The Many Option Trading Strategies with Online Option Trading

Discover The Many Option Trading Strategies with Online Option Trading Being wise with our money means investing our hard earned wealth on the ventures that we are most familiar with. Most people also choose to know the basics of options trading than understanding the rise and fall of stocks because it is much easier and this is the primary reason why options’ trading is more popular and with the popularity of Online Option Trading, it is easier than ever to participate. But facts and figures show that many of the Option Trading Strategies offer several advantages not just in your investments but also in the stock market. Here are some examples: Leverage – it basically means the power that can be used to influence someone’s actions or decisions.

In options trading, buying a call option gives the investor a good option position that is similar to stock position.

Example: if an investor would by 200 stocks selling at $40 per share, he would have to pay $8,000. But if he would choose to purchase three $20 calls (each contract representing 100 lots or shares), he will only have to pay $6,000 (3 contracts X 100 shares/contract X $20 market price). The investor would then have an extra $2,000 to spend or invest on his or her discretion.

The procedure is as easy as one-two three. It’s up to the investor to use his trading skills and know which calls to buy to have a better edge on the option same as to stock position. Nevertheless, if you are on to a good venture without risking most of your hard earned money, then the better choice for you is options trading.

Limited Risk – The investment world is said to be the place for risk takers. It would be of your advantage if your risk would in a snap convert into profit. But that’s not always the scenario. In options trading, you may have boundless profit potential and have limited risk at the same time. This is because, options trading give you the right to buy or sell underlying asset, and not the obligation.

This means that if at the end of the contract, the price is not right; you can just disregard the contract and let it expire. But in the instance that there are changes in shares prices that you can profit, then you can exercise your right and go with the contract.

Example: You buy a certain call option for $20 (strike price) that will end on the third Friday of March. On the expiry date, shares you bought are trading at $25. Definitely, you can instantly earn $5 per share and would have to pursue with the contract. But what if at the expiration date it is lower than the strike price?

Let’s say the shares you have bought went down to $10 or $5 at the end of the contract. Then there is no reason for you to pursue with the contract. In this manner, you just have to let the contract expire. The thing you’ve lost with this venture is only the option premium you paid the seller.

Unlimited Profit Potential - Say a certain call option you have bought is now trading at $38 per share.

You can exercise your right to buy it for the strike price of $20 and earn $18 minus the Option Premium you have paid. This is just an example. The price of shares can go higher than that. And if you have carefully chosen your call, you can get the best profit without breaking your bank. Note: if you are planning to pursue the contract and buy the shares, remember that you have to pay the full amount. So at the expiry date, make sure that you have you the cash.

These advantages on why online option trading is above all the best trading choice is convincing enough for you to let your hard earned money flourish into your best trading venture ever.

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