Profiting From Options Trading
Investing in the stock market is very tricky, especially if you are new to investing. If you have access to an experienced trader, the learning curve can be much easier. Options trading is more difficult to learn than standard trading.
Due to the added complexity that options trading has over standard trading, this article will attempt to explain things so that the reader can gain a general understanding. After reading the article, the reader can decide if options trading is right for them.
The first thing to learn is the different types of options trading that are available. The two types are called call options and put options. The concept of options is similar to buying and selling stocks except for the fact that you are only buying the right to buy or sell and not the actual stocks themselves.
Buying a call option gives you the ability to purchase one hundred stocks at a predetermined price, known as the strike price. However, keep in mind that you do not have to exercise the option if it is not in your favour.
Once you have purchased a call option, you then can decide if and when you want to exercise your right to buy. You have a specific deadline in which to buy. If you decide to purchase the stocks, they are bought at the predetermined price.
The second category of stock options trading is called put options. Buying a put option gives you the ability to sell one hundred stocks at a predetermined strike price. This may be difficult to understand at first as it somewhat contradictory to traditional stock trading.
Put options are usually used when you think that the price of the stock is about to fall. This allows you to sell your stocks at a higher price than market value and make a profit. This method is a great way to manage your risk in the stock market.
So, consider your options (no pun intended) when you look at the difference between things like futures and options trading. If you know how to do it correctly, options trading systems can be well worth the money and effort put into it.
Due to the added complexity that options trading has over standard trading, this article will attempt to explain things so that the reader can gain a general understanding. After reading the article, the reader can decide if options trading is right for them.
The first thing to learn is the different types of options trading that are available. The two types are called call options and put options. The concept of options is similar to buying and selling stocks except for the fact that you are only buying the right to buy or sell and not the actual stocks themselves.
Buying a call option gives you the ability to purchase one hundred stocks at a predetermined price, known as the strike price. However, keep in mind that you do not have to exercise the option if it is not in your favour.
Once you have purchased a call option, you then can decide if and when you want to exercise your right to buy. You have a specific deadline in which to buy. If you decide to purchase the stocks, they are bought at the predetermined price.
The second category of stock options trading is called put options. Buying a put option gives you the ability to sell one hundred stocks at a predetermined strike price. This may be difficult to understand at first as it somewhat contradictory to traditional stock trading.
Put options are usually used when you think that the price of the stock is about to fall. This allows you to sell your stocks at a higher price than market value and make a profit. This method is a great way to manage your risk in the stock market.
So, consider your options (no pun intended) when you look at the difference between things like futures and options trading. If you know how to do it correctly, options trading systems can be well worth the money and effort put into it.
About the Author:
TheScienceOfTrading.com provides 90 free minutes of videos on option trading systems and provides a complete and detailed learning to trade options for beginners to experts.
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