A few weeks ago, I was contacted by the folks at onetwotrade.com. Their company works with binary options and they wanted to make some information available to everyone here in Turdville. Please take a few minutes to read this post.
I thought this might be helpful simply because I've gotten a lot of questions lately about options and how they can be used to hedge against sharp moves in the metals and miners. The information below helps to explain how options work but also directs you to check out the onetwotrade.com website.
I hope this helps to answer some questions.
What Are Stock Options and How Do They Work?
Description: Have you always wanted to ask, “What are stock options?” If so, this article will cover the basics of what they are and how they work.
If you’ve ever asked, what are stock options?” and found yourself more confused after getting an answer, you’re far from alone. Options can be a complicated subject once you start getting into the intricacies of various trading strategies and the systems that use them. That being said, they can also be very easy to understand too when explained the right way.
What Are Stock Options?
You’re probably already aware of how trading stocks work. If you think a stock will be worth more in the future, you buy shares in the company and hope the price goes up. With options, you’re still betting on the price of shares moving, but you can benefit from them going up or down.
Furthermore, you’re also not buying a piece of the company, per se. Instead, you’re buying the option to do so (or to sell) at some point in the future. Basically, someone is saying, “Would you like the option to buy 100 shares in Acme Co. at $50.00 apiece in three months? If you do, it will be a $3 premium, which means $300 ($3 for every share).” Then you’d want to look at the stock and see whether or not you think it would make sense to spend $300 now for a chance to potentially buy them for a lot more later on. You could also be sold the option to sell them.
Trading Options Costs Less
As you may have gathered, trading options costs a lot less than investing in stocks. Again, because you’re not buying shares in a company, you don’t spend as much. Nonetheless, you can still profit from a company’s stock price increasing just like you would if you owned shares.
Better still, the hypothetical contract outlined above—just like all options contracts—detail exactly how much you’ll be risking for how much reward you may receive. They even tell you when the contract is up.
When you trade stocks, you have no idea how much you could make, meaning you might sell early. You could also wait years before it becomes profitable to sell a stock. This can cost you dearly as it ties capital.
Make Money in Any Market
The other great thing about options is that you can potentially make money in any market. If you think a company’s stock price is going to go up, great. However, you could just as easily make money with a contract that bets on the company’s value falling. You could even bet on it staying stagnant. One of the reasons so many people are asking, “What are stock options?” is because so many who trade them made it through the recession with more money than when it started. There’s no bad market when you invest in options.
Although they come with a number of advantages, it’s important you do your research before getting involved in options. As long as you do, though, it can provide serious returns in a short amount of time.