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Learn
Option Trading
Stock
Option or
Option Trading is a very handy instrument for any
investor.
Before beginning with the actual work it's of course wiser to first learn the basics of option
trading. It is simply a contract that lets the
owner buy or sell a stock at
a agreed price before it expires. How?
Say,
you’ve bought stocks of ABC
Company at $50. You’re willing to sell it at $55 in three
months.
ABC company stocks currently have really good demands. But tell me,
can you really say that you’d get desired selling price after
three
months? You’ll reply, “NO! How can I say that? It
can be any
amount - $40 or $50 or $60...just anything!”
Here
comes Option Trading into the play
to make sure you get the desired pre-determined price. Wondering how
it’s possible? Simple! Buy a stock option contract that
allows you
to sell ABC stocks at $55 anytime before it expire in three months.
Two months passes and you see ABC company stocks are still trading at
$50. But…It’s not any problem for you because you
own the right
to sell it at $55!
You may
ask, “What if the market
price is $60? I loose profit then”. Well, it’s
true. You may
loose profit. But actually you’re not making any loss. And
more
importantly you can have sound sleep at night as you’re not
running
at big risk!
You can
trade options in two ways. A Call Option
is
a right to buy stocks at a pre-fixed
price within a specified date. You may buy call options when you hope
the stock price will go up in future. On the other hand, a Put
Option allows you to sell the stocks within a
future date at
the current agreed price. Buy put options when you expect stock price
to go down.
Trading
options has immense
popularity particularly among the advanced investors as it can
leverage the profit dramatically with lower risk. But remember the
bottom line – Understand the market condition and trends very
carefully before you actually start dealing with stock options.
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