Stock Trading 101: Option Stock Trading Strategy

The popularity of George Soros and Warren Buffet has paved the way for many people to try their luck with stock market investment. After all, many would like to augment their income and seeing as how the two successful investors turned out today, it is only logical to try one’s hand in stock investment.

For beginners, it pays to know about Stock Trading Strategy to help them decide the best stocks to invest and sell. This is vital to every stock trader as understanding the corporate terminologies or jargons, for example, would lower the risks while at the same time maximize one’s yield.

Below, one would find a short introduction to different option strategies that would help novice traders make informed decisions concerning the best possible stock options strategy for them.

Options Strategy is the buying or selling of stock options. With options strategy, the stockowner has the right to buy or sell his stocks or assets at a certain strike price before a specific date or on the date itself.

·         Covered Call/Buy-Write Option Strategy. For traders who are looking to gain profit in a short-term period, the buy-write strategy is one option to try. This strategy works by buying and selling the assets at the same time. It is important that the investor has the same volume or at par assets with that of the underlying assets. Traders earn through call premium receipts. Premiums are like insurance where the investors pay a fixed amount and earn when the conditions are met.

·         Married Put option Strategy. In Married put option strategy, traders or investors generally buy shares of the company at a certain price and  purchase an option to sell stocks (or put options) for the same number of shares he purchased all in the same day. Married-put option strategy best benefits traders who are “bullish” or who want to protect their investment portfolio.

·         Bull Call Spread Strategy. For investors who expect to earn from a particular asset, he may use the bull call spread strategy where he would buy call options at a certain price while simultaneously selling the same assets for a higher strike amount.  The investor can exercise his call options when the stock’s price increases, buys the asset at the strike price and sells them for the other calls that he makes.

·         Bear Put Spread Option Strategy. This type of strategy is best for conservative traders who want to limit their losses while earning at the same time. In this type of strategy, the trader would buy an option to see the asset at a certain strike price and at the same time sell the same number of stocks at a lower strike price. Investors gain by buying the stocks at his preferred strike price and selling the stocks for the higher strike price that he puts the option.

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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