What Are Trading Options And How Are They Beneficial?
With the financial landscape changing rapidly and traditional investments putting people in the red rather than in the black, Options Trading looks less like a risky venture and more like a speculative endeavor that can both be a great way to limit losses and create quick profits with little starting capital.
Savvy investors come to the table prepared, and they will approach Options Trading with a system. Options Traders should be aware of the relationship between risks and rewards when investing, and they will appreciate the versatility of this particular investment vehicle.
Options are highly traded on the stock market as well as futures (commodities) exchanges. Options can be traded on items such as individual stocks, commodities (oil, gas, corn, gold), interest rate products (bonds, bills, cd's), indexes (Dow Jones, SandP 500) , and even currencies (US Dollar, Yen, Euro, Swiss Franc).
For Options traders the goal is to figure out the future of the market. Traders will then create a Strike Price, which is an amount for which they want to buy or sell their investment type on a future date.
An investor will decide to purchase (call) or sell (put) their options according to the system they have selected for options trading. The call or put would take place when they have selected a good strike price for their financial instrument.
You would want to Put or sell your option when the strike price is higher than the price for your investment type. If your investment is below the strike price, the loss is limited to your put cost. The put gives you the right, but not the obligation, to sell your option.
A Call option is an option that gives a person the right to buy an item but not the obligation. When a person expects the price of the item in question to go up, they would purchase a call. Thus, if the price goes up, a call owner has the right to purchase it at a lower price. The call owner can also sell this option for a profit. And like a put, should the item in question not go up in price, the owner of the call is limited in their loss to just the cost of the call.
Purchasing an option will have a limited amount of risk. It is when you sell an option that you encounter the most risk. Option sales occur about 15% of the time, and the other 85% of the time the option will expire with no action on the part of the option trader.
Savvy investors come to the table prepared, and they will approach Options Trading with a system. Options Traders should be aware of the relationship between risks and rewards when investing, and they will appreciate the versatility of this particular investment vehicle.
Options are highly traded on the stock market as well as futures (commodities) exchanges. Options can be traded on items such as individual stocks, commodities (oil, gas, corn, gold), interest rate products (bonds, bills, cd's), indexes (Dow Jones, SandP 500) , and even currencies (US Dollar, Yen, Euro, Swiss Franc).
For Options traders the goal is to figure out the future of the market. Traders will then create a Strike Price, which is an amount for which they want to buy or sell their investment type on a future date.
An investor will decide to purchase (call) or sell (put) their options according to the system they have selected for options trading. The call or put would take place when they have selected a good strike price for their financial instrument.
You would want to Put or sell your option when the strike price is higher than the price for your investment type. If your investment is below the strike price, the loss is limited to your put cost. The put gives you the right, but not the obligation, to sell your option.
A Call option is an option that gives a person the right to buy an item but not the obligation. When a person expects the price of the item in question to go up, they would purchase a call. Thus, if the price goes up, a call owner has the right to purchase it at a lower price. The call owner can also sell this option for a profit. And like a put, should the item in question not go up in price, the owner of the call is limited in their loss to just the cost of the call.
Purchasing an option will have a limited amount of risk. It is when you sell an option that you encounter the most risk. Option sales occur about 15% of the time, and the other 85% of the time the option will expire with no action on the part of the option trader.
About the Author:
TheScienceOfTrading.com provides 90 free minutes of videos on option trading systems and provides a complete and detailed stock trading course for beginners to experts.
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6:58 AM
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