Option Trading Much More Profitable Than Stock Market Trading

Many investors mistakenly believe that stock market trading is the only way to profit. That way of thinking is great if the market is trending upward, but what happens when the indices slide down? As too many investors know, markets fall down more quickly than they ascend.

If you include an option trading strategy, you can earn money whether the market is up or down. In case you are not conversant with options, they allow you to decide whether or not you wish to purchase or unload the shares of a particular stock for a set price within a set period.

Unlike stock market trading, options can make you money whether the market is moving up or down with two basic tools: calls and puts. Calls are typically bought when you feel bullish about a particular stock, sector or index, or expect it to go up. Puts are generally purchased when you are bearish about a certain stock, sector or index; that is, you expect it to go down.

Even though any investor can derive benefits from an option tutorial, it is important to keep in mind that all calls have strike prices, which are basically the prices at which you will choose either to buy or sell the underlying stocks. Options also have expiration dates, which is the same as saying that options are wasting assets with inflexible time limits.

You have to pay a premium with a call to confirm your right to purchase a stock at a set price. The premium is generally ranging from 1 cent to hundred dollars. It depends on the stock. As you confirm the price, you need not worry about its price in the future.

What does it mean? It means that if you buy the stock XYX $ 10 calls, you bet that on or before the January expiration day, i.e., the third Friday of the month, trading will be effected for more than $ 10. In other words, your call option confirms your right to buy shares at a discount.

On the other hand, when it comes to a put, it costs you more to guarantee that you will be able to unload a stock at a fixed price rather than at its market price down the road. If you purchase ABC February $20 Puts, you are wagering that on or before the February deadline, ABC shares will be going for less than $20 so that you can realize a profit by selling them at $20.

While an option trading strategy requires a little know-how, it takes less capital to start than stock market trading and it allows you to profit in any market. And unlike buy-and-hold stock investors, you'll actually come to welcome the volatility in the markets

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