Diamonds Stock Options (DIA)

The Diamonds (DIA) is a managed fund that allows you to purchase a weighted average of the Dow Industrial Index.  The DIA allows you to diversify, as you do when you buy a mutual fund, but it is also arguably better than any mutual fund because 1) over the long run, the diamonds stocks have outperformed a majority of mutual funds, 2) there is a very low management fee for the diamonds, and 3) diamonds stock and option buyers get preferential treatment when it comes to taxes.

Why Trade Diamonds Stock Options?

Diamonds stock options are exchanged for two main reasons: for speculation (adds risk) and for hedging (reduces risk).

Speculation - Stock options are a way of leveraging your money. This is usually done by trading call options.  You are able to participate in any upward moves of a stock without having to put up all the money to buy the stock. However, if the stock does not go up in price, the call option buyer may lose 100% of his/her investment. For this reason, options are considered to be risky investments.

Hedging - Stock options can be used to considerably reduce risk. Put options are usually traded for hedging purposes.  While hedging reduces risk, it also limits the amounts of gains you can make.  Since most stock markets go up over time, and most people invest in stock because they hope prices will rise, there is more interest and activity in call options than there is in put options.