A Primer On
Stock Options Trading
So you have heard about stock options trading. You have also probably heard of how others have made 10-100% return on their investments in a short time. Thus you wonder...maybe I should also learn about this instrument called option.
I do not want to confuse you right now with all the technical jargons regarding options. But I think it will be helpful for you to learn about the two basic type of option. Call option and Put option.
A call option will make you money when the stock goes up.
A put option will make you money when the stock goes down.
Don't worry about all the definitions and jargons right now. Don't worry even if you don't understand anything at all. Later I will show you an excellent site which will help the beginner to understand options better.
The pros of options trading
Yes, stock options trading can indeed be very profitable. With options, it is not impossible to make a 100% return on your investment in one day. The gains on mutual funds and stocks can be overshadowed by the gains on options trading.
Another added advantage of options is with the right strategy, you can be profitable in any type of market environment. Yes you can make money when the stock market goes up, when it goes down and even when the market does not move at all!
Yes I know this sounds hard to believe, but that's the great thing about options.
The cons of options trading
However, before you get excited and jump straight into option trading, you should learn all you can about options. Most of all, you should learn about the dangers of options trading.
There is after all no perfect instrument in the market. You can make money and lose money using any kind of instrument be it forex, stocks, options and futures.
One of the danger of options trading is time decay. With stocks, you can hold on to it forever and not lose money(assuming that the stock price does not change that much). However, with regards to options, even if the price of the stock does not move much, the option can lose money due to time decay.
Another big danger of options is that you can lose unlimited amounts of money. This usually happens when you are a seller of options. For example, you sell a call option thinking that the stock will go down. However, the stock goes up and triples in price.
Guess what? Your losses are unlimited and you can lose more than ten times what you initially put in.
The right training and knowledge will help you
Well, I guess you might be afraid by now. My advice is, don't worry. We are only afraid of what we don't understand.
To be honest, stock options trading can be a very lucrative way to earn a living in the markets. Furthermore, you can make money in options in any market environment. This allows you to take advantage of situations where others will not be able to do so.
Want to learn more about options but afraid that it will be difficult? Don't worry, here is an excellent site that will help you understand options better.
This site will teach you the basics and the essentials of options trading in a simple to understand way. Swing Trading Options.
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