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Basic Options Concepts: How to Use Options

Options can be used in a variety of ways to profit from a rise or fall in the underlying market. The most basic strategies employ put and call options as a low capital means of garnering a profit on marrket movement. Options can also be used as insurance policies in a wide variety of trading scenarios. You probably have insurance on your car or house because it is the responsible and safe thing to do. Options provide the same kind of safety net for trades and investments. They also increase your leverage by enabling you to control the shares of a specific stock without tying up a large amount of capital in your trading account. The amazing versatility that an option offers in today's highly volatile markets is welcome relief from the uncertainties of traditional investing practices. Options can be used to offer protection from a decline in the market price of a long underlyin g stock or an increase in the market price of a short underlying stock. They can enable you to buy a stock at a lower price, sell a stock at a higher price, or create additional income against a long or short stock position. You can also use option strate gies to profit from a move in the price of the underlying asset regardless of market direction. There are three general market directions: market up, market down, and market sideways. It is important to assess potential market movement when you are placing a trade. If the market is going up, you can buy calls, sell puts or buy stocks. Do you have any other available choices? Yes, you can combine long and short options and underlying assets in a wide variety of strategies. These strategies limit your risk while taking advantage of market movement. The following tables show the variety of options strategies that can be applied to profit on market movement: Bullish Limited Risk Strategies Bullish Unlimited Risk Strategies Bearish Limited Risk Strategies Buy Call Bull Call Spread Bull Put Spread Call Ratio Backspread Buy Stock Sell Put Covered Call Call Ratio Spread Buy Put Bear Put Spread Bear Call Spread Put Ratio Backspread Bearish Unlimited Risk Strategies Neutral Limited Risk Strategies Neutral Unlimited Risk Strategies Sell Stock Sell Call Covered Put Put Ratio Spread Long Straddle Long Strangle Long Synthetic Straddle Put Ratio Spread Long Butterfly Long Condor Long Iron Butterfly Short Straddle Short Strangle Call Ratio Spread Put Ratio Spread It is of paramount importance to be creative with your trading. Creativity is rare in the stock and options market. That's why it's such a winning tactic. It has the potential to beat the next person down the street. You have a chance to look at di fferent scenarios that they do not have the knowledge to construct. All you need to do is take one step above the next guy for you to start making money. Luckily the next person, typically, does not know how to trade creatively. For more information on learning how to make money with options, go to the Optionetics.com full site! We empower investors through knowledge.