How to improve your stock trading results with options?
Stocks are an exciting asset to trade but not consistently the most profitable. When you buy shares in a company, your primary concern is how the value of that company will change over time. A share that costs $50 today might be worth $60 or even $70 tomorrow, and you can sell it for a profit. Shares generally increase over time, but they don’t always go up in price – some companies see better days while others crumble into ruin.
On average, though, stocks tend to go up more often than they go down – so if you have time on your hands and want higher rewards with lower risks, then perhaps trading stocks isn’t the best place to focus on. There’s another option available to traders who need fast results and don’t want to gamble as much – options.
How does options trading work?
When you trade options, you’re not buying shares in a company. Instead, you’re purchasing the right (but not the obligation) to buy or sell shares at a set price on or before a given date. For example, let’s say Company A is trading at $50 per share, and you think its stock will go up over the next few weeks. You could buy a call option for Company A, which would give you the right to purchase shares at $55 per share any time before the option expires. If Company A’s stock goes up to $60 per share, then you can exercise your option and buy the shares for $55 each instead of paying the current market price of $60. It’s a great way to make a profit without having to wait for the stock to go up on its own
On the other hand, let’s say you think Company A will go down in price. In this case, you could buy a put option which would give you the right to sell shares at $45 per share any time before the option expires. If Company A’s stock falls to $30 per share, then you can exercise your option and sell the shares for $45 each instead of taking a loss if you had sold them at market price. As you can see, options provide a way to make profitable trades even when you’re unsure which direction the stock will go. Of course, there are risks involved with options trading.
A call option only becomes profitable if the stock goes up in price, so you could end up losing your money if Company A’s shares drop to $0 per share instead. And a put option only becomes profitable if the stock price falls, so you could end up losing your money if Company A’s shares go up to $100 per share instead. Still, as an experienced stock trader, you’re probably used to taking calculated risks and making intelligent trades – and even moderate profits from options trading can make a big difference over time.
Options = short term investments
It’s why many traders use options today – it allows them to make short term investments that cancel out their losses during periods of market volatility while still allowing them to take advantage of long term stock price movements. If you’re new to options trading, it’s essential to do your research and learn as much as you can about how they work. Many great resources can help you get started, such as online tutorials and books on the subject.
Bottom line
Options trading can be a profitable way to trade stocks, but it’s not without risk – so make sure you understand what you’re doing before jumping in. With a bit of practice and some sound advice, you’ll be able to improve your stock trading results with options in no time!
Interested in trading options? Get it here!
