5 Ways Options Help You Trade More Effectively

Unlike stocks, when you buy an option contract all you can lose is the upfront premium you paid for the position. It doesn't matter how far the market falls, your losses are guaranteed to be no more than your initial investment.

AND, if you're the buyer of an option you have limitless gains as the market moves in your direction, just like buying stocks.

Learn more about option payoff charts →

Not sure which way a stock is heading — just that it will make a large move up or down? Here is where you use options.

Combining a call and a put together means you profit from a movement in either direction.

Example strategies: Long Straddle and Long Strangle.

Imagine being able to make money if the stock does nothing!

This is a favourite strategy of those looking for regular monthly income — and the feature strategy used in the members area videos.

As long as the stock stays inside the strike levels, you're making money. Plus, you can set these up so that your losses are limited too.

Example strategies: Iron Condor and Double Calendar.

Stock price just a little high, yet you're still interested in buying? You can use options to get paid to place a limit order below the market.

A short put option does this. If the stock stays above your strike price your profit is the premium received. If it drops below, you buy the stock anyway.

You can keep repeating this over and over — keeping the premium each time and applying unused capital to other trades.