Buying stocks simply involves taking a stake in the fortunes of a company, as represented by purchasing stock that it has issued. If we are bullish, we can buy stock in it without regard for any time frame for the move that we are anticipating.

The critical difference with stock options is that they are a decaying investment, one whose eventual expiration makes “buy and hold” an inappropriate investment philosophy. Especially if we purchase an option that is “out of the money”, we must constantly be aware of the “time decay” to which our contracts are subject. Even an “in the money” option’s value is partially made up of time value, so for any option we hold whose value is constantly decaying, we must ask ourselves much more often than if we were owners of the stock: “do I want to continue to hold this position?”

This time decay is literally part of the price that we pay to play the options game. But on the upside, the leverage that we achieve by buying options can make be extremely attractive if our expectation of a future price move turns out to be correct. Leverage like this should never be bought with a large part of our discretionary investment funds, of course. Most investment advisers would recommend investing in options with only a small percentage, certainly less than 10%, of one’s portfolio. The idea as always is to increase the overall value of one’s portfolio incrementally with options, over time, because the nature of options is that you will be wrong on some of your trades.

Even for people who understand stock or share options very well, trading them is very risky. Paper trade with options for months before buying them with real money. This is probably the best way to find out just how difficult it is to make money consistently with them.

What happens to a stock after it’s been beaten down so bad? Does it have a chance to recover and come back stronger than it was i the past? That all depends on the company that issues those stocks. To think that Lehman Brothers will work their way out of bankruptcy and continue their history that they’ve created over the last hundred and fifty eight years. I doubt it very  much, as a matter of fact they’ve already been dived up to others in the industry so my advice is don’t buy their stock, it’s worthless.

As for other companies like general motors or even Ford, they stand a better chance since theybring a lot more to the bargaining table. What they bring is not only the product they make, but the jobs that are created for those products to be made.Between the two companies they employ hundreds of thousand employees. If the companies were to go out of business, it would add to the already high level of unemployment.

This country wouldn’t be able to handle that in a timely manner that it would cascade into other sectors of our economy. The government doesn’t really have a choice but to reach out and assist them like they did in the financial sector.

Would I invest in General Motors or Ford? Not at this time. There are too many variables to consider this a possible trade. You need to understand that because of these problems in the auto industry, big investment funds and hedge funds are going to stay away from them. Without the smart money investing in these companies, they will have troubles getting their stocks back to any descent level to make any respectable gains.

My advice is to stay away from any stocks that are issued by companies that are in any fiscal trouble. There are too many other strong companies out there to waste your time on a long shot. after all this isn’t Las Vegas.

Continue learning about the stock market, by reading on.