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Trade Stock Options Calls and Puts

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Stock option trading          Stock option trading is one of the most advanced stock market trading skills. It offers the ability to have a stake in an underlying security without actually owning the stock and allows one to keep their losses at a minimum. Stock option trading should be reserved for those with previous experience at trading in the stock market. Options trading accounts usually require previous experience in order to allow the customer to trade online. A stock option is a contract guaranteeing the purchase of a certain number of shares of stock if the contract is exercised before a certain date. Follow these steps to become an options trading sleuth.



Step 1

Activate your online stock market trading account for options trading. The requirements to do so will vary depending upon which company you are using. Some accounts require you to have a certain number of years of regular stock market trading experience before you account can be activated for options trading.

Step 2

Write a covered call. A covered call is a call granting the ability to purchase a certain number of shares of stock that you currently own. You can sell a covered call and make some money. If the covered call is exercised then you must sell the stock that you own at the strike price of the call for the number of contract shares.


Step 3

Buy an options call. A call is contract to purchase a set number of shares of a stock at a specific price called the strike price. If the price of the underlying stock rises above the strike price of the call before the expiration date then you may exercise the call and purchase the stock at the lower price. If you turn around and then sell the stock you make money on the difference.


Step 4

Buy an options put. A put is a contract allowing you to sell a stock at a set price called the strike price before expiration. Once you exercise a put you must buy the stock at the current price. If the current price is lower than the strike price then you make money. It works in the opposite way as a call does.


Step 5

Try trading an advanced stock option strategy. These include long straddles and strangles. A long straddle is buying both a put and a call option on a stock at the same strike price. If the price of the stock either goes much higher or much lower than it is then you can make money.

 

Additional Advice

                   Options trading is an advanced trading strategy that should only be attempted by those with a lot of stock market experience.

                   Do not buy many options contracts when first starting out. This way you will keep your losses at a minimum until you learn what you are doing.



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