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Turbo Charge Your Profits With Options
By: Roger Thompson
I know many people who trade stocks. Most of the US house holds have stocks in
various companies. Have you tried options?
Many people think Options are only for professional traders and the big boys. It
is not so. Let me explain in simple terms what are the pros and cons of options.
Here is how the option works. Assume that you see a house in your street and the
owner is planning to sell it retiring and moving to Florida within one year. The
current market price for the house is $215,000. You go and talk to the owner
Brad and tell him “Hi Brad; I would like to lock in this house for the price of
$220,000; I will have the right to buy this house for this price for one year
(i.e. till December 2006). For this I will pay you $2000.”. Now you and Brad
come to an agreement; Brad gives you the right but not an obligation to buy the
house till December 2006 at a price of 220,000. You have the right and not the
obligation that is important which means if the house price goes down you don’t
need to buy it at 220K.
Now in end of 2006, the house prices came up and now Brad’s house is now worth
$235,000. Now you call a real estate agent sell it for 235,000 and give 220,000
to Brad and pocket a profit of 15,000 (minus your option premium of $1000). So
your net profit is $14,000 on an investment of $1000. That is like 1400% return
on your money.
If you had bought the house at 215,000 and sell it for 235,000 you might have
made 20,000 or about 10% return on your money.
The options trade is explained in the author's website completely with examples.
We encourage the users to read the complete example and start getting more
profit.
About the Author:
Roger Thompson has been writing finance blogs for many years. He contributes to
www.TheMillionaireBlog.com and you can reach him at rogert@themillionaireblog.com |
