Option Trading, or options trading, is simply the trading of stock options over an exchange. As option trading is most commonly conducted through online option trading brokers, it is also commonly known as Online Options Trading or even Online Optiontrading.
There are many people who also lump options trading and futures trading into one term known as Options Futures or Futures Options or Futures Option Trading and take it to mean the same thing. It must be clarified here that Options and Futures are two distinctly different forms of financial instruments and cannot be referred to as one single study. Futures Options are options written on futures contracts and is again a distinctly different trading instrument. The options that are traded in the stock exchange are commonly index options or equity / stock options
Why Option Trading?
Successful Investors like Robert Kiyosaki and Robert G Allen have popularised the use of options trading through the use of options strategies as part of an overall strategy to financial freedom. They preach that option trading is the investment of the rich. So, what makes option trading so powerful?
Option Trading Grants Unprededented LEVERAGE!
Yes, option trading is LEVERAGE! You can potentially make up to 10 times more money on the same move in the underlying stock than if you bought the stock itself! The leverage power of options trading is perhaps the main reason why traders with small funds choose options trading. Even though option trading was initially designed as a hedging tool instead of a leverage tool, it is still a great way to profit while risking only very little money.
The Leverage effect of option trading also allows investors to participate in the move of a high priced stock using only a small capital outlay. This is because stock options cost only a fraction of the price of its underlying stock. Apple (AAPL) is trading at $93.65 today while it's call option costs only $1.70. Investors can participate in the gains on 100 Apple shares through buying its call options for only $170 exactly like an investor who spent $9365 buying the stock itself. That's another benefit of option trading.
Option Trading Grants Unprededented PROTECTION!
While option trading grants you leverage, it also grants you PROTECTION! When a stock moves AGAINST you, an option trader potentially lose much lesser than the stock trader. Why? Because your maximum loss is limited to the price you paid for the option which could be just 10% of the price of the stock! Taking our Apple example from above, the stock trader's maximum risk is $9365 while the option trader's maximum risk is $170 for controlling the same number of Apple stock!
You can also protect your stocks from dropping in value through options trading by buying the same number of put options as the number of shares that you own. In this case, those put options act as an insurance policy, protecting your shares from dropping in value. This is what we call a Protective Put.
Option Trading Grants Unprededented FLEXIBILITY!
Option Trading allows you to profit from every possible move in the underlying asset! Up or Down or Stagnant, there is an option strategy that allows you to profit from that move. In Options trading, an option trader can easily participate in a downwards move on a stock through buying a put option without having to risk margin calls by going short the underlying stock or futures.
There are many people who also lump options trading and futures trading into one term known as Options Futures or Futures Options or Futures Option Trading and take it to mean the same thing. It must be clarified here that Options and Futures are two distinctly different forms of financial instruments and cannot be referred to as one single study. Futures Options are options written on futures contracts and is again a distinctly different trading instrument. The options that are traded in the stock exchange are commonly index options or equity / stock options
Why Option Trading?
Successful Investors like Robert Kiyosaki and Robert G Allen have popularised the use of options trading through the use of options strategies as part of an overall strategy to financial freedom. They preach that option trading is the investment of the rich. So, what makes option trading so powerful?
Option Trading Grants Unprededented LEVERAGE!
Yes, option trading is LEVERAGE! You can potentially make up to 10 times more money on the same move in the underlying stock than if you bought the stock itself! The leverage power of options trading is perhaps the main reason why traders with small funds choose options trading. Even though option trading was initially designed as a hedging tool instead of a leverage tool, it is still a great way to profit while risking only very little money.
The Leverage effect of option trading also allows investors to participate in the move of a high priced stock using only a small capital outlay. This is because stock options cost only a fraction of the price of its underlying stock. Apple (AAPL) is trading at $93.65 today while it's call option costs only $1.70. Investors can participate in the gains on 100 Apple shares through buying its call options for only $170 exactly like an investor who spent $9365 buying the stock itself. That's another benefit of option trading.
Option Trading Grants Unprededented PROTECTION!
While option trading grants you leverage, it also grants you PROTECTION! When a stock moves AGAINST you, an option trader potentially lose much lesser than the stock trader. Why? Because your maximum loss is limited to the price you paid for the option which could be just 10% of the price of the stock! Taking our Apple example from above, the stock trader's maximum risk is $9365 while the option trader's maximum risk is $170 for controlling the same number of Apple stock!
You can also protect your stocks from dropping in value through options trading by buying the same number of put options as the number of shares that you own. In this case, those put options act as an insurance policy, protecting your shares from dropping in value. This is what we call a Protective Put.
Option Trading Grants Unprededented FLEXIBILITY!
Option Trading allows you to profit from every possible move in the underlying asset! Up or Down or Stagnant, there is an option strategy that allows you to profit from that move. In Options trading, an option trader can easily participate in a downwards move on a stock through buying a put option without having to risk margin calls by going short the underlying stock or futures.
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Options Trading
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