There are a wide range of investment securities found on the stock market, and they range from easily understood to very complex. Stocks and bonds, for instance, can be fairly easy to understand and just as easily traded. However, the are countless ways to trade stocks and derivatives of them, known as options, are included. In the universe of stocks as investment securities, though, option contracts are a bit complex and you need to understand them thoroughly before getting into trading them, because while stock options trading is lucrative when done right it's also financially ruinous when done wrong.
Stock options themselves are known as "derivatives" in the trading world, because they derive their reason for existence from the stocks from which they originate. You're actually not buying or selling stocks when you purchase a stock option contract, however, at least not at first. What you buy in a stock option contract is a right, but not an obligation, to later purchase or sell the stocks making up or underlying that contract, with such stocks typically bound together in 100-share blocks. The world of trading in stock options is made up of a seemingly endless number of options contracts, though the options in most of them are generally allowed to expire rather than being exercised, to be truthful.
There's no doubt stock option contracts are complex, though they're still very popular as an investment tool because they can be employed to facilitate many different strategies from an investment point of view. In truth, very conservative investment programs as well as those of a far riskier tone can be undertaken solely using stock options trading, though one should always remember that such trading isn't for the weak-kneed. After all, a stock option contract may bring with it the possibility of great reward but it also comes with an equal helping of great risk, most especially when you're a new trader and don't understand the strategy works. In other words, understand stock option contracts like the back of your hand before you begin trading them.
Neophyte investors eager to begin stock options trading should pause for a moment and ensure they're well-trained in the strategy and how option contracts operate before investing, if only to avoid the prospect of stress as well as potential financial ruin. Before sinking any money into a brokerage account, and all brokerages allow their more-experienced clients to trade such options, take an opportunity to closely study stock option basics and how these fascinating derivatives really work. For one, learn just what stock option contract "calls" and "puts" are, because they're very important. Basically, a stock option contract "call" gives you a right but not an obligation to buy the shares contained within that contract at a later date while a "put" gives you a right but not an obligation to sell those shares, also at a later date.
Another key concept in stock options trading is the option contract's fee or premium per share of each share of underlying stock contained with the option contract. The premium you'll pay for a stock option contract is determined on a per-share basis, and it's your total cost to obtain the contract unless you later decide to exercise your option rights to buy or sell those shares. As far as option contract premiums go, their costs vary. For example, an option contract might feature a $1 per share premium for each share of stock in a 100-share contract block, or a $100 total premium for a right but not an obligation to buy or sell those stocks by the contract's expiry or expiration date.
In stock options trading, there's always something called a "strike price" to be found, such a price being what the contract's buyer will have to pay on a per-share ratio to obtain those stocks. You might buy a 100-share stock option contract for a $1 per share fee or premium for $100, for example, and then pay a $10 per share strike price if you actually do exercise your option rights. Exercise of your stock option contract's rights before the contract expires obligates you to pay the contract's writer -- who's typically another investor -- $1,000 or a $10 per share purchase price time 100 shares, total. If the stock on which you just exercised the option to buy is priced on the market at $13, but you only paid $10 to obtain it, your profit will be relatively handsome. If the stock you're considering buying, should you exercise your option rights under your stock option contract, is only worth $9 on the markets all you need to do is let the contract die at expiration date, thus not exercising your option rights.
After you've gotten a good handle on just what stock option contracts are, think about taking a bit of time to associate with and then learn from experienced investment professionals. The World Wide Web, of course, is loaded with countless websites that promise to deliver quality education in stock option contracts and their use as an investment strategy. But if you really hope to achieve success in trading stocks and their options you need to also check out any website you come across that promises to help improve your ability to trade stock options before you commit to it. Additionally, be careful of any finance website promoting "autopilot" stock options trading software. While you can make a lot of money with stock option contracts you can also lose even more by trusting solely to some sort of automated trading software program.
There's little doubt that stock option contracts can be an exciting investment vehicle, and you should head over to the NASDAQ -- it was once called the "National Association of Securities Dealers, Automated Quotation" -- website to get an idea of what you're involving yourself in. If you've previously gained experience in the ins and outs of stocks and bonds and how they themselves are traded and you think you want to try your hand at stock options trading ensure you head over to several professional stock options trader-type websites before beginning. Always remember, as well, that stock option contracts are somewhat complex, and that the more time you can spend associating with professional options traders, learning from them, before striking out on your own, will always be helpful.
