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Options Trading Tips and Advice

Options Trading Tips and Advice For Beginners

Options Trading Tips and AdviceThe best options trading tips and advice is to learn how to use options before even considering buying them.  Buying options is a lot less forgiving than buying stocks, since many options routinely go to zero and lose all of their value very quickly.  For those looking for options trading tips and advice, do your homework, learn about options, and do numerous paper trades (without real money committed) to learn how to use options effectively and avoid common options trading pitfalls.

An Option is a financial contract between two parties to buy or sell a specified quantity of a commodity or stock at a set price on a future date that is set in the contract.  Options trade on options exchanges.  A Call Option is contract to buy a predetermined amount of a commodity or stock.  A Put Option is contract to sell a predetermined amount of a commodity or stock.

Options Trading Tips and Advice | Options Trading Strategies

As if soaking in basic options trading tips and advice isn’t hard enough, what really makes options unique is that their trading strategies can serve exactly opposite purposes.  Options can be used to either take on great commodity or stock trade risk to maximize potential trading gains or to mitigate commodity or stock trading risk to protect trading positions from losses.

Using Options To Maximize Potential Trading Gains – Options often move by a greater percentage than the commodity or stock that they are written against, which makes them useful trading vehicles to maximize trading profits, if a sharp price move is anticipated in a commodity or stock.  However, with the high profitability potential, comes high risk, as options can expire worthless, if the underlying commodity or stock does not move in price as anticipated.  Another way options are used to maximize potential trading gains is that options allow a trader to control a greater amount of a stock or commodity than they could buy if they purchased a commodity or stock outright.  So, instead of making a relatively small bet regarding a future price move in a commodity or stock, options allow traders to make much larger bets than their trading accounts would otherwise permit them to make.

Using Options To Protect Trading Positions From Losses  – Options are relatively inexpensive to buy, especially compared to commodities or stocks that sell for hundreds of dollars per unit or share.  Their relatively cheap cost make holding options a good way to protect a large position one is holding in a commodity or stock against unexpected losses.  For example, if a trader or investor bought Apple Inc.’s stock AAPL for $100 per share years ago, and they are now worried about holding their AAPL position, but do not want to immediately sell it, they can buy put options that are based on the price of AAPL to protect their position in AAPL.  If AAPL falls below the put option price on the day the option expires, then the position in AAPL will be automatically sold at the put price (say $500 per share), even if AAPL is trading much lower than $500 (say $450 per share) on the day the $500 put option expires.

These are just some basic options trading tips and advice.  To truly grasp both the risks and rewards associated with trading options, further research into options trading tips and advice is necessary, as there are many different options trading strategies.

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