In order to create wealth we need a combination of three

ingredients:

Income

Capital Growth

Insurance

Actually, in that order too. Common sense tells us that to be able to invest for capital growth and then get insurance for that capital asset, you need an income first.

Like most people, you might derive an income from a paid job and regard Real Estate and the Stock Market as somewhere to invest for capital growth.

The average person is deterred from the Stock Market (especially lately) because they perceive it to be too risky.

But if you knew of a tool that would help you make money on stocks, whether they were going up or going down in value and only had to outlay a fraction of the cost of those shares, would you change your view?

Do you know there is such tool?

In simple terms, Stock Options are contracts that relate to a particular stock and they give the Option holder the right to buy or sell those stocks at a fixed price, within a fixed period of time, should they choose to do so.

In other words, stock options give you control over shares without actually having to buy the shares in the first place.

Now if you're starting to get all glazed eyed and thinking to yourself "what did he say?" I'll keep this explanation as simple as I can.

Many experienced traders tend to baffle the beginner with ‘stock market speak'. My approach is far more simple because Options Trading

has given me a wonderful quality of life and I believe that with the right education...

There are 2 kinds of Stock Options...

CALL OPTIONS give you the right buy the underlying stock.

PUT OPTIONS give you the right to sell underlying stock.

A Call Option increases in value when the share price increases.

A Put Option increases in value when the share price goes down!

So if you were Bullish (that is you think the stock price will go up) you would buy Call Options and you would stand to profit as the stock price went up.

And if you were Bearish (that is you think the stock price will go down) you would buy Put Options and you would stand to profit as the stock price FELL.

Now some may argue that you could also profit from buying the actual stock itself and selling to profit after the price increases, but there are several things you should consider...

• You need much larger amounts of money to be able to purchase the stock than if you purchased the stock option.

An example would be if an XYZ share cost you $ 15.00 to buy. You might find that an XYZ option would only cost you $ 1.50 but you would still have control over that stock.

• If you had bought the actual stock and the price dropped, you would be facing a potential loss whereas a Put Option's value would have increased with the fall in price.

• Brokerage costs on larger transactions tend to be calculated as a percentage of the total rather than a set fee, so your fees can be higher than with options trading.

• A common misunderstanding is that options present a higher risk than buying the actual stocks. There can be some truth in that if you trade using aggressive strategies. However, as a general rule your maximum risk is limited to the amount which you paid for the option.

As I have pointed out, if you are using much greater sums of money to buy the actual stock then you are exposed to potential higher losses should you get it wrong.

The previous example displays this well...let's say you bought the actual shares for $ 15.00, then this would be your maximum potential loss. Had you have bought the stock option instead, your maximum potential loss would be the $ 1.50 you paid for it.

Which poses the greater risk?

Stock Options offer flexibility and affordability, and can be used most effectively to produce an attractive income, provided the trader follows a proven strategy and sound money management rules.