Overview Of Option Trading Strategies

Stock options are investment vehicles that have recently become more popular, due to the wagering nature of our society. An option provides an individual with the right to purchase or sell shares of stock at a pre-determined price within a specified period. Most stock options traded on stock exchanges are American. These American stock options may be exercised on any date between the day of purchase and the option expiration date.

One of the best ways for individuals to learn about the basics of this type of trading is to purchase a stock market guide. These guides are available in different formats and provide an overview of the world of options from a layman’s perspective. The best of the bunch start by providing basic definitions along with examples to illustrate their meaning. In later chapters, these cover various options trends and option trading strategies.

Options trends are a key way to improve chances of success within the option market. A bear market will have a much different impact on calls and puts, the two types of options, than will a bull market option strategies. Before making an investment in any option, individuals should research how the item has performed in similar situations in the past. Doing so will allow them to identify repeated trends which they can use to make a more well-educated prediction of future performance, though there are no guarantees.

Covered calls are among the first strategies that an investor will learn. A covered call involves selling a call option for the same stock that is already held in the portfolio. This is considered a safe option trading strategy because it is an attempt to obtain increased income from an asset. A variation of this strategy is called the covered combination, which involves increased risk and reward.

Naked calls are used by individuals with more experience. These involve selling a call option without owning the underlying shares of stock, a contrast to the covered call strategy. A naked call exposes investors to more risk because if the stock rises above the option exercise price, the downside potential is unlimited.

Investors interested in learning more about stock options and option trading strategies should do research and purchase a stock market guide. With some knowledge under their belt, they will be more likely to make money by taking advantage of options trends. Whether it is a bull market or bear market, there is money to be made with options trading.

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