Blaine561’s Blog

When you look under the hood, options are amazing. The problem is that most people don’t take the time to look under the hood. There is a reason for that; it is complicated to the untrained eye.

It takes time to learn about options. Moreover, trading options is based upon a firm understanding of a rather complex mathematical model- the Black-Scholes Option Pricing Model. It’s not that options are for rocket scientists but they definitely aren’t for everybody. Most probably, your typical retail client probably isn’t academically prepared to tackle the intricacies of stock options. The retail brokerage industry realizes this so they usually don’t take the time (and cost) of training their retail brokers about the marvels of stock options.

Because it is pretty easy to comprehend the high leverage offered by stock options and how this can offer big rewards, the retail brokerage industry has taken the philosophy that a little knowledge can be a dangerous thing. They know that if investors and brokers don’t have an adequate understanding of stock options, they are best to stay away from them. That’s why if a client wants to trade options, the brokerage prefers to protect themselves from any potential liability by issuing a booklet on the dangers of options and having the client sign a statement granting the broker freedom from any responsibility. Not a bad idea given the probability of shooting oneself in the financial foot if unschooled in stock options

However, serious investors may miss an opportunity to discover the truly incredible investing strategies offered by stock options. You see, stock option offer an investor the opportunity to profit from stocks that are stagnant (about 80% of stocks don’t move in synch with the market), stocks that move up of down and a way to protect unrealized gains. In other words, there is always a trading opportunity with stock options.

Stock options may be somewhat akin to handling a firearm. If you don’t have some training, you might hurt yourself. But once trained, it becomes clear that stock options aren’t anywhere near as dangerous as many believe and reinforced by the disclaimers and highly publicized percentage losers who trade stock options without taking the time to fully understand them.

I fully recommend that if you have the time and inclination to become actively involved with investing your money, you should look into stock options. Although they might be a challenge at first, the patient student will find stock options not only elegant in their function but also profitable with an attractive risk-reward profile. If you don’t believer me, consider this: in principle, you can sell stock you don’t own taking in a premium for lending the stock you don’t own. Your investment is zero! Of course, this is a simplification but it is true. Of course, things can go wrong. Is this something you would like to find out more about? If you think that is a pretty cool strategy, this is just one of many strategies that stock options can offer. However, the investor-trader must become educated before trading options.

Trust me when I tell you that learning about options is well worth the time and expense. Once you learn about these ingenious investment vehicles, you will become hooked but be prepared to spend some time studying.

For more information on the online courses offered by the Options University, go to www.optionsuniversity.comJoin us this week for the 2nd Annual Investor’s Superconference, in Orlando, FL presented by Options University, June 5th to the 8th, 2008.

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