Trading options: The portfolios of most investors today comprises of investments such as bonds, stocks and mutual funds.
However, there are more securities in trading market today apart from the aforementioned ones.
Trading options is one of them.
Trading options offer investors versatility.
They allow one to adjust or adapt their position depending on the current situations.
Depending on what one wants, trading options can be either speculative or conservative.
An individual can use trading options to protect their position from declining or even betting on the movement that take place in a market.
The versatility of trading options however has its own demerits.
Since they are very risky and very complicated, options of trading may prove costly in the long run.
It is important for an investor to know the risks that they are likely to experience when trading options.
This should be the case for those who are not fully familiar with the activities they are engaging in.
That is why most people suggest that one avoids options of trading as much as possible and assume their existence.
However, ignoring investment opportunities places one in a weak position financially and competitively.
It is important to acquire skills on how to trade options before deciding whether or not to invest in them.
Options not only provide one with several investment choices but also enable one to have insight into the activities of some of the biggest corporations in the world.
Most multinational corporations use options in various ways, for example, giving employees ownership in form of options for stock.
Option Strategies: An option strategy usually involves purchase that happens simultaneously together with the selling of different contracts for options.
This is also referred to as option combination.
There are generally four option strategies that an investor can use.
These are: Position trading: Traders normally buy stocks and hold them for a given duration of time.
They then wait for a security to attain a good value, watch for insider or institutional buying and then offer to sell their securities.
As the prices of the security increases, a trader will look for other buyers who will step in a move resulting to further increase in the price.
By doing this, the trader uses the position trading strategy.
Trend or momentum trading: This is adopted by momentum traders.
These move in when a stock has made a move or a breakout.
They usually ride the stock to its major reversal along a trend.
They normally aim to make quick profits due to sudden moves in the prices of the stock.
Swing trading: Traders who adopt this usually buy and sell swings that are within a given trend.
Holding of stocks takes about two to ten days.
Day trading: This is a strategy in which the traders focus on moves that occur during the trading day.
It requires one to keep staring at computer screens the whole day.
One may also need to have adequate knowledge about patterns and indicators during trading.