Money Making Option Trading Strategies
The activity of stock market trading is exciting but it can also be somewhat complicated. This is especially the case when option trades are involved. These types of investments represent the options offered by actual stocks, not the stocks themselves. Investors do not own the stocks, they own the right to purchase or sell a specific amount of shares if they desire. Using option trading strategies help those involved in options contracts to make the most money.
Before getting to the option trading strategies part, it is helpful to make a distinction between options and futures, since these two items are commonly confused. Futures and options are both leveraged derivatives and they are both used to hedge against risk. The basis of each is a buyer-seller agreement regarding an underlying asset. Each deals with a specific date in the future and has pre-established prices.
The differences begin at this point and one pertains to the fact that the purchaser of a futures contract is required to pay a portion of the agreed-upon price at the time the futures contract is purchased. This can be equated to the act of making a down payment. In the case of option trading strategies, the purchaser pays a premium fee when the options are purchased. A party involved in purchasing or selling a futures contract must fulfill his or her obligations when the contract expires. Those who purchase options contracts do not have to exercise their right to purchase the stocks. There are option trading strategies for both options and futures.
Using option trading strategies allows an investor to profit no matter the direction of the stock price movement. Those who are new to options usually employ a conservative covered calls strategy. Once investors become more comfortable, they begin reading earnings charts and establish parameters regarding desired investments, both of which are components of an earnings strategy. The naked calls strategy is often used by those with advanced options knowledge because it is a bit more complex.
Option trading strategies such as these are used every day by investors who deal in options. Having a strategy helps them to simplify their investment decisions and be more effective. They soon find the strategy, or combination of several, that works best for them in terms of generating profits.
Article Source: FxTradingStock.com
About the Author
For a list of Options expert Alex D. Richard's Option Trading Strategies visit wallstreetoptiontrading.com. They provide a stock market guide with illustrated step by step easy to understand instructions for profitable Option Trading Strategies that have proven over and over again to be lucrative.
by: Alex D. Richards
Total views: 24
Word Count: 390
Date: Wed, 1 Sep 2010
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