Options can be used to make quick profits on in the stock market. This is speculation that can be both profitable and dangerous.
Basically options give you the right to buy or sell a given stock at a set price on or before a given day. For this right you pay a premium that is much smaller than the price of the actual stock. That gives you a great advantage if the stock goes up. A 10% increase in a stock could mean an increase of several hundred percent in the option.
So, you can see how it can be quite profitable. The thing you should worry about is that it is also much more dangerous than regular stocks. That is because you can lose one hundred percent of your investment when you buy an option. In addition you only have a limited time for the stock to move in order for you to make a profit.
Because this uses so much speculation you can expect to be wrong more then you are right. But that can be said for any time you try to make quick money in the market. That is not necessarily a bad thing.
The general rule for this type of trade is to only take trades with at least a 2/1 risk to reward. That means for every 1 you risk on a trade you have a reward of 2. With this type of trading you can be wrong 2/3 of the time and still make money.
The other thing you need to have is a risk management system. If you are trying to make quick profits you will be wrong a lot. You cannot lose all your money when you are wrong. If you do you will not make money when you are right because you have no more money left.
Most professional traders will not risk more than 2% of their account in any one trade. This way you can have a lot of consecutive losses in a row and still have money left to trade with when a profitable trade comes along.
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