Puts, calls, strike prices, premiums, derivatives, bear put spreads and bull call spreads - this technical jargon is just one of the complex aspects of options trading. But don’t let any of it scare you away.
What is option trading?
An option is a contract to buy or sell a stock, usually 100 shares of the stock per contract, at a pre-negotiated price and by a certain date.
Investors use options for different reasons. But when option trading, you’ll get the following benefits:
Buying an option requires a smaller initial outlay than buying the stock.
An option buys an investor time to see how things play out.
An option will protect an investor from downside risk by locking in the price without the obligation to buy.
This is a guide for beginners that will assist you thread carefully into option trading. You’ll learn:
What is options trading?
Managing options positions.
Understanding options pricing.
Treating options trading as a business.
Trading options for profit.
Ten ultimate profit secret strategies.
Strategies for making the best out of bad situations.
The concept of "moneyness".
Frequently asked questions:
How much do I need to invest to get started?
You don’t have to invest a lot of money to get started.
What value of return should I expect when I invest?
You can achieve enormous returns if you are correct on direction and time.
I heard there is a lot of risk involved. How do I manage that?
Risk is manageable; you only can lose what you put into the trade as a buyer.
The main difference between stocks and options is time. Even though options have an expiration date, stocks do not. However, the leverage gained from options is actually enormous.