3 Tips for Options Trading Newbies
Options trading can be an exciting way to make money on stocks. However, many individuals do not fully understand how to optimize the return on their trades. Fortunately, we are here to educate newcomers on how to navigate options trading and how to use some techniques when they have little to no experience. Before we begin, it is important to remember that trading options are best served as a risk management tool when it comes to dabbling in stock. Investors have the ability to take positions that can provide long or short-term results, or take a neutral position.
Trading options are different than standard investing. Traditionally, you would aim to buy low and sell high with standard investing. Trading options allow them to have flexibility when it comes to investment options. Investors have the ability to profit by predicting stagnation, downturns, and upturns. This gives them an edge when it comes to making the right investment options and the unpredictable nature of the stock market. However, with flexibility comes knowledgeable versatility. Investors will need to be quick on their feet if they want to take advantage of trading options to turn a profit. Education is the key to success here.
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Hedging is another method that many people should consider when they are looking into options trading basics. This technique is used to eliminate or mitigate the risk of holding on to one investment position by taking a different position. The versatility of this method is useful and allows investors to hedge against a falling stock price. The stock market can be unpredictable, and this method will allow you to detach yourself from stocks that are rapidly losing their value and place an investment in other stocks to mitigate any losses you may experience.
The Covered Call
Stocks require you to take proactive measures if you are looking to turn a profit in the market. The covered call does exactly that when you consider what the method involves. This method is a preferred position for traders that aren’t expecting any incremental increase in the stock’s base price. This method involves purchasing 100 shares and selling a call option against those shares. The investor will then collect the option’s premium from the call to lower the cost basis of the stock and create downside protection. This method requires a bit of practice to make use of, but with the right education and practice, you will be able to turn a profit from this.
Options trading is a great way for beginners to get their feet wet when they want to turn a profit from the stock market. There are many risk mitigating techniques that investors can utilize that will help them succeed. Fortunately, options trading provides a flexibility that many investors will want to stick with until they can expand their portfolio more. The stock market is a jungle that can be hard to navigate and only those who take a little risk will receive a big reward for their actions.