There are 2 types of options. They are call options and put options.

When I entered this trade, I bought 1000 shares. Instead of doing this, I could have bought a "call option" contract, which would have cost around $400 (as opposed to the stock at $28,000). There would be 2 main differences with doing this.

One, the call option has a time limit. For $400, the contract would have about a month of time on it. After that, it would expire, unlike shares which never expire.

Two, an option contract does not increase in value as quickly as the shares it is associated with. Generally speaking, they increase at about 60% of the rate of the shares. So for every dollar the shares go up, your contract increases in value by 60 cents per share. As option contracts on the ASX are for 1000 shares, this equals $600.

Again, for clarity. If you are holding 1000 shares and the stock goes up by $1, you are in front by $1,000. If you hold the call option contract and the stock goes up by $1, your contract increases in value by $600 (approx.). This delta factor is easily overcome by purchasing multiple contracts. To be equal with holding 1000 shares, you'd only need 2 contracts. But what if you had a really nice set-up on your chart and wanted to nail it for all it was worth? Could you buy, say, 10 contracts? Absolutely, yes you could. This would be the equivalent of holding around 6000 shares, which in this case would cost $168,000.

Again, that's $168,000 worth of hitting power for an outlay of only $4,000. If the stock went up by only $1, you'd be able to onsell your 10 contracts and make about $6,000 profit, which is well over 100%!

So you can see the attraction of options. You can swing a mighty hammer in the market, but you have the added risk of time working against you. This is why options trading requires good timing and a very good trading system, which is what MSMI teaches. Nik Halik, CEO of FFi, is a successful options trader.

This higher level trading is what MSMI teaches. It gives you the tools and knowledge to be able to trade short-term. It can obviously be used for longer trades as well, like with our stock trade, but it takes you to a higher level of technical analysis. If you'd like to read more about it, click here and access a detailed report.

Put options work exactly the same, but in the opposite direction. They can be purchased to trade downward movements. As the stock goes down in value, the put option increases in value. Maybe it's causing your brain to emit sparks at the moment, but it's much the same as purchasing an insurance policy. Think about if you bought 1000 shares, but wanted to hedge for safety, you could buy a put option as well. If the stock dropped all the way to zero, your stock would be worth nothing but your put option would be worth a whole lot, especially to you!

If you bought a car and insured it, the insurance policy is basically worthless. Until, that is, you totally destroy your car. Now your policy is very valuable, would you agree? The same for put options. You have the added benefit of being able to buy and trade these "policies" to trade the downward market, the same as short-selling stock.