You can find a lot of information about Trading Options if you simply Google one of any number of Options related terms. You can pull up sites providing anything from basic definitions to those claiming to make you rich in a very short period of time. Be very careful of those offering quick riches. Like they say, If it sounds too good to be true, it probably is. Sure, there are some who have the understanding that allows them to consistently invest their money through options strategies and realize nice returns within a relatively short time frame, but you must realize that they have been doing this long enough to know what they are doing. And if you ask them, they would tell you that they made plenty of losing trades when they first started learning the business. (Hopefully, they paper traded at first so they could learn with fake money.) I have known some who got interested in options trading and actually made winning trades right out of the gate. Of course, they immediately thought this was an easy way to make money and then put a large portion of their capital into the next trade — only to lose big. The moral of the story is; if you plan to pick your own trades, do your research and know what you are getting yourself into. Never assume you have the market figured out, it will humble you eventually.

So, what are the advantages or disadvantages of trading options? The advantage mentioned most often would probably be the way options allow you to leverage your money. For example, if you have $1,000 to invest and you want to buy some XYZ stock that is trading at $100 per share, you would be able to buy 10 shares. Or, you could take that same $1,000 and invest it in 5 options contracts, allowing you to control 500 shares instead of just 10. (Remember, with options, each contract controls 100 shares.) So, if you simply bought the 10 shares of stock, and the stock value increases by $1.00 per share, you gain a whole $10.00. But if you bought the 5 option contracts and the value increased by .20 cents, you would realize a gain of $100 (.20 x 500 shares).

Another advantage is their flexibility. By this I mean that you can make money in up (Bull), down (Bear) or sideways markets. Please realize that before you jump into trading options, you need to understand how options work and which strategies to use at the proper time. Without going into great depth here, just suffice it to say that if you expect the value of a stock to go up, you buy a Call Option. If you expect the value to drop, you buy a Put Option. Call and Put Options are the most basic types to be traded, and definitely carry risk. There are a multitude of different option strategies which can get very complicated, so remember the moral of the story — if you plan to pick your own trades, do your research and know what you are getting yourself into.

This article is not meant to encourage or discourage you to enter the world of options trading. More so, it is written to introduce you to some of its advantages while stressing the reality of its risks. If this avenue of investing interests you and you want to give it a try, we can offer you a place where an experienced trader is picking the trades. Year-to-date in 2008, we have better than a 100% portfolio gain with our investments. Please visit our site to read more about our services.

Disclaimer: Trading financial instruments of any kind including options, futures and securities have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options, futures and stock markets. Don’t trade with money you can’t afford to lose. Nothing in this article should be construed as investment advice or recommendations. Past performance is of indicative of future results. Get the advice of a competent financial advisor prior to investing your money in any financial instrument.