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To get the most out of your Options Trading investing you need to get the fundamentals right. You are doomed to failure if you go in and start making trades without having some study and research behind you when the time comes to put your money on the table.
Just as a word of caution never invest money that you cannot afford to lose. Hopefully you will not suffer losses buy you must be aware that it is highly probable if you do not do the ground work before going live with Options Trading. This applies to all forms of investing.
I advise getting a practice account as a matter of priority. My trading platform of preference to trade options online is Think or Swim. I have been using it for some time and love what it offers. As soon as you open your account it is time to start with your first step. That is to gain knowledge of the simple definitions of Options Trading. Don't skip this step. Here is some options info to help you on your way.
With options trading you have Call Options and Put Options. Pretty clear-cut isn't it? Well it is not that simple but don't worry it is not so complicated that you need to be a Rhodes Scholar to excel at this type of trading.
To simplify things a call option can be thought of as taking a bet that a stock will increase in value within a specified period. It is likely to offer the buyer extra leverage than if they were to buy the real underlying stock.
On the flip side a put option is a way to bet that a stock will go down in price within a specified period. It mostly offers the buyer increased leverage over just shorting shares in that stock.
Are you now starting to understand exactly what Stock Options are? It is alright if you don't yet understand. Read on for a bit more detail.
I will now breakdown a Call Option (Owner/Buyer)
Here you take part in a contract that gives the buyer the right to call (purchase) 100 shares of an underlying stock listed in the contract, at a stipulated value. This is to occur sometime earlier than the option contract expires, this is in return for paying a premium to the seller of that call.
There are two parts to the contract. There is also the Call (Writer/Seller). The seller of a call option is contracted to sell 100 shares of an underlying stock listed in the contract, once again at a stipulated value at some stage before the option contract is due to expire. The seller receives the premium from the buyer (cost of options).
Remember with a Call Option you make money if a share is increasing in value, while the Put becomes more valuable as the stock price falls.
Now for the Put Option (Owner/Buyer)
The purchaser of a put has the right to put (sell) stock to the writer of that put, at a specified price at some stage before the option contact expires. The buyer must pay a premium to the seller of the put for having that right.
Put Options (Writer/Seller)
The seller of the put is waiting in the wings to buy a stock at a specified price at some stage before the option contract expires and for that receives a premium from the buyer.
Now there you have it. That is the essential anatomy of Stock Options. If you don't see it clearly now just re-read the material as you really need to get this before moving on to better things such as to trade options online and earn yourself a nice additional income.
