Have you ever wondered how multi-billion dollar investment banks like Goldman Sachs or Hedge Funds make money in the Stock market? Well, when you have billions of dollars in Investment Capital to play with like they do, it's actually quite easy and here's how.

As an example, I will use a fictitious "ABC Corp." and set it's imaginary stock price at $10 per share and you are a Hedge Fund manager with one-hundred million dollars at your disposal. While performing your due-diligence reasearching the performance of certain stocks in a particular industry, you come across ABC Corp. at $10 a share. You notice that the volume (total number of shares bought and sold) on this stock is fairly consistent at 4,000,000 shares traded per day and that option volatility (the measure of fluctuation between high [buying] and low [selling] points of the stock market as a whole) is relatively tame. So, before the market opens, you buy 1,000,000 shares of ABC Corp. [totalling $100,000,000].

When the market opens, your "bulk" purchase doesn't actually move the stock price up much as the key to movement of a stock price lies in the consistent volume of buying and selling of a stock, mostly in lots of 100 shares, throughout the trading day but for the sake of this example, let us say that your pre-open purchase raises the stock price up to $10.50 [at this point, your purchase has already profitted $500,000 but why sell now and stop there, there's plenty more to be made!].

Since you now own 1,000,000 shares of a stock, you can now sell "Call" or "Put" Option Contracts. At first, you sell both types to see which way the trend sways as the trading day unfolds [note that the expiration of the option contracts you are selling are set to expire the third Friday of the next month, three weeks from "today"]. After two or three hours, you see that your you have sold twice as many "Put" contracts [bets that the stock price is going to go down] than you have sold "Call" contracts [bets that the price of the stock will go up] and now is the time for action!

Since, in this example, you will make more money with both the stock you have "in hand" and the "Put" contracts having the stock price go up, you calculate your loss on the "Calls" at every level of the Strike Prices you sold and finally determine where the Stock price has to be at the end of the day for you to maximize your profit.

In our example, the bulk of the "Call" contracts you sold are $1 "out of the money" so, in this exercise, it is beneficial for you not to manipulate the stock price much further than $11, keeping the stock price within the $10 and $11 range.

After waiting to determine the trend and making these determinations, the stock price has sold back down to $10 (which explains why people were buying "Puts" more than "Calls"). Next, you purchase a large bulk of "Calls" for the strike price at $11 [or even $11.50, since they will be a little cheaper and you'll still profit even if the price does not reach $11 since you are buying the "Call" when the stock price is $10].  These option "Call" purchases are done to offset the losses you are about to incur on the same "Call" contracts that you sold prior to the trend determination. Now, from this point on, you simply buy the stock feverishly, 100 shares at a time, until the stock price moves up to around $10.90. Once this level is reached, you begin to buy AND sell the stock simultaneously off-setting other buys and sells that could otherwise move the stock price beyond the point you wish to "hold" it at.

For the next three weeks (until the options expire), you can continue to manipulate the stock price by buying and selling the stock in 100-share "lots" maintaining the price trends that benefit your shifting position. It is VERY important to note here that the "call" to "put" ratio can change during this three-week time period but since you are essentially straddling both sides of the fence, you can adjust your positions on-the-fly!  You can sell more "calls" and stock while buying "puts" contracts when the "calls" you sell outweigh the "puts" you've sold and vice versa depending on the day's trend.

If you find yourself in the prime position where it benefits you to drive the stock price WAY down, effective "short selling" of a stock is a very easy and cost effective way to get a stock to move to the downside quickly. ["Short selling" is the act of borrowing stock from someone else to sell and then buying it back at the lower price which you are manipulating the stock down to, thereby effectively stealing these profits legally as well!]

By the time the dust settles and one-half hour before the market closes on the day options expire [the third Friday of each month], you cash in the profits on any options you were holding as a "hedge" against the profits lost on the option contract sales you made. You can also sell the remainder of the stock you may have on hand or "cover" any "short sells" you may have outstanding with the exception of any shares you may be required to cover the "call" and "put" option contracts that remain outstanding and closed "in the money". You may also choose to exercise some of the "in the money" "call" options you may own at this time to facilitate the needed stock for the next month.

When all is said and done, you more than likely doubled the initial investment capital on one stock in just three weeks. Sure, the back and forth of buying and selling is nerve wracking and time consuming. Trying to keep the buying and selling of options straight is obviously no small feat but you can always take the next month off now that you've legally stolen millions of dollars in investment capital from smaller investors through your effective understanding of how BIG money can manipulate the stock market and legally steal the small investor's capital for your profit!