Stock options themselves are known as "derivatives" in the trading world, because they derive their reason for existence from the stocks from which they originate. You're actually not buying or selling stocks when you purchase a stock option contract, however, at least not at first. What you buy in a stock option contract is a right, but not an obligation, to later purchase or sell the stocks making up or underlying that contract, with such stocks typically bound together in 100-share blocks. The world of trading in stock options is made up of a seemingly endless number of options contracts, though the options in most of them are generally allowed to expire rather than being exercised, to be truthful.
There's no doubt stock option contracts are complex, though they're still very popular as an investment tool because they can be employed to facilitate many different strategies from an investment point of view. In truth, very conservative investment programs as well as those of a far riskier tone can be undertaken solely using stock options trading, though one should always remember that such trading isn't for the weak-kneed. After all, a stock option contract may bring with it the possibility of great reward but it also comes with an equal helping of great risk, most especially when you're a new trader and don't understand the strategy works. In other words, understand stock option contracts like the back of your hand before you begin trading them.
Neophyte investors eager to begin stock options trading should pause for a moment and ensure they're well-trained in the strategy and how option contracts operate before investing, if only to avoid the prospect of stress as well as potential financial ruin. Before sinking any money into a brokerage account, and all brokerages allow their more-experienced clients to trade such options, take an opportunity to closely study stock option basics and how these fascinating derivatives really work. For one, learn just what stock option contract "calls" and "puts" are, because they're very important. Basically, a stock option contract "call" gives you a right but not an obligation to buy the shares contained within that contract at a later date while a "put" gives you a right but not an obligation to sell those shares, also at a later date.
Another key concept in stock options trading is the option contract's fee or premium per share of each share of underlying stock contained with the option contract. The premium you'll pay for a stock option contract is determined on a per-share basis, and it's your total cost to obtain the contract unless you later decide to exercise your option rights to buy or sell those shares. As far as option contract premiums go, their costs vary. For example, an option contract might feature a $1 per share premium for each share of stock in a 100-share contract block, or a $100 total premium for a right but not an obligation to buy or sell those stocks by the contract's expiry or expiration date.
In stock options trading, there's always something called a "strike price" to be found, such a price being what the contract's buyer will have to pay on a per-share ratio to obtain those stocks. You might buy a 100-share stock option contract for a $1 per share fee or premium for $100, for example, and then pay a $10 per share strike price if you actually do exercise your option rights. Exercise of your stock option contract's rights before the contract expires obligates you to pay the contract's writer -- who's typically another investor -- $1,000 or a $10 per share purchase price time 100 shares, total. If the stock on which you just exercised the option to buy is priced on the market at $13, but you only paid $10 to obtain it, your profit will be relatively handsome. If the stock you're considering buying, should you exercise your option rights under your stock option contract, is only worth $9 on the markets all you need to do is let the contract die at expiration date, thus not exercising your option rights.
After you've gotten a good handle on just what stock option contracts are, think about taking a bit of time to associate with and then learn from experienced investment professionals. The World Wide Web, of course, is loaded with countless websites that promise to deliver quality education in stock option contracts and their use as an investment strategy. But if you really hope to achieve success in trading stocks and their options you need to also check out any website you come across that promises to help improve your ability to trade stock options before you commit to it. Additionally, be careful of any finance website promoting "autopilot" stock options trading software. While you can make a lot of money with stock option contracts you can also lose even more by trusting solely to some sort of automated trading software program.
There's little doubt that stock option contracts can be an exciting investment vehicle, and you should head over to the NASDAQ -- it was once called the "National Association of Securities Dealers, Automated Quotation" -- website to get an idea of what you're involving yourself in. If you've previously gained experience in the ins and outs of stocks and bonds and how they themselves are traded and you think you want to try your hand at stock options trading ensure you head over to several professional stock options trader-type websites before beginning. Always remember, as well, that stock option contracts are somewhat complex, and that the more time you can spend associating with professional options traders, learning from them, before striking out on your own, will always be helpful.
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Before you even think about trading in stock option investment strategies, make sure you check out the Option Millionaires website and its tutorials on stock option investment strategies trading as well as its active stock option investment strategies trader forums.
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