Option Trading - With Maximum Profit!

By: Abhishek Agarwal

Taking a look through the broadsheets of a business section you will notice that many companies offer their executive bonuses or part of their salaries for a good job. This is also known as "options".

What actually are options? Do they have any link with stocks? What is meant by the phrase "options are exercised" In this article we shall learn as much as we can about the answer to these questions.

Similar to stocks, options can also be traded in a stock market but options holder can only buy or sell at a price range and in a specific time frame. Thus options are exercised. This is the major difference between stock trading and options. In stock trading you can buy or sell at any time of the day whereas in options you can only do this in a specified time frame.

Another difference is that options holders are specified people. Options are only awarded by the company to those who have shown good performance in the job. Unlike options, stock can become possession of anyone using buying or selling.

Nowadays negative based news surrounds the media related to option trading. You can hear news in which executives are often accused of backdating their options or gaining more profit by selling their options when stock value is reduced below normal price. Authorities and regulators have now started a search for these activities and already found many guilty executives and companies.

The advantage of options is that it shields the holder from the fluctuating market conditions at a particular time. This is because option can be bought at a lower price and when the prices go up options holder can then sell it to gain increased profit. Transaction is safer to move-in in terms that it can be predicted more easily than trading stocks.

Learning option trading is not very hard mainly because option trading moves in a specified time period and you don't have to keep a close eye on changing market trends. You can wait for the value to go up and sell, therefore allowing increased gain in profits.

It should be noted that options have expiration date. Always keep an eye for the validity and sell them before its too late and instead of gaining you actually lose. This validity requires careful dealing. You don't want to consider keeping options too long because of the risk that in the last days of expiration the market prices may fluctuate too much to end up in a loss. It is, thus, advisable that you sell when you find prices up instead for waiting to get more.

No matter how many advantages it has, option trading is a gamble to take. Though not as risky as the stock trading, you still need to keep your head straight and maintain a foresight to see which time is the right one to sell or till when you can keep these option in order to gain maximum profit without risk losing anything.

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