Margin Trading Accounts – Investors Buying on the Margin to Amp Up Gains

Margin trading accounts are employed by savvy investors to turn small allocations of capital into enormous profits through the use of leverage to turn handful of purchasing power right into a substantially larger purchase. There are numerous of ways this type of account is used, but do not let the examples here close your brain to other styles of trades using margin trading accounts.
The most common kind of trade using margin trading accounts may be the straight options purchase. Although a traditionalist would not technically call this a margin trade, most brokers require at least minimum security margin trading accounts as a way to trade options. Likewise traders sign the very same trade account agreement therefore i say it’s the same (enough) for me. A normal option trade happens when an investor purchases the proper to get (a call) or to sell (a put) shares of common stock of an organization at a specified price (the strike price) on or before (American options) a specified date.
So how exactly does this create increased purchasing power for the investor? Consider the following example:

Albert and Bill each have $10000 to invest. Albert decides to get shares of hypothetical company JCN at $100 per share. As of this price he can buy most of 100 shares, and once he does, Albert has control of $10000 worth of JCN stock.
Bill alternatively knows about margin trading accounts and wants to buy call options of JCN stock instead of purchasing the stock itself. For simplicity’s sake suppose Bill can buy calls on JCN for $1 per share. Bill uses his $10000 to get 100 contracts (a contract is for 100 shares) – so Bill now holds the proper to get 10,000 shares of JCN.
Bill does not own any shares of JCN at this moment, however he controls an impressive $1 million worth of JCN because he holds the proper to get 10000 shares (which at the present price of $100/share are worth $1million).
By taking benefit of his knowledge of margin trading accounts, Bill has generated what amounts to a 100:1 leverage position relative to Albert’s securities holdings. Exactly what will happen if JCN stock jumps to $102/share (a 2% price swing is a very possible scenario in the current markets)?
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Albert’s 100 shares now trade at $102/share, making Albert’s investment worth $10200.
Bill’s 100 contracts should now be worth about $2/share (option pricing isn’t an exact science), making Bill’s holdings worth $20000, doubling his money.