he key to using options to long or option buying and the
increase your stock market following descriptions assume all
profits is that you must be positions are long.
able to correctly predict both
the direction that the stock will A Put is the instrument that
move, and the approximate time profits when the underlying stock
frame in which the move will take declines in price. When the stock
place. If you miscalculate on goes down, the value of a Put
either of these values, you will goes up. A Call is the reverse of
either break even, or loose. On a Put. The value of a Call goes
the other hand, if you are up when the stock increases in
correct, your profits may well price.
exceed three times the amount you
would have made with just a As you can see, if you expect the
straight investment in the stock. stock price to go up, you buy a
call. If you expect the price to
An option gives the owner the go down, you buy a put. There are
right but not the obligation to two more parts to an option that
purchase something. More need to be covered. First is the
specifically, stock options are expiration date.
financial instruments that come
in four varieties: Long or Short All options have a date in which
positions on a Put or Call. they expire or become worthless.
Remember that an option gives the
Long means a person purchases a owner the right to purchase
Put or a Call. Short means a something. This right is for a
person sells or “writes” a Put or limited amount of time.
Call. Option writing is a more Depending on the stock, different
advanced topic so this course options might be available for
will focus on the more common several consecutive months into
the future, or there may be a each month is a lot of different
couple of months skipped. The decisions.
specific day of the month that an
option expires is always the With the abundance of choices,
third Friday of the month, unless the number of contracts traded
it is a holiday, in which case for a specific option can be
the expiration is on Thursday. small for a stock that is not
particularly popular in the news.
The second element is the strike This fact my limit your trading
price. This is the price that the opportunities or may result in a
option will be exercised at. large price spread between the
Again an option is the right to bid and ask prices.
buy something, and the price at
which something is bought is the If you can identify certain
strike or exercised price. situations that will influence
Depending upon the option, these the stock price within a defined
prices may be incremented by time period, you may be able to
$2.50 up to $10. use stock options to triple your
returns. Many investors have
This all adds up to a lot of found such patterns and are
choices when it comes to buying making excellent profits by
an option. Calls or puts plus carefully selecting the right
different expiration months, and stock options.
multiple strike prices within
About the Author:
Neal has an MBA in financial management and is a contributor to stock option trading and forex trading.
Read more articles by:
Neal Brown
Article Source: www.iSnare.com 
