In periods of high volatility, equity and index options offer a form of insurance, or hedge, to protect one's stock portfolio. For investors with basic knowledge of stock trading, the door to trading options opens to a new world of derivatives, which are financial instruments that derive their value from securities. These securities include shares of common stock. Risk management is essential to mastering the world of options because the potential for huge reward carries a good deal of risk.
Equity options are the most popularly traded kind of options. Each contract represents 100 shares of the underlying stock. This important characteristic gives an investor who owns the contract the right, but not the obligation, to buy or sell potentially many times the number of actual shares he or she could buy or sell outright. This concept, which is fundamental to options, is known as leverage.
There are two kinds of contracts: calls and puts. A call's value increases as the underlying stock rises in value. A put appreciates when its underlying stock declines in value. Both kinds of options also carry a premium, which is a mixture of time until expiration and the implied volatility of the underlying stock's price and the general market conditions.
Market volatility can actually be your friend when you are trading options. Unlike when trading stocks, market fluctuations can enhance the value of an option. Fast price movements and leverage make option trading more lucrative than regular stock trading. This can be done with individual companies or a market index.
When you trade options you have the flexibility to make bets on individual stocks or an index and you can make the trade in either direction. Option strategies are available to make you money in a variety of ways. You can even take advantage of market volatility to make money.
0 komentarze:
Post a Comment