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Understanding Options Trading
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Like futures, an option gives you the right, but not the obligation, to buy an underlying stock at a specified price at a predetermined date in the future.
You earn a profit if the stock’s market value rises above the price by which you acquired your contract upon the agreement’s expiry. If the stock’s market value drops, then you lose your premium.
There are two forms of options: the call option and the put option. If you buy a call option, you are expecting your stock price to go up and you would prefer the put option if you expect the opposite, meaning you expect prices of your stock to decline.
You actually earn a profit regardless of whether the price of your stock goes up or down unlike other derivative instruments where you only earn a profit when the price of your stock rises.
Hedging strategies are used if you are not sure whether the price of your stock will rise or go down. In this case, you will opt to buy a Put option on your stock. If the price actually goes down, then you earn a profit, but if it goes up, you merely lose your profit.
It is also important to remember that if you think your stock will go down, it is best to sell your stocks and earn a profit from it and just purchase put options.
Another strategies traders engage in are selling their options before it expires to buy the underlying stock, let their contracts expire or sell their options. Selling options is actually not a problem as there are agencies responsible for buying these options in order to maintain balance in the system.
You might want to join options forums so you’ll have access to valuable tips that you may not otherwise find in trading books. There are also various online options trading sites that offer free tutorials as well as membership in the exchange.
Like most investments, you also need to be updated about the economy and the different business players if you want to buy options on stocks about their company. It is important to have a good gauge of which businesses to look out for and to trade on.
Armed with enough information, you will be ready to expand your money through online options trading.
In conclusion, if you are risk averse but would want to maximize your investments, then online option trading might work best for you. But of course, you have to equip yourself with as much knowledge as you can.
Trading In Stock News
Ups and Downs: How Facebook stock has traded since long-awaited public offering - Washington Post
 Bloomberg | Ups and Downs: How Facebook stock has traded since long-awaited public offering Washington Post Facebook Inc. began trading publicly last Friday following one of the most anticipated stock offerings in history. The initial public offering of stock priced at $38 a day earlier. That was at the top of a projected range that Facebook had already ... Facebook's IPO Fiasco Seen as Deepening Distrust of Stock Market Facebook's Brilliant Disaster Facebook IPO Deepens Investor Distrust of Stocks |
CORRECT (5/24): Citadel Trading Exec Leaving; Facebook Loss Seen Up To $35M - Wall Street Journal
 ABC Action News | CORRECT (5/24): Citadel Trading Exec Leaving; Facebook Loss Seen Up To $35M Wall Street Journal The correct version follows:) By Jacob Bunge Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--A senior executive in the stock- and options-trading division of hedge fund firm Citadel LLC plans to retire in the coming weeks. Andrew Kolinsky currently serves ... INSIGHT-Minute by minute, Nasdaq chaos engulfed Facebook IPO Company loses millions in Nasdaq glitch Small Investors Seek Answers to the Confusion of Facebook Trading |
Facebook options debut a wild card for volatility - Reuters
Facebook options debut a wild card for volatility Reuters While the stock's puts and calls are expected to be popular, the big wild card is volatility and ultimately, the options price. Traders will get a fresh start on options on the Internet giant when the contracts are offered on US options exchanges on ... |
US HOT STOCKS: Chesapeake Energy Active In Late Trading - Wall Street Journal
US HOT STOCKS: Chesapeake Energy Active In Late Trading Wall Street Journal US stocks closed lower Friday as the Dow Jones Industrial Average declined 75 points to 12455, while the Standard & Poor's 500-stock index slipped 2.9 points to 1318 and the Nasdaq Composite fell 1.9 points to 2838. Among the companies with shares ... US HOT STOCK FUTURES: HOT STOCKS TO WATCH |
Stocks fall on Wall Street as Spanish bank teeters - BusinessWeek
 CBS News | Stocks fall on Wall Street as Spanish bank teeters BusinessWeek By CHRISTINA REXRODE Another flare-up in Europe's debt crisis knocked markets lower in afternoon trading Friday. This time, it was more trouble at a major Spanish bank. Stock indexes were waffling between small gains and losses on Wall Street until ... EU bank crises worsens as Bankia suspends stock Spanish Banks Added to Global Markets Worries List Spain's Bankia shares suspended: regulator |
Stocks Close Mixed Following Choppy Trading Day - U.S. Commentary - NASDAQ
Stocks Close Mixed Following Choppy Trading Day - U.S. Commentary NASDAQ (RTTNews.com) - Stocks showed a lack of direction over the course of the trading day on Thursday, as traders seemed reluctant to make any significant moves. The choppy trading came after the markets saw considerable volatility over the course of the ... Stocks Showing A Lack Of Direction In Early Trading - US Commentary |
Choppy Trading Persists On Wall Street - U.S. Commentary - NASDAQ
 Kansas City Star | Choppy Trading Persists On Wall Street - U.S. Commentary NASDAQ (RTTNews.com) - With traders largely staying on the sidelines ahead of the long weekend, stocks are turning in another lackluster performance during trading on Friday. The major averages are showing only modest moves after closing mixed in each of the ... US Stocks Mixed In Early Trade As Caution Prevails Stocks May Move To The Downside Amid Lingering Europe Worries - US Commentary US stocks open mixed ahead of holiday weekend |
How to Transition to FX from Stock Trading - Sydney Morning Herald
How to Transition to FX from Stock Trading Sydney Morning Herald This article will explain the similarities of trading stocks to trading FX. Almost half of the NEW traders in the FX market have at least 2 years of experience trading other markets, most commonly the stock market. This article will identify how a ... |