When it comes to the world of financial trading, there are a ton of options. Options trading is something not many people know about. It is a bit different from your standard stock trading, options trading is a great place to start because it is a versatile market with a bit of flexibility. I’m going to break it down for you now.
What is Options Trading?
Options aren’t stocks, they are contracts. When it comes to options trading there are two main contracts to choose from. They are put options and call options. A call option is a contract that gives you the right to purchase, while put option contracts get you the set price to sell.
Options differ from traditional stock trading as you’re not paying for shares. In options, you are paying for the right to buy or sell shares. They are contracts at a set price for a set period of time. The way they work is simple, if you feel the value of a share may increase, you would want to buy the call option for that share. If you see a stock that may lose value, the better bet is to buy the put options.
The Advantages of Options Trading
Options trading has its fair share of advantages. The first one is its a good starting point for people that have limited funds to invest.
A simplified breakdown of the options trading process would be: if there’s stock going for $10 and your budget for investments is $500, in the traditional market you would buy 50 shares and when that stocks value hits $15 if you decide to sell your shares off, your profit would be $250 bucks.
Now, if you decided to buy options instead, that $500 budget could be spent on call options. If you see the value of a stock is $10 per share, the call options costs $1, and you spend that $500 on the call options, when that stock hits $15 you still have the right to buy 500 shares at $10. You can make the purchase and sell off the stock, gaining a profit of $7000.
How Can I Add Options Trading to my Financial Plan?
Options can help boost your existing portfolio. Think of options trading as a type of insurance, purchasing the option to buy a stock at a set price. If you learn to trade options correctly, you can make a nice return on the money you invest. Options are a nice choice because of their flexibility and really work well to add to any financial portfolio.
This all Sounds Confusing… Where do I Start?
Doing your research is a great place to start. You will be able to uncover insider secrets, tips, and tricks that most people starting out didn’t have access to. Search for different programs and a team of trainers to get you started in the market.