Wednesday, October 31, 2007

Options basics

One of the basics of any sucessful investing strategy is the use of options. Options allow you to capure the profit potential of a stock at a fraction of the cost. Some say that options are too risky. I believe that if done right they are no more risky than buying a stock. Just look at a stock like Apple (AAPL). It is very volatile. Using options correctly in a stock like AAPL can be very lucrative.

Options are very versatile. They allow you to adapt to up, down or flat market conditions with ease. Options can be as conservative or risky as you want. Since options can be risky if you want them to be they come with the following standard disclaimer:

"Options involve risk and are not suitable for everyone. Invest only with risk capital."

In upcoming posts I will go into the basics of Options using examples. Topics covered will include:

  1. Calls and Puts

  2. Straddles

  3. Strangles

  4. Spreads

  5. In the money vs. Out of the money

  6. Options premium

  7. Volatility

  8. Greeks (gamma, beta etc.)

Have a great day!

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