There has been a steady rise in the use of stock options by investors to maximize their leverage and returns over the past twelve months. Chicago Board Options Exchange confirms this observation when they recently reported that the month of March was their busiest on record with volume up 55% over the same month last year. In fact all previous stock option trading records were broken when over 5.6 million stock option contracts were traded in a single day.

Stock options dealing enables stockholders to extend their leverage and so their rate of return over simple securities dealing. If a speculator has a solid approach to picking stocks that go up in the near term, the returns can be increased by 10 to fifteen times using stock options. The trade off for this increased return is that the financier has to also judge the period of time over that the increase will happen.

Having the ability to pick the stock, direction, and period of time are all urgent for successful stock option dealing. A probabilistic research of over thirty years of stock info has disclosed certain reoccurring patterns that may yield serious returns in stock options trading. The research was done with custom developed software and then the method was applied to all stocks for the last 5 years. Share trading led to a median return per trade of 3.2%, but with stock options dealing the average return per trade was over 55% for 2005.

Stockholders have already started to exploit the patterns found in this research and are reporting very lucrative trades. Whenever speculators find inefficiencies in the market, there’s a rush to exploit those inefficiencies.

Though stock options aren’t available on all stocks, about 1/2 the stocks found in the analysis did have tradable options. If the trend of skyrocketing use of stock options by stockholders continues, we should see far more stocks add options for financiers. It is simple to see that 60 to 70% of actively traded stocks will have option contracts available in the approaching year if this trend continues.

Financiers are suggested to look thoroughly at the open interest and volume when considering which option contract to purchase. A low volume / open interest will often result in massive spreads between the bid / ask costs and so reduce profits, and it may make it tough to sell the option contract.

Another consideration in selecting the option contract is volatility. Stocks with high swings in prices will translate to more expensive options since the options will have a greater likelihood of being in the money. If you have a reliable method of forecasting stock movement, this higher price may not be a consideration.

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