Chapter 18
Know Your Options
Screening for better stocks is more than half the battle to becoming a better trader. But how you trade those stocks and the vehicles you use to do so can also give you an advantage as well.
In fact, one of the key advantages with options is the opportunity to make money if a stock goes up, down, and depending on your strategy, even sideways, all while assuming less risk while doing so. And with some strategies you can even be wrong on the underlying stock’s direction and still profit.
Let’s take a look at options and how this can fit into a well-rounded portfolio and how your stock screening strategies can uncover the best opportunities.
The Option Is Yours
Did you know that, in spite of all the turmoil in the financial markets (or maybe partly because of it), the growth in options trading has continued to rise?
In fact, for the last seven years in a row, the volume of options contracts traded has steadily increased, with 2009 setting an all-time high of 3.59 billion contracts. More and more people are now including options in their investments as a smart way to get ahead of the market.
Most people know that options offer many advantages, not the least of which is a guaranteed limited risk when buying calls and puts. They also offer a great deal of leverage while using only a fraction of the money you would normally have to put up to get into the actual stocks themselves.
But as we said at the top, one of the best advantages of options is flexibility: ...
