Stock Options Explained – Benefits of Stock Options
Options are a very useful and versatile investment vehicle. They can be used by day-to-day investors or large fund managers. The main advantage of stock options is that they provide incredible leverage – a relatively small number of stock options will allow you to control most stocks (very similar to using a home loan to buy a house – where you can control a $ 300,000 house , Only to invest a 30k US dollars in deposits).
Options are highly leveraged and therefore may involve a greater risk of error if options are used. Investment strategies that use options are typically slightly more advanced than typical "buy and hold strategies," which will be recommended by your broker. Said that the use of options in this investment strategy seems to have developed a bad name, it is generally believed that options should only be used by professional investors and traders. This is not the case. All trades can experience the benefits of stock options
What are options?
The Option grants the Holder the right, but not the obligation, to buy or sell a certain amount of stock at a predetermined price (strike price) before or up to the set date
When you buy an option, then you decide whether you want to use this right. If you wish to use this right, you will purchase or sell the number of Shares you have agreed to in the Contract. This is called the exercise option. Remember, the buyer or holder of the option can decide whether or not to exercise the option.
One of the great benefits of stock options is that they have the potential to make you either rise or fall in any way the stock goes up or down. Before we look at some of the individual investment strategies that use options, let's start with the basics.
Stock Options – There are two main types of stock options
Call options – SELL SELL
So if the market goes up and you want to buy a call option, if the market falls, you want to buy the put.
On the options that are, everyone can buy and sell them.
This means that you can make money by selling an investment in a rising market
Do not worry, it's a bit hard to understand. When you learn more information options will become easier and easier to understand. The most important thing to remember is PUT = DOWN and CALL = UP. If you can understand this concept, then you are a good way to appreciate the benefits of stock options