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The most fundamental thing you want to understand when you are starting out is exactly what it all means. Learn as much terminology and slang or jargon as you can. Do you really want to lose money because you don't understand what your broker is telling you? Not only will this lose your money quick time, but it will also mean your broker has less faith in you, and will be less likely to come to you with hot tips. That's not what you want – a broker with reliable tips is worth his weight in gold, so do anything you can to stay on his good side.
Make sure you are getting into stock option trading for the right reason. There are three main kinds of trading: investing, speculation, and trading. If you are looking to invest, this is more of a long term strategy, and to be blunt, there is little point doing this with options. Why? Because options have a limited shelf life. All options contracts expire, mostly within a year, and their value gradually diminishes the closer they get to the expiry date. Not exactly an investment model to rival Warren Buffett is it?
The final piece of the puzzle for anyone looking to get involved with options is to learn the difference between them. There are two main types of options, and they are completely different. Get them confused and you will almost certainly lose everything. The two kinds of options are known as Calls, and Puts. In simple terms, holding a Call option contract gives you the option (hence the name) to buy 100 particular stocks at a set price – regardless of the market price. This means you can buy low, even if the market is flying high. Puts are the polar opposite of Calls, in that they give the option to sell 100 designated stocks at a predetermined price – very handy if the market has taken a downturn!
Hopefully there is enough information here for you to understand the basics of stock option trading.
Category: InvestingStock Options Trading Information was written by:Author:Jason BellAdded: Wed, 02 Apr 2008 10:53:41 -0400 This Article Has Been Read 157 times View all Jason Bell's articlesAbout the Author: If you’re looking for the best handheld GPS systems you’ll find great prices and discounts at http://www.progpsshop.com/ |
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