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How New Traders Can Master Trading Stock Options Strategies So They Can Make Money Through Options Trading

Author : Jerry McCork

Prior to investing in options, it is imperative that you learn options basics with regard to how options work, what you will be allowed or required to do, and for how long. Options can be a great way to profit in the investment market, however, without knowing some options basics, you could be taking on more risk than you anticipate.

An option is a derivative, meaning its price is based on an underlying asset. These underlying assets can either be stocks, Indexes or ETFs. An options trade involves giving someone the right to buy or sell a certain stock at a certain price by a specific time. Options help the investor to purchase stock at a lower price and to gain from a stock price's rise or fall. If you buy an option to purchase securities, then it's called a Call option. If the option you buy is to sell securities, then it's a Put option. There is also a put and call option, whereby traders purchase both calls and puts on the same stock, with agreed prices and by an agreed date. Buying an option gives you the right, but not the obligation to purchase the asset at a specific price (called the strike price).

The hardest part of options trading is understanding all the jargon. But once you understand all the technical names, you'll soon find out that basically what you really need to know is which way you think the stock price is going to go in the near future. Once you have an idea what's going to happen, then all you need to do is use the right option trade to profit. For instance, if you expect a stock's price is going to increase, then you would purchase a call option on that stock.

Being familiar with options basics can help you to determine just how much risk you wish to take in both call and put investments. Options give investors the ability to tailor their position to their own specific situation. For example, options can protect their stock holdings from a decline in the market price. Options can also help to increase the owner's income against their current stock holdings. In addition, options can prepare the owner to purchase a stock at a lower price. And, options can even help investors to position themselves for a big move in the market - even if the investor is unsure of which way the prices will move.

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Out of the short preview of stock options basics, it is crystal-clear that becoming familiar with the Stock Options Basics is critical if youre to stand just about any prospects for earning cash buying and selling options. We invite you to dig much deeper into stock options trading obtaining a free newsletter from responsible stock options trainers. You can subscribe to a free account and perform paper practice buying and selling employing their in-house stock option trading software. After you have mastered the options trading with papers, you then can start stock trading using real cash. Visit now.

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Tags:   investing, stock options, options trading, currency trading, forex trading, creating wealth, stock market, day trading, stocks, options software

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Submitted : 2010-11-17    Word Count : 870    Times Viewed: 375