Top 7 Reasons to Trade Options

John Lansing

Top 7 Reasons to Trade Options
by John Lansing 08/29/08

You may be asking yourself the question: Why should I be interested in trading options?

Well, here are seven reasons you should consider it:

1. Options offer the potential for huge returns.

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Options offer the potential to make a 200% or even 400% return on your investment in a matter of days.

Though stocks can offer good returns, there is no trade in the stock market that has the potential for such huge percentage returns within such a short period of time.

For example, last fall, we had the pleasure of enjoying option trades that realized 400% and 800% returns on our investment in just eight hours. Most months, we are involved in option trades that bring us 100%-200% returns on our investment.

However, keep in mind that with this potential for high returns comes high risk.

2. Options can be profitable even when stocks are going nowhere.

While stocks require movement either up or down to make money, options can pay off when stocks are in a holding pattern or going nowhere in terms of price.

When you write an option, stock neutrality can be one of your best friends. So, while everyone else is watching paint dry, you can be making money.

3. Options can function as insurance.

If you are holding stocks for an extended period of time and are concerned about significant price fluctuations, you can purchase options to offset any potential losses due to price drops for a minimal amount of money. Options can give you the opportunity to reap the rewards of riskier investments while limiting your losses.