Most people only start to consider to learn options trading after they’ve had exposure to stock trading or standard investing in the market. Their interest is usually spawned by one of two things. Either they are really good at trading stocks and want to explore other opportunities that options offer, or they have been burned in the market when their portfolio has dropped in a volatile market.
Whatever the reason that brought you here, there are three really solid reasons to add options to stock market trading skills and they are safety, leverage and opportunity. After trading stocks you will probably be wondering how can options be a safe investment?
Options provide safety in two ways actually, with the main being that when you buy an option – be it a call or a put – your maximum loss is determined ahead of time. Thats because your investment in an option is called a premium. That’s the only you pay, and the only thing you can lose (okay there is a commission involved too), but generally your profit potential is the same as investing in stocks, theoretically unlimited.
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To learn options trading will also provide a safety feature for those who own a position of stock in a company and are concerned about it dropping in value in the near future. Well you don’t have to sell your stock, but you can hedge against it’s potential loss by buying a put against the underlying stock. Then if it does fall, you stock losses will be equally offset by your option value.
Leverage is also a very attractive trading character of options because you can participate in the movement of a large amount of stock, for a fraction of the investment. This can have a major impact on your ROI due to the leverage that options provide. This is a fascinating element to learn options trading since oftentimes, it only takes one of your options to take off to make all of your positions as whole good investments.
The other reason that options are a real attractive investment vehicle is the same reason that stock investors lose sleep. And that is volatility. After you learn options trading, the next time the markets are going crazy, you’ll know who the options traders on the floor are because they will the ones in a good mood, smiling and joking, seemingly trading away without a worry. You see, a common strategy for volatile markets is to have options on both sides, straddle if you will. As long as the market is moving, the straddle option owner is making money.
Well there are three good reasons to learn options trading,
and as you explore this site more you may come up with even more because after you learn options trading you will understand how flexible and creative they can be applied.