Before getting into any type of stock dealing, it is an absolutely must for anyone to have at least some basic information and knowledge about it. There are many topics to learn on and here an attempt has been made to clear the subject matter of “Stock Option Trading”.
If spoken in the simplest way, stock option is a kind of deal between the two parties i.e. the buyer and the seller on possessing a right to buy or sell shares and stocks at some certain price. Just like everything stock options also have an expiry date and the buying or selling process must take place before that date. But this deal doesn’t actually compel you to buy or sell any stock loathly. So now it can be understood that stock options is an altogether different type of security where you can invest your money and do trading with it. Stock options are also traded and treated in stock markets/exchanges.
In America the major stock exchange dealing with Stock Option Trading is the Chicago Board Options Exchange (CBOE).
For the newcomers of stock markets, this topic can be a tough task to understand and then too apply it on them as it has lots of terms and concepts which are usually new in nature. As said before that this option or deal lays no boundation of buying or selling the stock you have. For example if you are into this deal today, then you’ll have the option of buying shares two months from now at the pre-defined price. The twist that comes here is that suppose the value of stock you have acquired arises, then it’ll be your profit and it prices crash down then it’s your loss totally as you’ll have to miss the entire premium. To get the maximum benefit out of stock option trading you must be fully conversant of the following tips.
Do research-the first and basic way to have knowledge about this subject is by doing some research work.
Be aware of the lingo used in this topic. know the meanings of various terms like calls, puts, long call, short call, long put, short put, long synthetic, short synthetic, call back spread, put back spread, call bull spread, put bull spread, covered call, protective put, collar, call bear spread, put bear spread, long straddle, short straddle, short strangle, long strangle, long guts, short guts, call time spread, put time spread, call ration vertical, put ration vertical, long call butterfly, short call butterfly, long put butterfly, short put butterfly, long condor and short condor etc.
Sharpness- use internet as the biggest source of your knowledge about Stock Option Trading. You can get fair amount of information by reading newsletters, posts in forums and website’s content. This will help you understanding the basic technicalities of the Stock Option Trading subject.
Tutorials: one the so far known best way to get into the stock market and start of successfully is taking some course or tutorials. Here also internet can be the basic teacher by letting you learn about basics of Stock Option Trading and then there are videos, examples, animated ads that will prove really helpful for anyone longing to get into Stock Option Trading and getting huge returns from out there.
Like any other stock trading, this field too has its share of risks and benefits so it very important for anyone to have a sound knowledge. Not only because it’s obvious to understand but also because of some factors that are quite hard-hitting and can sometime hit below the belt directly on to your pockets.