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Glossary of Option Terms: Leverage
Leverage
Definition: Using many types of financial instruments, capital (yours or borrowed) or margin to increase a potential return on your investments.
As an example, a stock is worth $100 a share, you have $1000 to invest. You can either buy the shares outright and only own 10 or you can use options to increase your leverage and buy 6 options contracts and you would then control the fate of 600 shares of the same stock.
Leverage helps both the investor and the companies involved, though it magnifies the losses as well as the gains.
Related Articles:
- Leverage Investments: How To Use Options Delta To Vanquish Volatility
- Understanding Options Leverage - The Power of Leverage Is Bigger than You Think
- Options Leverage - How to Use Delta to Maximize Leverage
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- Hedging & Speculating: How to Enjoy Guaranteed Monthly Income With Options
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