If you are an investor in the financial markets then you are obviously aware that trading options can make you tons and tons of money if you know what your doing. Some people make the mistake of trading all of their stocks for stock options. Well, many people that realize the benefit of trading options, aren't so well versed in actually utilizing them as a hedge against risk. I think trading options, as well as not only buying stock options, but also writing contracts and collecting the premium can be so beneficial to any investor in almost any scenerio. Let's do an example trade so you can really understand the benefits of options. Let's say for instance, that I have 100 shares of Visa(V) which I bought for let's say $59 a share(closed today at 62.40). Let's also say that I own another 100 shares of Changyou.com(CYOU)closed today around $35, and let's say that I bought them for $34. As you are obviously aware I am up on both trades, so that's a good start. In my opinion, I think that CYOU has a bit of a ways to go up so I'll leave that be for now, though I think Visa is on its way down. I decide to write a call option for visa(one option=one contract=100 shares of stock)with a strike price of 62.50(for some reason no call options for July expiration have a value above 62.50 as of today. I write a contract to the buyer promising that any time between now and the option contract expiration that he can have my 100 shares of visa for 62.50 a share, which may or may not be good. when i write the contract for the option I then collect the premium which is almost $300 which is my money no matter what(premium). Let's say that V goes to 64 by expiration of contract, and i am forced to sell my shares for 62.50. Though I missed out on a bit of a profit in the shares, I made up for it by collecting the option premium. Ideally when you write options contracts you want to write them for a value which you don't think that the stock will reach. If you do that correctly then you have successfully collected the rent from your tenant with no further comotion. Using both strategies for your benefit can be a bit complicated at first, but after a while, you can't even see how you were investing without selling stock options as a luctrative part of your philosophy.
If you are interested in learning more about stock options or investing shoot me an email at dan@optionsonthestreet.com or check out my blog http://optionsonthestreet.com, I'd be glad to make you a personalized instructional video about whatever you may be having trouble with, of course at no cost.
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