The market for options is attractive because it allows investors to invest in their favourite stocks while also lowering the risk of investing. If you know what you’re doing, your options trades can be very profitable indeed.
This article provides tips that should help you with your earnings potential in this tricky but lucrative market. You can also visit Saxo Markets online as they offer comprehensive educational materials and excellent advice.
– Have a plan
Before entering into any trade, think about your expectations for the trade and write them down. Be specific – how long will I hold this stock? What price do I want to get out at? etc. Then writing these things down makes it more likely that they’ll happen.
– Research before trading
The internet is chock full of research tools that allow you to find out anything about the stock you want. Use them before entering into a trade. Don’t rely on your broker’s advice.
– Understand the market
Options are not like stocks; they’re different beasts. Learn what an option chain is and how to read it; learn how longs and shorts work; learn when an options contract is in or out of the money; learn everything you can because knowledge is power.
– Have a plan B
Sometimes things don’t go as planned (and if they do, well, then you’re ahead of the game!) If your first plan fails, have another course ready to try immediately.
– Plan for losing trades
Even when everything goes according to plan, you can still lose money. Have a game plan for this eventuality, and don’t let it throw you off course.
– Know your broker
If you’re going to rely on them for information about the market, make sure that they’re reliable. Talk to other people who use their services; check online forums (not anonymous ones like 4chan).
– Pick up the basics
An option is nothing more than a contract giving one party (the holder) the right, but not the obligation to buy or sell an underlying asset at an agreed-upon price. Before entering into an options contract, both parties agree to give certain rights regarding that asset upon entering into a said contract which expires on a specific date. If the agreed-upon price isn’t met by that time, one party (the writer/seller) is forced to buy or sell an underlying asset at that price. If that’s what you’re investing in, then all you need to know is how many contracts will cost X dollars and what your expected gains are.
– Start small
Don’t invest too much of your money into any one thing at first. You can always build up your knowledge and confidence before taking on more considerable risks with bigger payouts
– Manage risk – Options aren’t like stocks; they can expire worthlessly, so it’s essential to know when you’ll be cutting ties with the investment.
– Keep track of your investments
you wouldn’t want to confuse an investment with another one and accidentally sell something that you’re still invested in, right?
– Don’t trade drunk
have a clear head when making important decisions. Unfortunately for some of us, it’s hard to do that because alcoholism is a disease without a cure or effective treatment at the moment, which is why rehab centers see a boom.
– Have fun!
don’t let risking money ruin your happiness. If this whole trading thing doesn’t work out for you, there are always other options open to you.
The Bottom Line
Options offer alternative strategies for investors to profit from underlying trading securities. You can choose from various strategies that involve various combinations of options, derivatives and underlying assets. As a beginner, you can include strategies like buying puts, buying calls, buying protective puts and selling covered calls.