An almost risk-free way to money in the stock market is to put most of your money in fixed income while apportioning a small % in long dated options. Eg. you t

An almost risk-free way to money in the stock market is to put most of your money in fixed income while apportioning a small % in long dated options. Eg. you think Morgan Stanley is dirt cheap at current levels ($10) and you are willing to invest $100,000 in them. Action 1: You bought $100,000 worth of MS shares at $10 each Action 2: You bought $90,000 in bonds that yields 11%. You bought $10,000 worth of Jan 2010 MS 5 call options at $7 each. Scenario 1: MS gets nationalized or goes bankrupt Action 1: You would have lost almost all of your $100,000 investment. Action 2: If you hold out until your bond mature, you'll get back your $100,000 principal after 1 year. Your options is worthless. Scenario 2: MS goes up to $30 Action 1: Your investment is now worth $300,000 Action 2: You get $100,000 from your bonds and your $7 options is now worth $18. So your investment is worth $125,000. So Action 1 is very volatile and risky. Your profit range from -100% to 200%. Action 2 allows you to sleep soundly at night, even during current market conditions. Your profit range from 0% to 25%. Hey not bad at all. In the worst case, you'll have at least preserved your capital.