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What are Options ? Motley Fool Options Strategy #1

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What are Options ? Motley Fool Options Strategy #1

Sunday, 20 July 2008

Have you ever done your homework on a stock and just knew it was going to move up or down? Do you wish you could earn income from your current positions no matter what the market is doing?
Options may be the solution. Options can offer a safe and easy way to profit from your outlook on a particular stock or hedge your long-term positions. And they're a lot less complicated than most investors think.
You might have heard that options are "gambling." Or that they are "high-risk speculations used only by Wall Street insiders and crafty traders."

That's why you're probably surprised to hear The Motley Fool discussing the benefits of options.

But the fact is, our members often ask our advisors about options and how best to incorporate them into their investment strategy. And, increasingly, conservative investors are finding that

Simple options strategies can actually reduce their investment risk. With options, you call the shots

For example, say you've owned shares of a company for years. You've stuck with it in good times and bad, and knew all along it was a great business. For your loyalty, you're rewarded with some nice capital appreciation.

But you deserve more. When everyone was selling their shares, you held them because you knew the setback was temporary and the stock was going to rebound.

By using options, you can declare in certain terms, "I know this stock is going to be worth a lot more in a year." And if you're correct, you'll be rewarded with far greater returns than if you had just held your shares.

Of course the reverse is true, too. You can use options for when you know a company is going down the tubes, or even if it is temporarily overvalued.

And these days, options are available to everyone with a brokerage account. In fact, over 280 million options contracts were traded last April alone Now that it's easier than ever to get started trading options,

MGR is Otcstockexchange.com's newest stock pick.

IMGR traded as high as $0.51, up over 250%. Could be easy double today to $0.70 or better.
+ Full Story

India’s Indowind Energy Ltd

Has offered a public issue of 1, 25, 00, 000 equity shares of Rs 10 each at premium. The issue includes a reservation of 2, 60,000 equity shares for subscription by eligible employees of company.
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many investors are opening accounts and diving in to get a piece of the action.
But there's a downside. Reckless options traders have been known to lose 80% of their investment (or be completely wiped out) before they even know what happened.

That's why The Motley Fool's top analysts have put together this special report to give you the nuts and bolts of investing with options.

It's designed to arm investors of any skill level with the basic tools and strategies they'll need to boost their portfolio's returns with options.

From simple put and call options to advanced spreads and straddles, this report shows you how to reduce your investment risk by using options intelligently.

But before you download this brand new report packed with options strategies you can use right now for future profits, let's take a brief look at what you'll find inside.

Motley Fool Options Strategy #1 -- Like Insurance for Stocks

One of the best ways you can use options is to "insure" your stock positions.

Here's how: You can buy a put option for every 100 shares of stock you own and effectively hedge against downturns and protect your principal. That's because, as an option holder, you've purchased the right to sell your stock at the price specified in your put option.

As a result, as your stock drops in price, your put option rises in value, offsetting your loss -- no matter how far the stock price drops.

For many investors, this is far better than your standard stop-loss order (for one thing, you're never "forced" to sell your underlying shares). And it's just one way you can fortify your portfolio with options.

Motley Fool Options Strategy #2 -- Making Predictions

Most long-term stock investors are optimistic about the market deep down. We feel stock prices will always tend to move higher over the long haul.

So what if there was a way to turn this bullish optimism into cold, hard cash? You can with long-term call options.

For example, say you're bullish on Google. You feel it's going to increase in value over the long-term and you want to invest. But when you look up the price of 100 shares of Google, you see that they would cost you over $54,000.

Continued....The Motley Fool's Guide to Options Reviews

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Reviews (1)

1. Written by Almeda, on 22-07-2008 05:10
these days, options are available to everyone with a brokerage account. In fact, over 280 million options contracts were traded last April alone
that it's easier than ever to get started trading options,