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More and more investors are using "options" strategies to try to boost their profits. We get a lot more questions about options than we used to, so let's take a few moments to talk about what they are, how they work and if you should use them.

Here is a brief overview of options, along with some cautions and some key speculative and conservative strategies you can use with "puts" and "calls." Put options and call options are a more aggressive way to make money from the stock market.

Call Options 101

A call option entitles you (the buyer of the option) to buy 100 shares of a particular stock, at a pre-agreed price, for a specific amount of time—no matter how high the stock's price rises. When you buy a call option, you're betting that the price of the stock will go up and that it will do so during the time that you own the call.

Let's walk through an example. Say you believe that Widget is a great buy for the next few months, but you don't have $3,000 to buy 100 shares of Widget. You do, however, have $250 and are willing to risk it to buy a call. The call gives you the right to buy 100 shares of Widget until the call's expiration date (usually several months from when you buy it), at the pre-agreed ("strike" price) price of $30 per share.

If Widget jumps to, say, $35 per share before your call's expiration date, you have two choices. You can 1) "exercise" your call and buy the 100 shares at $30 per share (even though the stock is now trading at $35/share), or 2) sell out the call itself, which would rise in value with the stock. The call, on or near expiration, with Widget trading at $35/share would be worth $500 (the difference between the strike price—30—and the current market price—$35!)

In this example, you've doubled your money. Does it really happen? Sure! But, buying calls isn't easy. You need to be realistic about the potential downside. In this example, if Widget had dropped below $30 by your call's expiration date, you would have lost your entire $250 investment—100% of what you invested.

Put Options Made Easy

If you are bearish about the prospects of a particular stock (you think the stock's price will fall) and are willing to risk your capital, then the purchase of a put may be the leveraged way to invest.

Rather than "shorting" stock (selling stock that you don't currently own in the hope that you can deliver stock at a later date at a lower price; see The Real Scoop on Selling Short, which entails unlimited risk, your only risk when you buy a put is the cost of the put—called the premium.

Here's an example: You believe Widget Computer will take a tumble in the next few months. You could buy a put which expires in almost 5 months for approximately $400. By owning a put, you would have the right to sell (or "put") 100 shares of Widget to another investor for $35 per share no matter how far the price of Widget stock falls in the next five months!!

Let's say you bought the put, and Widget drops from $35 to $25 per share. Since your put gives you the right to sell 100 shares of Widget for $35/share when it's currently trading at $25/share, your put will be worth at least $1,000—more than double your original investment!

You may either 1) buy 100 Widget shares in the market at $25 per share and "put" it to someone (the person who sold you the put for $500) for $35 per share, or 2) simply sell the put at a profit.

Once again, beware that this is a risky investment. You must be able to pick a stock that will drop in value AND predict when it will happen. If we could do it on a consistent basis, we'd all be rich!

Dolan Bottom Line: For most amateur investors, options are just too darned risky and complicated. However, if you are willing to invest some time to learn more about both the conservative and speculative uses of buying and selling puts and calls, you can open up a whole new investment vista with interesting possibilities. A good place to go for more information is the Learning Center at the Chicago Board Options Exchange web site: www.cboe.com/LearnCenter.

Final Reminder: With options, your risk is limited to only the amount you invest in the option, but if you lose, you lose 100% of what you invested!!

For more on how to boost your profits, check out these links:

• Boost Your CD Yields
• Bigger Profits With Less Risk?
• Dolans' 10 Simple Rules of Investing