Stock Investing Strategies

Stock investments

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What Are Options?

Options can be pretty powerful if they are used right. They can also be very dangerous tools if used incorrectly. So, what exactly are these stock options and how can investors make money from them?

A stock option either gives an investor the right to buy a stock if it is a call, or sell a stock if it is a put at a specific strike price on or before a specific date. With them investors can control the stock without having to actually buy the stock.

For example if stock XYZ was trading at $45 and you buy the $45 call option you would have the right to buy the stock in the future at $45. So if the stock goes up to $55 you could buy it at $45 and sell it at $55.

That can give you a great return in a short amount of time. The only problem is that if the stock goes down below $45 the call option and any money you used to buy that call would become worthless.

So the downside to options is obvious, with option trades an investor is risking 100% of the money that they put into it. But it also has a huge reward potential if that option makes money. Before you start trading options realize that it is risky and it is probably a better idea to start trading regular stocks first.

In other words jumping into options before you have any experience in the stock market is a full proof method for failure.

However let us say that you have already been trading and have been doing well, you may want to increase your returns by trading options. You might be woundering how to purchase stock options.Options can be bought through our broker just like a stock. However some brokers may have to preapprove you for option trading so you would have to file for it.

Trading stock options has the greatest possibilities of all investment strategies. If you want to get consistency in the option world it is important to create a plan and stick to it.

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