Posted on 30 September 2011.
Learning how to day trade options can open up many new investment opportunities. While options are similar to other types of futures in a many ways, they also have a number of qualities which distinguish them. All futures contracts specify and the quantity and time that a stock will be bought, as well as the price it will be bought for. The price is based on a prediction of the stock’s future value, with a discount given to account for the risk. Investors make money based on the difference between what they pay and the stock’s actual value. Options are similar contracts, but the buyer is not obligated to complete the transaction. Instead, they buy the right to complete it if they choose.
Knowing how to day trade options allows you to buy and sell options that have already been written. Options bought from an investment firm, or directly from a company, are considered to be over the counter (OTC) options. When you buy an OTC option, it is customized to your terms. Once you have bought it, however, you can list it to trade on the day trading market. Day traded options are not bought or sold through an investment firm. They are listed by various futures and options exchanges.
While OTC options can be customized, and are not subject to the same restrictions as listed options, those who know how to day trade options enjoy a number of benefits. For one thing, the contract is supported by the credit of the exchange, which usually has a rating of AAA. Additionally, all transactions are protected by market regulations, meaning that they must be both fair and transparent. Many investors also appreciate the fact that regulated markets retain their structure and order. This makes it much easier to learn how to trade day options, even when trades are happening at a fast rate and at a high volume.
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