Tips to Successful Stock Option Trading
There's no crystal ball to help you choose the winners in the stock market, however stock option trading isn't as difficult as many people would like you to believe.
The key when you are considering purchasing or selling options is extensive research on the company that you conduct yourself or someone that you trust.
There are a few factors that you should take into consideration when you are researching the company that you are looking at trading stock options on: · The past history and movement of the stock.
· The parent company 's expected earnings report · The shares that are traded daily in volume and volatility.
· Current news on the growth and profitability of the company.
· The price of the option with consideration as to how you think the stock will perform in the market.
· The supply and demand of the underlying security.
When you have thoroughly researched the stock, you need to decide whether the price is likely to rise or fall because with option trading you can make money either way.
Purchasing a call option means that you are expecting the price of the underlying stock to raise so that you can purchase it at the lower price and make a profit.
With this type of trading, you have control over 100 shares of the stock for a fraction of the cost of the underlying stock.
Purchasing a short term stock option is risky business but not as risky as purchasing stocks themselves.
Even less risky is selling short-term options, especially when you have insurance or a hedge.
When you sell a call option, you are expecting the price of the stock to fall.
Sell the call option so it won't expire at the deadline worthless.
By selling, the premium that is paid to you is your profit.
If the stock price rises, you must sell your stocks at the lower price, otherwise you would have to buy them at the higher price - this situation is called a 'naked' or 'uncovered' and is dangerous for you as a trader.
When you sell a call option, you should consider purchasing the same option with a lower price and a longer expiration date, while this does reduce your profit potential, it also reduces your risk.
When you purchase a put option, you expect the price of the stock to fall,which then allows you to sell the stock that you control at a higher price, earning you a profit.
Purchasing a put option can also be utilized as insurance, or a hedge, against the potential price drop for other stocks that you own.
Stock option trading is a great business that can earn you a lot of money in a hurry and when it is done correctly it can eliminate much of the risk that is associated with it.
The key when you are considering purchasing or selling options is extensive research on the company that you conduct yourself or someone that you trust.
There are a few factors that you should take into consideration when you are researching the company that you are looking at trading stock options on: · The past history and movement of the stock.
· The parent company 's expected earnings report · The shares that are traded daily in volume and volatility.
· Current news on the growth and profitability of the company.
· The price of the option with consideration as to how you think the stock will perform in the market.
· The supply and demand of the underlying security.
When you have thoroughly researched the stock, you need to decide whether the price is likely to rise or fall because with option trading you can make money either way.
Purchasing a call option means that you are expecting the price of the underlying stock to raise so that you can purchase it at the lower price and make a profit.
With this type of trading, you have control over 100 shares of the stock for a fraction of the cost of the underlying stock.
Purchasing a short term stock option is risky business but not as risky as purchasing stocks themselves.
Even less risky is selling short-term options, especially when you have insurance or a hedge.
When you sell a call option, you are expecting the price of the stock to fall.
Sell the call option so it won't expire at the deadline worthless.
By selling, the premium that is paid to you is your profit.
If the stock price rises, you must sell your stocks at the lower price, otherwise you would have to buy them at the higher price - this situation is called a 'naked' or 'uncovered' and is dangerous for you as a trader.
When you sell a call option, you should consider purchasing the same option with a lower price and a longer expiration date, while this does reduce your profit potential, it also reduces your risk.
When you purchase a put option, you expect the price of the stock to fall,which then allows you to sell the stock that you control at a higher price, earning you a profit.
Purchasing a put option can also be utilized as insurance, or a hedge, against the potential price drop for other stocks that you own.
Stock option trading is a great business that can earn you a lot of money in a hurry and when it is done correctly it can eliminate much of the risk that is associated with it.
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