A Basic Introduction on Online Trading Stock and Option Styles

When you understand what goes into options, you’ll understand the difference between online trading stock and option styles. More and more people are finding that they prefer online option trading to traditional online stock trades. Either way, the more you understand about what you’re doing, the more effective you’ll become in your style of choice. This article will give an outsider to the stock market some idea about what online trading stock and option styles are.

Option trading is just another way of trading stocks. You can do options on other things too, such as bonds, commodities, and real estate. You purchase the right to buy or sell such an item at a specified future date for a specified process. You do not have to exercise your option to buy or sell, but the price you pay to purchase the option is non-refundable. So you may never actually even own the asset for which you’ve purchased your option.

There are basically two forms of stock options being traded online: call options and put options. They basically work the same way, except that one is profitable when the stock price increases and the other is profitable when the stock price decreases.

Call options give you the right to buy the stock at a certain price during a certain period of time. If the stock goes up in value, then you can buy the stock cheaply and sell it at the current market value. If the stock doesn’t go up, you simply don’t exercise your option. A call option is often called a long position.

Conversely, put options give you the right to sell the stock at a certain price during a certain period of time. So if the stock goes down in price, you can buy the stock and then sell it at the higher option price in order to exercise your put option and realize a profit. This is often referred to as a short position.

The American Style of options trading involves purchasing the right to buy stock during a certain time frame. After that time frame, your option expires. Any time during that time frame you can, but don’t have to purchase the stock at the specified price. European Style options trading involves purchasing the right to buy or sell the stock after a given date. So there is a period of time in which you cannot exercise your option, followed by one when you can. European and American refer only to the online trading stock and option styles, not the locations of the option purchases. Both online trading stock and option style can be done in any market where it is legally allowed.

To find out how you can be successful trading stock options , attend one of the options trading Power Workshops offered every Thursday at Options Learning Academy on Long Island, Baldwin, NY.

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