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).
An option allows a person the right to buy or sell their chosen item at a future date for a specific price known as a Strike Price. Thus, an option trader speculates on the future price of a specific item.
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.
The right, but not the obligation, to sell is called a Put. Investors who expect a price decrease would use a put to sell their option for a profit if the price of the financial instrument is below their strike price. If the financial instrument price is not below the strike price, their loss is limited to the cost of the put.
Similarly, a Call will give the investor the right to buy an item but they are not obligated to do so. If the expectation is that prices will increase for your financial instrument then a call would be used to sell your option for a profit. If the financial instrument falls below the strike price then losses would be limited to the cost of the call.
When purchasing options you can easily limit your risk, but when you sell an option, you leave yourself open to an unlimited amount of risk. Nevertheless, selling an option is very attractive as generally 85% of all options eventually expire worthless. - 14915
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).
An option allows a person the right to buy or sell their chosen item at a future date for a specific price known as a Strike Price. Thus, an option trader speculates on the future price of a specific item.
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.
The right, but not the obligation, to sell is called a Put. Investors who expect a price decrease would use a put to sell their option for a profit if the price of the financial instrument is below their strike price. If the financial instrument price is not below the strike price, their loss is limited to the cost of the put.
Similarly, a Call will give the investor the right to buy an item but they are not obligated to do so. If the expectation is that prices will increase for your financial instrument then a call would be used to sell your option for a profit. If the financial instrument falls below the strike price then losses would be limited to the cost of the call.
When purchasing options you can easily limit your risk, but when you sell an option, you leave yourself open to an unlimited amount of risk. Nevertheless, selling an option is very attractive as generally 85% of all options eventually expire worthless. - 14915
About the Author:
TheScienceOfTrading.com provides 90 free minutes of videos on option trading systems and provides a complete and detailed stock trading education for beginners to experts.
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