Stock Options Trading By Micheal James

Stock options trading are profitable way of investing in stocks. It is just like you buy stocks in the stock market with some difference. In stock options trading, you buy option contracts instead of stocks. In option trading, you have to buy the stocks in a lot instead of buying them as separate shares. In most cases one lot in option trading comprises of 100 stocks. The contract of the option trading expires over a period of time and there are different time period for one particular stock option as well. You need to choose the right stock option depending on your investment strategy and considering the contract expiry dates and strike price of the particular option. There are certain advantages and disadvantages of trading in stock options.

The biggest advantage of option trading is that you can gain significantly by trading in the option contracts while investing relatively less money. For example you are targeting to buy 1000 stocks of a company. If you buy the stocks in cash segment you have to pay the full price of the stock, i.e. 1000 x current price of the stock, whereas, if you buy 1000 stocks in the option exchange, you need to buy only 10 option contracts. That means you are paying only 10% of what you had to pay in the cash segment. This is one distinctive advantage as you are getting huge number of stocks buy investing significantly less amount of money.

But while doing stock options trading you must be careful about the expiration date of the contract. Remember you have to sell off the option contracts within that period of time whether you make loss or profit. This is one limitation of trading in the options. But if you be particular about the investment and plan your option trading diligently, you can make profit even when the stock is not moving at all. As we have already mentioned that there are different periods available for option contracts of a particular stock. So you have the freedom of buying the option contract according to your investment schedule.

Whether you are trading in the cash segment or in the options, the basic principal remains the same. You need to have extensive information, have a close watch on the trend of the market and take timely decisions for buying and selling stocks. You can also take help from the stock analysts who provide regular guidance on the stock picks.