Who Is Causing You Not Success In Stock Option Trading?

The first thing that you have to know before trading in stock option is that stock options are not stocks, and just because you trade in stock that does not license you to trade in stock option by default. When you are planning to trade in stock option, you should find out as much as possible about the stock option. Search the internet and get all the possible information that you can get on that topic.

Only being aware of what you think about the option is not enough, it is prudent to know what others think about the option also. You should talk to people who trade in stock options, read books on that topic and do everything possible to keep your self abreast of all that is related to stock options. Doing this should fairly give you an idea of trading in stock option, to get some practical experience; you could also try "trading on paper"

There is no ground rule to choose the winner stock, you have to do an extensive research on your prospective company and then decide whether it is worth while to invest.

The basic things that you ought to check in the company are;
1. Company's track record; it is important that you look at the performance of the company in the past few years.
2. Check the price of its stock and its volatility; more often than not after a technical analysis of the stock price you will be able to speculate its price movement.
3. Keep an eye on any current news such as stock split, mergers or accusations or any other investment that the company may be going in to.

In option trading, you can make money either ways. If you expect the stock price to rise, you should buy a call option. A call option is a right that the option holder enjoys, to buy the stocks of the specified company at a specified price. This specified price is called the exercise price. Now, if you buy a call option you will gain if the stock price rises, because you have the right to buy the stock at the exercise price at the expiration of the option. This way you can acquire the stock at a lower cost and sell it in the open market at the market price, there by booking profit.

You can also sell the call option if you are expecting the stock price to fall. In this case there is one catch; you are exposed to unlimited loss and limited gain. Your gain is the premium amount that will be paid to you by the buyer of the option, on the other hand if the stock prices rises instead of falling then you will have to buy the stock at a higher price from the market and sell it at the lower exercise price, to the buyer of the call option. This is a naked or an uncovered call option. You can hedge yourself by purchasing a call option with a lower exercise price and a longer maturity.

Similarly when you buy a put you are expecting the price to fall and when you sell a put you are expecting the prices to rise. If you trade correctly and maintain the right balance of risks you can surely emerge a winner in stock option trading.

Finley Zhang is a stock investing consultant and owner of Tips For Investment. Tips For Investment helps those who are new stock investor to achieve long term and stable income by using Finley's investing tips and methods. You can instantly download the tips, methods, and strategies by visiting http://www.TipsForInvesment.com

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