There has been a steady rise in the use of stock options by investors to maximize their leverage and returns over the past twelve months. Chicago Board Options Exchange confirms this observation when they recently reported that the month of March was their busiest on record with volume up 55% over the same month last year. In fact all previous stock option trading records were broken when over 5.6 million stock option contracts were traded in a single day.

Stock option trading enables investors to increase their leverage and thus their rate of return over simple stock trading. If an investor has a solid approach to picking stocks that go up in the short term, the returns can be increased by 10 to 15 times using stock options. The trade off for this increased return is that the investor has to also judge the time period over which the increase will occur.

Having the ability to pick the stock, direction, and time period are all vital for successful stock option dealing. A probabilistic research of over 30 years of stock information has made public certain reoccurring patterns that will yield significant returns in stock options trading. The research was done with custom developed software and then the technique was applied to all stocks for the last 5 years. Stock dealing ended in a mean return per trade of 3.2%, but with stock option dealing the average return per trade was over fifty five % for 2005.

Stockholders have recently started to exploit the patterns found in this research and are reporting very rewarding trades. Whenever backers find inefficiencies in the market, there’s a rush to use those inefficiencies.

Although stock options are not available on all stocks, about half of the stocks found in the analysis did have tradable options. If the trend of increasing use of stock options by investors continues, we should see even more stocks add options for investors. It is easy to see that 60 to 70 percent of actively traded stocks will have option contracts available in the coming year if this trend continues.

Financiers are suggested to look thoroughly at the open interest and volume when considering which option contract to purchase. A low volume / open interest will often result in massive spreads between the bid / ask costs and so reduce profits, and it may make it tough to sell the option contract.

Another consideration in selecting the option contract is volatility. Stocks with high swings in prices will translate to more expensive options since the options will have a greater likelihood of being in the money. If you have a reliable method of forecasting stock movement, this higher price may not be a consideration.

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