Candlestick Trading Blog
September 18, 2009
Trading Options Online
| Trading options online requires that you first understand options trading in general. Options contracts are agreements between two parties where one party agrees to sell a sock to the other party within a specific time frame at a specific price. When trading options you don’t actually own anything as you would when simply trading stocks. Trading options online requires that you learn about calls and puts. Calls and puts are the two types of options market orders. In addition to calls and puts, new options traders must also learn terms such as purchase item, strike price, expiration date, and quantity as it relates to online options trading. These terms refer to the information that is found in an options contract and they are described below. Calls – calls are contracts made by a buyer who offers the conditions under which he or she will buy a particular stock. Puts – puts are contracts made by a seller who decides the conditions under which he or she will sell a particular stock. Purchase item – the purchase item is the actual stock Strike price – this is the price that is the target for the options contract Expiration date – the expiration date is the date in which the contract is no longer binding Quantity – this is usually groups of 100 Trading options online also requires that you know about some other terms such as leverage and limited risk. Leverage is the ability of the investor to buy in bulk and occurs when the investor is purchasing options. The agreement when buying options is only if the transfer of assets ever takes place. Also, the contract multiplier of 100 (which is the number of shares per options traded) allows even smaller investors to trade a large exposure, or leverage, on a small amount of capital. Limited risk is another asset to options investing. Trading options allows you take a view on the market direction with limited risk while also having unlimited profit potential. This is because options traders have the right but not the obligation to exercise the contract for the underlying exercise price. If the options trader finds that the price is not what they are looking for at the time of expiration, then the buyer simply lets the contract expire without buying anything. This provides a great advantage to investors over the traditional stock trading. Trading options online is a great way to make money trading. Continue your options trading education and see if it is an investment option that works for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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