Tag Archive | "stock investing"

Trading Call Options

Trading Call Options – What Is A Call Option?

Trading Call OptionsTrading call options is a powerful trading tool that any stock market trader or investor should consider to give them an advantage when trying to profit in the stock market.  Trading call options is not as simple as buying and selling stocks because making money holding a call option requires the underlying stock that the call option is based upon to go above a specified price (strike price) before the option expiration date.

An Option is a financial product that is comprised of a contract to buy or sell a specific amount of the option’s underlying instrument (which is a stock or commodity) at a specified price on a future date.

An Option contract to buy a specific amount of the option’s underlying instrument at a specified price on a future date is known as a Call Option.

Trading Call Options – Call Option Trading Strategies

There are a number of trading strategies associated with trading call options.  Since call options have an expiration date, timing is very important when considering the use of call options in a trading strategy.  Stock market traders and investors use call options in their trading and investment strategies for a variety of reasons, including:  speculating that a stock is going to make a move higher, purchasing a long position in a stock via options at a fraction of the price of actually purchasing the stock, and to protect the downside risk of buying a stock, if the trade does not work out and the stock falls in price.

A trader or investor buys a call option to profit from an anticipated move higher in the price of the underlying stock that the call option is based upon.  If the stock that a call option is based upon reaches the call option’s target price (strike price) and rises to a level above the target price that is high enough to cover the premium (fee) that is paid to purchase the option, then the call option trade is profitable.  The higher the underlying stock moves above the target price for the option before the expiration date, the higher the profit is for the buyer of the call option.  One of the advantages of using call options to play an anticipated move higher in a stock is that if the underlying stock moves significantly higher, the call option could increase by a much higher percentage than the actual percentage move in the underlying stock.

Traders and investors also buy call options in lieu of buying shares of a stock because call options can be purchased for just a fraction of the cost of buying shares of a stock.  This allows traders and investors to commit a much smaller amount of money to play a stock’s anticipated price movement higher versus actually buying the stock, which frees up their trading and investing capital for other purposes.

Call options are popular with some traders and investors because they protect the downside risk of playing an anticipated move in a stock’s price.  If the stock does not move higher as anticipated, and instead moves lower, the loss associated with buying a call option is limited to the premium that is paid to buy the call options on the underlying stock.  Whereas, the loss associated with buying a stock can be substantial if the stock makes a significant unanticipated move lower in price.

Those who wish to start trading call options and using call options as part of their investing and trading strategies are encouraged to learn as much as possible about the options market and the various ways call options can be traded.

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Stock Market Advice – Definitions and Strategies

Stock Market Advice – Stock Market Definitions

Stock Market Advice

The best stock market advice is to first understand the definitions of what the stock market is comprised of and to understand basic strategies that are used to make money in the stock market.  The Internet has opened up a wide array of stock market advice that is easily accessible to investors, including stock market definitions and basic strategies, which are outlined below.

The Stock Market is really a collection of stock trading markets, which themselves are comprised of thousands of individual stocks.  The major stock trading markets in the United States are the New York Stock Exchange Euronext (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ).  In 2008, The American Stock Exchange (AMEX), which was considered another major stock trading market, was purchased by the NYSE, and is now a division within the NYSE.  The NYSE and NASDAQ have stringent listing requirements for companies that wish to have their stocks traded on their stock markets.  These requirements include such metrics as maintaining:  a minimum number of shareholders, a minimum bid price for the stock, and a minimum market capitalization.

In addition to the major stock trading markets, tens of thousands of company’s stocks trade on Over The Counter (OTC) stock quotation systems, which include the Over The Counter Bulletin Board (OTC BB) and OtcMarkets.com (Pink Sheets).  Stocks that trade on the OTC BB do not have to meet any listing requirements, with the exception that they must be fully compliant in their reporting to the Securities and Exchange Commission (SEC).  There are no listing requirements for stocks that trade on the Pink Sheets.  However, Pink Sheets has its own tiered ranking system for stocks that trade on their quotation system.  This ranking system segregates companies based on their reporting status to both the SEC and to Pink Sheets.

