Options are an incredibly useful and versatile investing tool.
They can be used by everyday investors or large Fund Managers.
The main benefit of a stock option is the incredible leverage that they offer - with a relatively small amount of money stock options will allow you to control a large portion of shares (very similar to using a home loan to buy a house - where you are able to control a $300k house by only putting in a $30k deposit).
Options can also be used to help insure portfolios and manage risk.
Are Options Risky? Options are highly leveraged so therefore there can be greater risks involved if used in the wrong way.
Investment Strategies using options are generally slightly more advanced than the typical 'buy and hold strategy' that will be recommended by your broker.
In saying this Investment Strategies using Options seem to have developed a bad name and it is generally believed that options should only be used by Professional Investors and traders.
This is simply not the case.
All traders can experience the benefits of stock options.
What exactly is an Option? An option gives the holder the right - but not the obligation - to buy or sell a set number of shares, on or before a set date at a predetermined price (strike price).
When you buy an option it is then up to you to decide if you want to use this right.
If you are to use this right then you would purchase or sell the set number of shares that you had agreed on in the contract.
This is known as exercising the option.
Remember it is the buyer or holder of the option that gets to decide whether or not they want to exercise the option.
If they choose not to exercise the option it will expire worthless.
One of the great benefits of Stock Options is that they have the potential to make you money no matter which way the share price goes - Up or Down.
Before we look at some individual Investment Strategies using options lets try and understand the basics.
Stock Options Explained - There are two main types of Stock Option Call Option - gives you the option to buy shares Put Option - gives you the option to sell shares So if the market is going up you want to buy Call options and if the market is going down you want to buy put options.
The easy way to remember this is you 'PUT DOWN' something.
PUT = DOWN and CALL = UP The slightly confusing part about options is that everybody can BUY and SELL them.
This means that you could make money by selling a Put in a rising market.
Don't worry if this is a bit hard to understand.
As you learn more information Options will become easier and easier to understand.
The most important thing to remember is that PUT = DOWN and CALL = UP.
If you can understand this concept then you are well on your way to appreciating the benefits of stock options.
They can be used by everyday investors or large Fund Managers.
The main benefit of a stock option is the incredible leverage that they offer - with a relatively small amount of money stock options will allow you to control a large portion of shares (very similar to using a home loan to buy a house - where you are able to control a $300k house by only putting in a $30k deposit).
Options can also be used to help insure portfolios and manage risk.
Are Options Risky? Options are highly leveraged so therefore there can be greater risks involved if used in the wrong way.
Investment Strategies using options are generally slightly more advanced than the typical 'buy and hold strategy' that will be recommended by your broker.
In saying this Investment Strategies using Options seem to have developed a bad name and it is generally believed that options should only be used by Professional Investors and traders.
This is simply not the case.
All traders can experience the benefits of stock options.
What exactly is an Option? An option gives the holder the right - but not the obligation - to buy or sell a set number of shares, on or before a set date at a predetermined price (strike price).
When you buy an option it is then up to you to decide if you want to use this right.
If you are to use this right then you would purchase or sell the set number of shares that you had agreed on in the contract.
This is known as exercising the option.
Remember it is the buyer or holder of the option that gets to decide whether or not they want to exercise the option.
If they choose not to exercise the option it will expire worthless.
One of the great benefits of Stock Options is that they have the potential to make you money no matter which way the share price goes - Up or Down.
Before we look at some individual Investment Strategies using options lets try and understand the basics.
Stock Options Explained - There are two main types of Stock Option Call Option - gives you the option to buy shares Put Option - gives you the option to sell shares So if the market is going up you want to buy Call options and if the market is going down you want to buy put options.
The easy way to remember this is you 'PUT DOWN' something.
PUT = DOWN and CALL = UP The slightly confusing part about options is that everybody can BUY and SELL them.
This means that you could make money by selling a Put in a rising market.
Don't worry if this is a bit hard to understand.
As you learn more information Options will become easier and easier to understand.
The most important thing to remember is that PUT = DOWN and CALL = UP.
If you can understand this concept then you are well on your way to appreciating the benefits of stock options.
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