Mark Larson

Strategies > WHY OPTIONS?

As an investor new to options trading, you likely have many questions on your mind about this alternative. You may have heard stories from friends, spoken to your broker, or are just intrigued to learn more.

Our goal is to provide you solid, reliable and professional information about options trading in a straightforward manner so you can expand your understanding of this powerful tool. With understanding comes confidence. With confidence comes the power to positively affect the overall returns in your investment portfolio.

Why options? For three important reasons:

Limited dollar risk and limited dollar exposureAs an option buyer, you benefit from being able to control the movement in a stock for just a fraction of the cost of purchasing that stock. Plus, you can never lose more than this modest dollar amount. As a result, you can keep the bulk of your investment dollars in the safety of cash where it is immune to the wild and often scary swings in the market.

LeverageYou can achieve percentage gains from your successful options investments that are 5, 10, and even 20 times the gains achieved by stock or mutual fund investors.

Profit in Bull and Bear Markets AlikeThis is certainly a claim that none of the traditional mutual fund families can make, and it is at the heart of why experienced options traders have profited in the volatile recent markets. By buying put options, you can achieve leveraged profits with limited dollar risk when a stock declines in price. Of course, leveraged gains can be achieved on bull moves by buying call options, but bull market profits comprise only half of the total options profit picture.

Your curiosity about options is matched by many others. In 2000, over 725 million options were traded, reflecting a growth rate of nearly 25% per year for the past several years and growing by 42% in the most recent 12 months.

In 1998 the industry recognized the outstanding achievement of Dr. Myron Scholes, who received the coveted Nobel Prize in Economics for his work in developing the Black-Scholes model for valuing derivatives and stock options.