Trading Options ” Highway To Riches Or Short Cut To Impoverishment?
February 8, 2010 by Johnny M Junior
Filed under Forex Broker
Trading options has several advantages over trading in ordinary shares (stocks). This method of trading can also be high risk if you do not know what you are doing. We will briefly look at the different scenarios.[youtube:uOtTXa1WUak;Steps to Success with [link:Option Trades];http://www.youtube.com/watch?v=uOtTXa1WUak&feature=related]
The first advantage is that you can realize much bigger profits than if you invested the same amount of money in ordinary shares. The reason is what traders call leverage. If the price of a particular share is for example $100 and you have only $100 to invest, you can only buy a single share. The price of a so-called ‘call option’ could be as little as $.20. If this is so, then it would cost you $20 to control 100 shares of stock.
This means that you can either spend $100 to own just one share of the stock or you can buy one Call contract and control 100 shares for just $20. In this scenario, if there is a large and quick move up, the option investment could potentially make a much larger return on investment. Unfortunately the opposite is also true.
Buying just calls and puts can be a very risky business. We find that it is much safer to trade option spreads. To learn more about option trading, there are many free videos on Youtube. Some of the best will be by sjoptions. They focus on safety and low risk trades.
The traditional function of trading options used to be to hedge an existing investment. If you, for example, had shares in a certain company of which the share price recently went up quite a lot, you can hedge your position by buying put options on that stock. Should the price go down, you will lose money on the shares themselves, but make money on the put options. This is a basic way to protect your investment. The downside is that if the share price should rise, you will in turn make a profit on the shares themselves but lose money on the put options, which will cut into your profits. There are many other ways to hedge with options than this type of option trade.
Discover more about option trading and how it works. With the right option trading system in place you will make money. Set up your future today with a fantastic way to earn cash!
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