How to turn $2,500 into $25,000

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Sometimes the market has an element of gambling about it, but it is not pure chance, if you understand the trends that are pushing the numbers around better than the market. What exactly is the market? Unfortunately, the average investor is not the same as the market; studies show that the most savvy investors have a disproportionately high degree of influence over a stock's price. This is initially counterintuitive, but it makes sense if you think of stock trades as if they were tweets . Over time, the savviest investors pick up more followers, just as the most popular Twitter accounts do. Active traders tend to jump in the same direction as the savviest investors while ignoring the trades of Joe Nobody, even when the trades are otherwise the same.

The point is that you are always in competition with the market's shrewdest players. If you so much as dip your toe in the market-even in the shallow end-you will soon find you are swimming with the sharks, and the price of every stock has been weighed five times by each of them before you ever see it.

Ah, but have you ever looked at an options chain? A typical stock has dozens, nay, scores of options. Many have hundreds and each of these trades on the open market, just like stock. Each has a bid and an ask, just like stock. But unlike stock, it is impossible for any investor, no matter how shrewd to keep track of all of them at the same time. All we have to do is find the ones that offer the greatest realistically achievable potential gains-and then check to see if the buy price makes the option worth the high risk. In other words, we are looking today at the incredible potential of speculative option trading.


Speculative option trades only have so much upside potential because they are high risk investments. (I know you know that, but you know I have to say it anyway.) It may not seem like there is a unifying theme here, at first, but stay with me.


Continue reading page 2 of this article


This article was originally published on MarketIntelligeneCenter.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Options , Technology

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