Options trading Explained – in layman termsOptions trading Explained - Introduction

Robert Kiyosaki says that Options trading is the investment of the rich.Indeed,options tradingis the most versatile form of investment in the world today. Itsversatility has been the topic of many speakers all over the world. Terms such as“Covered Calls” and “Credit Spreads” have become well known amongst traders new and veteran alike.Options trading Explained - Simply put, it is the trading of option contracts on a particular stock.Options Explained – A contract that allows you to sell or buy a stock at a predetermined price within a set time frame.There is enough material written explaining the technical make up of an option and Ishall not dwell into it further in this writing. The purpose of this writing is to explain toyou what the effects of options trading is. … let’s go into Options trading Explained!

Options trading Explained - What Can Stock Options Do?

Let us first examine the effects of this thing called stock options. Knowing all the effectsof stock options allows us to better understand why it is such a celebrated investment tooland also why so many people go bust doing it. Let’s start from the

Positive Effects

of stock options.Stock Optionsare:

Leverage

. It allows you to control more shares (100 shares per option) with the sameamount of money thereby exponentially increase your returns per dollar.

Discount

. Just as you control more shares with just one option, you will then be able tocontrol the same amount of shares with lesser money than before.

Protection

. It allows you to protect the stock you hold by owning the right to sell them ata predetermined price no matter what happens.

Regardless of market direction

. It allows you to profit from

both

upward

and/or

downward moves in the stock.

Creative

. It allows you to put different types of options together to form all sorts of investment positions known asoptions strategies which makes money no matter which way the market goes.

And the

Negative Effects

are:

No value beyond expiration.

You can potentially

lose all your money

along with theexpiration of the option.

Negative Leverage.

Just like it can amplify your gains, options will also amplify your loses.

Time Decay Effect.

Options reduce in value over time and sometimes can completelyobliterate any gains from movement in the underlying stock.Looking at the above effects, it is clear that Options trading indeed is an extremelyversatile investment tool that allows its investor to profit from any market direction, protect his/her stock positions, reduce capital commitment and lots more, based on theway it is utilized.Conversely, once such power of leverage is being abused, the investor could then loseeverything he/she have put in by expiration or lose more from the same stock move thanhe/she is comfortable with. Also, by holding on to Options, time decay sometimes canobliterate your profits if the movement in the underlying stock is not big enough.Therefore, investing in options requires careful planning on the part of the investor. Youmust know for what effect are you using options for and how much you are putting atrisk. In essence, using options for Leverage confers the highest risk and the highestrewards and demands that you use only proven strategies with a proven track record.(The Star Trading System athttp://www.mastersoequity.com/MOE_startradingsystem.htmis the most objective and proven system in the world today that uses options for leverage.)Using options creatively even allows us to structure investment positions to reap a fixedmonthly return that beats the market regardless of which way the market goes! Just likein the Ride the Flow System offered athttp://www.mastersoequity.com/MOE_ridetheflow.htm. Where your capital can be fully protected no even if the market enters a severe drop. Sounds amazing?

Options trading Explained - Conclusion

I hope this “Options trading Explained” has given you a good overview of the effects of options.For a full and complete free education in options trading, please visithttp://www.optiontradingpedia.com .