Winning Strategies in Options Trading Online

2007-03-08 10:33:40

( Business )



An option is the right to buy and sell a certain security, usually a stock. From the word option, you can guess that there is no obligation; you can choose to exercise the option or not. This right is called either a call or a put, depending whether the option is to buy or to sell.

A call is the right to buy a certain amount of stock at a certain price until a particular time in the future. You do this because you would expect the price to go up within the period. A put is just like a call, but in reverse. Instead of hoping the price goes up, you pray that the stock’s price will go down. Options are speculative investments that only have value until its expiration date.

Dealing in options trading online, much like online futures, continues to attract new investors who are constantly in search of the quick buck. What most investor’s fail to realize is that most options expire worthless.

Some investors do, however, use options wisely. The best known strategy is something known as a covered call. In simple terms, it works this way. You own a stock that you want to sell for a profit. So you sell a call option at a price above the current value of your stock. If the stock hits the price, you sell your stock for a profit. If the stock doesn’t hit the price, you keep your stock. Either way, you make a profit from selling the call. This kind of strategy –although less risky –is still reasonably sophisticated technique for most average investors.

As this example proves, options trading online when used correctly can be used to limit the losses associated with a highly volatile market as well as provide traders flexibility. They can be used alone or combined with other investments for specific market conditions. For these reason, it is a highly complex market strategy with often surprising results even for experienced investors. Options trading online are best left to those who have extensive market experience and have a thorough understanding of basic strategies in online trading.


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