Options trading has surged in popularity over the last few years, and for good reason. Options offer the potential for high returns with a low upfront commitment, and plenty of flexibility. When you buy an option, in general your risk is limited to the value of your investment.
Options trading is a type of trading in which buying and selling of options contracts take place through various tested methods. If you have no market experience, then options trading will likely require a steep learning curve for you, as the concept of options trading is more complicated than trading stocks. Buying stocks and holding them over the long-term for potential profit is a common strategy. However, these days investors are looking to opt for some different investing styles in an attempt to gain potentially higher returns. In this article we will discuss the importance of options trading and potential benefits as well. Please note that options trading has several risks so please do not invest in options until you have read the OCC's risk disclosure document.
Options Trading is a complicated and intense form of trading. One way to manage risk in options trading is by making use of spreads. You will need a flexible and easy-to-use trading platform to enter and execute your options trades. ChoiceTrade provides exactly such a system for options trading.
There are two types of options mainly:
Call Options give the buyer the right (but not the obligation) to buy the underlying stock at a fixed price (known as the strike price) before expiration date. If the underlying stock is lower than the strike price of the call option on expiration date, then the option is worthless because it is “out of the money”. If the price of the stock is higher than the strike price of the call option, then the option is said to be “in the money”. At expiration, an option in the money by at least one penny is automatically exercised. The person who exercises the option becomes the owner of 100 shares of the stock for each option contract exercised (the ratio of 1 contract to 100 shares is usually, but not always, the case). So people who expect a stock to rise in price would want to buy a call option.
On the other hand, people who expect a stock price to fall would want to buy a Put Option. With a Put option, the owner (buyer of the option) has the right (but not the obligation) to sell the underlying stock at a fixed price (the strike price) prior to or at expiration to the seller of the option. If the price of that stock falls prior to expiration, the put option owner is protected from the decline in price.
Options are risky securities and not suitable for all investors. You should familiarize yourself with the OCC’s risk disclosure before engaging in Options Trading. Once you understand the process and risks of options trading, it becomes much easier to invest your money into Options and gain much out of it.
Options Trading has certain benefits that account for its growing popularity among investors:
Different types of Options Contracts are available, while trading and you can place as many different orders to make it considerably simpler to confine risk than it is when just buying and selling stocks.
For self-directed traders who are serious about options trading, ChoiceTrade is the online options broker of choice. Our stock and options trading software calculates real-time options buying power and provides seamless executions, making it among the best online stock trading platforms out there for options trading.