Category:Stock Options Trading

Stock Option Trading

Stock Option Trading is when an owner enters into a contract to buy or sell stocks at a fixed price within a specified time frame.

It’s important to note that stock option trading is different from stock trading. When an owner is buying or selling actual stock or ownership in a company, this is known as stock trading. However, in stock option trading, the owner is buying the option i.e. they are entering into a contract to buy or sell stocks at a fixed price within a specified time frame (see Option Trading).

The benefit of stock option trading is that there is a much greater potential of succeeding in the trade, than if a person bought the stock itself. Since stock options can be purchased at a fraction of the actual price of the underlying stock, it allows the investor to control a much larger amount of stock, if they buy stock options as opposed to shares. This opens up the field of stock trading to a much wider audience.

Stock option trading is a type of binary trading. This means that the payout the owner receives is determined at the start of the contract. When trading, the owner knows exactly how much he will receive should his option expire in-the-money, and more importantly how much he will lose should the option expire out-of-the-money. So there is no worry that an owner of a trade will need to fork out extra funds once trading the stock option has expired.

The option trading of stocks extends further, to the trading of other assets such as commodities, indices and currency pairs. Trading options can be an extremely profitable exercise, since each trade can be personalised to suit the owner’s needs. Once the preferred asset is selected, the owner can choose from a range of expiry times, such as nearest hour, end of the day, week or month.

This means that stock option trading is open to everyone, no matter where they sit geographically or what previous knowledge they have of the financial markets. It is extremely flexible, allowing for unique combinations with every trade.