Sunday, October 2, 2011

Stock Options Trading

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If you own an option to buy or sell a stock, you can exercise that 

option any time on or before the expiration date. options trading requires you to identify stock options at extremes in volatility. These volatility extremes indicate the options are expensive and should be sold, or cheap and should be bought.This allows you to take possession or to sell the stock at the fixed price of the option regardless of the current market price of the stock.Trading stock options can be fun and it can also be risky. If you trade the right way the rewards are great, but if you don't you'll lose money.


A stock option is not a physical thing like holding shares in a company. Instead it is a contract between two parties. When you own stock (or shares) you actually own part of a physical entity--a piece of a company. An option is an agreement, or contract, where one party agrees to deliver something to another party within a specific time period and for a specific price. Options can also be less risky than holding stocks, but that is not always the case. If you plan on stock options trading at some point make sure you understand fully the risk and downside of each trade. Also, options take more attention and can amplify the movement of a stock in your favor or out of your favor very quickly. So options trading is not for everyone, especially if you are not comfortable taking on risk or managing positions.


Once you learn the power of stock options, investing will never be the same again. The versatility and profit potential of stock option investing is nearly unmatched in the stock market arena.Some of the successful investors believe that options trading is an investment of the rich. Trading in option allows you to make more money on the stock than if you bought the stock itself. Usually traders with small funds opt for option trading as they do not have the means to buy the actual stocks and they are able to make profits while risking only a small amount of money. So, when used properly, options trading is suitable for traders of any risk tolerance.