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Investing 101
Nancy Zambell,

The Beauty of Options

Nancy Zambell  |  Jun 26, 2007 9:00am EDT  |  User Rating N/A

To most investors, volatility is a 4-letter word! Of course, we love it when the market goes up, but give us just one down day and we begin to panic, envisioning all our worldly assets going down the drain.

But there is one category of investing that most investors often ignore, an investing technique that can help smooth the market's volatility - and, at the same time, offer you an opportunity to profit during those up - and down - periods. That technique is options investing.

Now, before you go back to burying your head beneath your pillows at the mention of this topic, let me just say this: options are not for everyone, but if you hear me out, you may just find that once in awhile, options might be just the investment you need to boost your portfolio returns.

Options provide a chance to turn small investments into large profits by employing simple leverage - limiting your risk yet offering almost unlimited gains.
What's more - because you can limit your risk, investing in options can actually be less risky than buying stocks.

So, let's take the mystery right out of options and begin with some simple definitions.

An option gives you the right - not the obligation - to participate in a future transaction on some underlying security. There are basically two types of

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