As new traders venture into the world of investing, they typically start with limited funds. To be able to day trade stocks, you need a minimum of $25000 and maintain this balance for margin requirements. If you do not have this amount to start, there are ways to achieve the same success with only say a $5000 account. The answer is trading with options instead of stock. A few of you may have heard options are more risky than stocks. But done properly they can actually be less risky. Learning to trade options should be on top of every trader and investors list to diversify their trading. We will be offering some links to option training partners in our resources section very soon. If you are ready now to start learning, I suggest going to www.optionseducation.org web site. First some basic option knowledge. What is an option from the OIC, The Options Industry Council?
An option is a contract to buy or sell a specific financial product. This product is known as the option’s underlying instrument or underlying interest. For equity options, the underlying instrument is a stock, exchange traded fund (ETF) or similar product.
The contract itself is very precise. It sets a price, called the strike price, at which the contract may be exercised, or acted on. In addition, it has an expiration date. When an option expires, it no longer has value and no longer exists. Options come in two varieties, calls and puts, and you can buy or sell either type. You make those choices – whether to buy or sell and whether to choose a call or a put – based on what you want to achieve as an options investor.
If you buy a call, you have the right to buy the underlying instrument at the strike price on or before the expiration date. If you buy a put, you have the right to sell the underlying instrument on or before expiration. In either case, as the option holder, you also have the right to sell the option to another buyer during its term or to let it expire worthless.
The situation is different if you write, or “sell to open”, an option. Selling to open a short option position obligates you, the writer, to fulfill your side of the contract if the holder wishes to exercise. When you sell a call as an opening transaction, you’re obligated to sell the underlying interest at the strike price, if you’re assigned. When you sell a put as an opening transaction, you’re obligated to buy the underlying interest, if assigned. As a writer, you have no control over whether or not a contract is exercised, and you need to recognize that exercise is always possible at any time until the expiration date. But just as the buyer can sell an option back into the market rather than exercising it, as a writer you can purchase an offsetting contract, provided you have not been assigned, and end your obligation to meet the terms of the contract. When offsetting a short option position, you would enter a “buy to close” transaction.
Options let you take a position either long, short or neutral for a fraction of the cost of owning the stock. This allows you to take on additional positions and divest your portfolio for better money management. Using Neuromaster software to assist in you determining when to buy, sell or hold a position and utilizing options. Will maximize the performance of your trade strategy and improve your overall performance.
As I mentioned before, check back to the web site for additional information on this subject and links for option trading education.
