Garth McCalister - Options Trading: 31 Best Tips and Tricks to Start Right, Avoid Mistakes, and Start Making Income with Options Trading

Options Trading

31 Best Tips and Tricks to Start Right, Avoid Mistakes, and Start Making Income with Options Trading

By

Garth McCalister

Introduction

C ongratulations on downloading Options Trading and thank you for doing so.

The following chapters will discuss what you need to know in order to become an options trader today. There are many different types of trading styles out there. Some decide to work with the stock market and either do a long term investment strategy or something shorter term like day trading. Some like to work on opening their own business. And others may choose an option like real estate. But as you will see in this guidebook, options trading is a bit different compared to all of these methods, and learning how to make it work the best for you can ensure that you will get the most potential profits with the lowest amount of risk possible.

This guidebook is going to help introduce you to the world of options trading, and then will provide you with the top 31 tips that you can follow in order to make the best decisions, and see the most success with options trading. Whether you have been working with investing in the past, or this is your first journey into the mix, you are going to see some amazing results with options.

When you are ready to get started with your own journey for options trading, make sure to check out this guidebook to learn more and to use the 31 best tips to become a successful options trader.

There are plenty of books on this subject on the market, thanks again for choosing this one! Every effort was made to ensure it is full of as much useful information as possible, please enjoy!

Chapter 1: What is Options Trading?

I f you have spent any time looking at the world of investing, you may have heard about options at one point or another. They are sometimes going to seem pretty overwhelming to think about, but if you know a few key points that come with them, options can be pretty easy to understand. Options can be seen as another class of assets, just like mutual funds, ETFs, bonds, and stocks. And when the investor uses them in the proper way, they can offer you some unique advantages that trading with the other assets just cant.

You are able to purchase options like most other asset classes, simply by using an investment account from a brokerage. You may want to do a bit of research with these ahead of time to ensure you find the right brokerage firm for your needs. Options can be a powerful tool because they are going to do some wonders when it comes to enhancing your portfolio. They are able to do this with the help of added income, more protection, and more leverage.

Depending on the situation, there is often going to be some kind of option that is appropriate for your individual goals as an investor. For example, one popular way to work with options is as a hedge against a declining stock market to help limit the downside losses. In addition to protecting some of your personal assets, options are sometimes used to generate a recurring income. And some investors will choose to use these in a more speculative purpose, such as wagering on the direction that a stock will take.

Just like with any of the other choices that you make with investing, options will involve some risks and you must fully understand these and know how to avoid them as much as possible. This is why any time you want to start trading options with a broker, there is going to be some kind of disclaimer like the following to help you know about the risk with options:

Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital.

Options are going to belong to a larger group of securities that are known as derivatives. This is a word that many investors are going to associate with excessive risk taking. Warren Buffett in the past has even referred to these derivatives as a weapon of mass destruction when it comes to the stock market. But this perception, is usually overblown and for the most part, derivatives, and options are a great way to invest your money and earn some profits as well. The only thing that the derivative means is that the price of it is going to be dependent on the price of something else.

And with options, you are going to own a contract on the price of a security, but you never actually own the security while you own the option. You purchase the right to purchase or sell the security, but not the obligation and it is possible to do the whole trade without ever having to own that security.

Options are going to be derivatives of financial securities. Their value is going to depend completely on the price of some other asset. This is essentially what the term of derivative means. Now, there are going to be a ton of different securities that fall under this kind of label including calls, swaps, forwards, futures, and puts.

If you already know how these options are going to work, and the right way to use them, you are going to have a huge advantage when trading in the market. Options are also nice because they will ensure the odds are put in your favor. If using options as a form of speculation doesnt seem to fit with the risks that you want to take or your trading choices, then you can also do options without any speculating. Even if you do decide to never work with options, it is important to understand how companies you invest in will use them. Some companies may use this in order to hedge their foreign exchange risk or give employees some stock ownership as well. And most of the multi-national corporations today are going to work with options in some form or another, and even as an individual investor you are able to use it to invest in many different securities.

The call and put options

If you purchase a contract for an option, it is going to grant you the right, but not the obligation (this is what futures are), to either purchase or sell the underlying asset at a set price either on, or even before, a certain date that is listed in the contract. There are two types of options that you can work with, a put option and a call option. With the call option, you get the right to purchase the stock during that time. And with a put option, you get the right to sell the stock.