| By :
Cedric Welsch
Many options trading investors do not take advantage of the great potential for a high rate of return because they do not know this secret. Before investors can use this opportunity, they need to know three things. These three things are what options are, why they are smart investments, and how to invest in this lucrative market. Options are simply the right to buy or sell stock. If the stock market enthusiast believes blue stock priced at $1.00 a share will go up in price to $2.00 a share in the next 30 or 45 days, that enthusiast can purchase an option to buy that stock. An offer would be made to purchase the stock if it reached $1.25 a share by a certain date; the investor may be willing to pay $.10 for this. Once the stock reaches that price, the investor has the choice of buying the stock or losing the fee. If the stock price is $1.50, the investors already made $.25 on each share of stock purchased. The reason to invest in options trading is the lower risk. Instead of spending $1.25, the stock trader only spent $.10. Many times these investors believe many different stocks will move and want the opportunity to capture more profit. People can control more stock with less money and peril in options trading. Investors develop strategies to improve their odds, as they are aware the total investment could be lost. One options trading strategy is to use longer-term options. This allows the market more time to reach projected targets. These investors use at least 30 days and prefer a 45 or 60 day time frame. The secret to maximizing the rate of return on options is to sell the option. Instead of taking possession of blue stock at a $1.25 a share, as the value of the stock goes up so does the value of the option. The option can be sold for a profit. If the investor could sell the option for $.15, the investor would make a 50% profit. If the investor purchased the stock at $1.25 a share and sold it at $1.75 a share, the rate of return would only be 37% with the option fee added. This secret is that simple. An option is simply the right to buy stock. As long as the option has value, the investor in options trading can sell that option. This is a great way to make a profit with a limited investment.
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