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Friday, February 20, 2009

Trading Of Options Outperforms Stock Trading Courses

By Walter Fox

There are no stock trading courses that could have prepared a stock trader for the erratic and volatile market we have experienced over the last year. The up and down motions of the market indices exacted a toll on the large stocks and the smaller, weaker stocks were demolished.

Fortunately, stock option strategies offer solace that even the best stock trading course can't provide a" with options, you can profit when the market goes down. That's right a" you no longer need to rely on the fickle market's upward movement to bank big bucks.

Understanding the two most basic options strategies can help you make bigger returns for a lot less capital. First, there are call options, which are securities based on underlying stocks. Call options profit when stocks move up, so they're pretty easy for most traders to understand.

A call option gives the trader the right to purchase a stock at a fixed price for a set period of time but does not obligate them to do so. The trader can trade the value of the options contracts or can use them as a vehicle by which to purchase a favored stock at a discounted price.

Call options are sometimes called "surrogates" because you can make more money while investing less capital. The put option is often overlooked but it can increase in value when the price of the underlying stock decreases. You can trade the put options for their value as well or use them to sell the underlying stock at a fixed price within a specified time window. In other words, with a put option, you are able to sell a lower priced stock for a premium.

You can also use put options as a form of insurance for the stocks you own. For example, if you purchase 100 shares of a $10 stock you spend $1,000. If the price drops to $5 per share then you lost $500. If you purchased a single $10 put option for those same 100 shares and the price fell to $5 per share, then you will have the right to sell the $5 shares for $10 each, thus negating your loss.

The stock trading mantra of 'buy low and sell high' has been around for years, the recent volatility of the stocks on a daily basis is not supported by any of the fundamental rules that supported the buying low and selling high of stocks. These erratic swings in share prices, however, give the options trader a terrific opportunity to profit greatly.

A basic online brokerage account will allow you profit greatly from trading options where the stock trader would not. Options can be traded on the major indices as well as the exchange traded funds (ETFs). This enables you to trade an entire sector or index with less risk to your capital. Take an options trading class today to learn how you too can benefit from options trading where a stock trading class will only limit your profits in today's erratic market.

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