Options Trading is a great way to increase your stock returns without the extra risk of holding an actual security. Buyers can purchase the right to buy a stock at a specified price within a specified date range from sellers. The buyer and seller reach an options agreement price called a strike. If a buyer exercises the strike price, then the seller is obligated to trade his or her shares.
Unlike stocks where investors earn dividends on shares and vote on board members as shareholders, trading options lets investors speculate about a stock’s upward and/or downward movement. You really get a variety of selections with options because there are so many different options strategies.
For domestic options, investors may exercise their options at any time within the options execution period. The international options rules are a little different and only allow trading at the end of the execution period.
Trading options is a sure fire way to explode your returns, but should only be practiced by experienced investors. Understanding options is far different from basic investing knowledge.
I think investors should ease into the whole options thing, especially long-term investors. Options will not produce the same returns as constant long-term investments because it’s short-term trading game rather than a secure long-term investment.
Learn more about options trading.
Update: Share Builder offer has expired since 12/31/2006.
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