Options investment can be safe - if you know how. Here's one way options pros make big money while slashing their risk. Don't worry if you don't know much about options investment. A little coaching is all you need. For now, focus on the benefits, not the how-to.

Make Money Whether Stock Prices Go Up or Down

Suppose you expect a big price move soon -
* Earnings announcement.
* FDA ruling on a drug proposal.
* Settlement of a patent infringement suit.
* Results of a major development project.
* Price break-out from a long-standing range.
* Anything else that raises price volatility.
You know prices will make a big move soon, but which way? What to do?

Straddles

Buy an options straddle - a real safe money options investment. Here's what to do -
* Buy both a call and a put on the same stock.
* Same strike price and same expiration date for both the call and the put.
* Pick the strike price closest to the current stock price,
* So there's an equal chance of the call or the put going into the money.

You make money if there's a big move up or a big move down. You lose money only if the price doesn't move much at all. So look for volatile stocks, industries, and markets. Here's an example with an imaginary stock XXX -
* XXX trades at $50.10 a share. $50 is the nearest strike price.
* $50 XXX calls expiring in July, 2011, cost $1.94. $50 XXX puts expiring in July, 2011, cost $1.73.
* Costs are per share in a 100-share option contract.
* The options straddle would cost $3.67 - $1.94 for the call, plus $1.73 for the put.
* You make money if XXX goes at least $3.67 up or $3.67 down from $50.
* That's a 7.3% move in either direction - a small move over two months for a volatile stock.

Safety

The options investment is safer than just buying stock.
* The XXX straddle costs only $367 - your maximum possible loss.
* 100 shares of XXX stock instead of the straddle would have cost $5,010 - your maximum possible loss.

It's safer to risk $367 than $5,010. But what about profits?
If XXX rose to $60 a share -
* You would make about $600 on your straddle - a 163% percent profit!
* You would make about $1,000 on the stock - only a 20% profit.

If XXX fell to $40 a share -
* You would make about $600 on your straddle - a 163% profit!
* You would lose about $1,000 on the stock - a 20% loss.

The options investment - your straddle - and the stock both have about the same mathematical probability of reaching a profit or showing a loss.

The straddle risks less money for bigger percentage returns. It's the safer, smarter thing to do.

Finding Straddles

Finding good stocks for straddles means weighing -
* Market and business factors that might affect stock prices.
* The timing of those market and business factors.
* Volatility of potential stocks.
* The expiration and cost of potential straddles.

Author's Bio: 

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