In yesterday's post I talked about why we decided to focus on options trading as we built TradeKing.  Now for a little about why options could be surprisingly good for YOU as an investor or trader:

An option for every market

Options trading has gotten a bad, or at least an overly narrow, rap over the years:  all speculation, all risky business.  The fact is, options trading is increasingly what the smart guys do to make money in up, down and sideways markets, and options strategies run the gamut from relatively conservative to highly speculative.  Previous to the 2001 bubble, investors had what I call an empty toolbox:  buy stock, sell stock, usually in that order.  That was the sum total of what everyone had in their arsenal for online trading.  That's a recipe for disaster in a falling market and lackluster results in even a flat market.

The majority of smart investors from that period picked themselves up, sprayed some Bactine on their scraped knees, and then asked themselves:  how can I make money in all markets?  The answer for many of them is derivatives, options especially.

More than speculation

All options aren't about speculation or taking on unlimited risk.  With options you have strategies for reducing your cost basis, protecting your profits (or hedging potential losses), and income generation.  Options typically provide leverage, allowing you to control a larger block of stock for a lower capital outlay.

It's an old saying "on the Street": "If you can't afford the stock, buy the option."

As you learn new options strategies, it's often crystal-clear what your maximum risk and reward could be, so you can go into your trades with your eyes open and your goals and exit strategies mapped out.

For our part, we pledge to continue to design tools for you like our Profit + Loss Calculator to help make the risks and rewards of various trades more clear to you.

Staying flexible with your strategies and responsive to the market, knowing your risks and rewards, planning your exit strategy before you trade -- options promote a lot of good habits for retail investors and traders.  Luckily, learning about options has come a long way from the dry tomes of the past.  I'd encourage you to check out our Learning Center and The Options Guy blog by our Director of Education, Brian Overby.

You can also start reading some of the key options-oriented blogs, such as TraderMike, the Options Trader posts on Seeking Alpha, Volatility Rider, Credit Options Spreads, Options Trading for Income, Commodity Trader and Live Options Trader -- just for starters.

(Got to give my shout-out of thanks here to Jude Stewart, who helps me write-slash-edit this blog and runs a nice little blog herself. She's reviewed many of these bloggers for ease-of-use for the new options trader -- another useful read.)

Now for the caveat...

Options aren't for everyone, and they're definitely not for investors who aren't prepared to spend time getting educated. Because all options eventually expire, you can lose your entire investment. Even more significantly some strategies can expose you to unlimited risk. However, educated options traders usually know how to quantify and contain their risk.  

But if you're willing to try something new, learning to trade options successfully can be hugely empowering.  I'm proud to support a movement like that at TradeKing.