Monday, 30 November 2009

Online Option Stock Trading

Online option trading is one of the riskiest investment techniques used today. Option trading is simply trading options contracts over an exchange. Options securities give their holders the right to buy or sell the asset (stocks or indices), at an agreed price at a specified period of time. Simple: options are contracts with set terms and periods. When the contract provides an option to buy 1000 shares, the options price should be multiplied by 1000.

Actually two types of options exist, whether to buy or sell, and these two types are called puts and calls, respectively. So you have buyers and sellers of calls and buyers and seller of puts, all participating in an option trading market.

Buyers have long term positions in options trading. They retain the right to purchase at a certain price at the end of the term; even if there actual price has increased exponentially before the end of the term. Sellers, known as puts, are obligated to buy or sell, because they have bought into short positions.

There are two kinds of options. There is the American Option with allows traders to exercise their option at any time before the expiration date and there are European Options which are excisable only at the expiration date. American Options seem to give the Seller an advantage as they can unload the option at a price they feel comfortable with and European options give the buyer the advantage, holding out for the higher value. If the price is higher at the expiration date then before the date the option is called "in the money". With put options the case is just the opposite, and the spread between the two is called the intrinsic value.

Options are made for speculation and hedging against a bad market. The strategy has many ins and outs and no options investor goes it alone. While you don't need an advanced degree in math or economics, having options trading software is vital.

Using platforms like the Microsoft Office Excel or any other good spreadsheet you can test several strategies using functions like goal seek, provide your self with visual graphs and tables allowing you to increase your returns. "Options trading" is not easy and most investors and even experienced brokers use all the help they can get before they actually spend any money on any options.


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