Many investors consider options trading to be speculative and even dangerous.

Most believe that buying stock, by comparison, is safer and more conservative.

The crowd is wrong on this one. In fact, what they might not fully understand is that stocks can be much more dangerous than they think.

Quite simply, it's because it is virtually impossible to make fast and significant profits with a stock. Stocks move too slowly to make quick profits and they cost too much to make the "big" money. However, as we've seen in recent weeks, stocks can move lightning-fast… to the downside, that is.

If you look at the recent performance of companies like WellCare (WCG), Crocs (CROX) and Citigroup (C), you'll see that their shareholders incurred sudden and HUGE losses within the course of a day thanks to negative headlines or good news that just wasn't "great" news. In fact, the analyst who downgraded Citigroup back in November received death threats, ostensibly from angry investors!

They aren't the only other shareholders who have seen their profits vaporize. Many stocks (like Citigroup) that are affiliated with the subprime lending and homebuilding sectors have felt a lot of pain in the past few months and are being forced to make drastic cost-cutting measures just to stay in business.

For example, the number of people in the banking and building industries who have been the victims of layoffs (so far) is in the tens of thousands and, unfortunately, growing. But what is impacting shareholders directly is the reduction or even elimination of dividend payments, as was the case recently with Beazer Homes (BZH), which said it expects to save $30 million through job cuts and a suspension of its quarterly dividend.

Beazer opened the year near $50 per share and hit a high today of a "whopping" $10.66. Shareholders might stick with a losing stock if the dividend payment helps to offset the losses, but if owning a stock isn't helping you to gain anything but heartburn, it's best to run for the hills like your hair is on fire.

Now, I don't want to say that you shouldn't own or trade stocks, because even though I'm an options trader at heart, I am the first one to remind you that options should only represent a portion of your portfolio. But for those investors who pooh-pooh options trading as being too risky, they need to do a reality check and remember that whether you're buying stocks or options, the most you can lose is what you put into it.

Would you want to be the investor who bought Beazer at its 52-week high of $47.60 and had to witness its low of $7, or the one who paid a few dollars for its call options and—in the worst-case scenario—lost those couple of dollars? Think about it—you might have paid $2 per share ($200 per contract, which represents 100 shares of the underlying stock) for a call, but the stock investor who wanted to "hang in there" could have lost up to $40 per share during the past year.

The trader who bought calls in a name that took a tumble might have looked at their loss and called it a bad day, but the stock investor could well have had to put off retirement by a year or two. And the trader who might have bought puts in any of these names probably called in sick and booked a flight to someplace tropical to celebrate their good fortune!

When you look at it that way, it's difficult to name one reason why you shouldn't consider having options as part of a well-balanced portfolio!

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