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.
Stock options themselves are known as "derivatives" in the trading world, because they derive their reason for existence from the stocks from which they originate. You're actually not buying or selling stocks when you purchase a stock option contract, however, at least not at first. What you buy in a stock option contract is a right, but not an obligation, to later purchase or sell the stocks making up or underlying that contract, with such stocks typically bound together in 100-share blocks. The world of trading in stock options is made up of a seemingly endless number of options contracts, though the options in most of them are generally allowed to expire rather than being exercised, to be truthful.
There's no doubt stock option contracts are complex, though they're still very popular as an investment tool because they can be employed to facilitate many different strategies from an investment point of view. In truth, very conservative investment programs as well as those of a far riskier tone can be undertaken solely using stock options trading, though one should always remember that such trading isn't for the weak-kneed. After all, a stock option contract may bring with it the possibility of great reward but it also comes with an equal helping of great risk, most especially when you're a new trader and don't understand the strategy works. In other words, understand stock option contracts like the back of your hand before you begin trading them.
Most neophyte investors are strongly advised to learn all they can about how stock options trading works before they take up the investment strategy precisely because financial ruin awaits if they don't do it correctly. Before funding a stock brokerage account -- and all reputable stock brokerages offer clients the ability to trade in stock option contracts -- read up on the basics of stocks and their derivative options. Understand, as well, what a stock option "call" is versus its opposite, the stock option "put." In stock options, a "call" is a right to buy an agreed-upon number of stocks in a contract, while a "put" is a right to sell an option contract's shares.
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.
When it comes to stock options trading, you'll always find a "strike price" attached to the contract's language, with that strike price being the price per share you'll pay to gain those stocks if you exercise your option rights. For instance, your purchase of a 100-share stock option contract might cost you a $1 per share premium, or $100, and then a $10 per share strike price if you really do exercise your call or put option. When you exercise your stock option contract rights you'll be on the hook for the $10 per share strike price, meaning $1,000 to the contract's writer (at $10x100 shares = $,1000), but if the stock's actually worth $13 per share your profit when you sell those shares will be high. If the stock found within your stock option contract is only worth $9 on the markets, and your strike price is $10 to obtain that stock, you'd generally just let the contract expire and decline to exercise your option rights.
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.
There's little doubt that stock option contracts can be an exciting investment vehicle, and you should head over to the NASDAQ -- it was once called the "National Association of Securities Dealers, Automated Quotation" -- website to get an idea of what you're involving yourself in. If you've previously gained experience in the ins and outs of stocks and bonds and how they themselves are traded and you think you want to try your hand at stock options trading ensure you head over to several professional stock options trader-type websites before beginning. Always remember, as well, that stock option contracts are somewhat complex, and that the more time you can spend associating with professional options traders, learning from them, before striking out on your own, will always be helpful.
Stock options themselves are known as "derivatives" in the trading world, because they derive their reason for existence from the stocks from which they originate. You're actually not buying or selling stocks when you purchase a stock option contract, however, at least not at first. What you buy in a stock option contract is a right, but not an obligation, to later purchase or sell the stocks making up or underlying that contract, with such stocks typically bound together in 100-share blocks. The world of trading in stock options is made up of a seemingly endless number of options contracts, though the options in most of them are generally allowed to expire rather than being exercised, to be truthful.
There's no doubt stock option contracts are complex, though they're still very popular as an investment tool because they can be employed to facilitate many different strategies from an investment point of view. In truth, very conservative investment programs as well as those of a far riskier tone can be undertaken solely using stock options trading, though one should always remember that such trading isn't for the weak-kneed. After all, a stock option contract may bring with it the possibility of great reward but it also comes with an equal helping of great risk, most especially when you're a new trader and don't understand the strategy works. In other words, understand stock option contracts like the back of your hand before you begin trading them.
Most neophyte investors are strongly advised to learn all they can about how stock options trading works before they take up the investment strategy precisely because financial ruin awaits if they don't do it correctly. Before funding a stock brokerage account -- and all reputable stock brokerages offer clients the ability to trade in stock option contracts -- read up on the basics of stocks and their derivative options. Understand, as well, what a stock option "call" is versus its opposite, the stock option "put." In stock options, a "call" is a right to buy an agreed-upon number of stocks in a contract, while a "put" is a right to sell an option contract's shares.
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.
When it comes to stock options trading, you'll always find a "strike price" attached to the contract's language, with that strike price being the price per share you'll pay to gain those stocks if you exercise your option rights. For instance, your purchase of a 100-share stock option contract might cost you a $1 per share premium, or $100, and then a $10 per share strike price if you really do exercise your call or put option. When you exercise your stock option contract rights you'll be on the hook for the $10 per share strike price, meaning $1,000 to the contract's writer (at $10x100 shares = $,1000), but if the stock's actually worth $13 per share your profit when you sell those shares will be high. If the stock found within your stock option contract is only worth $9 on the markets, and your strike price is $10 to obtain that stock, you'd generally just let the contract expire and decline to exercise your option rights.
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.
There's little doubt that stock option contracts can be an exciting investment vehicle, and you should head over to the NASDAQ -- it was once called the "National Association of Securities Dealers, Automated Quotation" -- website to get an idea of what you're involving yourself in. If you've previously gained experience in the ins and outs of stocks and bonds and how they themselves are traded and you think you want to try your hand at stock options trading ensure you head over to several professional stock options trader-type websites before beginning. Always remember, as well, that stock option contracts are somewhat complex, and that the more time you can spend associating with professional options traders, learning from them, before striking out on your own, will always be helpful.
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Before you even think about trading in stock options, make sure you check out the Option Millionaires website and its tutorials on stock options trading as well as its active stock options trader forums.