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Learn Option Trading

Option Trading Education

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.