The Basics Of Stock Option Trading
Learning to invest in the stock market can be difficult for beginners. Normally, a great deal of experience is required. Access to someone with knowledge of the markets is can be helpful too. In particular, options trading can be quite complex.
Keeping in mind that options trading has an added complexity, it is the intent of this article to explain the concept to you. After reading this article, you should be abile to decide if they want to pursue this further.
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.
After buying options, you would monitor the price of the stock and hopefully see it rise. Your option would be valid until a specific date. Up until the expiry date you could purchase the stocks at the predetermined strike 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.
Typically, people buy put options when they anticipate or hope that the stocks will go down. This will actually give them a profit by being able to sell their stocks at a higher price or exercising their option. Often people will resort to this method because it actually reduces your risk of loses.
To conclude, there is money to be made in options trading if you know what youare doing and have the ability to consult with somebody knowledgeable. Learning the ins and outs of options trading well can position you to profit nicely.
Keeping in mind that options trading has an added complexity, it is the intent of this article to explain the concept to you. After reading this article, you should be abile to decide if they want to pursue this further.
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.
After buying options, you would monitor the price of the stock and hopefully see it rise. Your option would be valid until a specific date. Up until the expiry date you could purchase the stocks at the predetermined strike 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.
Typically, people buy put options when they anticipate or hope that the stocks will go down. This will actually give them a profit by being able to sell their stocks at a higher price or exercising their option. Often people will resort to this method because it actually reduces your risk of loses.
To conclude, there is money to be made in options trading if you know what youare doing and have the ability to consult with somebody knowledgeable. Learning the ins and outs of options trading well can position you to profit nicely.
About the Author:
TheScienceOfTrading.com provides 90 free minutes of videos on option trading systems and provides a complete and detailed option trading course for beginners to experts.
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