Make money with stock investing


atlthnl.com keyword stats



Most current MSN search phrases:

stock taxes

The Joy of Options

Owning stock has only two, maybe three,Buying an option cannot cost you more than
possibilities. The stock goes up. Or thewhat you pay for the option. Selling an
stock goes down. Or, as a third possibility,option can cost you far more than what you
it does a little of both. If you buy a stock,receive  for  selling  the  option.
all  you  want  it  to  do  is  go  up.
Let's examine the terminology of calls and
If you sell a stock short or close a positionputs. The underlying is the actual instrument
(or consider buying it and then decide not tosuch as a stock or commodity that is being
;), all you want it to do is go down. I callrepresented by the options contract. In the
this one-dimensional trading. You're long,real estate example, the house would be the
you're short, or you're flat. Your gains andunderlying. Options are said to be
losses travel up and down the number line youderivatives because their value is directly
may remember from elementary school in locktied to or derived from that of the
step with the movement of the stock. Not onlyunderlying. An option has no meaning without
that, but it takes a big move to make a bigan actual asset underlying it. It is the
profit. And a big move against you can mean aright to buy or sell that underlying asset
big loss. Potentially all the way down tothat gives the option a reason for being and
zero.some  value.
You need to add a second dimension to yourThe strike price is the agreed upon price for
trading. You need more choices than picking awhich the underlying can be bought or sold
direction and hoping you are right. You needunder the terms of the option contract. In
to limit your losses, improve your returns,the real estate example, the strike price was
and increase your flexibility. You need$100,000. The expiration date, obviously, is
options.the date when the option expires. The day
after expiration, an option is worthless.
For many people, options are something toThis is the single most important fact about
avoid, being dangerous, complex, and scary. Ioptions that you must remember. This is why
would like to introduce you to the joy ofyour friends think you are crazy for your
options. Any time you think you want to buy ainterest in options. Unlike a stock, which
stock, I'd like to get you in the habit ofyou can hold forever, an option has a clearly
first looking at how you could do more withdefined  shelf  life.
less  using  options.
One term remains, and that is the premium.
In the stock and commodities markets, theThe premium is what you pay for the option,
type of option we just described would bewhen you are the buyer. Or what you receive
known as a call. A call typically representsfor an option, when you are the seller. In
100 shares of a stock. In the commoditiesour real estate example, the premium was
markets, a single option contract represents$500. That's what it cost you to hold the
a single futures contract. (For simplicity,right to buy the house any time in that
from this point forward, I will talk aboutthirty-day period. The last day of the
options on stock. Just remember that the samethirty-day period would, again, be the
discussion  applies  to  options on futures.)expiration  date.
Owning a call gives the owner the right toWe have barely scratched the surface. I say
buy 100 shares (usually) of the underlyingthat not to intimidate you, but to make you
stock at the agreed upon strike price at orrealize that you only have enough knowledge
before the expiration date. (I say "usually"to be dangerous to yourself. Please do not
100 shares because, due to splits orthink that you are ready to go out and buy
acquisitions, there are times when an optionscalls or place spread trades. You are not.
contract may represent something other thanYou don't know how an option moves relative
100 shares.) Selling a call gives the sellerto moves in the price of the underlying. You
the obligation to sell, if asked, 100 sharesdon't know what time does to the value of an
of the underlying stock at the agreed uponoption. You don't know what volatility is or
strike price any time up until the expirationhow it plays into option prices. You don't
date.know the types of spreads or what they are
used  for.
The other kind of option is called a put, and
it is exactly the same as a call with onePlease, please get yourself better educated
simple difference. A put gives the owner thebefore you start putting money into option
right to sell 100 shares (again, usually) oftrades. Resist the temptation to buy some
the underlying stock at the agreed uponcheap options, just to try it out. This is
strike price at or before the expirationexpensive education. There are plenty of
date. You can think of a put as insurance. Noadvantages to trading options, but it's still
matter how badly the stock price crashes,a ruthless market, happy to take your money,
having a put means that you can sell youryour wallet, and your hand if you give it an
stock for the strike price. On the flip side,opportunity. Learn the rules of the game
selling that put means you may be obliged tobefore  you  put  money  on  the  line.
buy stock at far more than its current market
price.Trading options can be satisfying, rewarding,
stimulating, and fun. I invite you to add
An important distinction to always keep inanother dimension to your trading by
mind: Buying an option gives you rights.including options to your repertoire.
Selling an option gives you obligations.



1 A B C D 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98