Wall Street is not off to a good start in 2009. Year-to-date, the Dow Jones Industrial Average has dropped by almost 8%, the S&P 500 is down over 7% and the Nasdaq is down almost 4%.
One way investors can profit off of market sell-offs and increased volatility is with the use of options. An option gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. For equity options, the underlying instrument is usually a stock or an exchange-traded fund (ETF).
Options' trading is simply a way to increase the use of leverage without having to put up a lot of capital. With options, it's possible to make up to a lot more money on the same move in the underlying stock than if you bought the stock outright. Many investors use options as a leverage tool, but some also use options to hedge risk or for protection.
The latest episode of
new program "Options Action" offered a range of options ideas and what recent options activity could be signaling for the underlying stocks, including
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