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Pick Stock Options Calls and Puts

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Stock option trading          Stock option trading is an advanced stock market technique. It should be left to experienced and seasoned stock market traders. Stock options are contracts to buy or sell shares of a stock. These contracts are bought and give the person the ability to trade the stock without having the liability of actually owning the stock. Each stock option contract is worth 100 shares of the underlying security. Follow these steps to choose appropriate stock options for your particular strategy.




Step 1

When buying a call choose a stock that you think is going to make a fast move in the positive direction. This stock should be expected to move a lot in a short period of time. As an option gets closer to expiration its value decreases. You can either sell the option contract for a profit, or exercise the call option and purchase the stock directly to do with as you please.

Step 2

When buying a put stock option choose a stock that is moving downward in price quickly. Since stock options decrease in value as you get closer to the expiration date, one needs to choose a stock that is going to move quickly in the downward direction. This downward movement in stock option price can be caused by anything from news about a company going bankrupt to company profits decreasing.



Step 3

Choose stocks that are going to either gain or drop quickly in price. You can sell your stock options directly and make money from their changing value, rather than exercising them to buy or sell the underlying stock.



Step 4

To choose stocks that are going to make a quick move in any direction read stock market news. Read wall street journals and use stock market trading forums to gather information about particular stocks and where they might be headed.



Step 5

If you think your stock is going to gain in value but over a long period of time such as a year, then consider buying a LEAP. A leap is a Long Term Equity Anticipation Security. Leaps are stock options that can be held for up to a year or more before they reach expiration.



Step 6

Watch your stock option frequently. Any sudden jumps in the price of a stock or its volatility may cause the stock option to change in value quickly.

 

Additional Advice

                   If you own a stock option and the price of the underlying stock is not moving or staying flat then you may want to sell your option before expiration to hedge some of your losses.



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