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.
In the financial world, stock options are known as derivatives because they derive their existence from the actual stocks that serve as their foundation and reason for existence. In a stock option contract, you're not actually buying or selling the underlying stocks found within the contract, at least initially. Rather, what you're purchasing with a stock option contract is a future right but not an obligation to buy or sell the stocks, usually bundled in 100-share packets, contained within the contract. The stock options trading world is filled with countless options contracts, most of which aren't even exercised, to tell the truth.
Though complex, stock option contracts are a popular trading tool because they can be used in a wide variety of investment strategies. Conservative as well as high-risk strategies and everything in between all lend themselves well to the intelligent use of stock options trading, but never forget that trading stock options isn't for the faint of heart. With potentially great reward, and stock options can bring lucrative financial payoff, comes potentially great risk, especially if you don't understand stock options, their contracts and how they're traded. Thoroughly understand stock options contracts before trading them, in other words.
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.
When it comes to stock options trading, contract fees or "premiums" per underlying share in the option contract are another key concept. A stock option contract premium is the price per share that you'll pay to obtain the option to buy or sell those shares in the future, and it's also your total cost to obtain that contract unless and until you exercise your option rights. When it comes to a stock option contract's premiums or fees, their costs vary by the contract. For instance, there might be a $1 per share premium attached to each underlying share within the 100-share block within the contract, or a $100 total premium at $1x100 shares to gain the right to purchase or sell the stock before the contract's expiration date, or expiry.
In stock option trading, contracts always contain a "strike price," or the price that the contract's purchaser must pay on a per-share basis to buy or sell the underlying stocks within the contract. For example, you might purchase a 100-share option contract for a $1-per-share premium for a total of $100, with a $10 per share strike price. If you decide to exercise your stock option rights before the contract's expiration date you'll owe the contract writer (normally another investor), $1,000 or $10 per share for 100 shares. If the stock's worth $13 per share, your profit when you immediately turn around and sell will be very nice indeed. If the stock's only worth $9 on the market, simply decline to exercise your option and let the contract die.
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.
For hopeful stock options trading investors interested in checking out just what the excitement is when it comes to such options, the NASDAQ -- which was once known as the "National Association of Securities Dealers, Automated Quotation" -- website offers a promising start. Those already familiar with the basics of buying and selling stocks themselves and who are also ready to get into derivatives through trading of stock option contracts can check out several professional options trading websites. Because trading stock option contracts is indeed complex, spending much time hanging out with and discussing such options with trading professionals is advised as well.
In the financial world, stock options are known as derivatives because they derive their existence from the actual stocks that serve as their foundation and reason for existence. In a stock option contract, you're not actually buying or selling the underlying stocks found within the contract, at least initially. Rather, what you're purchasing with a stock option contract is a future right but not an obligation to buy or sell the stocks, usually bundled in 100-share packets, contained within the contract. The stock options trading world is filled with countless options contracts, most of which aren't even exercised, to tell the truth.
Though complex, stock option contracts are a popular trading tool because they can be used in a wide variety of investment strategies. Conservative as well as high-risk strategies and everything in between all lend themselves well to the intelligent use of stock options trading, but never forget that trading stock options isn't for the faint of heart. With potentially great reward, and stock options can bring lucrative financial payoff, comes potentially great risk, especially if you don't understand stock options, their contracts and how they're traded. Thoroughly understand stock options contracts before trading them, in other words.
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.
When it comes to stock options trading, contract fees or "premiums" per underlying share in the option contract are another key concept. A stock option contract premium is the price per share that you'll pay to obtain the option to buy or sell those shares in the future, and it's also your total cost to obtain that contract unless and until you exercise your option rights. When it comes to a stock option contract's premiums or fees, their costs vary by the contract. For instance, there might be a $1 per share premium attached to each underlying share within the 100-share block within the contract, or a $100 total premium at $1x100 shares to gain the right to purchase or sell the stock before the contract's expiration date, or expiry.
In stock option trading, contracts always contain a "strike price," or the price that the contract's purchaser must pay on a per-share basis to buy or sell the underlying stocks within the contract. For example, you might purchase a 100-share option contract for a $1-per-share premium for a total of $100, with a $10 per share strike price. If you decide to exercise your stock option rights before the contract's expiration date you'll owe the contract writer (normally another investor), $1,000 or $10 per share for 100 shares. If the stock's worth $13 per share, your profit when you immediately turn around and sell will be very nice indeed. If the stock's only worth $9 on the market, simply decline to exercise your option and let the contract die.
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.
For hopeful stock options trading investors interested in checking out just what the excitement is when it comes to such options, the NASDAQ -- which was once known as the "National Association of Securities Dealers, Automated Quotation" -- website offers a promising start. Those already familiar with the basics of buying and selling stocks themselves and who are also ready to get into derivatives through trading of stock option contracts can check out several professional options trading websites. Because trading stock option contracts is indeed complex, spending much time hanging out with and discussing such options with trading professionals is advised as well.
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Before you even think about trading stock option contracts, make sure you check out the Option Millionaires website and its tutorials on stock option investment strategies as well as its active stock option investment strategies trader forums.