Will I Need Options?

LiquidCrystal said: "Hello, I was exploring Ameritrade and found that there are 4 account type, Cash, Cash & Options, and other 2. I need to choose between the first 2 and I'm still a beginner, I sort of understand options, but not sure if I'm gonna need them or not. I thought why not choose Cash & Options so if I need options I can use it, if not, no harm. Any advices? Thanx, LC"

AlfredSokol said: "You only need it if you plan on trading options. Personally, I never do."

LiquidCrystal said: "Thank you AlfredSokol, Well, I really do not know what are the possibilities for now so I'm not sure about my need or not for having Options. Will that Options account incur more obligations on me such as having to have a minimum number of options transactions every year or more cost? Suppose I got Cash only account now and needed Options too later, can I change from Cash to Cash+Options? Thanx, LC"

lalasushi said: "Options are pretty speculative, and if you are not financial savy and can predict movements in the market/particular stocks well there is much loss and not much profit protential. Especially considering most options contracts do not have a long window in which they can be exercised. Read ALOT on options if you are going to take part in the options markets. IMO options are best used to protect your downside. They are too speculative to make major market predictions (what is required to make real money with options)."

InvestorMan said: "[QUOTE=lalasushi]Options are pretty speculative, and if you are not financial savy and can predict movements in the market/particular stocks well there is much loss and not much profit protential. Especially considering most options contracts do not have a long window in which they can be exercised. Read ALOT on options if you are going to take part in the options markets. IMO options are best used to protect your downside. They are too speculative to make major market predictions (what is required to make real money with options).[/QUOTE] [SIZE=3][FONT=Verdana]You brought up some good points, Ialasushi, but I want to make a couple important corrections. Firstly, it's not true that options have not much profit potential. Options have the highest profit potential of any investment vehicle in the market. You can buy a cheap option often for less than a hundred bucks, and a subsequent move of only a couple bucks on the underlying stock could shoot the value of that option up to $500.00, $1,000.00, or even more in a very short time. The downside is that if your option strike price is even one penny out of the money, your option will expire worthless and you'll lose your entire investment in it. So it's huge profits, or lose it all, and, yes, sometimes the value of the options goes up only a little and you might have to settle for only a small profit after all that risk. Also, options do not have a small time window in which they can be exercised. You can buy options that'll expire this month all the way up to options that won't expire for another two years or more. The choice is yours. You can buy any strike price and expiry date available. Take a look at the [URL=http://finance.yahoo.com/q/op?s=MSFT]options chain for Microsoft[/URL] for an example of what I mean. It's a bit complex for beginning investors, but I'll be happy to explain in more detail if anyone has any questions. [B]Now, as for the reason why you have to choose between a stock only or a stock and options account is that when you are trading options, there is a rare possibility that you may be forced to buy the underlying stock. This is a VERY rare occurence... you'd have to make a highly specialized order for this to happen, but, for this reason, when you choose to open an account with options trading, you have to pass a credit check. That's why they're different. Also, for your own protection, your broker will not give you the option to trade options (ahem... sorry about that one :rolleyes: ) if he/she feels that you are not experienced enough to handle them.[/B] Feel free to open an options account, if your broker lets you, but please don't trade options until you learn a little more about them.[/FONT][/SIZE]"

IntelligentInvestor said: "Ya InvestorMan.. it's definitely quite complicated with all the technical analysis that gets involved... as i've heard... and the market timing.... do u know a link which explains how options basically work?? if u could provide a link that would be helpful...."