Options

An option, like a warrant, provides the right, but not the obligation to buy or sell a security (stocks, bonds, commodity, etc.) for a particular price. Options also have expiration dates. Most short term options will expire the third Friday of the month. A "call" option provides the right to buy a security. A "put" option provides the right to sell the security. The agreed upon price is called the "strike price".

The big advantage of options over actually buying or selling the security is leverage. You can control the buying or selling many more shares of stock for less cost. If the option expires, you lose nothing outside of what it cost to get into the option. If you sell an option, you can even make a premium if it expires unexercised.

Options, just like when buying or selling the security, has risks involved. If the price moves against you, you will lose money. So, like all investing, doing your homework and due diligence is important. Having a effective trading strategy that fits your style of trading is also imperative. There are hundreds of strategies and styles, so it does take time to become good at trading, regardless of the market. If you are using some automated trading tool, this reduces some of the risk, but even proven effective strategies may perform badly during certain market fluctuations.

So I turned my mind to understand, to investigate and to search out wisdom and the scheme of things and to understand the stupidity of wickedness and the madness of folly. Ecclesiastes 7:25

There will be more on alternative investment vehicles. Stay tuned ...