Stock Option Trading
An option bestows upon an individual an option but no obligation upon a buyer to buy or a seller to sell a particular asset. A stock option connotes the option as regards to stocks .Stock option trading has thrown open a huge plethora of opportunities. Whether an investor is conservative or speculative, these can serve the purpose right. It should be borne in mind that this is not game for everyone. Only the very experienced trader can trade well in stock options. Profitability from trading in stocks comes with great experience, and trading in stock options requires all the more the experience and the alacrity.
One generally has three ways of stock options trading:
~ The option to buy or sell the given stock.
~ Trading the stock options, without the intention of taking the possession of the asset.
~ Using the option as hedge against any loss.
With reference to the first point, one can have the authority of exercising the option before the date expires. This makes way for you to buy or sell the given stocks at the predetermined prices although the current rate of the sticks may differ from the predetermined rates. This brings in windfall gain for the investors who sell when the price of the given option is higher than the current price or buy when the predetermined rate is lower than the current price of the stocks.
In the second method that is the trading of the option, the option may end up being traded though no intention of ever taking the possession of the given stocks. It is to be borne in mind here that the price of the given stocks directly influences the price of the options and second, the duration of time left for the option being traded. Higher the price of the stock, higher would be the price of the option and more the time left in the expiration date of the option, better can be it’s price. Apart from this, there should be enough demand for the option of the given stocks. These are the factors which determine the price of the stock in stock options trading.
As per the third point, that is the usage of the option as hedge against any kind of loss, one can trade them in case of the market going bearish. For example, just in case one is nervous about the downward trend of the stock and fears a loss, he can use the option of put. That is, he can enter into an option subtract whereby the price of the stocks are listed just below the current price of the stocks. Just in case he might have to eventually sell the stocks, he will still stand to gain as against the current market price.
Stock options have a variety of applications, but when used judiciously they will always help you reap the benefits, though one should always do a careful analysis and tread the road with caution.