Money Option

Nobody know before responding this world then want to explore into their fully involvement. Does anyone new to the world of option trading could easily be overwhelmed by the confusing terminologies used and due to their lack of immediate understanding could end up walking away from what is the most powerful wealth creation vehicles ever created.

Here with this I want to demystify option trading and boil it down to it's most simple and understandable terms and show you a simple way to make money trading options.

The word 'option" means to you

An option is simply a contract between 2 parties - a buyer of that option and a seller (or writer) of that option.This option contract involves the potential buying and selling of a specific amount of stocks (called the underlying) at a specific price on or before a specific date in the future.

I say 'potential' buying and selling because depending on market movements between when the option is bought/sold and when it expires, the option itself may never even be exercised. It may in fact, just expire worthless without any buying and selling of shares taking place.

The different types of options:
There are 2 types of options, calls and puts.

A call option gives the buyer the right (or the option) to buy shares from the option writer.

A put option gives the buyer the right (or the option) to sell shares to the option writer.

Money trading options

There are many ways to make money trading options, depending on whether or not you are the buyer or the writer of an option and depending on what your view of future market movements are.

To keep things simple, in this article I'll focus on one strategy that a buyer of options could use to make money trading options, should their view of a particular stock be correct.

Option trading strategy as CALL UP and PUT DOWN

 As a general rule of thumb if the stock that an option is written on goes up in price, so does the value of the call options on that stock.

So if you think a particular stock is going to go up in price, buy call options. You can remember this easily with 2 words - CALL UP.

If you are right and the stock does in fact go up, you could potentially sell your call options at a higher price than you paid for them and make a profit.

What if you think a stock price is going to go down?
That is one of the beautiful things about option trading, you can make money if stock prices fall.

Option trading when stick prices fall

If you believe stock XYZ is going to go down in price, buy put options on that stock. As a general rule of thumb put options increase in value when the stock they are written on goes down. If you are correct and the stock price does go down, you could potentially sell your put options at a higher price than what you bought them for, and therefore make a profit.

You can remember this easily with just 2 words - PUT DOWN.

So a very simple way of approaching and understanding option trading is to remember both CALL UP and PUT DOWN.

If you think a stock is going to go up, buy call options. If you think a stock is going to go down, buy put options.

As simple as this sounds, this is a valid way to approach option trading.
Now of course, there is a lot more specific criteria that needs to be taken into account, however if you just understand these 4 words CALL UP and PUT DOWN, you will be well on your way to understanding how to make money trading options, regardless of whether the market itself goes up or down.

Why trade options anyway?

Options are only a fraction of the cost of their underlying shares, and yet they give you the same exposure that owning a much larger amount of shares would offer. (This is a simple leverage). For example $2,000 invested in options could give you the same amount of market exposure that $20,000 in stocks would provide you. Keeping this in mind, the potential % return on that $2,000 invested in the options is much greater than what you could make by just purchasing $20,000 in the underlying stock.

It is this incredible leverage (among many other reasons) that people choose to trade options.

In addition to trading options Jamie Thomas is also a successful Internet Marketer with more than 14 years experience. Currently he's focusing on promoting a ground-breaking product/service called SYNND which is changing the way Internet marketers promote their businesses online. That's no understatement. If you haven't yet heard of SYNND, you soon will. It's revolutionary!