Options have been bought and sold for hundreds of years. For a price, paid at the time of purchase, they give the buyer the right to do something in the future.

Wall Street has had options for years but in the last thirty they have become a major activity and a great source of income.

Should you get involved?

NO!

Options provide their buyer with two things. The first is insurance against a fall in the price of your stock. You buy an option that gives you the right to sell your stock at a certain price. The seller takes on the risk that the option might cost him or her a lot of money. Or he just might profit from the amount you paid for the option.

But remember, insurance does not make you any money. It costs you money. It makes money for the insurer. That’s why they’re in the business. Long term index investors don’t need insurance. The resilient history of the market is your insurance. Remember that.

Option trading? No way. It’s for firms with large computers and algorithms, the ability to trade and adjust positions constantly and rapidly.

The second is pure gambling. You buy an option in the hope the stock goes up and you can then buy it more cheaply because of your option.

Sounds great.

But the odds are against you. The house wins. Not you.

Importantly, people who buy options because of special situations like that which enable them to…hopefully…make a lot on their investment…are not ordinary people. They are intensely interested in the market and spend a lot of their time and effort in following the market and many individual stocks. Is that you? Probably not.

For most of us options are a complex way to lose money.

Keep It Simple Smart. Stick with easy long term index investing.