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Did you know that there is a secrete way of increasing your stock market returns? If you are already making money by trading stocks you may want to consider looking into trading stock options.

Did you know that there is a secrete way of increasing your stock market returns? If you are already making money by trading stocks you may want to consider looking into trading stock options.

Options are securities which give their investors the right to buy/sell a given security at a given price. Because of their nature that can lead to a much higher prices if a trader is right or a much greater losses if a trader is wrong.

For instance say stock XYZ is trading at $48. We believe that this stock will make a large move upward in the near future and because of this we have a couple options here. We could choose to buy the stock or we could buy the $50 call option on it for $4. If the stock goes up to $58 then your option would be worth at least $8 ($58-$50).

What this means is that the option contract would have given you a return of at least 100%, most likely more because of other factors that go into pricing an option. But the stock trade would have only given you a return of about 20%. Both are great returns no doubt. But the option would have given you a larger bang for your buck and in the end would have been more powerful.

However, there is a downside to options as well. Because options do eventually expire you might find your investment expiring worthless one day.

There are always ways to manage your risk, but if you are unable to trade stocks profitably then investing into stock options will pretty much only increase your losses.

If you are, however, making money in the stock market then options can be a great alternative to traditional stock. They allow you to increase your return and control more with less. As long as you actually have a plan to manage the risk they can be powerful tools.

If you are just using them because you heard they were powerful and you want to get rich quick without a plan or experience, I would reconsider.

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