Why Most People Like Investing With Options

By Johnny M Junior

When someone is looking for a great turnout with their investment, it is important that they know about how to do their investing with options. After learning about this technique and the best ways of earning a profit, they can either opt for puts or calls. This should only be done after the basics have been studied and the options are weighed. Options are very complex, so make sure you study before trading them.

If the stock that is being eyed is headed low, it is best to buy puts. Puts make money when the underlying asset drops in price. The way to find the direction of the investment would be to look up the price chart of the index or stock. The investor can use technical indicators and draw support and resistance lines to forecast a direction. The direction of the stock's value is the determining factor in whether the investor will use calls or puts.

Investment options are contracts with a strike and expiry date. Call options can become the right choice in the future if the stock goes up. If you own a call option, then you can purchase some stock at a defined, lower price which is the strike price.

With the expiration date of the options investment contract, you are purchasing what we call time premium. Each option has a certain amount of time before it expires. You can easily make money while investing with options if you learn advanced strategies, but you can lose too, so be careful and paper trade for a long time. If you are planning to buy Google's stock, then you might consider on buying Google calls instead. There are many choices on the option chain, but if you want the options to be similar to stock, then you can buy what we call "In The Money" contracts. These contracts won't lose as much time premium and will behave a little more like stock than some other options you can buy.

You can buy call or put options if you really believe that stock or any other security will go up or down before the expiry date. By using the conventional methods of investment, you can make more money with trading options. Most of the stocks do not have options exceeding than 2 years. Options that last that long are called Leaps.

Another valuable thing is leverage. Buying a put option can be safer than selling short a stock. This is because the put contract will have limited risk. For each seller of an option there is a buyer. The market maker makes the spread between the bid and ask. Options Clearing Corporation has a watch over the option contracts and all rules and regulations should be followed as per their norms. - 32163

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