Stock options trading is a more advanced way of getting involved in the stock market. As such it is not recommended for beginners because of the more in depth nature of how it works. But let's take a look at what is involved in order to see whether it might be for you.
Basically speaking, stock options give seasoned investors more opportunities to try and make some money. As you discover more about this subject you may see a stock option referred to as a contract. If you have a stock option you basically have the right to buy or sell it if you wish. You can also use them to offset a loss or trade them as you see fit. As you can see, because you have more than one option it can get a little confusing initially as to what is the best course of action once you have stock options.
The important thing to remember is that you can have stock options without ever actually holding the stock itself. This explains why you have the option to buy or sell it. For example you could have a particular stock option and never actually take the step of buying it. Since stock options exist for fixed time periods they will eventually run out. You might find you can make a good profit on one by selling it before it runs out. Alternatively if you leave it too long it won't be desirable to other people who are looking to buy that stock, simply because it is near its expiration.
You can also buy an option to sell the stock at a specified price if you wish. Let's say you are hoping the stock will rise but you don't know by how much. In this case the option to sell is a kind of insurance that will protect you if the stock actually doesn't reach that level, or even worse if it falls. You would still be able to exercise your option to sell at the price you previously agreed on.
You can see where stock options get their name. But you can also no doubt see that it is essential to have a good working knowledge of every aspect of them before even attempting to get involved. If you don't you could end up losing money because of the risk involved in trading them.
Basically speaking, stock options give seasoned investors more opportunities to try and make some money. As you discover more about this subject you may see a stock option referred to as a contract. If you have a stock option you basically have the right to buy or sell it if you wish. You can also use them to offset a loss or trade them as you see fit. As you can see, because you have more than one option it can get a little confusing initially as to what is the best course of action once you have stock options.
The important thing to remember is that you can have stock options without ever actually holding the stock itself. This explains why you have the option to buy or sell it. For example you could have a particular stock option and never actually take the step of buying it. Since stock options exist for fixed time periods they will eventually run out. You might find you can make a good profit on one by selling it before it runs out. Alternatively if you leave it too long it won't be desirable to other people who are looking to buy that stock, simply because it is near its expiration.
You can also buy an option to sell the stock at a specified price if you wish. Let's say you are hoping the stock will rise but you don't know by how much. In this case the option to sell is a kind of insurance that will protect you if the stock actually doesn't reach that level, or even worse if it falls. You would still be able to exercise your option to sell at the price you previously agreed on.
You can see where stock options get their name. But you can also no doubt see that it is essential to have a good working knowledge of every aspect of them before even attempting to get involved. If you don't you could end up losing money because of the risk involved in trading them.
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