Learn About Stock Option Trading

Learn About Stock Option Trading

Savvy Investors are Using Option Trading Strategies to Create Income, Enhance Profits, and to Protect Their Portfolios, but Why Should You Learn About Stock Option Trading?

Robert Kiyosaki, author of the Rich Dad, Poor Dad books, is talking about stock options. Whether you are a fan of Mr. Kiyosaki or not, he is undeniably one of today's more prolific personal finance authors and he wants us to know that stock options are the "investment of the rich."

It is not just Mr. Kiyosaki, but an entire industry that is springing up to promote option trading and service the needs of stock option traders. There are a lot of people talking about how options are the key to financial freedom and why you should learn how to trade them yourself.

Through all the clamor, take pause and consider why it is in your interest to learn about option trading techniques and whether stock options are truly the missing link to incredible wealth.

Why More People Will Be Trading Stock Options

Stock options have been traded on organized exchanges since the 1970's. The public's eye was drawn to these 'derivative' securities in the 1980's and 1990's when large losses resulted after large funds found themselves over leveraged.  This cast options in a decidedly negative light for most of the public.

More recently, with the advent of electronic option trading by the International Securities Exchange (ISE), options have been re-introduced to the retail trading public in a more constructive light.  What was once a very expensive product to trade is now quite affordable and accessible for the average retail investor or trader.

This once exclusive playground of the ultra-wealthy and large hedge funds is now open to anyone with just a few thousand dollars. Technology introduced by ISE caused nothing short of a revolution as multiple exchanges adopted electronic order flow and now compete for your business.  This competition was elevated when even the NASDAQ market began trading options on their exchange.  The effect has been to make options trading available and affordable for an even larger audience.

What Options Offer The Average Investor and Trader

When you purchase shares of stock, you receive all of the potential profit potential that stock ownership offers.  You are also accepting all of the potential risk of capital loss that is inherent in stock ownership.

What stock options offer the individual trader is a tool that can be used to accept, or reject, discrete components of risk and reward.  If you want the potential profits of an upward price move in the equity market without the unlimited risk should the market move lower, there is an option strategy that allows you to do this.  You can also use options to reduce volatility in your portfolio, hedge against adverse market moves, enhance profits, create income, and more.

By learning how to use options to modify the risk-reward equation, a trader or investor can reduce the impact of market volatility in their portfolio, reduce or even eliminate market risks, create cash flow, increase or stabilize profits, or even speculate without exposing capital to significant loss.

These benefits all presuppose that you understand how options work, and that you use them both intelligently and responsibly.

Preparing to Create and Grow Wealth with Options

Your investment future is tied to your own personal financial education. If you choose to pursue the education, you have the opportunity to learn how to truly build wealth consistently and methodically.

Option traders are not born and trading success is not genetic.  These things are learned and some effort is required on your part.  Before you can hope to experience long term success you will need to invest your time, your diligent efforts, and some money. Your reward for this commitment is that you will learn how to use options as part of an intelligent investing or trading plan.

About The Author

Christopher Smith