Money Talks: Investing in Options
Wed, 07 Jul 2010 16:59:47 GMT —
Maybe you've heard about, or considered investing in stock options.
What are they?
A stock option is something that will give the person the right to buy or sell that stock at a certain price within a certain period of time.
So stock options are short-term bets on movements in specific stocks.
You can gamble that the stock will go up, or down, and a little money can control a lot of stock.
It TMs not unusual for an options player to make, or lose, 100% on their investment, in a week, or even a day.
But before you play this particular game, understand the difference between investing in stocks and gambling with stock options.
When you buy a stock, you TMre buying into a company that should become more valuable over time.
So everybody that buys can theoretically win because actual wealth is created.
But with options, the only money you can make is money somebody else loses.
In other words, a zero sum game.
So options are like poker, where the smartest players end up with all the chips, and the smartest players are usually on Wall Street, not Main Street.
Now, options do have legitimate uses.
For example, they can help hedge a portfolio.
But if you're buying options just to speculate on the short-term price movement in some stock, you are gambling.
So my advice when gambling with options is: don't.
Want to see how I invest my money?
My stock portfolio is at moneytalksnews.com.