Options are great tools in the hands of knowledgeable traders but options are also dangerous in the hands of a gambler. Option contracts can be used to manage risk or expose your account to excessive risk that can lead to ruin. They can be used to put the odds in your favor or to bet the farm on a long shot trade. Options can turn small accounts into fortunes or bring fortunes down to zero. To use options correctly you must do your homework, they are powerful tools in the account of the knowledgeable and dangerous weapons in the hands of the ignorant.

  1. You can control a large amount of shares for a small amount of capital.

  2. You can greatly limit your capital at risk through option contracts versus shares.

  3. You can structure trades based on time, strike price, and volatility that you can’t do with stocks alone.

  4. Stocks can be insured against loss through buying put options.

  5. You can sell call options for extra income on a stock you plan on holding for the long term.

  6. You can sell sell time through options.

  7. You can bet on a strong trend in either direction. (Straddles and strangles)

  8. You can hedge your bets to limit your downside.

  9. You can sell lottery tickets or buy lottery tickets. (Deep out of the money options)

  10. You can create synthetic stock positions that create the same effect as owning a stock but with much less capital.