Options Trading Strategies You Can Use Adding Options to Your Investment Portfolio
Adding Options to YourInvestment Portfolio Powerful personal computers and high speed Internet connections have made online trading of multiple financial instruments accessible to just about everyone. It is possible to generate a supplemental or primary income from a home- based office with very little in the way of a capital investment.
Adding Options to YourInvestment Portfolio Online brokerage houses do everything in their power to attract new customers to participate in what is known as “retail trading.” The competition for customers is so intense that many brokers will supply a promotion code that entitles customers to certain benefits. A couple of typical promotions that brokers offer will include a certain number of commission free trades or a very low-cost commission rate.
Adding Options to YourInvestment Portfolio There are other promotions that reward customers for making a specific number of trades or reaching a certain dollar volume level. Many brokerage houses will often supply a promotion code that will reimburse a customer for any fees imposed when switching brokers.
Adding Options to YourInvestment PortfolioOne area where retail trading will appeal to thosewho are new to online trading and want to take acautious, conservative approach is options trading.
Different Available Types of Options Options are available for stocks, bonds and commodities. Options are also available on financial indexes such as the Dow, S & P, and many foreign exchange products. Options can also be traded through some brokerage houses on precious metals, energy futures, and agricultural products such as corn and cattle.
Buying a Call Option Purchasing a call option contract gives the buyer the right, but not the obligation, to purchase a financial instrument at a pre- agreed upon price within a certain period of time. This is the simplest option strategy, one that is used by many successful option investors.
Buying a Call Option If the value of the selected instrument increases, the option buyer will “exercise” the option. If the price does nothing, or declines, the option buyer will do nothing, allowing the option to “expire.” The entire risk the option buyer will experience in this case is limited to the “premium” paid for the option.
Buying a Put Option This is the same in terms of risk to buying a call option. The difference is that the buyer of the put hopes that the value of the underlying financial instrument will decline instead of increase. The ability to sell options was at one time restricted to large financial institutions such as banks and Wall Street brokerage firms.
Buying a Put OptionNow, this ability is available to anyone, as long ascertain requirements are met. These will varyaccording to the broker selected and the tradingexchange involved and should be studied carefullyin order to understand the rules and risks.
More Complex Option Strategies Call and put options can be combined in hundreds of ways. One simple, yet effective example of this involves buying two call options and selling one put option. The trader employing this strategy pays a premium for the two call options, but receives a premium for selling the put option, which helps to reduce the price of the trade. This strategy has the colorful name of “Bull Call Spread with a Naked Leg.” It is one of the simplest of all the multiple option strategies.
Options Trading Education Even traders who have used option strategies for years will continue to learn in order to stay current with the changes that take place as a result of the natural evolution of the financial markets. New traders should take the time to study options in order to clearly understand the risks and rewards that options trading presents.
Options Trading Education It should be thought of as a continuously ongoing process that leads from the first tentative beginnings to the ability to create personal options strategies that best suit an individual’s trading style and goals.
Further Reading… For more information about online options trading, brokerage reviews and the latest promo codes, visit Options Trade Reviews online at http://optionstradereview.com/