There are three major Stock Market Indexes that are used to gauge stock market performance, including: the Dow Jones Industrial Average, the NASDAQ Composite index and the Standards and Poors 500 index (S&P 500).  These indexes are comprised of companies that are selected based on their representation of segments of the economy.  The Dow Jones Industrial Average index focuses on industrial companies.  The NASDAQ Composite index focuses on technology companies.  The S&P 500 index is a broader index that focuses on a wide variety of companies.

Stock Market Advice – Stock Market Investment Strategies

Stock market advice as it pertains to stock market investment strategies comes down to one basic investment rule that is known as buy low sell high.  The whole point of investing in the stock market is to make money, and to do so you have to buy when a stock is low and sell it when it is high.  To better understand what a stock is and how to value a stock to determine when to buy and sell, see Advice On Stocks – Definitions and Valuation Method.

Understanding how the stock market performs in relation to economic cycles can improve your investment performance.  Many of the best buying opportunities in the stock market occur when the economy is going into a recession and a stock market selloff occurs.  There’s an old saying on Wall Street, “buy stocks when nobody else wants them”.  This is perhaps the best stock market advice of all, since eventually the stock economy will grow again, companies will report growing earnings, and the stock market will respond by moving higher.

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Where to Invest In Penny Stocks

Where to Invest In Penny Stocks Depends Upon Your Investment Style

Where to Invest In Penny Stocks

An investor or trader who is looking to invest or trade in penny stocks has many questions, such as where to invest in penny stocks?  The answer to this important question regarding where to invest in penny stocks depends upon one’s investment or trading style.

If one is a long term investor or a casual investor or trader, then any number of well known brand name stock brokerages such as Fidelity Investments, TD Ameritrade, or E-Trade are suitable for penny stocks investing and trading.  Unlimited shares of penny stocks can be bought and sold online for one flat fee of $10 or less through many brokerages.  These same brokerages also offer a great deal of information about penny stock companies, such as company contact information, company news releases, share structure, filing status, and if they are a Security and Exchange Commission (SEC) reporting company, company SEC filings.

For more active traders, the question regarding where to invest in penny stocks is a bit more complicated.  For additional fees, the brand name stock brokerages offer higher levels of trading services that can greatly aid active traders with getting into and out of penny stocks at specific price points, including Level II Quotes that provide all of the best bid and best ask quotes and the associated order sizes for a stock.  Some even offer proprietary trading products that let one test out penny stock trading techniques.  This level of service is suitable for most penny stocks investors and traders.

For penny stock traders who want even more control over their trades and want to be able to get into and out of penny stock positions at a rapid pace and at specific price points without delay, direct access trading systems (DATs) might be the best way to trade penny stocks.  DATs trades cost more, but the additional order routing control and order execution speed make DATs worthwhile for highly active traders.  DATs make it possible for a trader to route a stock penny stock order directly to a market maker, a specialist, or electronic communication networks (ECNs), which provides much faster order execution than online brokers.

Most United States based brokers that facilitate trading in penny stocks do not allow margin buying and shorting of penny stocks.  Traders that wish to buy penny stocks on margin or short (sell short) penny stocks, should consider opening up an overseas penny stock trading account for additional trading flexibility.

Where to Invest In Penny Stocks – Some Investors Open a Separate Account

Some investors and traders find the easiest way to separate their regular investments and trading in NYSE and NASDAQ listed stocks and investments and trading in penny stocks is to open a separate account.  This provides a firewall between pools of money that have been set aside by an investor or trader for a specific purpose, such as long term investing in listed stocks and investing and trading in penny stocks.  It also helps investors and traders to keep their profit and loss results straight from different investing strategies.  Ultimately, where to invest in penny stocks depends upon one’s level of investing and trading activity and whether they want to separate their penny stock investing and trading from their other investment accounts.

See Also: Why Invest In Penny Stocks?

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