Stock Option Trading Information
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The sort of stock option trading information that may be of use to you depends to a degree on your current experience and skill set. Beginners need stock option trading information regarding setting up a trade station, learning fundamental and technical analysis of stocks, and learning basic options strategies. More experienced options traders are more interested in stock option trading information that alerts them to the most profitable trades. Thus an experienced trade may subscribe to an alert service, attend online seminars aimed at more sophisticated approaches to trading. A beginner may start with the technical analysis of options using tried and true systems like the easy to use signals of Japanese Candlesticks. In this article we will focus on stock option trading information for beginners.
What Are Options?
Basic stock option trading information starts with the basic features of options trading, call and put contracts. An option is a contract between two parties. In trading stock options the contracts are standardized. Call contracts give the buyer the right to purchase a stock up until the expiration of the contract. The buyer pays for this right. The set price is called the strike price. This is the price at which the buyer will be able to purchase the stock that underlies the option contract. This price applies even if the market price of the stock rises. In fact, this is the expectation of the buyer. He expects the price to rise and locks in the price by purchasing a call options contract. The seller of a call option obviously does not expect the price to rise and expects to simply pocket the premium paid by the buyer. The opposite of a call contract is a put contract. In this case the buyer expects the price of the stock to fall. He purchases the right to sell the stock at the strike price which is specified in the options contract. If the price falls as expected he can sell the stock at a price far in excess of the now lower market price and pocket the profit.
2. The sort of stock option trading
information that may be of use to you
depends to a degree on your current
experience and skill set.
3. Beginners need stock option trading
information regarding setting up a
trade station, learning fundamental
and technical analysis of stocks, and
learning basic options strategies.
4. More experienced options traders are
more interested in stock option trading
information that alerts them to the
most profitable trades.
5. Thus an experienced trade may
subscribe to an alert service, attend
online seminars aimed at more
sophisticated approaches to trading.
6. A beginner may start with the technical
analysis of options using tried and true
systems like the easy to use signals of
Japanese Candlesticks.
7. In this article we will focus on stock
option trading information for
beginners.
16. He expects the price to rise and locks
in the price by purchasing a call
options contract.
17. The seller of a call option obviously
does not expect the price to rise and
expects to simply pocket the premium
paid by the buyer.
18. The opposite of a call contract is a put
contract. In this case the buyer
expects the price of the stock to fall.
He purchases the right to sell the stock
at the strike price which is specified in
the options contract.
19. If the price falls as expected he can
sell the stock at a price far in excess of
the now lower market price and pocket
the profit.
21. Our next bit of stock option trading
information has to do with strategy in
options trading. Traders use options
for two reasons, to hedge risk and to
make money.
22. Let us say that you invested in XYZ
stock based on sound analysis and got
in before a major price increase of the
stock.
23. You believe that the stock is worth
keeping for the long run. But you also
think that for the short term the market
may have overshot.
24. If that is the case you expect a major
correction before the stock starts to
rise again.
25. You can hedge your risk in this case by
purchasing puts on XYZ stock.
26. You lock in the right to sell at the strike
price.
27. If the stock does in fact fall you can
sell for close to what is right now the
current price of the stock.
28. You can then use the money to repurchase the stock at the lower price.
29. You make a profit along the way that
makes up for the fall in price of the
stock.
30. A common use of the call option is to
lock in a price at which to buy a stock
when you expect the price to rise
substantially.
31. Here is where the leverage of trading
options comes in.
32. Rather than purchasing the stock that
you think will go up in price you simply
buy a call contract.
33. You tie up substantially less money in
if you purchase the stock. If the stock
goes up as expected you can simply
sell the call contract as it is now worth
significantly more.
34. You make the same profit as you
would have by buying and selling the
stock but you have done so with a
substantially smaller investment.
