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Redefining Leverage for Profit

January 25, 2008

How Successful Traders Are Calculating Risk Disparity & Making Options Work for Them - By Ron Ianieri

Many deem options riskier than stocks. This fallacy stems from a lack of understanding of leverage. There are two basic definitions for leverage as it pertains to options. The first defines it as using the same amount of money to capture a larger position. This description lands many investors into hot water. Investing the same dollar amount in a stock and an option does not equate to the same risk. The second definition characterizes leverage as maintaining a position, but spending less money doing so. A consistently successful trader incorporates this definition into their frame of reference. Read more

Written by Brock Hamilton · Filed Under Option Trading Systems | Leave a Comment 

U.S. Government Required Disclaimer - Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.