Options trading can be a little more complex than general stock trading. This is because normally, you decide how many shares you want and your broker fills that order at prevailing market price. Trading options requires some of these elements but also requires a few others including a more extensive process for opening an account. now in recent years the account opening process has become a bit easier and you can begin trading options on the Robinhood platform with just some basic kyc information on sign up.
Now that you have your options account it's time to consider the core elements of an options trade that will influence how you perform with this type of instrument. The main things to take into consideration when starting in options contract is to decide which direction you think the stock is going to move, predict how far in that direction the stock price will move from the current price, and determine the timeframe in which the stock is likely to move.
Deciding directions that you think the stock is going to move determines what type of actions contract you take on either a call or a put option will be the choices you have available. A call option is a contract that gives you the right to buy a stock at a predetermined price this is usually called the strike price. on the other hand if you think the price will decline then you will place a put option, which will give you the right to buy 100 shares of the stock at the price that you set for the put.
After you've gotten an idea of which direction is that will go in now is time to choose how high or how long you think this that will move from the current price. An option is only valuable with the stock price closes at or above the options price for a car or below for a put this is using referred to as in the money.
The price that you pay for an options contract has two components: the intrinsic value and the time value. The intrinsic value denotes the difference between the strike price and the share price. Time value is whatever is left and helps us factory in the volatility of the stock.
The mot important of these is the time frame in which you think the stock price is likely to move. Every options contract has an expiration date this day indicates the last day that you can exercise the option. You can't just put a date out of thin air the data usually provided to you by the platform that you were trading. For a call option if you have chosen a position and the price is going up past the position you have chosen then it will positively affect the price of your actions contract where is if he has gone down past the position you have chosen it will negatively affect his contract. if you have chosen to purchase a put contract then if the price is declining past the point that you have chosen to purchase it then it will positively affect your position and if it increases beyond your position then it would negatively affect you.
Expiration date can range anywhere from days to years, usually the most risky of the options contracts is the daily options contracts because the short amount of time that you have to exercise them. It is usually preferred to choose an options contract that is about a month out so that you can have ample time for the stock to rise or fall in price towards your position. The downside to choosing long expiration date is that the cost of the options contract may end up being pretty high because of the fact that you have plenty of time for the price to reach your strike price.
With options a good strategy if you can afford it is to buy long-term expiration contracts with prices that are already in the money so that by the time the contract has expired you will indeed be well into the money and can sell for a decent profit. In the coming weeks I will take some time to cover some of the action options strategies such as iron condors which will help you hedge against potential losses while trading.
If you're interested in learning how to trade regular options or binary options then I suggest you visit Nadex where you will be able to find a wide variety of awesome webinars and tutorials regarding the ins-and-outs of action trading. As always make sure to only invest what you can afford to lose and do your research in depth before choosing to make an investment into any new instrument.
This article was written by @bulma and edited by @flashfiction. This article can be found on PROFITRIBES.
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