How Should I Start Trading Options?

How Should I Start Trading
Options?
By www.Options-Trading-Education.com

http://www.options-trading-education.com/24509/how-should-i-start-trading-options/
With uncertainty in the stock
market these days there is a lot of
focus on trading options.

If you are new to stock trading you
may have been advised that by
trading options you can limit your
risk and leverage your trading
capital.

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Before We Continue…

If you are interested, how should
you start trading options?

The first step is to decide on your
goals and learn the basics.

What Do You Want Out of
Options Trading?

We touched on this issue in our
article, Will Your Investments
Help You Reach Your Goals?

What are your goals and will your
investments help you reach your
goals?

If your main goal is financial
security you need a balanced
portfolio of investments.

If there a specific time by which
you will need money such as for
college tuition you need to have a
degree of reliability that is not
needed if you are looking to have
enough money twenty years later
in retirement.

And if you a likely to live into your
90’s which is more and more
common these days you will need
income along the way during
times of low interest rates.

That is where stocks come in
even when you are happily retired.

These thoughts apply to trading
options as well as investing in
stocks.

You do not need just one goal but
if you are going to pursue a risky
or a conservative strategy, try to
leverage your capital or hedge the
risk of your stock portfolio you
need to make some decisions
before you start options trading.

Buying versus Selling
Options

If you have big bucks and an
impressive skill set you can make
more money selling options than
buying them.

The down side to selling options is
that one can occasionally sustain
substantial and even ruinous
losses in the market moves too far
and you have not hedged your
risk with a buy and sell strategy.

There is one exception to this rule.
That is the covered call option.

If you own shares of a stock you
do not have the risk normally seen
in selling options.

Your downside risk with
a covered call option is limited to
missing out on potential profits.

A covered call option is when the
owner of stock writes an options
contract obligating him or her to
sell stock at the contract price, the
strike price, at a future date, the
expiration date, if the buyer so
chooses.

The buyer of a call option pays a
premium to have the option but
not the obligation to buy stock in
blocks of 100 shares per contract.

The seller of a covered call option,
or uncovered call option, is
obligated to sell if the buyer
exercises the contract.

But with a covered call option the
seller makes money on each and
every trade.

Ideally the price of the stock that
you own does not go up and you
keep the stock and the profit.

For someone who already owns
stocks this can be a good way to
start options trading with little risk.

How Should I Start Trading Options?

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How Should I Start Trading Options?