For many investors, Trading in options is looked like new fields or you can say it’s a whole new language because of terms used in this trading like Call, Put, Strike Price. Sometimes options are looking aggressive, volatile and speculative. Certainly options are looking fast moving and fast money trade.
Options trading have made fortunes and destroyed them. It is sharp tools and you have to know how to utilize them.
In option market, you can participate in stock price movement without actually in stock’s price movement without holding the shares. In Stock Options trading, traders have rights to Buy and Sell shares at set amount without obligation.
In Call Option, you have buying right and in Put Option you have selling rights of shares. The direction of Option depends on the direction of market simply calls are bullish while Puts are bearish.
The value of an option and your profit potential depends on how much stock’s price moves in the spot market.
Here are some points what to watch before trading in options market:
Trading near Expires: An option has value until it expires, and the week before expiration is a critical time for shareholders who have written covered calls.
Dividend-paying stocks: It may be weeks until your covered call expires, but if it’s in the money your stock is likely to be called away the day before the company pays its quarterly dividend.
Market conditions: There isn’t one strategy that works in all market environments. Whether you’re bullish, neutral or bearish about stocks will guide your options investing decisions.
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