Stock Market Option Trading-3 Winning Option Trading Tactics Revealed

In stock market, option is a contract between the purchaser and seller of the stock. This contract holds the contract about the right of the buyer and the obligation of the seller. The buyer’s right is that he/she has the right to purchase the stock at the price that had been settled by the seller. The vendor’s responsibility is that he/she has to vend the stock to the buyer at the price that had been agreed by the purchaser. Option in stock market is only a an agreement between stock buyer and seller about the transaction stock cost within a specified period of time. Option can be used to evade the portfolio or defend the arrangement just like how the insurance does to the property. Option can be employed to protect your money that has been invested in the stock market. Besides stock safety, by utilizing option, we can carry out arbitrage strategy, which can make profit wherever the stock price is rising, falling or side way. Arbitrage tactic is a safe strategy and it can help you make profit without gaining any loss.

Most people lose wealth in a bear market. Do you recollect the tech bubble and recession in 2000-2002? Let’s talk about three option trading strategies that can make you huge income in a bear market or collapse.

option stock trading Strategy No. 1 – Purchasing Put Options
It is fairly simple to purchase put options. This option trading tactic can even be used in an IRA account as long as you have been authorized by your broker. You desire to choose a stock, that you sense has a good prospect of going falling in price. Your risk will be narrowed to the price of the put option. For instance, stock XYZ is currently trading at $50 per share and you purchase a put option on XYZ with an expiration date of two month later with a hit price of $50. If the stock falls from $50 to $40, your put option would be worth $10 per share.

stock market option trading Strategy No. 2 – Purchasing Bear Put Spread
Purchasing a put spread is a little more complex than just buying a put option but gives you the advantage of lowering your cost but caps your income. A put spread is characterized by the trading of two same month ending put options, buying one at a given strike cost and vending the other put option at a hit price lower than the bought put option. You wish to pick a stock that you think will be falling in value. Your jeopardy will be narrowed to the price of the put spread. As an a model, if we purchase the put option as listed above but also vended a put option with a hit price of $45. In this model, should the stock plunge to $40, you would profit $5 per share ($50 strike price – $45 strike price). And since you are making less per share, your savings come in the fact that the cost of purchasing the put option outright would be much higher than the initial cost for the bear put spread.

stock option trading Tactic No. 3 – Married Put
Risk can be limited by utilizing a married put, which is a hedging tactic. This strategy consists of purchasing a stock that you believe will be good in worth and purchasing a put option at the same time to limit any losses owing to poor market movement. You might have heard the saying that there is always a bull market going on someplace. In order to benefit from this tactic is to discover what business sectors and securities go in opposition to the grain and appreciate in a bear market. Next you purchase the stocks you chose and protect your investment by purchasing a put option to minimize your losses if the stock goes south.

Finally, you can still make big profits in bear markets by searching for stocks that you believe are going to drop in cost and purchasing a put option or a bear put spread. Instead, you could buy a married put on a stock in a sector you believe is going to appreciate, thus limiting your jeopardy. Along with buying options on stocks, you can also purchase put options on exchange traded funds or index options. Exchange traded funds allow you invest in worldwide markets, commodities and currencies. It is possible to receive a huge income in a bear market. However, it is vital to comprehend the details of the option tactics, choose the proper stock, exchange traded fund or index option, and make use of a proven tactic and head off!!!.

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One Response to “Stock Market Option Trading-3 Winning Option Trading Tactics Revealed”

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