Sunday, September 16, 2007

Online Stock Option Trading

After getting into the market with stock trading, online traders tend to look for the next challenge. Options are definitely a challenge as much for the amateur investor as the seasoned broker. Since options demand rapid response, online trading access is the way to open this money making opportunity to anyone with the cash and nerve to play.

Options have the reputation for high risk. No question that reputation is earned. The flip side is that hitting an option at the right time yields a fat payday. The lure of big bucks might be appealing to novice investors but its a strategy for experienced traders. Even veteran stockbrokers can get caught on the wrong side of a trade and lose millions in minutes with options trading.

Enough gloom, lets look at the upside of online stock option trading. Traders can limit the financial risk while keeping control over a block of stock. The difference is that options are perishable. Think of stocks as the baked potato and options as the butter melting on the hot potato. The stock will be around a long time but an option has an expiration date. If the option is set to expire on Friday, then the trader must be prepared to deal with that timeline.

Online stock option trading follows the same rules as any options trading. If your option expires in the money then you can choose to purchase the stock or redeem the option for a stated value. But if your option ends up out of the money, then you lose your investment. Its an all or nothing play.

The winners in online stock option trading make their money by educated guessing. They prepare for this high stakes contest by learning the fundamentals of puts and calls options. With more experience, online option traders move into more complex strategies using strike prices and straddles. Some traders vary the strategy used while others find their comfort strategy and stay there. While a stock trader is looking for upward or downward movement, the options trader needs to pinpoint the degree of movement. Using the complex strategies does not necessarily result in better gains than with basic puts and calls. Again, online stock option trading is a game of skill and moxie regardless how its played.

Online stock option trading can be used to reduce risk and minimize losses. Regardless of whether the stock market is going up or down, stock options can still be winners. Some traders may move between trading stocks to options trading based on what is the best opportunity for the current market condition. Online stock option trading makes it possible to combine the options trade with the stock trade in a strategy that either goes for maximum profits or protection of the stock value.

Online stock traders owe it to themselves to explore the potential for options trading. Using the same research and background information, traders can use online stock option trading to boost profits and add an element of excitement to the process.

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