Stock Options 101
"Trading options is like buying a house, only better…" That’s what we often tell readers who are trying to grasp the concept of options trading for the first time. They’re often confused about whether they have to exercise the options, or how they make money. What happens, they ask, if no one buys their option from them?
Most people buy the number of stocks they want and pay for them up front, in full. Or, they trade on margin, and only put up 50% of the full amount. This could be the equivalent of paying all cash for a real estate investment, or making a 50% down payment.
How does this compare to buying a house? When you buy a house, you sign a mortgage contract, make a down payment, and make monthly payments to the bank for a fraction of the house’s value. Even though you don’t own the house outright, you still get all the same benefits - you get to live it in, use the water, electricity, cable, phone, yard and anything else that comes with the house. Yet, you only have to pay a small amount each month to stay there.
With options, you get that and more. You only have to pay the up-front cost, just like a down payment when you buy the house. But with options, you can control 100 shares of stock for every option contract you buy, but you never have to pay for the stock in full. You’re leveraging yourself by putting in a little to control a lot…
Getting Started In Options Articles on Smart Profits Report:
Opening An Options Account: Smart Profits Basics
Basic Trading Rules: The Four Rules of All "Smart Money"
Make Your First Option Trade: In Three Easy Steps
Buying Options: Like Owning a House Without Monthly Payments
Secrets to Getting Started In Options
Trading Options 101: An Options Secret From a 20-Year Trading Veteran
Trading Lessons: Catching The Market Waves for Stress-Free Trades
Smart Profits Quiz: Test Your Options Knowledge
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