The Safer Way to Use Options

Many investors are scared of options, given their level of risk and the potential to lose your entire investment. But there are strategies that can help you make better use of options while reducing your risk.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at a safer way to use options by implementing spreads. Dan notes that options work well when investments move sharply in one direction, pointing to the value of put options on plunging stocks SodaStream (NASDAQ: SODA  ) and lululemon athletica (NASDAQ: LULU  ) as well as the value of call options on the SPDR Diamonds (NYSEMKT: DIA  ) and Vanguard Total Stock (NYSEMKT: VTI  ) in 2013. But Dan points out that in ordinary markets, spreads -- combining the purchase of an option with the sale of another -- can reduce your total loss exposure without giving up too much of your upside potential. 

Let options help you get into the market
Scared of a risky market, millions of Americans have waited on the sidelines and missed out on huge gains. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2801311, ~/Articles/ArticleHandler.aspx, 9/2/2014 12:47:35 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement