Watch our Option Tutorial below and Become an Options Pro.
In this tutorial video we give an overview on why to trade options. Options trading is a really popular trading strategy for making money in the market and we really get into the why behind it all in this video. Our free options course goes into the details on "how" to trade options.
There are many different types of stocks. Trading different types of options is a strategy used to be able to make money in any market. The stock market is a tug of war between buyers and sellers. As a result, the market can get pretty choppy.
Have you ever tried to trade in a market that couldn't choose a direction? You're staying at the chart, saying, go up, go down, do something! It's not easy being patient and can be frustrating. However, there is a way that you can trade those choppy markets and do so successfully, and we will show you the methods to get the job done!
Our options trading course is designed to teach you how to trade different options strategies. As a result, you'll be able to make money if the market is trading up, down or sideways.
What are stock options? Investopedia defines stock options as being sold by one party to another, that give the option buyer the right, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period of time.
One options contract controls 100 shares without having to pay the price for owning the actual shares. This is great if you have a small account that you want to grow.
For example, you wanted to buy stock XYZ that was trading at $50. If you bought 100 shares at $50 you'd be putting up $5,000. If you bought an options contract of the same price, you'd pay the premium which is much cheaper.
In fact, if the contract was $1.50 and you bought one, you'd only be paying $150 to control 100 shares. It's important to remember that stock options have many moving parts that make up profit and loss potential.
However, their ability to make money no matter what the market is doing is unique. Many times, when stocks are trading in a range, you're not able to trade. As a result, you're having to sit out until a direction is chosen.Hence the attractiveness of studying our option tutorial. Also we show how to trade options in our trading rooms. Check out our trading service to learn more.
Calls and puts are the two components that make up stock options trading. Every strategy in options trading is made up of calls and puts. Calls are the bullish side whereas puts are bearish.
In other words, the buyer of a call option has the right to purchase stocks at the specified price before the contract expires. As far as put options, the buy has the right to sell stocks at the specified price before expiration.
It's important to remember that there's no obligation to do so. If you'd rather close out the options trade without ever exercising your right to the stocks, you can. In fact, many stock options traders choose to trade options this way.
You can buy calls and puts, sell calls and puts, or use them to make different kinds of options spreads. Buying naked (long) calls and puts can be very risky due to time decay. You have to be 100% correct with choosing the right direction if you are to be profitable.
Selling calls and puts can be more popular among seasoned traders. Because stock options are deteriorating assets, time decay is not on the buyers side. However, an options seller can take full advantage of time decay.
Read our blog post on put and call options explained to learn more about trading calls and puts.
You may be wondering how you can make money in any market with our option tutorial. The fact that you can put together different types of options orders is the reason there is the ability to make money no matter what the market is doing. There are strategies for trending markets, bearish markets and sideways markets!
With our training you will learn spreads, straddles, condors and butterflies. If that sounds like a lot, don't worry. First you need to master basic calls and puts. Then you can go about learning the different strategies. We get into it further in our options tutorials.
Spreads can limit your risk if you choose the wrong direction. Typically stock options are used to speculate. If your speculation is wrong, you can lose the entire amount of the trade, meaning it can go to zero by the expiration date. Hence the difference between owning shares and trading options. Most stock shares are not going to go to zero by a certain date.
However, spreads or straddles can help to mitigate the huge risk of trading naked calls and puts. Then there are the neutral market strategies. Iron condors and iron butterflies allow you to profit when the market is trading in a range.
Many times you need huge price swings in one direction to make a profit. The great thing about the condor and butterfly is that they profit best when they're trading in a range.
No option tutorial would be complete without talking about some serious technical analysis. Since stock options either need a clear direction or a range to profit, it's important to be able to use the indicators and patterns to find and confirm. Did you know 80% of options contracts expire worthless? You certainly would not want to hold onto an option that is losing value, would you? (we know your answer, just adding emphasis haha!)
That's because the wrong direction or bias was made when stock options were traded. Patterns and technical analysis help you to find and confirm a direction. Being able to draw trend lines as well as support and resistance are the key to success.
Reading candlesticks and patterns is a great skill to learn for your trading success as well. Read our how to start investing in stocks post to learn more.
Stock options allow you to make money no matter what the market is doing. That provides a uniqueness that shares don't have. The advanced strategies will take time to master, give yourself the proper time to learn the strategies! Learning all the parts that affect profit and loss are a must before diving head first into trading options.
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