Options trading on the stock exchange, Options Trading Strategies: A Guide for Beginners
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SEARCH How to buy options Puts, calls, strike price, in-the-money, out-of-the-money — buying and selling stock options isn't just new territory for many investors, it's a whole new language. Options are often seen as fast-moving, fast-money trades. Certainly options can be aggressive plays; they're volatile, levered and speculative.
Options and other derivative securities have made fortunes and ruined them. Options are sharp tools, and you need to know how to use them without abusing them.
What Is Options Trading? Examples and Strategies
Stock options give you the right, but not the obligation, to buy or sell shares at a set dollar amount — the "strike price" — before a specific expiration date. The beauty of options is that you can participate in a stock's price movement without actually holding the shares, at a fraction of the cost of ownership, and the leverage involved offers the potential for sizeable gains.
Of course, this doesn't come free. An option's value, and your profit potential, will be impacted by how much the stock price moves, how long it takes and the stock's volatility.
Here's what to watch for: Choosing a broker: Bond trading robot can get into trouble with options quickly if you insist on being a do-it-yourself investor without doing the required homework.
Trading near expiration: An option has value until it expires, and the week before expiration is a critical time for shareholders who have written covered calls. Dividend-paying stocks: It may be weeks until your covered call expires, but if it's in the money your stock is likely to be called away the day before the company pays its quarterly dividend.
- Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment.
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Market conditions: There isn't one strategy that works in all market environments. Whether you're bullish, neutral or bearish about stocks will guide your options investing decisions. More resources.