays flat, you make money, often at a rate of over 100% a year.

If the underlying stock goes down, you may still make a profit. Only if the stock goes down a great deal in a very short time will you lose money. (Of course, your mutual fund would get clobbered in this scenario as well.)

Which of the above two investments seems to be the most risky? It seems to me that the mutual fund investment is a whole lot riskier than the stock options investment (not to mention that it yields a profit of only 1/10th what the stock option portfolio might gain).

Why then does stock option investing get such a bad rap on the risk issue? It is clearly due to the fact that people look at only a single part of the picture (buying or selling options) and ignore the total picture.

They conclude that if buying options is dangerous, and selling options is even more dangerous, that option trading must be doubly dangerous. It does not occur to most people that a system of simultaneously buying and selling options might be even less risky than owning the stock. This is the case, but most people never take the next step and learn the truth.

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