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The concept is really quite simple once you accept that it is possible to make money whether underlying stock moves UP or DOWN.
Now here's thing that makes option trading so appealing.
Options only cost a fraction of what it would cost to buy underlying stock itself and a small move in price of underlying stock, creates a much larger move in price of option by 10 times to sometimes 100 times!
Let me give you an example, let's say that GE is trading at $31.00 per share. If we wanted to buy 1000 shares in GE today it would cost us $31,000.
However, option to BUY GE (CALL options) for $30 at any time during next 60 days is only $2.00 per share. If we bought enough options to give us control over 1000 shares in GE it would only cost us $1,500.
Now let's say that GE goes up by $1.00 to $32.00 during next 3 weeks.
If we had bought shares in GE we would have have made a $1,000 profit (1000 shares x $1.00 per share) or 3%+ return and if we bought options on GE we still would have only made $1,000 (1000 shares x $1 per share) however as we would have only invested $2,000 into trade, this would be a return of 50%!
By trading options instead of stock it is possible to make far greater returns and at same time risk only a fraction of capital.
This is called LEVERAGE and this is main advantage to option trading over other wealth creation strategies.
However, just as leverage can work for you it can just easily work against you.
This is why you need a solid trading system that stacks odds of success in your favor on every trade and at same time reduces your risk.
My friend Stephen Cooper, a very experienced and successful option trader (and all round great guy) has an awesome little e-book called, The Online Option Trader Manual and in it you'll find an effective step-by-step system for trading options that he uses to build capital fast.
So if you're interested in learning a proven trading system that is getting results, click here to find out more.
James Thomas is a successful private option trader and has created http://www.option-trading tips.com as an informative, no-nonsense resource full of useful tips and information designed to help option traders and investors to become more profitable.