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Options are a kind of investment that provides you the right to buy or sell an underlying security at a certain price for a specified amount of time.

Put simply, options give you the right to guess on the direction of a stock, but you might be limited to that guess for a specific period, generally from one month to as long as 3 years depending on the option selected. Let's go thru a couple of examples with various scenarios so that you'll be able to see how options can result in magnified returns with low risk.

Say you think that the demand for gas within the refinery industry will send Valero's stock higher. Earnings for the stock come out in June, and you're guessing the market is going to be incredibly surprised at how the company surpassed their earnings estimate for the quarter.

In such a case, you'd look to purchase "call options" on Valero. Call options are a wager that the underlying stock price will go up. Put options, on the other hand, are guesses that the underlying security's price will go down.

A sensible move is to give yourself just a little time to make sure that you are right about the trade, but not an excessive amount of time that it is actually cost-prohibitive for you to make the trade. Options are referred to as "wasting assets" simply because they lose value the longer you hold onto them.

Also, the longer the amount of time before the option expires, the more premium you will pay. Premium will be the price you pay for the option. A pricey option has a high premium; an inexpensive one has a low premium. Option premiums are dependent upon the market, just like stocks. And options are traded on an exchange, just like stocks.

Options can be used for a number of strategies but, most of all, options enable you to control blocks of stock incredibly cheaply while limiting your risk to the value of the option itself. Options used this way with good directional methods and systems can yield huge profits when employed correctly.

Options are certainly not the only way to generate massive profits, as going public with a company will produce the same result. If you own a company, but don't know how to go public you can certainly find a company going public on the internet.

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