Many millionaires have been created by Option trading in stocks, commodities, etc. If you know, the science and art of options trading, it is a sure way to wealth. On the other hand, if you are ignorant of lazy, this could be highly risky.
Many believe options are more risky than buying stock, which in comparison, to be conservative and safe. That need not be true. The bear market of 2008 saw all Indian stocks dive in value, with many high flying stocks dropping 90% in value. But with options, you could have protected your portfolio.
Here lies the secret advantage of trading options. If you would have owned options instead, you could have greatly limited your losses. You can only lose what you pay as premium for the options.
Therefore, instead of owning high flying stocks that have a dramatic amount of downside risk, you could receive better advantage buying options and utilizing option strategies yet only risking 10% of your portfolio.
Other advantages of option trading are
• A method to buy stocks at lower prices and, while you’re waiting for the stocks to drop to lower prices, make money.
• Options provide a way to earn additional income from your portfolio,
• Options enable you to buy an insurance policy on your stock portfolio that is not available from any insurance company.
• With options you can design investment strategies that will profit regardless of what the market does.
• Gains of 1000% are not that difficult to attain - options enable the speculator to become a casino,
• Options are insurance, especially put options an extremely valuable risk-reduction tool.
But, like all medicines, options must be used with prudence and proper care, for if you overdose, options can be dangerous to your financial health.
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