An option is really a derivative on an underlying security that provides the right, but not necessarily the obligation, to buy the underlying security at a specific set price.

They come with different strike prices, expiration dates, and permit tremendous leverage as each option controls up to one hundred shares of stock in a specific company. These advantages make options a far better trading instrument than just trading stocks.

One benefit is leverage. Leverage is the capability to use a small quantity of capital to control an enormous asset.

As in real estate, where a small down payment permits a prospective buyer to control an enormous piece of property, options allow the trader to control up to a hundred shares of stock with just a bit of capital or, in this case, it is referred to as the option's "premium" which will be the actual cost of the option.

Another advantage is that a trader can produce income by using credit spreads with options. For those who see that ABC stock is in a trading range and is remaining above $50 a share, you can create a credit spread by creating what's known as a "bull put spread".

A third advantage is options also give you the capability to short stocks without the restrictions of short-selling stocks. If you short a stock in the expectation that it will go down in price you not only have a more substantial cash outlay, but you also need to pay interest on the stock you borrowed to short. You have to pay the dividends back that the stock might pay throughout the time you hold it.

With put options, you avoid all that plus you may make faster returns and much sooner because the stocks will usually fall twice as quickly as they rise.

The benefits written here are only a few compared to the dozens that options afford traders who are disciplined enough to understand them.

Stock and option traders that take the time to learn and apply a number of simple strategies provided by options can better assess risks in the markets and possibly put themselves into positions to profit handsomely.

In case you need start up capital for your company, the above tips can help you generate funds. Or you could ask an investment professional about shell companies for sale and then look up the cost of going public to expand your business.

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