Why do you want to Trade Stock Options
The allure of stock options trading is understandable: they are cheap, profitable, and could have make more people rich than selling other financial products.
Probably you want to know if you can make a living trading stock options? Absolutely. Many professional traders use stock options as their own cash cow.
What is Stock Options Trading? Stock Option contracts is a derivative security. The value of an option contract is based on an underlying security. Options trading in a stock market usually have the stock of a corporation as the underlying security.
Why is stock options trading so popular
Although they have a reputation for being risky investments that only expert traders can understand, options can be useful to the individual investor, provided you take some time to learn the in and outs. The instrument could be understood by everyone. In this article we’ll look at the advantages offered by options and the value they can add to your portfolio.
Why do you want to use Stock Options?
Options has high probability. If you buy stocks you only have 50% chance that you make a profit in the future. With options you can increase your probability of profit to a much higher level.
Stock Options have great leverage. A Trader can buy an option position that will mimic a stock position almost identically, but at a huge cost savings. For example, in order to purchase 100 stocks of Apple which is trading for $104, an trader has to pay out $10,400. However, if a trader bought one $20 call, one contract represents 100 shares, the total amount of money payed would be only $2,000
Buying stock options is less risky for the trader because they require less financial commitment than equities. On the other hand selling naked options can have certain risk though, therefore the rewards are better. You can reduce the risk by selling spreads in stat of a naked options.
Stock Options have Higher Potential Returns. You don’t need a calculator to figure out that if you spend much less money and make almost the same profit, you’ll have a higher percentage return. When they pay off, that’s what options typically offer to investors.
Use stock option for Strategic Alternatives. The final major advantage of options is that they offer more investment alternatives. Options are a very flexible tool. There are many ways to use options to recreate other positions. We call these positions synthetics.
By selling stock options it is possible to make money even when the stock doesn’t move. For example: after the stock rallied you sold a call stock option. The price is just above the stock market price. For a while the stock doesn’t move much. The premium goes out of the stock option and if it stays that way until expiration you made money for just selling the call.
Having reviewed the primary advantages of stock options trading. It is evident why Traders and investors like to trade stock options so much. Now, the average retail investor has the ability to use the most powerful tools with TastyWorks.
You can make profit in several ways when you sell options. You will receive options premium which you can keep entirely if your assumption is right of partly when the market moves against you a little.
If you like this article keep on reading selling options is a highly profitable way of trading.