Hi Trader

Welcome to Part Seven of your free Stock Market Trading Mini Course:

“What The Wall Street Hot Shots Won’t Tell You!”

This part of the course tells you: “Big Rewards - Small Risk , the only way to trade!”

Options?

There are a range of options available. We are only interested in exchange traded options (ETO).

If you are unsure about exactly what options are, please refer to part 2 of this course you received a few days ago.

In brief, options are effectively a means of controlling stock for fewer dollars than direct stock ownership. They also allow you to trade markets in all three directions - up, down and sideways.

And, despite what you may have heard, their risk is limited.

But best of all they can generate substantial returns!

There are two types of options.

Call Options and Put Options.

GENIE GLOSSARY

A call option gives the holder the right (but not the obligation) to buy a certain quantity of shares (usually 100) of an underlying stock from the seller (or writer) of the option, at a specified price (the strike price) up to a specified date (the expiration date).

GENIE TIP: Buy call options when the trend is up.

As well as call options there are put options.

These work in the opposite direction. They are a bit hard to understand at first so just take your time.

We use put options when we think a stock price is going to fall. And as mentioned previously, this is a strategy that can be used instead of short selling.

A put option gives the buyer the right to sell stock at a set price. So if we have a GE December Put option with a strike price of $30, the premium might be $2.

GENIE GLOSSARY

A put option gives the holder the right (but not the obligation) to sell a certain quantity of shares (usually 100) of an underlying security to the seller (or writer) of the option, at a specified price (strike price) on or before a specified date (expiration date).

Again, we don’t actually want to sell the stock, we just want to trade the put option contract before it expires. And if we don’t, the put contract will expire worthless and we will have lost our premium.

Now where have these option contracts come from?

Each option contract requires two parties. In simple terms another trader has taken the opposite view to us. So for the call option, where we thought the stock was going to go up in price, they believe it will fall or go sideways.

And for the put option, instead of a downward move they believe the stock will go up or sideways.

So these traders have sold us the option contracts. And for this they receive the premium.

GENIE GLOSSARY

A trader who buys an option is called an option buyer or taker. Buyers have rights. A trader who sells an option is called an option seller or writer. Writers have obligations.

GENIE TIP:

When you buy something you pay money. When you sell something you receive money. It is the same with options.

But Aren’t Options Dangerous?

There are many myths that exist about the risk of options.

The greatest fallacy about options is that you can lose your shirt. As we pointed out above, the reality is that the maximum you can lose when you buy options is the cost of your startup investment.

Whereas if you buy stock and particularly if you short stock, your potential loss is much greater.

If you were to invest $20,000 in a particular stock you might expect to receive a 10% or $2,000 profit.

But a 10% gain in the stock price might produce a 100% increase in the option premium.

So $2000 invested in options could make the same return as the $20,000 invested in stock.

Do you see how powerful this can be? This is the concept of leverage.

Whilst your risk with options is greater, you are only risking ten percent of the outlay that you had in the stock.

So you could lose $2000 but if you owned the stock you could lose much more.

It is common for stock prices to drop by more than 10% and sometimes they even drop 100%! And the chance of losing your total option investment is remote if you follow the sound money management principles built into our strategies.

So whilst you may lose a higher percentage of your trade in options, the actual dollar amount is relatively low.

And, as noted above, given the high returns achievable with options, the overall profit potential is significantly higher with options as compared to stock.

Another common misunderstanding about options is that most expire worthless.

The actual statistics are approximately as follows: o 10 % are exercised o 50-60% are closed prior to expiry o 30-40% expire worthless.

In dispelling this myth it should also be noted that these figures say nothing about the profitability of the trades.

For example, although an option may expire worthless this does not mean that a profit was not earned.

The writer of the option received a premium and so was happy that it expired.

That said options are still a risky instrument to trade if you don’t know what you are doing. So make sure you fully understand them beforeentering into the market.

Option Risks

Options provide a great vehicle to leverage your profits but they also have the potential for significant loss.

In simple terms option contracts give you the option to either buy or sell stocks at some time in the future, for a particular price.

The great thing about options is that their value grows much faster than stock prices. It is not uncommon for an option to grow 100% in value when the underlying stock rises by only 10%.

So options are definitely where the money is and as we discussed, for only about 10% of the risk.

Now, it is time for you to graduate from this course and try our trading system at www.stockmarketgenie.com

If you haven’t joined us yet at StockMarket Genie why not give it a go now. If you don’t like it you can simply ask for your money back.

It will never be a better price than it is now.

Just go here:

www.stockmarketgenie.com/course

That’s it for this mini course: “What The Wall Street Hot Shots Won’t Tell You!”, I hope you have found something that is of help to you.

This free course was brought to you by the StockMarket Genie Trading System.

Keep a look out in your inbox for our newsletter ‘The Genie Journal”

Regards David Chandler www.StockMarketGenie.com/Course support@stockmarketgenie.com “Ordinary People Making Extraordinary Profits”

PS If you hurry Trader, you may still be in time for our limited special at: www.StockMarketGenie.com/Insiders

Remember, we are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

Regards

David Chandler StockMarket Genie StockMarket Genie 43 May Road Torbay AUSTRALIA 6330