John Jagerson

Invest Internationally With LEAPS Options

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This article is brought to you by LearningMarkets.com.

International stocks are significantly correlated. Stocks around the globe tend to go up and down together or at the same time. If U.S. stocks are rising then international stocks tend to follow, but they may not run at the same pace.

Quite often emerging economies run ahead of U.S. stocks. Let's take a look at why options may be a great way to leverage growth opportunities and diversify into fast-growing emerging economies.

Amongst emerging market funds, those concentrating on the "BRIC" economies are the most popular. BRIC stands for Brazil, Russia, India and China.

Sometimes an emerging market fund may also supplement BRIC investments with stocks from places like Turkey, Mexico and South Africa as well.

Just as we might expect small-cap stocks to outperform large-cap stocks in a bull market, the growth potential is higher in emerging markets than within larger more established economies like the United States, UK or Western Europe.

The other side to this equation is that greater risks always accompany greater profit opportunities. For example, during the 60% crash in U.S. stock indexes during 2007-2009 Chinese stock ETFs were down 73%. However, keep in mind that during the rally of March-July 2009, U.S. stocks are up 42% while Chinese stock ETFs were up 80%.

The potential upside is what attracts investors to international stocks like this, and long-term options known as Long-Term Equity Anticipation Securities, or LEAPS, may be one way to avoid the value trap when prices decline suddenly.

A value trap is what happens to traders when share prices are dropping quickly and they are faced with the dilemma of holding the shares and hoping prices come back or selling the shares and recognizing the loss. (Learn more about how to avoid value traps with LEAPS.)