Options trading for dummies: Something worth Exploring

Although it is said that options trading are much safer than directly investing in stocks, options trading for dummies are often advised to be avoided because of its risks being completely different from other forms of investing.It does have risks if you do not know what are you doing and can cost you a lot if something goes wrong. But ignoring its existence is also not a good idea. It keeps you in a weak position in the investing market if you do not have access to every method available for investing.

Just moving away from options without knowing anything about it is as much idiotic as jumping right in the business without knowing. There should be at least an options trading for dummies guide gone through before deciding whether to try it or say goodbye to the idea. And if the idea becomes clear and acceptable, you might add this as another item in your investing toolbox.

So, first step in learning options trading for dummies, you must know what options really are. They are contracts, by two entities, which gives one some rights to buy or sell something, which is some stocks, in a fixed price in exchange of a price for the contract. Mostly, the contract states some fixed price for buying or selling the stock which is called strike price. This contract has the advantage that, you’ll have the right, not obligation to buy or sell the stocks. That means you can skip buying or selling them if the conditions are not favorable. But the options also have a downside. It has an expiration date, and if you do not make anything of the option before that, all the money you’ve spent on the options will go for nothing. But if the conditions are favorable before then, you can have unlimited gain from the difference between the stock’s market price and the strike price.

After knowing that, you might need to know which type of options there are. There are two basic types. One is call option and one is put option. What is the difference between them? Call option lets you buy stocks in the strike price and put option lets you sell stocks at strike price.Call options usually have benefits such as, having no limit on the maximum income if the actual stock price rises significantly above the strike price. Also, it has risk of loss if the actual stock price falls below the strike price. In other hand, put options have less window for gain but has a guarantee that if the stock price falls, you will at least get the strike price, and if it increases, you can sell the stock at that increased price.

So, if you’ve gone through thinking about stock options and decided to try it out, note that all the other people in this business have years of experience and only having information from some options trading for dummies articles will not help you go all the way. It is better to have some professional help from licensed brokers or firms at first while you know all the details about it.

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