OptionsAn Option is a contract that gives the owner the right, but not the obligation, to purchase stock at a set Strike Price on or before the expiration date of that contract. Options are short term strategies. The object is to purchase the contract low and sell high before the expiration date which is the 3rd friday of the Month (except for Holidays) for the month you exercise.You purchase Call Options when you think the stock's price is going to rise and Put Options when you think the stock's price will drop. Trading Options is the way to get leverage in the stock market. For example, you think stock XYZ which is currently trading at 34 dollars will soon be trading at 37 dollars. You can purchase the stock at $32 and sell it at $37 for a profit of 15.6%. However, you could buy the $35 Call option (which is the right to buy the stock at $35 for a given time) at $.70, this way if the stock moves up to $37 the $35 Call Option you bought could be worth $3, making a profit of 328%. Wait, think about that for a second, would you rather get 15% return on your money or 328% return, hmmm..., if your still thinking stop, you want 328% return on your money (at least for most people). And can even increase your earnings potential by Rolling them. What if you are just starting to invest and are looking to be creative with a stock you own. There is a strategy just for you! It is called Covered Calls . We have been talking about short term strategies. What if you want to trade for the long term? Check out this link for Leap options.
For an alternative approach to option trading, you might be interested in a stock option investing approach
Or go to How to Buy Stock Options
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