Recent fluctuations in the world of traditional finance have made Options Trading more appealing. Options Trading is attractive as a method of generating quick profits. Options Trading can be done with little up front and limited exposure to financial losses.
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).
For Options traders the goal is to figure out the future of the market. Traders will then create a Strike Price, which is an amount for which they want to buy or sell their investment type on a future date.
Options can be used with a put (sale) or with a call (purchase). An options trader will decide to purchase or to sell their option based upon their own systematic approach to this type of investment. The decision to put or to call is important, and it relates to your strike price.
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.
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).
For Options traders the goal is to figure out the future of the market. Traders will then create a Strike Price, which is an amount for which they want to buy or sell their investment type on a future date.
Options can be used with a put (sale) or with a call (purchase). An options trader will decide to purchase or to sell their option based upon their own systematic approach to this type of investment. The decision to put or to call is important, and it relates to your strike price.
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.
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.
0 commentaires:
Enregistrer un commentaire