Discover How Rich Dad Trades Stock Options

By Christopher Smith, J.D.

Robert Kiyosaki, author of the Rich Dad books, is talking about stock options. Whether you are a fan of Mr. Kiyosaki or not, he is undeniably one of today's more prolific personal finance authors in the world and he wants us to know that options are the investment of the rich.

It is not just Mr. Kiyosaki, but an entire industry that is springing up to promote options trading and service the needs of stock option traders. There are a lot of people talking about how options are the key to financial freedom and why you should learn how to trade them yourself.

Through all the clamor, it would be wise to take pause and consider whether stock options are truly the missing link to incredible wealth or simply an opportunity for savvy marketers to improve upon their net asset picture at your expense.

Stock options have been traded on organized exchanges since the 1970's. The public's eye was drawn to these 'derivative' securities in the 1980's and 1990's when enormous losses resulted after large funds found themselves over leveraged. More recently, with the advent of electronic trading by the International Securities Exchange (ISE), options have been re-introduced to the public in a more constructive light.

What was once a very expensive product to trade is now quite affordable. This once exclusive playground of the ultra-wealthy and large hedge funds is now open to anyone with a few thousand dollars. Technology introduced by ISE has caused nothing short of a revolution as now multiple exchanges compete for order flow. Recently, the NASDAQ has announced it's intention to offer options trading on its exchange.

What stock options offer the individual trader is a tool that can be used to reduce risk in a portfolio, to increase or stabilize returns, and to speculate on changes in the market without exposing yourself to significant losses. These benefits all pre-suppose that you understand how options work and that you use them intelligently and responsibly. Those who who jump into the options marketplace without the requisite understanding, risk significant losses similar to what was incurred by those over leveraged funds in the 1980's and 1990's.

If you are going to venture into the world of stock options you need to spend some time learning how the successful traders play the game. You do not require an advanced degree in economic theory, but it is important to master the fundamental concepts involved so that you are able to recognize where the risks lie and take the necessary steps to avoid extreme financial loss.

Mr. Kiyosaki is right; stock options are an investment tool of the rich. The key to un-locking their potential is education. The reward is the potential to earn profits in varying market conditions while also limiting your risk of loss.

Christopher Smith, B.B.A., J.D., is a graduate of the University Of San Diego School of Business and Santa Clara University School of Law. He is an experienced options trader and the founder of TheOptionClub.com where he reveals options trading techniques favored by professional traders at http://support.theoptionclub.com.

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Published at Jan, 26 '07 ; read 415 times;

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